# Opinion

> District Court, N.D. Ohio · March 27, 2026

URL: https://www.frixlaw.com/law-library/cases/11313906

## Case

- **Full name:** Blue Ocean Legacy Trust, et al. v. Andy Lefkowitz, et al.
- **Court:** District Court, N.D. Ohio
- **Decided:** March 27, 2026
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/11313906

## How later opinions describe it (automated extraction)

- explaining that there must be an actual purchase or sale of a security for a securities fraud claim

## Opinion text

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

BLUE OCEAN LEGACY TRUST, ) Case No. 1:24-cv-01878
et al., )
) Judge J. Philip Calabrese
Plaintiffs, )
) Magistrate Judge
v. ) Jonathan D. Greenberg
)
ANDY LEFKOWITZ, et al., )
)
Defendants. )
)

OPINION AND ORDER
Investors and lenders of Locus Solutions, LLC bring this action against the
company and members of its officers and directors seeking to recover damages for its
alleged failure to disclose information about résumé fraud, dire financial conditions,
loan terms, and a purported conspiracy to takeover the company. Plaintiffs bring
claims for violation of the federal Securities Exchange Act, Ohio securities fraud,
common-law fraud, breach of fiduciary duties, and civil conspiracy, as well as their
right to vote and right to company oversight. The individual Defendants move for
judgment on the pleadings in two separate motions.
STATEMENT OF FACTS
On Defendants’ motions for judgment on the pleadings, the verified complaint
alleges the following facts, which the Court accepts as true and construes in the light
most favorable to Plaintiffs as the non-moving parties, as it must in the present
procedural posture. On a motion under Rule 12(c), the Court’s inquiry is limited to
the content of the complaint, although it may also consider matters of public record,
items appearing in the record of the case, and exhibits attached to or made part of
the pleadings. Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001). “While

documents integral to the complaint may be relied on, even if they are not attached
or incorporated by reference, it must also be clear that there exist no material
disputed issues of fact regarding the relevance of the document.” Mediacom Se. LLC
v. BellSouth Telecomms., Inc., 672 F.3d 396, 400 (6th Cir. 2012) (cleaned up).
Here, Defendants attach a number of documents to their motions. Generally,
these attachments consist of various corporate documents for Locus Solutions and

statements from Mr. Lefkowitz at different times. (See ECF No. 21-1, PageID #168.)
Although the former are not directly referenced in the complaint, they provide some
limited additional helpful background, and the documents are not reasonably subject
to dispute. As for the latter, these documents are directly at issue in the case, and
Plaintiffs do not object to their consideration. (ECF No. 28, PageID #286–87.) For
these reasons, the Court considers these attachments as part of the pleadings for
purposes of Defendants’ motions, references them where appropriate, and does not

convert the motions to ones for summary judgment.
A. Locus Solutions
Locus Solutions, LLC is an Ohio green technology company founded in 2014
that possesses “the first patented technology that can cost-effectively manufacture
and scale customized microorganisms and biosurfactants that outperform chemicals.”
(ECF No. 1, ¶¶ 2 & 29–30, PageID #2 & #8.) Andrew Lefkowitz and Sean Farmer
founded the company, with the former serving as its chairman and chief executive
officer and the latter acting as its chief scientific officer. (Id., ¶ 31, PageID #8.)
The company’s operating agreement provides that, “[e]xcept as otherwise

expressly provided in this Agreement, no Member shall be entitled to participate in
the control and management of the Company.” (ECF No. 21-1, § 6.5, PageID #182.)
That function fell to the board. (Id., § 6.4, PageID #181–82.)
Locus Solutions represented that Mr. Lefkowitz had experience “building
multiple microbial-based businesses” and that Mr. Farmer “had numerous degrees
from prestigious universities” and invented a leading probiotic found in “over 1,000

products across 60 countries.” (Id.) As of May 2023, Locus Solutions had over 160
employees in 11 offices across five States. (ECF No. 1, ¶ 32, PageID #8.)
As with many companies today, intellectual property was the “most valuable
asset” of Locus Solutions. (Id., ¶ 33.) The company filed over 1,600 patent
applications, and in 2022 its intellectual property portfolio was valued at over $500
million. (Id.) Locus Solutions allegedly informed its investors that it had a contract
with Dow Chemical for the supply of certain biosurfactants, which it claims would

