causing them to complain that the pleading fails to give them
notice of precisely which wrongful acts a particular defendant
is being charged with and in what capacity. However, to the
extent the wrongful acts relied upon by plaintiffs are the
making of misrepresentations in an offering memorandum,
plaintiffs need do no more for Rule 9(b) pleading purposes than
satisfy the standards discussed above. As long as their
repleading establishes a sufficient nexus between an individual
defendant and the memorandum in the manner contemplated by the
noted case law, it is not necessary for them to articulate each
defendant's precise role in the offering memorandum fraud.
Where there is reliance upon other fraudulent acts (such as
other fraudulent representations, or the use of the mails or
wires to communicate fraudulent representations, as discussed
further below), the standards of Rule 9(b) must be observed
more meticulously, especially the obligation to specify the
factual basis for holding a particular defendant responsible
for a particular act (including whether such responsibility
arises from his or her direct commission of such act, or less
directly, by virtue of a particular agreement with certain
others to accomplish such act or particular assistance provided
to specified persons engaging in such acts). See, e.g., ¶¶ 372,
378, 387(i), 428 (alleging in general terms that defendants
aided and abetted each other).
It is also necessary to remind plaintiffs that allegations
based upon "information and belief" must be accompanied by a
statement of the facts upon which the belief is founded, so
that persons other than plaintiffs may judge whether the facts
as pleaded sustain an inference of fraud. Schlick v. Penn-Dixie
Cement Corp., 507 F.2d 374, 379 (2d Cir. 1974); Stevens v.
Equidyne Extractive Industries, 694 F. Supp. 1057, 1062
(S.D.N.Y. 1988); Crystal v. Foy, 562 F. Supp. 422, 424 (S.D.N Y
1983). Defendants correctly indicate that at several places,
little if any factual underpinning is provided for allegations
made on information and belief. E.g., ¶¶ 73-75, 173, 205, 224,
274. Upon repleading, all such allegations should conform to
this important requirement.
The other significant respect in which Rule 9(b) has been
ignored in the securities claims is in the allegations
addressing the circumstances of plaintiffs' investments. There
are over 35 plaintiffs. As to all but two of them, the
complaint is silent as to the dates of their purchase of their
various investments. ¶¶ 126-27. Additionally, although the
amount of each investment is disclosed, there is no indication
of how the loans were financed and how much each plaintiff has
paid to date, nor is there an indication of the amounts
actually lost on the investments. Mere participation in an
unsuccessful investment program, in the absence of any alleged
loss, is insufficient to state a claim. Moreover, although the
complaint does generally allege that each plaintiff relied upon
the allegedly misleading memoranda in making their decision to
purchase interests in the Investment Partnerships, it is to
some extent ambiguous even in this regard. See ¶ 127.*fn5
Finally, in particular contexts, the complaint refers to
undefined misled "investors" (e.g., ¶ 285: "Investors were and
are continuing to be intentionally misled"), without indication
that plaintiffs even number amongst the misled group.
To support securities claims predicated on fraud, greater
particularity as to the circumstances of purchases than this is
required when defendants insist upon adherence to Rule 9(b), as
they are entitled to. See Barr v. McGraw-Hill, Inc.,
710 F. Supp. 95, 97 (S.D.N.Y. 1989); Gross v. Diversified Mortgage
Investors, 431 F. Supp. 1080, 1088 (S.D.N.Y. 1977), aff'd,
636 F.2d 1201 (2d Cir. 1980).
For these reasons, the Rule 9(b) motions are granted with
respect to the securities allegations and claims. Leave to
replead shall be granted. Considerations addressed below,
respecting additional grounds for dismissal of the securities
claims urged by defendants, should be reflected fully in any
further pleading which plaintiffs seek permission to file.
B. Section 12(2) Claims
Plaintiffs' second claim for relief seeks recovery under
Section 12(2) of the 1933 Securities Act, 15 U.S.C. § 77l(2).
Dismissal of that claim is urged because the complaint fails to
allege timeliness under the applicable limitations period;
fails to show plaintiffs made a tender of the securities; and
names as defendants persons who do not qualify as "sellers"
under the statute. Each of those grounds has merit.
A requisite element of a Section 12(2) claim is the
plaintiffs' tender of the securities they purchased. Wigand v.
Flo-Tek, Inc., 609 F.2d 1028, 1034 & n. 6 (2d Cir. 1979);
Anisfeld v. Cantor Fitzgerald & Co., 631 F. Supp. 1461, 1464
(S.D.N.Y. 1986). A complaint that does not plead at least an
offer of tender is insufficient and subject to dismissal.
Anisfeld, 631 F. Supp. at 1464; Bresson v. Thomson McKinnon
Securities, Inc., 641 F. Supp. 338, 342 (S.D.N.Y. 1986).
Plaintiffs do not contest the applicability of these
requirements nor their failure to meet them. Accordingly, the §
12(2) claim must be dismissed owing to this patent defect.
Leave to replead is granted consistent with the tender
(ii) Statute of Limitations
Section 13 of the `33 Act provides the statute of limitations
for claims under section 12(2). Such claims are barred "unless
brought within one year after discovery of the untrue statement
or the omission, or after such discovery should have been made
by the exercise of reasonable diligence." 15 U.S.C. § 77m.
"Compliance with section 13 is an essential substantive
ingredient of a private cause of action under section 11 or
12(2)." Bresson, supra, 641 F. Supp. at 343.
The complaint indicates plaintiffs first acquired knowledge
in May 1988 of the misrepresentations and omissions respecting
the securities, which they had purchased apparently more than
a year earlier. See ¶ 126. This action was commenced in August
1988 and hence within one year of the alleged discovery date.
Nevertheless, the complaint does not fully satisfy the
plaintiffs' burden under § 13, since it does not set forth
(1) the time and circumstances of the discovery of
the fraudulent statement; (2) the reasons why it
was not discovered earlier (if more than a year
has lapsed [since the making of the fraudulent
statement]); and (3) the diligent efforts which
plaintiff undertook in making or seeking such
Quantum Overseas, N.V. v. Touche Ross & Co., 663 F. Supp. 658,
662 (S.D.N.Y. 1987). Accordingly, for this additional reason
the § 12(2) claim is dismissed, with leave to replead
consistent with the requirements stated in Quantum.