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I.B. Trading, Inc. v. Tripoint Global Equities, LLC

United States District Court, S.D. New York

November 15, 2017




         This case is about an alleged Ponzi scheme marketed as an investment to buy and resell tickets to popular Broadway shows and national pop music tours. The plaintiffs are a group of individual investors and their affiliated entities: I.B. Trading, Inc., Ian Behar, JoRon Management, LLC, Jordan Levy, Thomas and Elizabeth Macey, Fusion Capital LLC, Ryan Sasson, Robert Koltun, and Arthur Luxenberg. The plaintiffs commenced this action by filing a Complaint on March 17, 2017, which they amended on July 14, 2017, against the defendants, TriPoint Global Equities, LLC, Robert Nathan, Mark H. Elenowitz, and Michael Boswell. TriPoint is a broker-dealer registered with the United States Securities and Exchange Commission ("SEC"). Nathan is the Director of TriPoint's Specialty Finance Group. Elenowitz and Boswell are the co-founders of TriPoint. Elenowitz is the Chief Executive Officer ("CEO") of TriPoint, and Boswell is the Chief Operating Officer ("COO") and Chief Compliance Officer ("CCO") of TriPoint. Elenowitz and Boswell are each a Managing Director of TriPoint and together make up TriPoint's "Executive Team."

         The plaintiffs allege causes of action for violations of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), (the "Exchange Act") and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (First Cause of Action); Sections 9(a)(4) and 9(f) of the Exchange Act, 15 U.S.C. §§ 781(a)(4), 781(f) (Second Cause of Action); and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) (Third Cause of Action). The plaintiffs also allege state law causes of action for breach of fiduciary duty (Fourth Cause of Action); negligent misrepresentation (Fifth Cause of Action); negligence (Sixth Cause of Action); fraud (Seventh Cause of Action); violation of New York General Business Law § 349 (Eighth Cause of Action); and unjust enrichment and the establishment of a constructive trust (Ninth Cause of Action). The defendants have moved to dismiss the Amended Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). The defendants also move to strike Exhibit B to the Amended Complaint, and references thereto, pursuant to Federal Rule of Civil Procedure 12(f).


         In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the Amended Complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiffs' favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the Amended Complaint if the plaintiffs have stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Igbal, 556 U.S. 662, 678 (2009}. While the Court should construe the factual allegations in the light most favorable to the plaintiffs, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.

         A claim under Section 10(b) of the Exchange Act sounds in fraud and must meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure and of the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b). Rule 9(b) requires that the Amended Complaint "(1) specify the statements that the plaintiff[s] contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 4 93 F.3d 87, 99 (2d Cir. 2007). The PSLRA similarly requires that the Amended Complaint "specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading, " and it adds the requirement that "if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1); ATSI, 493 F.3d at 99; see also In re Eaton Corp. Sec. Litig., No. 16-cv-5894, 2017 WL 4217146, at *1 (S.D.N.Y. Sept. 20, 2017).

         When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the Amended Complaint, documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiffs knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). See also Silsby v. Icahn, 17 F.Supp.3d 348, 354 (S.D.N.Y. 2014), aff'd sub nom. Lucas v. Icahn, 616 Fed.Appx.. 448 (2d Cir. 2015).


         The following facts alleged in the Amended Complaint are accepted as true for the purposes of the defendants' motion to dismiss.

         In early December 2015, Nathan, the Director of the Specialty Finance Group at TriPoint, contacted Behar about an investment opportunity in which Nathan thought Behar and Behar's investment group would be interested. Am. Comp. ¶ 45. Nathan advised that the opportunity was a "no-brainer." Id. Nathan and Behar had known each other for approximately ten years, but this was the first time Nathan had reached out to Behar regarding an investment opportunity. Id. ¶¶ 44-45. On December 10, 2015, Behar and Levy, on behalf of themselves and their investment group, met with Nathan, and with Joseph Meli and Matthew Harriton, at Behar's office in Manhattan. Id. ¶ 49. Nathan, Meli, and Harriton explained the investment opportunity, in which 875 Holdings, LLC ("875 Holdings"), an entity majority-owned by Harriton, would partner with TriPoint to purchase blocks of tickets to popular events, such as Broadway musicals and pop concerts, and resell them on the secondary market for a profit. Id. ¶¶ 37, 38, 54. Nathan, Meli, and Harriton told Behar and Levy that the investments were extremely safe because the investments were backed by actual tickets to the events, which in turn were insured such that the investors would be reimbursed the purchase price if an event was canceled. Id. ¶ 54. Nathan assured Behar and Levy that TriPoint had vetted and conducted due diligence on the investment and the companies offering it and highly recommended it. Id.

