United States District Court, S.D. New York
For Plaintiff: Kevin McGrath, Esq., Wendy Tepperman, Esq., William Edwards, Esq., Securities and Exchange Commission, New York, NY.
For Edward Bronson, E-Lionheart Associates, LLC, and Fairhills Capital, Inc., Defendants: Alex Lipman, Esq., Ashley Baynham, Esq., James Michael Smith, Esq., Nixon Peabody LLP, New York, NY.
OPINION AND ORDER
KENNETH M. KARAS, UNITED STATES DISTRICT JUDGE.
Plaintiff, the United States Securities and Exchange Commission (" SEC" ) filed a Complaint against Edward Bronson (" Bronson" ) and E-Lionheart Associates, LLC (" E-Lionheart" and, with Bronson, collectively " Defendants" ), alleging violations of the securities registration requirements under Sections 5(a) and 5(c) of the Securities Act of 1933 (the " Securities Act" ), 15 U.S.C. § § 77e(a) and 77e(c). The SEC also asserts a claim of unjust enrichment against Relief Defendant Fairhills Capital, Inc. (" FCI" or " Relief Defendant" ). Bronson, E-Lionheart, and FCI jointly filed a Motion to Dismiss, which, for the reasons stated herein, is denied.
A. Factual Background
1. Bronson's and E-Lionheart's Penny Stock Scheme
The SEC alleges that Edward Bronson, operating through E-Lionheart, a company of which he is the sole managing member, engaged in a scheme to purchase shares of penny stocks from issuing companies and quickly resell them in violation of the applicable registration and resale restrictions under the Securities Act. According to the SEC, by purchasing the securities directly from the issuing companies at a discounted rate and reselling the same securities to the public at the current over-the-counter market rate, the Defendants could turn a quick profit. (Compl. ¶ ¶ 15-17, 25-31.)
Specifically, according to the SEC, Defendants followed a familiar pattern to effectuate the alleged scheme. ( Id. ¶ 15.)
" Operating from E-Lionheart's office in White Plains, Bronson, or E-Lionheart personnel acting at Bronson's direction, 'cold called' OTC Link quoted companies to ask if they were interested in obtaining capital." ( Id.) If the cold call was met with interest, " Bronson, or E-Lionheart personnel acting at his direction, would offer to buy stock in the company at a rate that was deeply discounted from the price the company's stock was then trading at." ( Id.) If the offer was accepted, " Bronson (or E-Lionheart personnel acting at his ...