In prior posts, we examined Securities and Exchange Commission (“SEC” or “Commission”)   enforcement actions brought against those who seek to personally benefit from the COVID-19 health crisis affecting the country ( here and here ). These actions had a common thread between them – they involved pump and dump schemes. In a “pump-and-dump” scheme, promoters “pump” up, or increase, the stock price of a company by spreading positive, but often false, rumors.  These rumors cause many investors to purchase the stock.  Then the promoters or others working with them quickly “dump” their own shares before the hype ends.  Typically, after the promoters’ profit from their sales, the stock price drops, and the remaining investors lose most of their money. Since February of this year, the SEC has released several warnings to investors to beware of fraud, illicit schemes and other misconduct during the coronavirus health emergency ( here ). In these warnings, the SEC has highlighted the proliferation of internet promotions, often using social media, in which the company claims that its products or services could prevent, detect or cure the virus, and that the sale of these products or service would lead to a dramatic increase in the price of those companies’ stock. Many of these scams, said the SEC, “often take the form of so-called ‘research reports’ and make predictions of a specific ‘target price.’” In reality, explained the SEC, these are pump-and-dump schemes. On June 9, 2020, the SEC announced ( here ) that it brought charges against Jason C. Nielsen (“Nielsen”), a penny stock trader in Santa Cruz, California, for conducting a pump-and-dump scheme involving the stock of Arrayit Corporation (“arrayit”), a biotechnology company headquartered in Sunnyvale, California that purports to focus on the discovery, development, and manufacture of proprietary life science technologies.  According to the SEC, Nielsen made hundreds of misleading statements in an online investment forum, including a false assertion that the company had developed an “approved” COVID-19 blood test. According to the SEC, in March and April 2020, Nielsen posted numerous messages on Investors Hub that promoted Arrayit stock claiming that Arrayit had a COVID-19 test; that Arrayit’s COVID-19 test was pending Emergency Use Authorization from the FDA; and that Arrayit had received approval for its COVID-19 test. As readers of this Blog know, during this period, the news cycle was saturated with reports and commentary about the COVID-19 virus, the need for accurate and rapid COVID-19 tests, and the need for increased COVID-19 testing. At the time Nielsen began posting the messages, he held 114,803,532 shares of Arrayit common stock, which represented 10.19% of Arrayit’s total outstanding shares. At that time, the total market value of Nielsen’s holdings in Arrayit was $1,998,051.26. According to his brokerage account’s opening documents, no one other than Nielsen was authorized to trade in the account.  According to the SEC, Nielsen made the statements regarding a purported Arrayit COVID-19 test to generate interest in Arrayit stock. Nielsen’s use of those posts, alleged the SEC, was deceptive and misleading because he failed to disclose the extent of his financial stake in the company and the fact that he was actively selling off his shares. The SEC said that Nielsen’s trading records showed that he was dumping his shares close in time to when he was posting messages touting Arrayit’s stock.  Moreover, according to the SEC, Nielsen’s statements that Arrayit’s COVID-19 test was pending Emergency Use Authorization and that the test was “approved” were false. Arrayit did not submit an application for Emergency Use Authorization to the FDA until on or about April 13, 2020, said the SEC. In fact, noted the SEC, as of the filing of its complaint, Arrayit did not have a COVID-19 test that was approved by the FDA or any other entity. Nielsen also allegedly created the false impression of high demand for Arrayit stock by placing and subsequently canceling several large orders to purchase shares in a tactic known as “spoofing.”  As explained in the SEC’s complaint, Nielsen allegedly placed large orders for Arrayit stock, subsequently cancelled the orders before they were filled, and then posted messages on Investors Hub falsely attributing these large orders to someone else (often a fictitious investor). The purpose of this spoofing was to create the false impression of a high demand for the company’s securities. According to the SEC, between March 2, 2020 and April 13, 2020, Nielsen realized a profit of approximately $137,000, as a result of his “pump and dump” scheme . On April 13, 2020, the Commission temporarily suspended trading in Arrayit stock ( here ), for the period April 14, 2020 through April 27, 2020, due to “questions regarding the accuracy and adequacy of publicly-available information concerning Arrayit Corporation, including: (a) its financial condition and its operations, if any, in light of the absence of any public disclosure by the Company since 2015, and (b) information in the marketplace since at least March 2, 2020, claiming the Company developed an approved COVID-19 blood test.” “We allege that Nielsen engaged in multiple forms of deception to exploit investors amidst the COVID-19 pandemic,” said Erin E. Schneider, Director of the SEC’s San Francisco Regional Office.  “Investors should be aware of the potential for stock manipulation, including through claims regarding products or services related to COVID-19.” The SEC’s complaint ( here ), filed in the United States District Court for the Northern District of California, charged Nielsen with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, civil money penalties, a penny stock bar, and disgorgement with prejudgment interest.