generate $165 million in revenue and $85 million in earnings before interest, taxes,
depreciation, and amortization in 2026. (Id., ¶ 34.)
B. Efforts to Raise Capital
Plaintiffs are accredited equity investors, unsecured lenders of Locus
Solutions, or both. (Id., ¶¶ 17–24, PageID #6–7.) Plaintiffs do not indicate when they
invested in Locus Solutions but claim that they were unitholders during the relevant
time period. (Id.) On November 2, 2021, Mr. Lefkowitz sent a memorandum to the
shareholders (also known as members) and convertible noteholders representing that
Locus Solutions was working with Nomura Greentech, an investment banker, on a
merger “with a publicly traded special purpose acquisition company” or,

alternatively, raising capital from a private equity firm. (Id., ¶¶ 36–37, PageID #9;
see also ECF No. 21-1, PageID #212.) To effectuate either transaction, Mr. Lefkowitz
represented that the shareholders and convertible noteholders of Locus Solutions
would have to be converted into shareholders of its holding company, which Plaintiffs
claim “marked a departure from the company’s original operating structure.” (ECF
No. 1, ¶¶ 38–39, PageID #9.) Plaintiffs allege that the board of Locus Solutions did

not disclose the actual purpose behind the conversion, which had the effect of
permitting the company to “put at risk its most valuable intellectual property and
wipe out any value of the shares and convertible notes.” (Id., ¶ 40.)
B.1. Exchange Agreements
Also in November 2021, several shareholders of Locus Agriculture Solutions
and convertible promissory noteholders of Locus Bio-Energy, who are Plaintiffs,
agreed to exchange agreements to effectuate the conversion of their investments,

contingent on certain triggering events. (Id., ¶ 41, PageID #9–10.) By the summer
of 2022, the triggering events had not occurred, and Mr. Lefkowitz and the board
turned instead to borrowing money. (Id., ¶ 42, PageID #10.) Around that time,
Mr. Lefkowitz informed the shareholders who agreed to exchange agreements that
the company was in discussions with a broker, the Jefferies Group, to obtain a loan.
(Id., ¶ 43.) Therefore, Mr. Lefkowitz informed the shareholders that, to complete the
conversion of their interests into shares of the holding company, they had to agree to
a consent and amendment to the exchange agreement. (Id.; see also ECF No. 21-1,
PageID #217.) This investor update advised that the Jeffries Group offered to lend
the company $170 million “for four years, based solely on our patent portfolio.” (ECF

No. 21-1, PageID #218.)
Plaintiffs allege that Mr. Lefkowitz “falsely promised to personally repay
and/or find post-conversion buyers for the notes to induce those who were withholding
consent for the conversion.” (ECF No. 1, ¶ 44, PageID #10.) Further, Plaintiffs claim
that Mr. Lefkowitz did not inform them that “the company was in dire financial
condition” and that the loan was (1) secured by the company’s “most valuable

intellectual property”; (2) “secured further by an insurance policy”; and (3) “called for
draconian interest reserves and fees.” (Id.) Plaintiffs allege that, had they known
about these details of the loan, they would not have agreed to the conversion. (Id.,
¶ 45.)
B.2. The Jefferies Group Loans
In October 2022, Locus Solutions and Jefferies Group closed a loan for
$117 million, which Plaintiffs claim saddled the company “with unaffordable debt”

and was secured by its intellectual property. (Id., ¶¶ 46–47, PageID #11.) Plaintiffs
allege that the Jefferies Group discovered that Mr. Farmer had committed résumé
fraud regarding his scientific credentials, causing it to reduce the loan amount from
$150 million to $117 million, increase the interest rate, and require “costly
insurance.” (Id., ¶ 47.) Plaintiffs claim that the company netted just $63 million for
the loan and that its costs roughly equaled this amount. (Id., ¶¶ 47–48.) These costs
included pre-payment of interest for two years (over $30 million), an escrow over $15
million to cover two-and-a-half years of insurance premiums, and over $18 million in
fees. (Id., ¶ 48.)
Neither Mr. Lefkowitz nor the board allegedly disclosed to shareholders details

