that Nadel did not disclose the fact that he was paid $6,000 to
recommend Recognition stock. However, in both instances there
is no allegation that Nadel owed any duty of disclosure to
plaintiffs; no allegation of materiality; no allegation of
facts from which an inference of scienter can be drawn; no
allegation that the omission was "in connection with" the
purchase or sale of a security; no allegation that plaintiffs
were damaged by the omission; and no allegation of the use of
jurisdictional means. Therefore, plaintiffs have also failed to
state a claim for a primary violation of § 10(b) and Rule 10b-5
B) Aiding and Abetting
In order to state an aiding and abetting claim under § 10(b)
and Rule 10b-5, a plaintiff must allege "in addition to the
securities law violation by the primary wrongdoer, that [the
defendant] knew of the wrong and substantially assisted in
perpetrating it." Ross v. Bolton, 904 F.2d 819, 824 (2d Cir.
1990). Where, as here, there is no fiduciary duty, "the
scienter requirement increases, so that [plaintiffs] need to
show that [defendant] acted with actual intent." Ross, supra,
904 F.2d at 824; see also Stander, supra, 730 F. Supp. at 1286
("Where there is no fiduciary duty, plaintiffs must allege
actual knowledge of the fraudulent activity.").
With respect to SSC, "[i]t is clear that the simple providing
of normal clearing services to a primary broker who is acting
in violation of the law does not make out a case of aiding and
abetting against the clearing broker." Stander, supra, 730
F. Supp. at 1286 (citing Baum v. Phillips, Appel & Walden, Inc.,
648 F. Supp. 1518 (S.D.N.Y. 1986), aff'd, 867 F.2d 776 (2d
Cir.), cert. denied, ___ U.S. ___, 110 S.Ct. 114, 107 L.Ed.2d
75 (1989)). The complaint alleges at most recklessness on the
part of SSC, and not actual knowledge, and thus plaintiffs have
failed to plead scienter adequately. See Ross, supra, 904 F.2d
at 824 (absent a fiduciary duty, allegations of recklessness
insufficient to plead aiding and abetting violation). In
addition, absent a fiduciary duty between a clearing broker and
the introducing broker's customers, the clearing broker's
failure to disclose cannot constitute the requisite
"substantial assistance." See IIT, International Investment
Trust v. Cornfeld, 619 F.2d 909, 927 (2d Cir. 1980); Dillon,
supra, 731 F. Supp. at 639 ("SSC owed no compensable duty to the
investors and the inaction of a clearing broker is not enough
to constitute the `substantial assistance' that aiding and
abetting liability requires."). Thus, plaintiffs have failed to
plead adequately that element of aiding and abetting as well.
Accordingly, SSC's motion to dismiss the fourth claim of the
complaint is granted.
With respect to Nadel, it appears that the complaint attempts
to allege an aiding and abetting claim in connection with the
underwriting and "hyping" of the Recognition securities.
Complaint ¶ 63. However, there is no allegation that Nadel owed
any fiduciary duty to plaintiffs, that Nadel knew (or even that
Nadel should have known) of the primary wrongdoers' actions, or
that Nadel's publication of a recommendation of Recognition
stock substantially assisted the primary wrong. Therefore,
plaintiffs have failed to make out an aiding and abetting claim
under § 10(b) and Rule 10b-5, see Ross, supra, 904 F.2d at 824,
and thus Nadel's motion to dismiss the fourth claim is granted.
II. Fifth Claim: Section 9(a)
To state a claim under § 9(a) of the 1934 Act, a plaintiff
must plead that
"(1) a series of transactions in a security
creating actual or apparent trading in that
security or raising or depressing the price of that
security, (2) carried out with scienter (3) for the
purpose of inducing the security's sale or purchase
by others, (4) was relied on by the plaintiff, (5)
and affected plaintiff's purchase or selling
Baum, supra, 648 F. Supp. at 1530 (quoting Chemetron Corp. v.
Business Funds, Inc.,
that either of the Moving Defendants acted with scienter. For
that reason alone, plaintiffs' § 9(a) claim is deficient.
Moreover, § 9(a) only addresses the manipulation of
securities "registered on a national securities exchange,"
15 U.S.C. § 78i(a), and thus plaintiffs must allege such
registration of the securities at issue. See Cowen & Co. v.
Merriam, 745 F. Supp. 925, 930-31 (S.D.N.Y. 1990); Dorfman v.