Pleading fraud with particularity is not easy. Sometimes the information needed to satisfy the requirement is peculiarly within the knowledge of the defendant. Other times, the information needed is found in lawsuits, publicly available information and media. Regardless of where the information can be found, the plaintiff must nevertheless provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true.  Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559-60 (2009).  In  Bullen v. Sterling Valuation Grp., Inc. , 2020 N.Y. Slip Op. 50653(U) (Sup. Ct., N.Y. County June 5, 2020) ( here ), Justice Barry Ostrager of the Supreme Court, New York County, Commercial Division, considered the particularity requirement in a case involving an alleged fraudulent inducement to investment money in a now defunct hedge fund. As discussed below, Justice Ostrager held that plaintiffs satisfied the particularity requirement by identifying specific information alleged to be peculiarly within the knowledge of the defendant, as well as detailed information obtained from related federal proceedings.   Bullen v. Sterling Valuation Group, Inc. Background Bullen  arose out of an alleged fraudulent scheme to induce plaintiffs to invest over $63 million in Platinum Partners Credit Opportunities Fund (“PPCO” or the “Fund”) – an alleged $500 million dollar hedge fund that is in receivership.   Plaintiffs contended that Platinum Management (NY), LLC (“Platinum”) provided them with reports created by defendant Sterling Valuation Group, Inc. (“Sterling”), a small seven-person valuation consulting firm that provided valuation and consulting services to Platinum and issued quarterly reports opining on the value of the assets held by PPCO (the “Sterling Reports” or the “Reports”).  Plaintiffs alleged that, in deciding to invest, they relied on the Sterling Reports, only to later learn via proceedings in an action brought by the Securities and Exchange Commission (“SEC”) (the “SEC Action”) and elsewhere that PPCO had inflated its valuations, and that Sterling failed to carefully scrutinize the valuations or challenge the improper valuations in any meaningful way. Plaintiffs alleged that Sterling corroborated the valuations while in possession of questionable confidential information obtained, in part, through its participation in Platinum’s internal valuation meetings and while knowing that the auditors of PPCO’s sister fund, the Platinum Partners Value Arbitrage Fund, had identified a “material weakness” in the fund’s investment valuation.   see sec v. platinum management (ny), llc, no. 1:16-cv-6848 (e.d.n.y. dec. 19, 2016);  united states v. nordlicht , no. 16-640 (e.d.n.y. dec. 14, 2016).> see sec v. platinum management (ny), llc, no. 1:16-cv-6848 (e.d.n.y. dec. 19, 2016);  united states v. nordlicht , no. 16-640 (e.d.n.y. dec. 14, 2016).>  Plaintiffs asserted three causes of action against Sterling: (1) fraud; (2) aiding and abetting fraud; and (3) aiding and abetting breach of fiduciary duty. Sterling moved to dismiss. The Court granted the motion but allowed plaintiffs leave to replead. Thereafter, plaintiffs filed an amended complaint, asserting the same causes of action. Defendant moved to dismiss. The Court denied the motion.  The Court’s Decision With regard to the first cause of action, Sterling claimed that plaintiffs failed to plead fraud with particularity.  e.g.,  here,  here, and  here).=">here).">  Defendant contended that plaintiffs simply alleged fraud in a conclusory fashion and in hindsight, arguing that plaintiffs merely alleged that Sterling “rubber stamped” certain valuations of the Fund’s assets. Slip Op. at *2. The Court rejected the argument.  The Court found that plaintiffs included information in the Amended Complaint that was peculiarly within Sterling’s knowledge –  i.e. , knowledge that should have alerted Sterling that the information it was receiving from PPCO, including the information in its Valuation Reports, was false and unsupported.  Id.  The Court explained that the Amended Complaint specifically pleaded that Sterling attended monthly, quarterly, and annual meetings where asset valuations and valuation methodologies were discussed with Platinum, and that Sterling was given access to a large quantity of non-public documents and confidential material for consideration as part of its valuation work.  Id.  The Court found that the Receiver appointed in the SEC Action corroborated the allegations by identifying significant evidence of overvaluations by Platinum that plaintiffs contended could not reasonably have escaped Sterling’s attention in the course of its work. According to the Court, the Receiver conducted an analysis of PPCO’s holdings and business dealings, which included a review of Platinum documents and communications, and found a dearth of evidence to support Platinum’s valuations as corroborated by Sterling.  Id.  at *2-*3.   The Court also found that the magnitude of the overvaluations supported plaintiffs’ allegations. In this regard, the Court noted that, as pleaded, “the overvaluations were so extensive and so extreme that Sterling must have known about the misrepresentations, and that Sterling made these and similar misrepresentations itself in its own Valuation Reports instead of alerting investors to the problems.”  Id. The Court rejected Sterling’s argument that disclaimers in the Reports negated any reliance on the information therein. The Court found that the disclaimers were “untrue” and, in any event, were “questionable in light of Sterling’s attendance at PPCO meetings, its access to confidential information, and its primary duty of providing valuation reports.”  Id. Moreover, said the Court, the disclaimers were too “general in nature and include facts peculiarly within Sterling’s knowledge.”  Id.  (citing  Basis Yield Alpha Fund (Master) v. Goldman Sachs Grp., Inc. , 115 AD3d 128, 137 (1st Dept. 2014)). “Thus, Sterling   rely on the disclaimer to defeat plaintiffs’ fraud claim.”  Id. The Court also rejected Sterling’s argument that plaintiffs failed to allege that Sterling intended to induce plaintiffs’ reliance on the Valuation Reports and that plaintiffs’ reliance was justifiable.  