about Mr. Farmer’s alleged fraud, Mr. Farmer’s removal from the board and demotion
to a contract research scientist, or how this affected the loan. (Id., ¶¶ 49–50.)
Plaintiffs claim that they would not have invested in Locus Solutions or believed that
the company would succeed without Mr. Farmer’s allegedly fraudulent credentials.
(Id., ¶ 50, PageID #11–12.) Plaintiffs allege that the company and the board either
failed to discover the fraud with due diligence or concealed the information from

shareholders. (Id., ¶ 51, PageID #12.)
Further, Plaintiffs claim that Mr. Lefkowitz and the board concealed from
shareholders that the loan was only a temporary, “short-term financing solution,”
which would not keep “the company afloat for much longer than a year,” and that
Mr. Lefkowitz told investors that the loan was the “financial equivalent of the Good
Housekeeping Seal of Approval.” (Id., ¶ 53.) Mr. Lefkowitz and the board allegedly
failed to disclose to shareholders that the loan granted the lender a security interest

in the company’s patent portfolio until “well after the IP Loan closed.” (Id., ¶ 54.) In
addition, Locus Solutions allegedly did not obtain the approval of every shareholder
for the loan. (Id., ¶ 55, PageID #13.)
Also, in October 2022, Locus Solutions and Jefferies Group closed another loan,
referred to as “Amendment #1,” which the company allegedly did not disclose to the
shareholders and for which the company did not obtain approval from any
shareholder. (Id., ¶¶ 57 & 60.) The principal amount of this loan was $11,605,000,
but Plaintiffs claim that the company only netted $2,970,204 of the proceeds. (Id.,
¶ 58.) Further, Locus Solutions allegedly prepaid $8,505,000 in interest and

$130,000 in legal fees. (Id., ¶ 59.)
Locus Solutions represented that it began discussions with Jefferies Group
regarding funding “as soon as” the loan closed in October 2022. (Id., ¶ 62, PageID
#14.) However, Plaintiffs claim that the company did not reach out to institutional
investors regarding equity capital until April 2023 and did not officially hire a broker
to raise funding until May 3, 2023. (Id., ¶¶ 62–63.) Mr. Lefkowitz and the board

entered into a letter of intent with the chemical company Solvay for a $150 million
equity investment. (Id., ¶ 64.) But in October 2023, Solvay decided not to proceed
with the transaction after doing due diligence. (Id.) Plaintiffs claim that, because
the board only focused on Solvay as the sole bidder, the company was left with no
backup plan. (Id., ¶ 65.) According to Plaintiffs, Locus Solutions would have not been
able to make payroll and would have to close its operations if it did not receive
funding, which was not disclosed to the investors. (Id., ¶ 67, PageID #14–15.)

B.3. The Short-Term Loan
On November 30, 2023, David Heidecorn, a member of the board of managers
of Locus Solutions, as well as Mr. Lefkowitz and the Jefferies Group, lent the
company $4 million as a bridge loan. (Id., ¶¶ 26 & 68, PageID #7 & #15.) According
to Plaintiffs, the company received a net amount of $3,150,950. (Id., ¶ 68,
PageID #15.) Of that amount, Mr. Heidecorn allegedly put up $2.5 million and
charged Locus Solutions an upfront fee of $100,000, as well as what Plaintiffs allege
was an “extremely high interest rate (effectively 355% annually),” resulting in $1.7
million in profits to him for a two-month loan. (Id., ¶ 69.) The Jefferies Group lent
$1 million, with a $214,375 arranger fee and $40,000 upfront fee. (Id., ¶ 70.)