First Boston Corp., 336 F. Supp. 1089, 1096-97 (E.D.Pa.
1972).*fn4 Plaintiffs have made no such allegation. Therefore,
plaintiffs' fifth claim must be dismissed on that ground as
III. First and Second Claims: RICO Substantive Claims
Plaintiffs' first and second claims are for violations of
18 U.S.C. § 1962(b) and 1962(c), respectively.*fn5 In order to
state a claim for a violation of RICO, a plaintiff must allege,
inter alia, a "pattern of racketeering activity," which, by
definition, requires the averment of at least two predicate
racketeering acts within a ten-year period.
18 U.S.C. § 1961(5). In the complaint in the case at bar, plaintiffs allege
that the Moving Defendants committed RICO predicate acts of
securities fraud, mail fraud, and wire fraud. Complaint ¶ 87.
As discussed in detail above, plaintiffs have failed to allege
adequately any securities fraud violations by the Moving
Defendants, under the pleading standard of Fed.R.Civ.P.
12(b)(6). As for plaintiffs' allegations of predicate acts of
mail and wire fraud, those allegations are so deficient under
Fed.R.Civ.P. 9(b) as to demand dismissal under that rule. "Rule
9(b)'s requirements `apply with equal force to allegations of
mail and wire fraud as predicate RICO civil offenses.'" McCoy
v. Goldberg, 748 F. Supp. 146, 156 (S.D.N.Y. 1990) (quoting
Rich-Taubman Associates v. Stamford Restaurant Operating Co.,
587 F. Supp. 875 (S.D.N.Y. 1984)).
Rule 9(b) states: "In all averments of fraud or mistake, the
circumstances constituting the fraud or mistake shall be stated
with particularity. Malice, intent, knowledge, and other
condition of mind of a person may be averred generally."
Fed.R.Civ.P. 9(b). In a motion to dismiss a complaint pursuant
to Rule 9(b), as in a motion under Rule 12(b), a plaintiff's
allegations must be taken as true. See Luce v. Edelstein,
802 F.2d 49, 52 (2d Cir. 1986). The complaint's fraud allegations
must be specific enough to allow the defendant "a reasonable
opportunity to answer the complaint" and must give "adequate
information" to allow the defendant "to frame a response." Ross
v. A.H. Robins, Co., 607 F.2d 545, 557-58 (2d Cir. 1979), cert.
denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980).
Rule 9(b) is designed to provide a defendant fair notice of a
plaintiff's claim, in order to enable the defendant to prepare
a defense, protect the defendant's reputation or goodwill from
harm, and reduce the number of strike suits. DiVittorio v.
Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d
Cir. 1987). Rule 9(b) must be read, however, in conjunction
with Rule 8(a), which requires a plaintiff to plead only a
short, plain statement upon which he is entitled to relief.
Ross, supra, 607 F.2d at 557 n. 20.
Nonetheless, "fraud allegations ought to specify the time,
place, speaker, and content of the alleged misrepresentations.
Where multiple defendants are asked to respond to allegations
of fraud, the complaint shall inform each defendant of the
nature of his alleged participation in the fraud."
DiVittorio, supra, 822 F.2d at
1247 (citations omitted). Furthermore, the complaint should
also set forth the manner in which the plaintiff was misled,
and what the defendants obtained as a result of the fraud.
Stander v. Financial Clearing & Services Corp., 718 F. Supp. 1204,
1209 (S.D.N.Y. 1989) (citations omitted). In addition,
"[a]lthough scienter need not be alleged with great
specificity, plaintiffs are still required to plead the factual
basis which gives rise to a `strong inference' of fraudulent
intent." Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d
Cir. 1990) (quoting Beck v. Manufacturers Hanover Trust Co.,
820 F.2d 46, 50 (2d Cir. 1987), cert. denied, 484 U.S. 1005,
108 S.Ct. 698, 98 L.Ed.2d 650 (1988)).
"In alleging mail fraud, the plaintiff must set forth the
contents of the items mailed and specify how each of the items
was false and misleading." Official Publications, Inc. v. Kable
News Co., Inc., 692 F. Supp. 239, 245 (S.D.N.Y. 1988), aff'd in
part, rev'd in part on other grounds, 884 F.2d 664 (2d Cir.