Id.  at *3-*4. The Court explained that “ lthough the Reports caution  that the opinions stated should not be construed as investment advice, plaintiffs were entitled to rely on the information in the Valuation Reports as being factually correct and then use those facts to make their own investment decisions.…”.  Id.  at *4.  Finally, the Court held that plaintiffs’ sophistication did not preclude their “claim of justifiable reliance as a matter of law.”  Id.  “At a minimum,” said the Court, “issues of fact exist  to defeat the motion to dismiss in light of Sterling’s superior access to PPCO’s confidential information, which plaintiffs themselves could not access.”  Id.  (citing  ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1045 (2015)).   With regard to the second cause of action, aiding and abetting Platinum’s fraud, the Court held that plaintiffs stated a claim.   “To plead a claim of aiding and abetting fraud, the complaint must allege: ‘(1) the existence of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in achievement of the fraud.’”  Id.  (quoting  Stanfield Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co. , 64 A.D.3d 472, 476 (1st Dept. 2009)). Although actual knowledge of the fraud may be averred generally, to plead “substantial assistance”, plaintiffs must allege that the defendant (1) affirmatively assisted, helped conceal, or by virtue of failing to act when required to do so enabled the fraud to proceed, and (2) the defendant’s actions as an aider/abettor proximately caused the harm on which the primary liability is predicated.  Stanfield , 64 A.D.3d at 476.Knowledge can be averred through circumstantial evidence.  Houbigant, Inc. v. Deloitte & Touche , 303 A.D.2d 92, 98- 99 (1st Dept. 2003).  See also DaPuzzo v. Reznick Fedder & Silverman , 14 A.D.3d 302, 303 (1st Dept. 2005).  Applying the foregoing standards, the Court held that plaintiffs “adequately pleaded the requisite ‘substantial assistance’ by Sterling in achieving Platinum’s fraud….”  Id.  at *4. “Specifically,” said the Court, “by adopting Platinum’s improper valuations, Sterling allegedly helped conceal Platinum’s fraud.”  Id.  Plaintiffs also pleaded substantial assistance, noted the Court, by alleging that Sterling failed “to challenge Platinum’s improper valuations when required to do so and that failure to act helped enable the fraud to proceed.”  Id.  at *4-*5.  Takeaway The purpose of the particularity requirement is to place the defendant on notice of the events complained of, not prevent otherwise valid causes of action where it may be impossible to state in detail the circumstances constituting the fraud.  Daly v. Kochanowicz , 67 A.D.3d 78, 90 (2d Dept. 2009). In such situations, specifically where those circumstances are peculiarly within the knowledge of the defendant, as in  Bullen , “the heightened pleading requirements of CPLR § 3016(b) may be met when the material facts alleged in the complaint, in light of the surrounding circumstances, ‘are sufficient to permit a reasonable inference of the alleged conduct’ including the adverse party’s knowledge of, or participation in the fraudulent scheme.”  JP Morgan Chase Bank, N.A. v Hall , 122 A.D.3d 576, 580 (2d Dept. 2014) (quoting  High Tides LLC v. DeMichele , 88 A.D.3d 954, 957 (2d Dept. 2011)).

As readers of this Blog know, one of the elements of a fraud claim is reliance. In the typical case, the defendant makes a false or misleading statement directly to the plaintiff, which the plaintiff claims to rely on. In the less frequent case, the misrepresentation of fact is made to a third party that relied on the alleged fraudulent statement. The question is whether, in that circumstance, a plaintiff can state a fraud cause of action, despite the absence of direct reliance by the plaintiff on the alleged misrepresentation? In 2016, the New York Court of Appeals addressed the question.  In Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817 (2016), the New York Court of Appeals held that third-party reliance does not satisfy the reliance element of a fraud claim unless the third party “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to his detriment.” Id. at 828. Prior to Pasternack , federal courts applying New York law and the Appellate Division Departments had reached varying conclusions as to whether a plaintiff could state a fraud claim, “despite the absence of reliance by the plaintiff on the alleged misrepresentations, where a non-plaintiff third party is alleged to have relied on the misrepresentations in a manner that caused injury to the plaintiff.” Id. at 827.  In today’s article, this Blog examines Gui Qin Chen v. Li Zhu Chen , 2020 N.Y. Slip Op. 31691(U) (Sup. Ct., Queens County Apr. 27, 2020) ( here ), a case involving reliance on an alleged misrepresentation that was made to a third party. Gui Qin Chen v. Li Zhu Chen Background Plaintiff commenced the action to recover damages for an alleged conspiracy “to displace her as beneficiary” of the proceeds of a $300,000.00 life insurance policy held by the decedent, Chit Hing Chau. The original policy was issued by Metropolitan Life Insurance Company (“MetLife”) to Chau in 1998, with his wife, Sau Wan Cheung, as the primary beneficiary, and their daughter, defendant Hong Yung Chau, as the sole contingent beneficiary. In 2012, Chau designated plaintiff, Gui Qin Chen, his girlfriend, as the only beneficiary under the life insurance policy and changed the address for the policy from his marital residence in Queens to an address in Manhattan. Thereafter, Chau moved to China, where he died on May 8, 2017, never having returned to the United States. Plaintiff alleged that on August 10, 2016, Chau executed a Change in Beneficiary Designation form, again designating his wife as beneficiary, and his daughter, Hong Yung Chau, as the contingent beneficiary, and changed the address of the policy back to his marital residence in Queens. Defendant, Li Zhu Chen, a former insurance agent for MetLife, claimed to have submitted the 2016 Change in Beneficiary form on behalf of decedent to MetLife. At the time the Change in Beneficiary form was executed, the decedent was residing in China. Li Zhu Chen allegedly brought to him, and witnessed the decedent’s signature on, the Change in