Mr. Lefkowitz put up $500,000 without fees. (Id., ¶ 71.) Plaintiffs claim that Locus
Solutions “inexplicably racked up large legal bills from four law firms” in the amount
of $437,175 and a US Bank charge of $57,500. (Id., ¶ 72.) Plaintiffs allege that the
company did not timely inform the shareholders of these details or put the bridge
loan to a shareholder vote, and the shareholders did not find out about the short-term
loans until February 2024. (Id., ¶¶ 73–74, PageID #15–16.) Even then, Mr.

Heidecorn’s involvement remained undisclosed. (Id., ¶ 73, PageID #16.)
B.4. The Nuveen Loan
In December 2023, the board was working to finalize the terms of a $50 million
loan from Nuveen as the primary lender. (Id., ¶ 76.) On December 28, 2023,
Mr. Lefkowitz corresponded with payment in kind (“PIK”) noteholders and
shareholders informing them, allegedly for the first time, that the company had
“major financial troubles” and that the company was in negotiations with Nuveen for

a loan. (Id., ¶ 77; see also ECF No. 21-1, PageID #229.) Mr. Lefkowitz told the PIK
noteholders that Nuveen agreed to defer interest payments until after the loan
matured, but that this condition depended on agreement from a majority of
outstanding PIK noteholders to defer their interest payments to maturity and that
the company “would increase the PIK interest rate from 16% to 20%.” (ECF No. 1,
¶ 78, PageID #16.)
According to Plaintiffs, Mr. Lefkowitz did not share the details about
Mr. Farmer’s alleged fraud, the revenue covenant in the Nuveen loan, the facts that
the company allegedly netted roughly half of the face amount of the loan, and that

the $50 million loan “would be backed by [the company’s] intellectual property.” (Id.,
¶ 79, PageID #16–17.) Once Locus Solutions entered into the loan, Mr. Lefkowitz
allegedly told the shareholders that they “ha[d] never been in a better position to
enhance [their] revenue, and [their] ultimate valuation.” (Id., ¶ 85, PageID #16.)
The Nuveen loan provided for $30 million of funding in January 2024 and
$20 million of funding in August 2024. (Id., ¶ 80, PageID #17.) Plaintiffs claim that

Locus Solutions netted only $20,606,628 of the principal, the Jefferies Group took a
$2.1 million advisory fee and a $250,000 fronting fee, six law firms received
$1,615,632 in fees, $900,000 in fees went to Pan American Finance, and US Bank
received $19,000 in fees. (Id., ¶ 81.) The Nuveen loan proceeds were used in part to
repay the bridge loan lenders, two of which Plaintiffs allege “were company insiders.”
(Id., ¶ 82.) Further, Mr. Heidecorn allegedly had the board repay him $4.1 million
for the $2.5 million loan and profited “roughly 68% in two months.” (Id., ¶ 82.) In

addition, Mr. Heidecorn lent $700,000 of the bridge loan profit back to Locus
Solutions. (Id., ¶ 83, PageID #18.) The Jefferies Group was repaid $641,941 and also
lent that amount back to the company. (Id.)
In short, Plaintiffs claim that Mr. Heidecorn and the Jefferies Group
participated in the restructuring of the company to the detriment of the shareholders.
(Id.) The board allegedly did not seek or obtain shareholder approval before going
forward with the Nuveen loan. (Id., ¶ 84.)
C. Default

According to Plaintiffs, Locus Solutions defaulted on financial covenants in the
Nuveen loan shortly after entering into it, and the company “had no chance of ever
complying with those covenants and lasting until August, when it could receive the
additional $20 million Nuveen had pledged.” (Id., ¶ 86.) Plaintiffs claim that the
company did not inform the shareholders and PIK noteholders about the allegedly
unreasonable terms of the loan and the financial covenants. (Id., ¶¶ 86 & 92,
PageID #18–19.) Further, Plaintiffs allege that, had the shareholders and PIK

noteholders been informed of the terms and covenants, they would not have approved
the loan. (Id., ¶¶ 90 & 93.)
D. The Takeover
Nuveen allegedly negotiated with AON to buy its security interest in the
defaulted loan, which gave Nuveen, Mr. Heidecorn, and the Jefferies Group “nearly
total control over the company.” (Id., ¶ 94, PageID #19.) Plaintiffs claim that this
was part of the conspiracy to take over the company. (Id.)

