United States District Court, S.D. New York
JOSEPH PUDDU; MARK GHITIS; VALERY BURLAK; and ADAM BUTTER, Plaintiffs,
6D GLOBAL TECHNOLOGIES, INC., NYGG ASIA, LTD.; BENJAMIN TIANBING WEI A/K/A/ BENJAMIN WEY; TEJUNE KANG; MARK SZYNKOWSKI; TERRY MCEWEN; and NYG CAPITAL LLC D/B/A/ NEW YORK GLOBAL GROUP, Defendants.
Attorneys for Plaintiff THE ROSEN LAW FIRM, P.A. By: Jonathan
R. Home, Esq. Phillip C. Kim, Esq.
Attorneys for Defendants K&L GATES LLP By: Peter N.
Flocos, Esq. B. John Casey, Esq.
W. SWEET U.S.D.J.
6D Global Technologies, Inc. ("6D"), Tejune Rang
("Kang"), Mark Szynkowski ("Szynkowski"),
and Terry McEwen ("McEwen" and, collectively, the
"6D Defendants" or the "Defendants") have
moved pursuant to Rule 12(b)(6), Fed. R. Civ. P., to dismiss
the second amended complaint ("SAC") of plaintiffs
Joseph Puddu, Mark Ghitis, Valery Burlak, and Adam Butter
(collectively, the "Plaintiffs"). Based upon the
conclusions set forth below, the motion of the 6D Defendants
is granted, and the SAC is dismissed.
Plaintiffs filed their putative class action complaint on
October 13, 2015. The SAC was filed on April 4, 2016. It
alleges that the Defendants violated Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange
Act"), and Rule 10b-5 promulgated thereunder by the
Securities and Exchange Commission ("SEC"), and
Section 20(a) of the Exchange Act.
a now-defunct company based in China, manufactured structural
towers used in wind turbines and was briefly listed on the
NASDAQ. SAC ¶ 7. 6D, which is a successor to CleanTech,
is a Delaware company whose operations - software offerings
and technology consulting - take place entirely in the United
States. SAC ¶¶ 25-26. Kang is its CEO, and
Szynkowski is its CFO. SAC ¶¶ 27-28. McEwen has
served as a 6D director since September 30, 2013, and between
June and September 2014, he served as its sole director and
CEO. SAC ¶ 29.
alleged to be a notorious promoter of fraudulent Chinese
companies. SAC ¶ 30. He, through his companies New York
Global Group ("NYGG") and NYGG (Asia), assists the
Chinese companies in listing their stock on U.S. exchanges
and connects them with investment bankers and a compliant
auditor in exchange for a large portion of their stock. SAC
¶ 46. Wey then discreetly sells the stock through a
network of associates and nominees. Id. The
companies' stock price collapses soon after Wey's
stock sales. Id. Wey made more than $70 million from
his fraud. SAC ¶ 61.
early 2011, CleanTech was delisted by the NASDAQ for failing
to disclose its connections with Wey in its listing
application. SAC ¶ 76. Wey was the acknowledged
principal of NYGG, and CleanTech claimed that it had a
relationship with NYGG (Asia) but not with NYGG.
Additionally, CleanTech claimed NYGG (Asia) was separately
owned and operated by Ming "Roger" Li
("Li"), a false statement Wey himself repeated in a
letter to the NASDAQ. SAC ¶¶ 5, 69 a., 80 b., c,
81, 191. Wey at all times was NYGG (Asia)'s controlling
shareholder and personally controlled its operations. SAC
¶¶ 126, 127. CleanTech eventually obtained a
reversal of the NASDAQ's decision, but the NASDAQ warned
that if it ever discovered that Wey was NYGG (Asia)'s
controlling shareholder, it would promptly delist CleanTech.
2014, CleanTech announced that it would merge with a private
company, Six Dimensions, to become 6D. SAC ¶ 7. In
connection with the merger, CleanTech would sell its existing
business and convert CleanTech's debt held by NYGG (Asia)
into equity in the new company, 6D. Id. Following
the merger, which closed in September 2014, NYGG (Asia) held
approximately 45% of 6D's shares. SAC ¶ 95.
bylaws represented that it was governed much like other
public companies. Its day-to-day business was purportedly
handled by its named executive officers, nominated by the
Board of Directors, who were identified for the benefit of
shareholders in 6D's SEC filings. SAC ¶¶ 137,
138, 149. Defendants implied that NYGG (Asia)'s (and not
Wey's) control would be limited to matters requiring
stockholder approval, such as the election of directors. SAC
¶¶ 151, 152, 156, 157.
Defendants were aware that they could not report that Wey was
associated with 6D. Prior to the Class Period, Wey's
fraudulent business dealings were partially exposed to the
press and to investors. Wey's business associates have
claimed his business is a "front for illegal activities,
" SAC ¶ 174, while a Barron's news article
reported that the stock price of firms Wey promoted would
typically collapse to zero amidst accusations of fraud that
his handpicked auditor had missed, SAC ¶ 67. Wey accused
public figures of things like having bodies ravaged by
"years of consuming hormone-fried chicken and stressing
over money" and being "like a dog wagging her tail
trying to attract a mating partner" or being an
"Uncle Tom" who was "caught messing with
another man's wife." SAC ¶¶ 174, 175.