Beneficiary form while both were in China, and subsequently filed it with MetLife when she returned to the United States. Plaintiff alleged that the signature on the 2016 Change in Beneficiary form was forged by defendant, Hong Yung Chau, and that defendant, Li Zhu Chen, conspired with the daughter, Chau, to submit the “forged” Change in Beneficiary form to deprive plaintiff of the proceeds of the insurance policy. Plaintiff commenced the action in August 2019, alleging fraud, aiding and abetting fraud, and conspiracy to commit fraud against defendant, Li Zhu Chen. Defendant, Chen, moved to dismiss plaintiff’s complaint for, inter alia , failing to state a cause of action pursuant to CPLR § 3211 (a) (7). Plaintiff opposed. The Court’s Decision The Court granted the motion, holding that plaintiff failed to satisfy the reliance element of her fraud claim. The Court found that the complaint only alleged that “Defendant, LI ZHU CHEN, committed fraud by making material misrepresentations of fact to MetLife.” Slip Op. at *3. It did not allege that MetLife “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to detriment.” Id. (quoting Pasternack , 27 N.Y.3d at 828). As such, held the Court, plaintiff failed to satisfy the reliance element of her fraud claim. Id. Because the fraud claim did not survive defendant’s challenge, the Court dismissed plaintiff’s aiding and abetting claim. Id. (stating, “the complaint did not meet the specificity requirements to sufficiently plead the existence of an underlying fraud, and, as a result, the cause of action for aiding and abetting cannot survive.…”).  Finally, the Court dismissed the conspiracy to commit fraud claim because “New York does not recognize an independent tort cause of action for civil conspiracy.” Id. (citations omitted). Takeaway We have often written about the difficulty plaintiffs encounter trying to satisfy the reliance element of a fraud claim. ( E.g. , here and here .)  Gui Qin Chen shows that this requirement can be even more difficult when the alleged misrepresentation is not made directly to the plaintiff. In that circumstance, the plaintiff must allege that the misrepresentation was made for the purpose of being communicated to the plaintiff in order to induce his/her reliance thereon or that the misrepresentation was relayed to the plaintiff, who then relied upon them. The failure to allege either will, as the plaintiff in Gui Qin Chen learned, result in dismissal of the fraud cause of action.

On December 31, 2018, this Blog posted an article, titled “Court Dismisses Complaint Charging Misappropriation of Intellectual Property on Summary Judgment.” ( Here .) The case that we examined in that article, Hyperlync Techs., Inc. v. Verizon Sourcing LLC , 2018 N.Y. Slip Op. 33123(U) (Sup. Ct., N.Y. County Dec. 5, 2018) (here), involved allegations that the defendant, Verizon Sourcing, LLC (“Verizon”), disclosed confidential information to Synchronoss Technologies, Inc. (“Synchronoss”), a competitor of the plaintiff, Hyperlync Multimedia Israel, Ltd. (“Hyperlync”), for use in its own competing product. As discussed in the article, the motion court dismissed the claims for, inter alia , the misappropriation of confidential information and ideas. That decision was appealed. In today’s article, we examine the affirmance of the motion court’s decision by the Appellate Division, First Department. Background In 2013, Hyperlync developed the Phone Cloner (“Phone Cloner”), a peer-to-peer phone provisioning app. In March of that year, Hyperlync presented the Phone Cloner concept to Verizon. Having expressed interest in the app, Hyperlync gave Verizon functioning versions of the Phone Cloner, as well as technical information for testing. Hyperlync alleged that it disclosed such information to Verizon pursuant to a non-disclosure agreement (“NDA”) the parties signed on October 12, 2012. In August 2013, Verizon demonstrated the Phone Cloner app at a Verizon “innovation fair” in Walnut Creek, California. The fair was attended by Verizon employees and a Verizon vendor. Following the fair, the vendor sent an email to two Synchronoss employees informing them that a “content transfer” app was demonstrated at the meeting. The email did not reference Hyperlync or the Phone Cloner. Deposition testimony showed that the vendor neither received materials and information from Verizon regarding the Phone Cloner or any peer-to-peer provisioning technology nor worked on any phone provisioning app. In October 2013, Verizon declined Hyperlync’s terms for continued development of the Phone Cloner. Hyperlync alleged that after Verizon disclosed Hyperlync’s trade secret information to Synchronoss in breach of the NDA, Synchronoss then released its own phone provisioning app, named MCT, based on the misappropriated Hyperlync information. Hyperlync maintained that the MCT app had the same functionality, look and feel as the Phone Cloner. Justice Saliann Scarpulla, granted Verizon’s motion for summary judgment, dismissing Hyperlync’s misappropriation of trade secrets, misappropriation of ideas, and breach of contract causes of action as against it.  The Motion Court held that Hyperlync failed to identify a trade secret that had been misappropriated, notwithstanding the “voluminous papers and exhibits,” submitted to the Court. The Motion Court explained that Hyperlync failed to provide any specificity concerning the alleged trade secret, concluding that Hyperlync’s “explanation of its trade secret nebulous at best….”  The Motion Court also held that Hyperlync failed to demonstrate a misappropriation as a consequence of Verizon’s alleged violation of the NDA. The Motion Court found that Hyperlync failed to submit “any documents or testimony to raise an issue of fact” demonstrating that “the ‘how to’ of the Phone Cloner app was passed to Verizon.” This finding was underscored by Hyperlync’s admission that one of its employees could not clearly state “what information he gave to Verizon about the Phone Cloner,” and the employee’s testimony “that Hyperlync did not disseminate any source code associated with .” Finally, the Motion Court held that Hyperlync failed to demonstrate that the Phone Cloner app was novel – i.e. , it “was unlike other products on the market.” “In fact,” the Court noted, deposition testimony “confirmed that the idea for data transfer between two phones via Wi-Fi was already in the public domain at the time of the Phone Cloner app,” and documentary “evidence” presented by Verizon showed that there were a number of “applications for Wi-Fi data transfer” that “pre-dated Phone Cloner.