In May 2024, the lenders of the Nuveen loan directed the board to terminate
Mr. Lefkowitz as chief executive officer of Locus Solutions and appointed Joe
Concannon of FTI Consulting as interim CEO. (Id., ¶ 95.) According to Plaintiffs,
the board and Nuveen are nearly finished with a restructuring transaction that will
cause Plaintiffs to lose their investment “with no hope of repayment” and that debt
forgiveness for the company would have significant negative tax consequences for
Plaintiffs. (Id., ¶¶ 96–97.)
E. The Board’s Refusal to File Suit

On August 26, 2024, Plaintiffs sent a letter to the board of managers, including
Mr. Heidecorn, Mr. Lefkowitz, Thomas Vetrano, and Trisha Lukasik, demanding that
they file breach of fiduciary duty claims against themselves and other non-
independent directors who served on the board and advising that Plaintiffs would file
derivative claims if they did not do so. (Id., ¶ 98, PageID #19–20.) The board of
managers responded by letter on September 9, 2024, informing Plaintiffs that it did
not agree that the claims had merit and declined to file them. (Id., ¶ 99, PageID #20.)

According to Plaintiffs, Mr. Lefkowitz has not yet formally responded. (Id., ¶ 100.)
STATEMENT OF THE CASE
Based on these events, Plaintiffs filed suit against Defendants Andy Lefkowitz,
David Heidecorn, Thomas Vetrano, Trisha Lukasik, and Locus Solutions (as a
nominal Defendant) on October 28, 2024. (Id.) Mr. Lefkowitz served as the chief
executive officer and was on the board of Locus Solutions. (Id., ¶ 25, PageID #7.) The

other individual Defendants served on the board of the company. (Id., ¶¶ 26–28.)
Plaintiffs bring claims for violation of the federal Securities Exchange Act (Count I);
Ohio securities fraud (Counts II and III); common-law fraud (Count IV); breach of
fiduciary duties (Counts V and VI); right to vote (Count VII); right to company
oversight (Count VIII); and civil conspiracy (Count IX). (Id., ¶¶ 102–79,
PageID #20–40.)
Mr. Lefkowitz moves for judgment on the pleadings and, in the alternative, for
a more definite statement regarding Plaintiffs’ fraud claims. (ECF No. 27.) In a
separate motion, the remaining individual Defendants (sometimes referred to as the

HVL Defendants) do so as well. (ECF No. 21.) Also, Mr. Lefkowitz moves to deem
his reply timely. (ECF No. 35.) In doing so, Mr. Lefkowitz states that the brief was
filed five minutes late due to technical difficulties. (Id., PageID #339.) Plaintiffs do
not oppose the motion. Because there is no prejudice, and without objection, the
Court GRANTS Mr. Lefkowitz’s motion (ECF No. 35), deems the reply timely, and
gives it due consideration in ruling on the pending motions.

ANALYSIS
Ordinarily, three different pleading standards apply to the various counts in
the complaint: (1) Rule 8’s familiar notice-pleading standard; (2) Rule 9(b)’s
heightened standard for pleading fraud; and (3) the standard in the Private Securities
Litigation Reform Act. See Plymouth Cnty. Ret. Ass’n v. ViewRay, Inc., 556 F. Supp.
3d 772, 782–83 (N.D. Ohio 2021), aff’d, No. 21-3863, 2022 WL 3972478 (6th Cir. 2022).
First, however, the Court must determine whether Plaintiffs state a claim for

securities fraud under Section 10(b) and Rule 10b-5, which does not require
application of these various pleading standards. That is, the Court must consider
whether Plaintiffs have a cause of action under the statute. Lexmark Int’l, Inc. v.
Static Control Components, 572 U.S. 118, 128 (2014).
I. Securities Fraud in Violation of Section 10(b) & Rule 10b-5 (Count I)
Defendants argue that Plaintiffs fail to state a claim for securities fraud
because they do not plead that the misrepresentations or omissions about which they
complain were made in connection with the purchase or sale of a security. (ECF
No. 21, PageID #157–59; ECF No. 27, PageID #271.) Instead, Defendants contend
that the alleged misrepresentations or omissions at issue occurred “long after”

