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Securities and Exchange Commission v. Alpert

United States District Court, S.D. New York

March 2, 2018

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
TODD DAVID ALPERT, Defendant.

          MEMORANDUM OPINION AND ORDER

          LAURA TAYLORS WAIN UNITED STATES DISTRICT JUDGE

         The Securities and Exchange Commission (“Plaintiff”) brings this action against Defendant Todd David Alpert (“Defendant”), alleging that Defendant violated Section 10(b) of the Securities Exchange Act of 1934 ("the Exchange Act") and Rule 10b-5 promulgated thereunder by trading in securities on the basis of misappropriated material non-public information. The Court has jurisdiction of this action pursuant to 28 U.S.C. § 1331.

         Defendant moves to dismiss Plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim against him upon which relief may be granted and, pursuant to Federal Rule of Civil Procedure 9(b), for failure to state with particularity the circumstances alleged to constitute fraud.

         The Court has reviewed thoroughly all of the parties' submissions and arguments. For the following reasons, the motion to dismiss the complaint is denied.

         Background

         For the purposes of this motion, the Court takes the following facts drawn from the Complaint (“Compl.”) as true.

         In January 2011, through his employment with a security company, Defendant began work as one of several “dispatchers” for a member of the Board of Directors of H.J. Heinz Company (“Heinz”). (Compl. ¶ 17.) At the start of his employment with the security company, Defendant signed an employment contract including a confidentiality agreement, which provided that Defendant “may acquire access to confidential and private information about the personal or business affairs of the Board Member and his family” and prohibited Defendant from “disclosing such information to a third party or from using ‘any of such information for any purpose other than rendering the Services [he was] engaged to provide' to the Board Member and his family.” (Id. ¶ 18.) Defendant's employment duties as a “dispatcher” included “answering phone calls, receiving requests from the Board Member and his family . . . [and] reviewing email messages sent to a designated email account” for security dispatchers. (Id. ¶ 21.) He performed these tasks in a security booth located on the Board Member's property. (Id.)

         In January and February 2013, Defendant gained access to information about a potential acquisition of Heinz from emails sent by the Board Member to the security email account for printing. (Id. ¶¶ 22-24.) These emails included attachments such as detailed board meeting agendas and status updates on the proposed transaction from the Heinz CEO. (Id. ¶¶ 25-35.) At least one of these emails included as an attachment a letter labeled “CONFIDENTIAL” on the header of the document. (Id.)

         From January 25, 2013, to February 13, 2013, Defendant purchased a total of 1, 000 shares in Heinz stock and 30 Heinz call options while he had access to the security email account. (Id.) He sold all of these securities at a $43, 873.32 profit on February 14, 2013, the day the acquisition was announced publicly. (Id. ¶¶ 36-38.) More than two years later, Defendant admitted his trading activity to the Heinz Board Member, who “considered this to be a breach of his trust” and a violation of the Defendant's employment contract. (Id. ¶ 40.) Defendant was fired shortly thereafter. (Id. ¶ 5.)

         Plaintiff asserts that Defendant violated Section 10(b) of the Exchange Act and Rule 10b-5 by trading for his own benefit upon possession of material non-public information misappropriated from the Board Member, in breach of a fiduciary duty or similar duty of trust and confidence to the Board Member. (Id. ¶¶ 42-47.)

         Discussion

         Defendant moves, pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), to dismiss Plaintiff's Complaint in its entirety, arguing that the Complaint fails to state a claim of fraud against him or, alternatively, fails to state with particularity the circumstances constituting fraud. (See Docket Entry No. 18.)

         In determining whether a plaintiff has set forth the “short and plain statement of the claim showing that [he is] entitled to relief” required by the Federal Rules (see Fed.R.Civ.P. 8(a)(2)), the Court looks to whether the allegations in the complaint establish the “facial plausibility” of the plaintiff's claims. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). “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.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). Such a showing “must be enough to raise a right to relief above the speculative level, ” requiring “more than labels and conclusions, [or] a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555 (internal quotation marks omitted). In deciding a Rule 12(b)(6) motion to dismiss, the Court assumes the truth of the facts asserted in the complaint and draws all reasonable inferences from those facts in favor of the plaintiff. See Harris v. Mills, 572 F.3d 66, 71 (2d Cir. 2009).

         Rule 9(b) of the Federal Rules of Civil Procedure governs pleading in fraud actions generally, providing that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). The particularity standard requires the plaintiff to "(1) specify the statements that the plaintiff 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 Comm., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007) (citing Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000)). "In cases involving insider trading, however, where the specific facts are 'peculiarly within the knowledge of defendants, ' the application of Rule 9(b) is 'relaxed' to allow circumstantial evidence to plead the specific content and circumstances of insider tips." SEC v. Alexander, 160 F.Supp.2d 642, 649 (S.D.N.Y. 2001) (quoting Energy Factors, Inc. v. Nuevo Energy Co., 1991 U.S. Dist. LEXIS 16983, *12, No. 91 Civ. 4273, 1991 WL 259425, at *4 (S.D.N.Y. 1991)). Such claims, however, “must be ...


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