United States District Court, E.D. New York
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For the Plaintiff: Richard S. Naidich, Esq., of Counsel, Naidich Wurman Birnbaum & Maday, Great Neck, NY.
For the Plaintiff: Alan S. Loewinsohn, Esq, Carole E. Farquhar, Esq., Kerry F. Schonwald, Esq., of Counsel, Loewinsohn Flegle Deary, L.L.P., Dallas, TX.
For Herbert H. Pratt, Graham R. Williams, and Zicix Corporation, Defendants: Nelson S. Ebaugh, of Counsel, Nelson S. Ebaugh, P.C., Houston, TX.
For Herbert H. Pratt, Graham R. Williams, and Zicix Corporation, Defendants: Andrew W. Lawrence, Esq., Huntington, New York.
NO APPEARANCES: Steven H. Bethke.
MEMORANDUM OF DECISION AND ORDER
ARTHUR D. SPATT, United States District Judge.
On November 21, 2013, the Plaintiff Mazuma Holding Corp (the " Plaintiff" or " Mazuma" ), a holding company, commenced this action against Steven H. Bethke, Herbert H. Pratt, Graham R. Williams, and the Zicix Corporation (" Zicix" ) (collectively the " Defendants" ) alleging violations of federal securities law and Texas State law.
On December 31, 2013, Williams and Zicix moved for an order staying this action under Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), or, in the alternative, transferring venue to the Southern District of Texas pursuant to 28 U.S.C. § 1404(a) on the ground, among others, tat there is a parallel action pending in Texas State court. On January 21, 2014, Mazuma (1) cross-moved for leave to file its first amended complaint pursuant to Federal Rule of Civil Procedure (" Fed. R. Civ. P." ) 15(a) and (2) cross-moved to strike certain evidence relied upon by
Williams and Zicix in support of their motion for a stay.
On February 26, 2014, Pratt joined in the motion for a stay or to transfer venue.
On March 3, 2014, this Court (1) denied the Plaintiff's motion to strike; (2) granted the Plaintiff's motion to file an amended complaint; and (3) denied the motion for a stay under Colorado River or to transfer venue to the Southern District of Texas.
On March 31, 2014, Pratt, Williams, and Zicix moved pursuant to Fed.R.Civ.P. 12(c) for judgment on the pleadings dismissing the amended complaint.
For the following reasons, the motion is denied.
Unless stated otherwise, the following facts are drawn from the amended complaint and construed in a light most favorable to the Plaintiff, Mazuma.
A. The Parties and Other Relevant Individuals
Mazuma is a non-bank holding company that makes investments in other entities. Mazuma concedes that it is a Texas corporation with its principal place of business in Texas. However, Mazuma also has an office located in Great Neck, New York.
The Non-party Curt Kramer is Mazuma's sole officer. The Non-party Carlos Mayo is the sole " finder" for Mazuma, though it is not clear what that role entails.
Zicix, a Nevada corporation, is the successor company of Bederra Corporation, a nano-cap company described in more detail below.
At all relevant times, Williams was the President and Chief Executive Officer (" CEO" ), as well as a director, of Bederra and currently serves in the same role for Zicix. Williams is a Texas resident.
At all relevant times, Pratt was Bederra's Vice President, as well as a director. Pratt is a Texas resident.
Bethke was also a director of Bederra and is a Texas resident.
B. The Underlying Facts
Mazuma invested in Bederra, and was well-known to the Defendants. Mazuma's business strategy at the time of the stock purchases at issue was to invest in publicly-traded, nano-cap companies, such as Bederra, whose securities are traded on the " Pink Sheets." Nano-cap companies are often capital-constrained, as their low market capitalization hinders their access to banks or investment firms. Mazuma provided capital to these companies as an investment in return for shares purchased at a discount from the market price.
In 2008, Mazuma invested more than $140,000 in Bederra by purchasing directly from Bederra blocks of shares at a discount. Williams instructed Mazuma to coordinate the purchases with Bethke, which Mazuma did. On each occasion, Williams directed, First National Trust Company, Inc. (" First National Trust" ), Bederra's transfer agent, in writing, to issue stock certificates to Mazuma pursuant to the terms of the investment. Those stock certificates contained the signature of Williams, then the Secretary of Bederra.
Beginning in early 2009, Mazuma again purchased blocks of Bederra shares, this time directly from Bethke. Mazuma purchased a total of approximately 1.139 billion shares of Bederra stock from Bethke between January 2009 and May 2010 (the " Mazuma Shares" ). Bethke represented that the shares were duly issued, unrestricted, and freely tradeable. In advance of each transaction, Mazuma received several documents signed by Williams certifying that Bethke held good title to the
shares and that Williams and the company had authorized the pending share sales to Mazuma. On each occasion, Mazuma received supposedly authentic Bederra stock certificates containing the signatures of Williams and Pratt.
However, Mazuma contends that, to conceal Bethke's stock sales and to lure Mazuma into believing that they were legitimate, the Defendants made several material misrepresentations related to the authenticity of the shares and the authority of Bethke. The Defendants allegedly manufactured business records and signed stock certificates to make it appear as if the Mazuma shares were not restricted, authorized, and freely tradeable.
During the relevant period, the volume of trading in Bederra stock exceeded the number of free-trading shares issued and outstanding (the " float" ) due to the introduction of the Mazuma Shares into the market.
Mazuma also alleges that, during the relevant time period, Bederra had no financial reporting requirements, but nonetheless filed periodic reports and disclosures on an electronic quotation system. Bederra allegedly made at least 22 filings on the Pink Sheets between May 28, 2008 and December 22, 2009, and issued more than 60 press releases between March 2008 and January 2011. According to Mazuma, Bederra routinely represented in its filings with the Pink Sheets the numbers of shares authorized and outstanding, as well as the public float. Mazuma contends that Bederra's numerous public disclosures and press releases ...