…” Plaintiff appealed.  The First Department’s Decision The First Department found that, “ ontrary to Verizon’s arguments” and the Motion Court’s holding, plaintiff described the allegedly misappropriated ideas with sufficient specificity. Slip Op. at *1 (citation omitted). Notwithstanding, the Court said that “the ideas were not sufficiently novel to merit protection.” Id. (citation omitted). The Court explained that the “concepts behind plaintiffs’ app were not new, were readily available in the public domain, and were used by a number of other apps on the market at the time.” Id. The Court rejected plaintiffs’ argument that the app was an improvement in speed and functionality over the apps that existed in 2013, holding that “a smart adaptation of existing knowledge is not considered novel.” Id. (citations omitted). The Court also found that the ideas for the app were not confidential. Id. (citation omitted). The Court noted that the ideas were in the public domain “before the alleged misappropriation”. Id. The Court explained that “plaintiffs posted the app’s demo videos on YouTube and repeatedly shared those videos with companies with which it did not have nondisclosure agreements.” Id. The Court rejected plaintiffs’ argument that the materials were promotional and did not contain any confidential information. Id. Such an argument said the Court was “belied by own emails, in which they requested assurances of confidentiality.” Id. “Plaintiffs’ subjective understanding that there was an assurance of confidentiality does not create third-party obligations of confidentiality,” concluded the Court. Id. (citation omitted).  The Court further found that Plaintiffs “failed to establish that Verizon actually conveyed its ideas to Synchronoss.” Id. First, noted the Court, “plaintiffs did not share the app’s source code.” Id. In fact, observed the Court, plaintiffs “encrypted its builds, making the source code unaccessible to Verizon.” Id. Second, said the Court, there was nothing in the record showing “the form in which the misappropriated information was transferred, such as technical specifications, prototypes, or PowerPoint decks, or the person or persons who did the alleged transferring.” Id. The Court did not find plaintiffs’ expert’s opinion that the competing apps functioned similarly sufficient to raise an issue of fact. This was especially so since the opinion was not based on the expert’s review of the source code. Id. The fact that “both apps accomplish the same task in a manner that might seem similar to an end user does not prove misappropriation,” concluded the Court. Id.

It has been a long time since this Blog examined a request for a pre-judgment order of attachment. ( See here .) Today, we take another look at this provisional remedy. What is Prejudgment Attachment?  Prejudgment attachment is a provisional remedy that provides a plaintiff with a statutory mechanism by which he/she can secure a defendant’s assets during the pendency of a lawsuit. In effect, an order of attachment is a lien against the defendant’s property. As such, a prejudgment order of attachment increases the likelihood of recovery on a later-obtained judgment in the action. The Law in New York Article 62 of the Civil Practice Law & Rules (“CPLR”) governs prejudgment attachment orders. Sections 6201(1) through 6201(5) provide the grounds upon which a plaintiff can obtain such relief. Under these sections, a plaintiff can obtain a prejudgment order of attachment when: the defendant is a foreign corporation not qualified to do business in New York (CPLR § 6201(1)); the defendant resides in New York but cannot be served with process despite diligent efforts to do so (CPLR § 6201(2)); the defendant with intent to defraud creditors or frustrate enforcement of a judgment that might be rendered in the plaintiff’s favor, has assigned, disposed of, encumbered or secreted property, or removed property from the state or is about to do so (CPLR § 6201(3)); the action is brought by a crime victim and is brought against the person or legal representative of the person convicted of the crime and seeks to recover damages sustained as a result of crime (CPLR § 6201(4)); or the cause of action is based on a judgment, decree or order of a court of the United States or of any other court that is entitled to full faith and credit in New York state, or on a judgment that qualifies for recognition in New York (CPLR § 6201(5)). Prejudgment attachment is a drastic remedy. For this reason, the plaintiff must establish that there is a cause of action against the defendant, that it is probable the plaintiff will succeed on the merits (which requires more than the allegations required for a complaint), that one or more statutory grounds for attachment are met, and that the amount demanded exceeds all known counterclaims. CPLR § 6212(a).  Notably, the plaintiff’s moving papers must contain evidentiary facts — as opposed to conclusions — proving the basis upon which the attachment remedy is sought.  Societe Generale Alsacienne De Banque, Zurich v. Flemingdon Dev. Corp. , 118 A.D.2d 769, 773 (2d Dept. 1986). The evidence must be established by an affidavit made by a person with actual knowledge. Rosenthal v. Rochester Button Co., Inc. , 148 A.D.2d 375 (1st Dept. 1989). Applications supported solely by an affidavit of an attorney who lacks personal knowledge of the facts surrounding the transaction giving rise to the action are insufficient.  Where fraud is alleged, under CPLR § 6201(3), “the plaintiff must demonstrate that the defendant has concealed or is about to conceal property in one or more of several enumerated ways, and has acted or will act with the intent to defraud creditors or to frustrate the enforcement of a judgment that might be rendered in favor of the plaintiff’.” VNB NY, LLC v. Rapaport , 2016 N.Y. Slip. Op. 50099 (Sup. Ct., Kings County Jan. 29, 2016) (citations omitted). “ ere removal, assignment or other disposition of property is not grounds for attachment.” Computer Strategies v. Commodore Bus. Machs. , 105 A.D.2d 167, 173 (2d Dept. 1984). “The moving papers must contain evidentiary facts, as opposed to conclusions, proving the fraud.” Id.   