Plaintiffs’ initial investments in Locus Solutions. (ECF No. 21, PageID #311.)
Plaintiffs concede that the alleged misrepresentations or omissions are not connected
to their purchase or sale of a security. (ECF No. 28, PageID #288–89.) They argue
that the change in the nature of their investments, attributable to Defendants’ fraud,
amount to a “purchase” of a new security for the purpose of this requirement. (Id.)
Specifically, they point to changes in the date of maturity of their notes and

movement of their investments from the operating company to its holding company.
(Id.)
I.A. Private Cause of Action
Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful for any
person to “use or employ, in connection with the purchase or sale of any
security . . . any manipulative or deceptive device or contrivance in contravention of
such rules and regulations as the Commission may prescribe as necessary or

appropriate in the public interest for the protection of investors.” 15 U.S.C. § 78j(b).
To enforce this statute, the SEC promulgated Rule 10b-5, which makes it “unlawful
to, among other things, ‘make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.’” Matrixx Initiatives,
Inc. v. Siracusano, 563 U.S. 27, 37 (2011) (quoting 17 C.F.R. § 240.10b-5(b)).
“The scope of Rule 10b-5 is coextensive with the coverage of § 10(b).” SEC v.
Zandford, 535 U.S. 813, 816 n.1 (2002) (citing United States v. O’Hagan, 521 U.S.
642, 651 (1997)). To state a claim for securities fraud under Section 10(b) of the

Exchange Act and Rule 10b–5, a plaintiff must establish the following six elements:
“(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a
connection between the misrepresentation or omission and the purchase or sale of a
security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and
(6) loss causation.” Matrixx, 563 U.S. at 37–38.
Based on the “text and purpose of § 10(b),” Supreme Court precedent permits

an implied “private cause of action” under this statute. See Matrixx, 563 U.S. at 37.
But for the statute to reach the fraud alleged, a court must consider whether the
plaintiff “falls within the class of plaintiffs whom Congress has authorized to sue” or,
simply, whether there is a cause of action under the statute. Lexmark Int’l, 572 U.S.
at 128. To answer this question, courts use the traditional tools of statutory
interpretation. Id.
I.B. Purchase or Sale of a Security

Section 10(b) and Rule 10b–5 cover fraud only “in connection with the purchase
or sale of any security.” 18 U.S.C. § 78j(b) (emphasis added); 17 C.F.R. § 240.10b–5.
For decades, the Supreme Court has interpreted this language to cover only those
who purchase or sell a security. Blue Chip Stamps v. Manor Drug Stores, 421 U.S.
723, 749 (1975); Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1091–92
(1991); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 318 (2007). Indeed,
only purchasers or sellers of securities have a right of action. Tellabs, 551 U.S. at
318. In following the Supreme Court, the Sixth Circuit has held that “standing is not
accorded to a plaintiff if his purchase or sale occurs before the alleged fraudulent
conduct, or after the alleged fraudulent conduct was exposed.” Marsh v. Armada

Corp., 533 F.2d 978, 981–82 n.3 (6th Cir. 1976) (citations omitted); see Gaudin v. KDI
Corp., 576 F.2d 708, 711 (6th Cir. 1978) (explaining that there must be an actual
purchase or sale of a security for a securities fraud claim).
Here, Plaintiffs do not identify when they became unitholders of or lenders to
Locus Solutions. Instead, they allege only that they were “unitholder[s] at all times
material to the allegations in this complaint.” (ECF No. 1, ¶¶ 17–24, PageID #6–7.)