         Additionally, Nathan provided Behar and Levy with an Executive Summary --- marked with "875 Holdings, LLC" and "TriPoint Global Equities, LLC, " as well as TriPoint's logo --- which anticipated that investors would receive a return on their investments "in excess of 20% per annum, " touted the "deep and very unique mix of live event promotion, ticketing, and entertainment finance experience" of 875 Holdings' management, and assured potential investors that there was "No Cancellation Risk" because 875 Holdings would require event promotors to reimburse 875 Holdings for canceled events and/or assure that "acceptable insurance arrangements are in place that will cover the purchased inventory and any expense involved to process ticket refunds." Id. ¶ 64. The Executive Summary also stated that TriPoint would receive a 5% commission based on the total amount of capital received by 875 Holdings. Id. ¶ 74. Nathan told Behar and Levy that he had gone to high school with Harriton, and that Nathan, Meli, Harriton, Elenowitz, and Boswell had all personally invested substantial sums in the venture. Id. ¶ 77.

         In mid-December, 2015, Behar, on behalf of himself and the other plaintiffs, attended a meeting regarding the ticket investment at TriPoint's offices with Nathan and Elenowitz.[1] Id. ¶ 81. Elenowitz told Behar that the ticket investment was a "no-brainer" because the investment was backed by physical tickets to the events, which were insured against the risk an event was canceled, and that TriPoint had verified this through its due diligence. Id. ¶ 85. After this meeting, Nathan reiterated that the ticket investment was low-risk, backed by real tickets and insurance, and that Nathan, Elenowitz, Boswell, Meli, and Harriton had all invested their own money. Id. ¶ 95. When Macey asked to review the ticket purchase agreements between 875 Holdings and the event producers, Nathan told Macey that neither TriPoint nor 875 Holdings could allow Macey to review the agreements because they were highly confidential. Id. However, Nathan assured the plaintiffs that TriPoint had reviewed the agreements and was satisfied. Id.

         On December 28 and 29, 2015, at Boswell's direction, Nathan sent Levy and Macey e-mails touting TriPoint's compliance department and TriPoint's compliance with Financial Industry Regulatory Authority ("FINRA") "Anti Money Laundering and Fraud Prevention" regulations. Id. ¶ 110. Nathan advised that Boswell was personally performing a compliance review of the ticket investment, and the e-mails showed that Boswell had completed his compliance review and approved the ticket investment. Id. ¶¶ 111-12.

         Based on the defendants' representations, between December 2015 and February 2016 the plaintiffs purchased Class B Interests in 875 Holdings pursuant to the 875 Holdings Subscription Agreement. Id. ¶l 119-20. Collectively, the plaintiffs invested $550, 000 as follows:

• I.B. Trading and Behar, its principal and manager, invested $100, 000;
• JoRon Management and Levy, its principal and manager, invested $100, 000;
• Fusion Capital and Sasson, its principal and manager, invested $100, 000;
• Koltun invested $100, 000; and
• Macey and his wife, Elizabeth Macey, as Tenancy by the Entirety, invested $150, 000.

Id. ¶ 120.

         On January 27, 2016, Nathan circulated a solicitation for two follow-on "Side Pocket" investments, available only to investors in 875 Holdings. Id. ¶ 128. The "Side Pocket" investments were for tickets to the Broadway musical, Hamilton, and Adele's North American tour. Id. ¶ 129. The solicitation explained that the "Side Pocket" investments would be conducted through a new entity, Advanced Entertainment II, because Meli and Harriton did not think it was prudent to increase 875 Holdings' existing stake in these events until more capital was raised. Id. ¶ 128. In a subsequent teleconference regarding the "Side Pocket" investments, Nathan explained to the plaintiffs that Advanced Entertainment II had a contract with the producer of Hamilton to purchase 20% of the house seats for every performance, and that the producer was planning to use the funds to finance the upcoming London production. Id. ¶¶ 136-37. Similarly, Nathan told the plaintiffs that Advanced Entertainment II had a ticket purchase agreement with the producer of Adele's North American tour. Id. ¶ 138. Nathan also advised that TriPoint was partnering with Meli, Harriton, and Advanced Entertainment II to draft the Subscription Agreement for the "Side Pocket" investments. Id. ¶ 144.