Thus, it is not sufficient to merely raise a suspicion of an intent to defraud. Skycom SRL v. FA & Partners, Inc. , 2016 N.Y. Slip Op. 32405 (Sup. Ct., N.Y. County Dec. 7, 2016). Rather, “it must appear that such fraudulent intent really existed in the mind of the defendants, and not merely in the ingenuity of the plaintiffs.” Id. (citation and internal quotation marks omitted). Even when the plaintiff satisfies the statutory grounds for an order of attachment, he/she still “must demonstrate an identifiable risk that the defendant will not be able to satisfy the judgment.” Mascis Inv. P’ship v. SG Cap. Corp. , 2017 N.Y. Slip Op. 30813 (Sup. Ct., N.Y. County Apr. 21, 2017) (quoting VisionChina Media Inc. v. Shareholder Representative Servs., LLC , 109 A.D.3d 49, 60 (1st Dept. 2013)).  The risk “should be real.” VisionChina , 109 A.D.3d at 60 (citation and internal quotation marks omitted). In this regard, the court may consider the defendant’s financial position ( i.e. , whether the defendant is in “serious financial distress” ( Elton Leather Corp. v. First Gen. Resources Co. , 138 A.D.2d 132, 134 (1st Dept. 1988)) or past and present conduct, including the defendant’s history of paying creditors and any statements or action evincing an intent to dispose of assets. VisionChina , 109 A.D.3d at 60. In addition, the plaintiff must post a bond, in an amount not less than $500 as fixed by the court, for the purpose of making the defendant whole for all costs and damages, including reasonable attorneys’ fees, which may be sustained by the reason of the attachment if the defendant recovers judgment or it is finally decided that the plaintiff was not entitled to an attachment order. CPLR § 6212(b). Typically, courts require the undertaking to be in an amount equal to or greater than the amount of the attachment. E.g. , Von Bock v Metropolitan Life Ins. Co. , 223 A.D.2d 700 (2d Dept. 1996). Erensel v. Abitbol On May 29, 2020, in Erensel v. Abitbol , 2020 N.Y. Slip Op. 31587(U) ( here ), Justice Arlene P. Bluth of the New York Supreme Court, New York County, considered the foregoing principles and declined to grant the plaintiff’s motion for a prejudgment attachment order under CPLR § 6201(3) due to a lack of evidence of fraudulent intent. Background Erensel concerned the business relationship between plaintiff, Brent Erensel, and defendants, Yair Abitbol (“Abitbol”) and Zurich Funding NA Inc. (“Zurich”). Plaintiff alleged that Abitbol ran a fraudulent scheme to induce plaintiff into investing $75,000 in Zurich – an initial deposit of $25,000 and an additional investment of $50,000 – to acquire an ownership interest in the company. Plaintiff contended that Zurich was a fraudulent company and that Abitbol deliberately chose the name and the company logo to mimic the well-known Zurich Insurance Company. Plaintiff asserted that Zurich had few assets and that the address provided for the business was fake. Plaintiff successfully obtained an order preliminarily restraining defendants from transferring any assets to the extent of the amount claimed by plaintiff, including a specific bank account at TD Bank and any other bank account in either defendants’ name at TD Bank. Plaintiff moved for a prejudgment order of attachment. Defendants opposed the motion, claiming the dispute between the parties was merely a disagreement over plaintiff’s desire to leave the partnership. Defendants denied that there was any fraud, noting that there could be no fraud since plaintiff received payments from Zurich – between November 2017 through May 2018, plaintiff received a little over $16,000 from his partnership interest in Zurich.  The Court’s Decision The Court denied the motion and vacated the order restraining defendants from transferring any assets. The Court held that plaintiff failed to meet his burden for a prejudgment order of attachment. In particular, the Court found no proof of fraud: “Critically, plaintiff admits that he received monthly payments from Zurich from November 2017 through May 2018 before the payments ceased. While these payments do not prove the absence of fraud, they severely undercut the high burden a plaintiff must meet in order to get an attachment.” Slip Op. at *3 (orig’l emphasis).  The Court also held that plaintiff failed to prove that defendants concealed or were about to conceal assets in order to evade the recovery of a judgment. Id. This was especially so since the parties disputed the events in question. Id. (noting, “defendants have appeared and offer a very different account of what took place”).  Put another way, an attachment is not appropriate where two parties disagree over the terms of an investor’s departure from a partnership. It may be that plaintiff is in fact entitled to the over $70,000 he seeks. But plaintiff’s eventual recovery is not a reason to grant the provisional remedy sought here, where plaintiff has made no showing that defendants have taken any steps to be “judgment proof.” This Court declines to grant an attachment under these circumstances Id. at *3-*4. In short, explained the Court, “ his is not a situation where plaintiff has proof that defendants transferred money from its accounts, attempted to shut down the business or have disappeared.” Id. at *3. Takeaway The purpose of a prejudgment order of attachment “is not merely to ensure a plaintiff can recover the amount sought if he or she prevails in a case.” Slip Op. at *3. “Otherwise,” as Justice Bluth observed, “a plaintiff would be entitled to an attachment in nearly every case.” Id. The remedy is reserved for a specific set of circumstances. Proof of those circumstances is required. Since New York courts strictly construe CPLR § 6201 “in favor of those against whom it may be employed” ( Hume v. 1 Prospect Park ALF, LLC , 137 A.D.3d 1080, 1081 (2d Dept. 2016)), the burden on the movant is high. In Erensel , plaintiff could not meet this burden.