Presumably, Plaintiffs purchased their securities between 2014 (when Locus
Solutions was founded) and 2021 (when the complaint begins detailing the company’s
efforts to raise capital). (Id., ¶¶ 2, 4 & 35, PageID #2 & #35.) Indeed, Plaintiffs
necessarily must have purchased their securities by 2021; otherwise, they could not
have converted their investments in the subsidiaries into investments into the
holding company. (Id., ¶¶ 35–45, PageID #8–10.) But the alleged fraud about which
Plaintiffs complain occurred between 2021 and 2023—after Plaintiffs’ investments in

Locus Solutions. (Id., ¶¶ 38–45, 77–79 & 102–10, PageID #9–10, #16 & #20–22.) And
Plaintiffs concede that their purchases of the securities are unrelated to the alleged
misrepresentations or omissions at issue. (ECF No. 28, PageID #288–89.)
Because Plaintiffs’ purchases of securities and investments precede the alleged
fraud, Plaintiffs cannot maintain their claims for fraud under Section 10(b) and
Rule 10b–5. Marsh, 533 F.2d at 981–82 n.3. Logically, Plaintiffs cannot rely on
statements made after their purchases or state a claim based on post-purchase
misrepresentations and omissions. Sinay v. Lamson & Sessions Co., 752 F. Supp.
828, 832 (N.D. Ohio 1990) (citing Marsh, 533 F.3d at 982 n. 3).

To overcome the statutory requirement that a defendant must commit fraud
in connection with the purchase or sale of a security, Plaintiffs characterize the
post-purchase statements, omissions, and events beginning in 2021 (the conversions
of their interests, amendments to notes, and restructuring of investments) as new
purchases of securities. (ECF No. 28, PageID #288–89.) They rely on out-of-circuit
cases to argue that these changes to the form of their investments satisfy the

requirement for the purchase or sale of a security. See 7547 Corp. v. Parker & Parsley
Dev. Partners, L.P., 38 F.3d 211, 226 (5th Cir. 1994); Sommer v. PMEC Assocs. & Co.,
No. 88-cv-2537, 1993 WL 361660, at *7 (S.D.N.Y. Sept. 14, 1993) (citing Abrahamson
v. Fleschner, 568 F.2d 862, 868 (2d Cir. 1977)). But those authorities require “such
significant change in the nature of the investment or in the investment risks as to
amount to a new investment.” Abrahamson, 568 F.2d at 868. Or they outline the
judicially created forced-seller exception, which depends on a fundamental alteration

in an investment through a merger, acquisition, or liquidation. 7547, 38 F.3d at 226.
On the allegations in the complaint, the changes in Plaintiffs’ interests in
Locus Solutions do not rise to the level of a significant change in or fundamental
alteration to their investments to bring the facts within the ambit of these
authorities. After the changes to their investments, the allegations show that
Plaintiffs fundamentally had the same interests and rights as before, particularly
within the capital structure of this early-stage venture. Indeed, Plaintiffs complain
that they “would not have agreed to change the date of maturity of their notes or to
shift their investment from an operating subsidiary with virtually no debt to what

turned out to be a debt-riddled holding company.” (ECF No. 1, ¶ 45, PageID #10.) At
most, then, they allege a change in value of the securities they already held—not a
new purchase or sale, actual or constructive. But without the purchase or sale of a
security, Plaintiffs cannot maintain their claims under Section 10(b) and Rule 10b–5.
Marsh, 533 F.2d at 981–82 n.3. Nor do the allegations in the complaint, construed in
Plaintiffs’ favor, constitute an actual or constructive purchase, sale, or other

realization event or provide another metric by which to measure damages. See
Virginia Bankshares, 501 U.S. at 1091–92. Without such a remedial point of
departure, Plaintiffs do not come within the reach of Section 10(b) or Rule 10b–5.
For these reasons, Plaintiffs do not satisfy the requirement for the purchase or
sale of a security. Therefore, they fail to state a claim for securities fraud under
Section 10(b) and Rule 10b–5 as a matter of law. In so determining, the Court is
mindful to avoid expanding judicially created causes of action. Stoneridge Inv.

Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 165–67 (2008). Indeed,
Section 10(b) “must not be construed so broadly as to convert every common-law fraud
that happens to involve securities into a violation.” Zandford, 535 U.S. at 820 (citing
Marine Bank v. Weaver, 455 U.S. 551, 556 (1982)). On this score, Plaintiffs really
complain about the loss of valuable intellectual property, which provided the
foundation for their investments in Locus Solutions. Those allegations might state
claims under State law, but they do not arise in connection with the purchase or sale
of securities on the facts alleged. In that regard, Plaintiffs more closely resemble
members of the plaintiff class in Blue Chip Stamps who did not purchase or sell

securities and instead took no action in reliance on deceptive statements or omissions,
which Section 10(b) and Rule 10b–5 do not protect.
Accordingly, the Court GRANTS Defendants’ motions for judgment on the
pleading and DISMISSES Count I for federal securities fraud.
II. State-Law Claims (Counts II through IX)
Having determined that Plaintiffs cannot maintain their claim for federal
securities fraud, the Court considers whether it has jurisdiction over Plaintiffs

remaining claims: Ohio securities fraud (Counts II and III); common-law fraud
(Count IV); breach of fiduciary duties (Counts V and VI); right to vote (Count VII);
right to company oversight (Count VIII); and civil conspiracy (Count IX). (ECF No. 1,
¶¶ 102–79, PageID #20–40.) None of the remaining claims present a federal question,
and Plaintiffs requested that the Court exercise supplemental jurisdiction over these
claims. (Id., ¶ 15, PageID #6–7.)

Under federal law, “the district courts shall have supplemental jurisdiction
over all other claims that are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy under Article III.” 28
U.S.C. § 1367(a). This grant of jurisdiction brings all claims arising from a common
nucleus of operative fact before the Court. Soehnlen v. Fleet Owners Ins. Fund, 844
F.3d 576, 588 (6th Cir. 2016).
Even then, a court “may decline to exercise supplemental jurisdiction” in
certain circumstances. 28 U.S.C. § 1367(c). Supplemental jurisdiction “is a doctrine
of discretion.” United Mine Workers of America v. Gibbs, 383 U.S. 715, 726 (1966).

To determine whether to exercise supplemental jurisdiction, “a federal court should
consider and weigh in each case, and at every stage of the litigation, the values of
judicial economy, convenience, fairness, and comity[.]” Carnegie-Mellon Univ. v.
Cohill, 484 U.S. 343, 350 (1988); see also James v. Hampton, 592 F. App’x 449, 462–63
(6th Cir. 2015) (quoting Landefeld v. Marion Gen. Hosp., Inc., 994 F.2d 1178, 1882
(6th Cir. 1993)).

Section 1367(c)(3) provides that a district court may decline to exercise
supplemental jurisdiction where (1) the claim raises a novel or complex issue of State
law, (2) the claim substantially predominates over the claim over which the district
court has original jurisdiction, (3) the district court has dismissed all claims over
which it has original jurisdiction, or (4) in exceptional circumstances, there are other
compelling reasons for declining jurisdiction. 28 U.S.C. § 1367(c)(3). When deciding
whether to invoke supplemental jurisdiction, “a federal court should consider and

weigh . . . the values of judicial economy, convenience, fairness, and comity.”
Carnegie-Mellon, 484 U.S. at 350 (citing Gibbs, 383 U.S. at 726–27).
After reviewing the record, the Court declines to exercise its discretion to
retain supplemental jurisdiction over Plaintiffs’ remaining claims under State law.
The Court dismissed the only claim over which it has original jurisdiction. Also, the
remaining claims involve State laws over which the local courts are better positioned
to interpret and apply. Further, because the case remains at the pleading stage,
judicial economy favors the Court not exercising supplemental jurisdiction.
CONCLUSION
For the foregoing reasons, the Court GRANTS Mr. Lefkowitz’s motion to deem
his reply timely (ECF No. 35) and GRANTS Defendants’ motions for judgment on
the pleadings on Count I (ECF No. 21; ECF No. 27). Further, the Court DECLINES
to exercise supplemental jurisdiction over Plaintiffs’ State-law claims and
DISMISSES Plaintiffs’ State-law claims WITHOUT PREJUDICE.
SO ORDERED.
Dated: March 27, 2026

J.PhilipCalabrese
United States District Judge
Northern District of Ohio

20

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11313906. Public record. Not legal advice.