Moreover, Wey sexually harassed a NYGG intern, who later won
a widely-publicized lawsuit in which the jury awarded her $18
million in damages, $16 million of which were punitive, and
the Honorable Paul G. Gardephe held that Wey's misconduct
was "at the extreme end of the [reprehensibility]
spectrum." SAC ¶ 177. Matthew Sullivan
("Sullivan"), a named 6D executive officer,
referred to Wey as a "very creepy guy, " and in
March 2015, told Kang he felt "uncomfortable in my
position as an officer of the company, [about how] Ben Wey
was conducting himself not just on a personal level but on a
business level and I was deeply concerned." SAC ¶
told Kang "you don't want to be seen with me."
SAC ¶ 179. Kang instructed other 6D employees not to
discuss or mention Wey in any emails, except in an emergency,
and then to use a code word to refer to Wey. SAC ¶ 181.
Wey was personally involved in 6D's day-today management.
He had primary responsibility for securing 6D's
financing. SAC ¶ 107 a.-b. Wey selected 6D's
auditor. SAC ¶ 107 c. Wey interviewed 6D's CFO
candidate and signed off on its choice. SAC ¶ 107 e. Wey
personally interviewed the candidates for all leadership
positions. Id. Wey dictated how and when 6D
personnel could sell their 6D stock, demanding they sell
stock to Wey's friends. SAC ¶ 107 d. In May or June
of 2015, Wey instructed Kang to create and implement an
aggressive document destruction policy, requiring that all
emails be destroyed within 90 days. SAC ¶ 107 e. Wey
reviewed, made changes to, and approved 6D's SEC filings
before they were filed. SAC ¶ 107 g. Wey controlled
6D's litigation, selected its counsel, and gave
instructions. SAC ¶ 107 i. 6D rescheduled meetings,
including marketing discussions, if Wey could not attend. SAC
¶ 107 h. Wey caused 6D to violate Board directives,
including by disobeying a direct Board order and violating
restrictions imposed by 6D's publicly filed employee
stock compensation program to award stock options to NYGG
employees. SAC ¶ 109. Wey manipulated public trading in
6D's stock. SAC ¶ 127.
responsible for 6D's capital markets strategy and
activity, which Kang acknowledged. SAC ¶ 107 b. Wey
personally controlled 6D's acquisition strategy. SAC
¶ 110. Wey dictated 6D's overall strategy, which was
to acquire targets to entice a large investor. SAC
¶¶ 111, 113. Wey selected individual acquisition
targets. SAC ¶¶ 115, 117. Wey provided 6D's
form acquisition agreement, negotiated individual terms, and
reviewed all acquisition agreements. SAC ¶¶ 112,
visited 6D's offices every few weeks, and Kang also
regularly visited NYGG's offices in Trump Tower. SAC
¶ 107 j. Wey's attorney and co-conspirator Robert
Newman ("Newman") also regularly visited 6D's
December 2014, Kang emailed Sullivan, stating that a proposed
acquisition "aligns [the] interests of [Benjamin Wey]
even more [with] our success and growth because this is more
than just [money] to him, " and that Wey's interests
already were "aligned" with 6D's because of his
"investment" in 6D. SAC ¶ 115. Further, Kang
stated that the proposed transaction would mean Wey's
family "as well" benefits from 6D's growth.
Id. In a June 2015 call, Kang admitted that Wey
"is a shareholder" of 6D and as such "he's
got influence" over it. SAC ¶ 13.
in discussions with Discover Growth Fund
("Discover"), a large investor, Defendants referred
interchangeably to NYGG (Asia) and Wey as the holder of 45%
of 6D's stock. SAC ¶ 126. After Discover had signed
investment agreements with 6D, Kang summarized his
relationship with Wey to Discover as: "[B]asically, I
work for him." SAC ¶ 127. When Wey excused himself
to use the bathroom during a meeting with Discover, Discover
asked Kang pointed questions about Wey, but when Wey
returned, Kang immediately stopped speaking and
"sheepishly" recounted the questions and answers.
SAC ¶ 128. Wey also stated at the meeting with Discover,
in Kang's presence, that he (Wey) controlled 6D. SAC
September 10, 2015, the United States Department of Justice
("DOJ") and the SEC announced that they had
indicted and sued, respectively, Wey and certain of his
associates for securities fraud, including in connection with
CleanTech. The SEC complaint and DOJ indictment, and the
accompanying press releases, revealed that NYGG (Asia) was a
Wey nominee, and that Wey - not Li, as had been claimed - was
in truth 6D's controlling shareholder. SAC ¶ 164.
NASDAQ immediately halted trading in 6D's stock on the
ground that Wey actually held NYGG (Asia)'s 6D shares.
SAC ¶ 164 d., 166-67. 6D appealed the NASDAQ's
course of its audit of 6D's 2015 financial statements,
BDO USA LLP ("BDO") conducted procedures to
determine whether Wey's influence over 6D violated its
internal controls. BDO determined that Wey and Kang had
disobeyed the Board's explicit instructions and issued
stock options to NYGG employees in violation of company
rules, and that Kang had repeatedly lied to 6D's Board,
and to an internal 6D investigation conducted by the law firm
Blank Rome LLP, about Wey. SAC ¶ 15. BDO told 6D it
could no longer rely on its CEO's Kang's
representations and would have to resign as auditors unless
Kang resigned himself. When 6D refused to terminate Kang, BDO
resigned, along with 6D's audit committee chair, making
its findings public. Id.
thereafter, the NASDAQ delisted 6D's stock. When trading
resumed in March 2016, 6D's stock price fell to $1.00 the
first day, and continued to fall to $0.21 over the next three
trading days. SAC ¶ 172.