It is an accepted principal of contract interpretation that “when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms.”  Vermont Teddy Bear Co. v. 538 Madison Realty Co. , 1 N.Y.3d 470 475 (2004) (quoting W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990)) (ellipses omitted).  Such a rule “imparts stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses<,> infirmity of memory and the fear that the jury will improperly evaluate the extrinsic evidence.”  W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990) (ellipses and brackets omitted).  This “stability” is of critical importance in real estate transactions where commercial certainty is a paramount concern….”  Wallace v. 600 Partners Co. , 86 N.Y.2d 543, 548 (1995) (citation and internal quotation marks omitted).  Adherence to typical rules of contract construction is mandated when the underlying transactions involve “sophisticated, counseled parties dealing at arm’s length.”  Chimart Assoc. v. Paul , 66 N.Y.2d 570, 574 (1986). Personal guaranties are frequently utilized in commercial transactions.  Lenders often require that principals of a corporate borrower execute guaranties to help secure payment in the event that the borrower defaults.  Guaranties also ensure that the guarantors have “skin in the game,” which may keep them mindful of the business decisions that they make.  For the same reasons, commercial landlords frequently require that, inter alia , the financial obligations of a lease are guaranteed by a principal of a corporate tenant. “A guaranty is a promise to fulfill the obligations of another party, and is subject to the ordinary principles of contract construction.”  Cooperative Centrale Raiffeisen-Boerenleenbank, B.A., “Rabobank Int’l,” New York Branch v. Navarro , 25 N.Y.3d 485, 493 (2015) (citations and internal quotation marks omitted).  Accordingly, a guaranty, like any other “written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.”  Rabobank , 25 N.Y.3d at 493 (citation and internal quotation marks omitted). A guaranty that provides that the guarantor waives defenses is enforceable.  As the Court stated in Citibank, N.A. v. Plapinger , 66 N.Y.2d 90, 92 (1985), “ raud in the inducement of a guarantee by corporate officers of the corporation’s indebtedness is not a defense to an action on the guarantee when the guarantee recites that it is absolute and unconditional irrespective of any lack of validity or enforceability of the guarantee, or any other circumstance which might otherwise constitute a defense available to a guarantor in respect of the guarantee, those recitals being inconsistent with the guarantors’ claim of reliance upon an oral representation that the lending banks were committed to extend to the corporation an additional line of credit.”  Citibank , 66 N.Y.2d at 92.  “Relying on Citibank , New York courts have consistently upheld broadly worded waiver language of this type to preclude the assertion of defenses to a guaranty.”  Red Tulip, LLC. v. Neiva , 44 A.D.3d 204, 209 (1 st Dep’t 2007) (citations and internal quotation marks omitted). In 2402 East 69 th Street, LLC v. Corbel Installations, Inc. , decided by the Appellate Division, Second Department, on May 27, 2020, the Court was called upon to determine whether the guarantors of a commercial lease were liable under the guaranties they signed.  The plaintiff in 2402 East 69 was the owner of commercial property in Brooklyn (the “Premises”).  Defendant Corbel, as tenant, entered into a three-year commercial lease with 2402 East 69 th Street, LLC, as landlord.  Two principals of tenant executed personal guaranties.  Tenant defaulted in its obligations under the lease and landlord sought to enforce its rights against guarantors.  Apparently, the form lease used misnamed the landlord and the address of the Premises.  An e-mail, which was deemed to be an amendment to the Lease and corrected the two referenced errors, was signed by representatives of the landlord and tenant.  The guaranties provided that the guarantors “would become guarantors of the prompt and faithful payment and performance of Corbel under the lease, and that no modifications or amendments to the lease would relieve the guarantors’ obligations.” In 2402 East, the First Department, inter alia , affirmed the motion court’s grant of summary judgment in favor of landlord finding that it met its prima facie burden by proving “an absolute and unconditional guaranty, the underlying debt, and the guarantor’s failure to perform under the guaranty.”  (Citations omitted.)  The “plaintiff established, prima facie, that were liable for breach of the lease he guaranty provided, inter alia , that no amendments of the lease would relieve the guarantors or the guarantors’ obligations, and that notice to or consent by the guarantors was not required for amendments respecting the lease.”  (Citations omitted.)  The Court rejected the guarantors’ contention that the signed e-mail was not an amendment to the lease because “ guarantor is not relieved of his or her obligations where, as here, the written guaranty allows for changes in the terms of the guaranty and expressly waives notice to the guarantor of these changes.”  (Citations, internal quotation marks and brackets omitted.)