1989). This requirement of particularity in mail fraud
pleadings does not require a plaintiff to plead every date and
place of mailing, particularly where such knowledge would be in
possession of defendants. But it does require that the
documents involved be pled with particularity, and, where there
are multiple defendants, that connections be made between the
various defendants and the alleged acts of mail fraud. The same
analysis applies to wire fraud pleadings. See McCoy, supra, 748
F. Supp. at 156 (quoting Radionic Industries, Inc. v. GTE
Products Corp., 665 F. Supp. 622, 625 (N.D.Ill. 1987)).
In the case at bar, plaintiffs' allegations with respect to
the Moving Defendants fall far short of the particularity
required by Rule 9(b). With respect to SSC, the complaint does
not specify the time or place of any misrepresentations, nor
does it specify what SSC obtained as a consequence of its
allegedly fraudulent activity. Moreover, the complaint merely
alleges that SSC "knew or should have known" of the Individual
Defendants' activities, and contains no factual allegations
that would allow this Court to draw the "strong inference" of
fraudulent intent required under Rule 9(b). See Wexner, supra,
902 F.2d at 172.
With respect to Nadel, the complaint is likewise deficient.
The allegations pertaining to the manipulation of Holistic fail
to specify what fraudulent acts Nadel performed, when they were
performed, the number or percentage of Holistic shares Nadel
acquired, whether the U.S. mails or interstate telephone lines
were used, the connection, if any, between Nadel's alleged
agreement to leave the securities industry and the injuries
plaintiffs suffered, and what Nadel gained by his actions.
Complaint ¶¶ 31, 35. Similar deficiencies are found in the
allegations relating to the Recognition manipulation. The
complaint fails to aver who paid Nadel the money to tout
Recognition, when the money was paid, the nature of the
recommendations, what publication or publications recommended
the stock, who relied on the recommendations, and in what
respect the recommendations were false or misleading.*fn6
Accordingly, the Moving Defendants' motions to dismiss the
first and second claims of the complaint are granted.
IV. Third Claim: RICO Conspiracy Claim
Section 1962(d) of Title 18 makes it unlawful for any person
to conspire to violate § 1962(b) or § 1962(c). Although the
pleading of a RICO conspiracy is not measured by the heightened
particularity requirement of Rule 9(b), "[e]ven so, the
complaint must allege some factual basis for a finding of a
conscious agreement among the defendants." Hecht v. Commerce
Clearing House, Inc., 897 F.2d 21, 26 n. 6 (2d Cir. 1990).
In the case now before the Court, plaintiffs have merely made
conclusory allegations, parroting the language of the RICO
statute, that "[a]ll defendants agreed to conduct or
participate directly or indirectly in the affairs of the
Enterprise through a pattern of racketeering activity,"
Complaint ¶ 95, and that "[e]ach of the defendants in this
Count [sic] also agreed to participate in at least two of the
activities constituting predicate offenses under 18 U.S.C. § 1341."
Complaint ¶ 96. No factual allegations supporting a
finding that the Moving Defendants consciously agreed to commit
at least two predicate acts are found in the complaint, Hecht,
supra, 897 F.2d at 26 n. 6, nor is there any allegation that
the Moving Defendants "`understood the scope of the enterprise
and knowingly agreed to further its affairs through the
commission of various offenses.'" Morin v. Trupin, 711 F. Supp. 97,
111 (S.D.N.Y. 1989) (quoting Seville Industrial Machinery
Corp. v. Southmost Machinery Corp., 567 F. Supp. 1146, 1154-55
(D.N.J. 1983) (quoting United States v. Riccobene,
709 F.2d 214, 225 (3d Cir.), cert. denied, 464 U.S. 849, 104 S.Ct. 157,
78 L.Ed.2d 145 (1983)), aff'd in part, rev'd in part on other
grounds, 742 F.2d 786 (3d Cir. 1984), cert. denied,
469 U.S. 1211, 105 S.Ct. 1179, 84 L.Ed.2d 327 (1985)); see also Hecht,
supra, 897 F.2d at 25-26 (citing Morin, supra). Therefore,
plaintiffs' RICO conspiracy claim is insufficient as a matter
of law under Fed.R.Civ.P. 12(b)(6), and thus the Moving
Defendants' motions to dismiss that claim are granted.
For the reasons set forth above, the Moving Defendants'
motions to dismiss the five claims in the complaint in this
action are granted. Leave to replead is granted.*fn7 Counsel
for plaintiffs shall provide a copy of this opinion to each