         During a meeting on or around February 22, 2016 in Miami, Nathan showed Levy documents on Nathan's cell phone that Nathan claimed were the ticket purchase agreements between Advanced Entertainment II and the producers of Hamilton and Adele's North American tour. Id. ¶¶ 151, 153. Nathan, Boswell, and Elenowitz were then copied on a February 18, 2016 e-mail providing the plaintiffs with the documents necessary to participate in the "Side Pocket" investments. Id. ¶ 146. The Profit Participation Purchase Agreement relating to the "Side Pocket" investments, a revised copy of which Nathan provided to the plaintiffs on February 24, 2016, provided that TriPoint was entitled to a 3% broker fee on the gross proceeds received by Advanced Entertainment II. Id. ¶ 165. The Profit Participation Purchase Agreement included a Participation Schedule, which stated that within nine months of the investment the investors would receive a 10% "preference percentage" return and 50% of any additional profits from the ticket sales for the first two events --- Hamilton and Adele's North American tour. Id. ¶ 166. Between February 26, 2016 and March 3, 2016, the plaintiffs collectively invested in the "Side Pocket", as follows:

• I.B. Trading and Behar invested $200, 000 in the Hamilton "Side Pocket" and $200, 000 in the Adele "Side Pocket";
• Fusion Capital and Sasson invested $50, 000 in the Hamilton "Side Pocket" and $50, 000 in the Adele "Side Pocket";
• Koltun invested $100, 000 in the Hamilton "Side Pocket" and $100, 000 in the Adele "Side Pocket";
• Macey and his wife, Elizabeth Macey, as Tenancy by the Entirety, invested $300, 000 in the Hamilton "Side Pocket" and $200, 000 in the Adele "Side Pocket"; and
• Luxenberg invested $100, 000 in the Hamilton "Side Pocket."

Id. ¶ 169.[2]

         In June 2016, in response to an inquiry from Macey, Nathan e-mailed Macey and assured him that the ticket investments were in "great shape, " that the investments were sound, and that TriPoint continued to recommend the ticket investments to clients. Id. ¶ 176. Nathan also solicited further investments from the plaintiffs during the summer of 2016, but the plaintiffs did not invest. Id. ¶¶ 178-80.

         On December 29, 2016, Nathan e-mailed Macey and Behar telling them that they would receive distributions related to the "Side Pocket" investments "within the next 7-10 business days." Id. ¶ 183. Nathan stated further that "we have received 91% of our investment to date" in Hamilton and "the next distribution will include profits from this investment." Id. Nathan also stated that "we should expect to receive 1/3 of our investment back shortly" with regard to the Adele tickets, and "1/3 around the mid-end of January and the final distribution mid to late February." id. In response to the plaintiffs' questions about why the managers had missed their stated target of having all capital and profits returned in 2016, Harriton replied, with a copy to Nathan, that "inventory was pushed back to performances in 2017 for a variety of reasons but we expect to fully liquidate during first half of 2017 with economics along the lines we have been seeing. We sold Event II as a block to a financial institution, the payment terms were for three payments with the total received by January 31st 2017." Id. ¶ 184.

         The plaintiffs allege that virtually every statement the defendants made with respect to the ticket investments was false. They claim that neither 875 Holdings nor Advanced Entertainment II ever purchased any tickets, that no ticket purchase agreements were ever executed, that no insurance was ever purchased in connection with any tickets, and that no returns were ever received based on the investments.

         On January 26, 2017, the Government filed a criminal complaint against Meli for securities fraud and wire fraud related to the ticket investments. On January 27, 2017, the SEC filed a lawsuit against Meli, Harriton, 875 Holdings, and Advanced Entertainment II, among others, for securities fraud related to the ticket investments. Id. ¶¶ 188-89.


         The defendants move to dismiss the plaintiffs' federal securities law claims asserted under Sections 10(b), 9(a) (4), 9(f), and 20(a) of the ...

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