In prior posts ( e.g. , here and here ), we have discussed the importance of pleading loss causation in fraud and fraud-related actions. Where causation is an issue, the cases show that plaintiffs often have difficulty demonstrating the components necessary to withstand a motion to dismiss ( e.g. , here ). There are two components to the causation element: transaction causation and loss causation. “Transaction causation means that the violations in question caused the to engage in the transaction in question.” AUSA Life Ins. Co. v. Ernst & Young , 206 F.3d 202, 209 (2d Cir. 2000) (citation and internal quotation marks omitted). The term is often used by the courts synonymously with “but for” causation. Moore v. PaineWebber, Inc. , 189 F.3d 165, 172 (2d Cir. 1999) (“To show transaction causation, the plaintiffs must demonstrate that but for the defendant’s wrongful acts, the plaintiffs would not have entered into the transactions that resulted in their losses.”) (citation omitted) (emphasis in original). Loss causation is “the causal link between the alleged misconduct and the economic harm ultimately suffered by plaintiff.” Fin. Guar. Ins. Co. v. Putnam Advisory Co. , 783 F.3d 395, 402 (2d Cir. 2015). It is synonymous with the proximate cause concept found in other tort cases and in the federal securities context. See Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc. , 343 F.3d 189, 196-97 (2d Cir. 2003) (loss causation in common law fraud claims comparable to federal securities fraud claims); Laub v. Faessel , 297 A.D.2d 28, 31 (1st Dept. 2002) (“ oss causation is the fundamental core of the common-law concept of proximate cause”) (citations omitted). Both transaction causation and loss causation must be pleaded and proved to withstand a challenge from a defendant. Whether the plaintiff satisfies the loss causation element requires a fact intensive analysis, making a decision on a motion to dismiss generally inappropriate. See Metro. Life Ins. Co. v. Morgan Stanley , 2013 WL 3724938, at *18 (Sup. Ct. N.Y. Cnty. June 8, 2013) (holding proximate cause was not an appropriate issue on a motion to dismiss); see also Schroeder v. Pinterest Inc. , 133 A.D.3d 12, 26 n.7 (1st Dept. 2015) (noting that “issues of proximate cause are for the trier of fact….”). Notwithstanding, as noted, the cases show that plaintiffs often find their fraud and fraud-based causes of action dismissed because of the failure to plead and/or prove causation, and in particular loss causation. In today’s article, we examine Minzer v. Barga , 2020 N.Y. Slip Op. 31458(U) (Sup. Ct. May 22, 2020) ( here ), a case involving claims sounding in, among others, fraud, negligent misrepresentation and consumer-oriented deceptive practices. Minzer v. Barga Background Plaintiff, Daniel Minzer (Minzer”), alleged he was struck in the face by defendant, Angelo Barga (“Barga”), who was allegedly acting as a driver employed by defendants, Zwolf-NY, LLC (“Zwolf-NY”) and Uber Technologies (collectively, “Uber”), at the time of the incident. Plaintiff asserted that Uber’s online representations led him to believe that his safety was assured. The incident occurred on February 24, 2018, when plaintiff allegedly requested a ride on the Uber application with a friend. Plaintiff’s friend wore a brace due to a knee injury. The Uber application assigned Barga as plaintiff’s driver. Once inside the vehicle, plaintiff asked Barga to make two stops. Barga allegedly became agitated and refused. After making a statement to the effect of “do you want to have a broken leg like your friend,” Barga exited the vehicle, walked to the back, and allegedly punched plaintiff on the right side of his face before driving away. Plaintiff was charged $10.40 for a ride that neither he nor his friend participated in. Plaintiff filed suit. In his amended complaint, plaintiff set forth nine causes of action: (1) assault, (2) battery, (3) respondeat superior liability, (4) apparent authority liability, (5) negligent hiring, supervision, and retention, (6) fraudulent misrepresentation, (7) negligent misrepresentation, (8) breach of contract, and (9) violations of New York’s Deceptive Trade Practices Act, New York General Business Law (“GBL”) § 349. Defendants moved to dismiss. The Court granted the motion. We look at the motion with respect to plaintiff’s sixth, seventh and ninth causes of action. The Court’s Decision The Court held that plaintiff did “not set forth … a reasonable basis … to determine that Uber’s alleged misrepresentations caused plaintiff’s loss or injury.” Slip Op. at *5.  The Court noted that Minzer sufficiently pleaded “transaction causation as he claim he would not have chosen the service but for Uber’s safety promises.” Id. However, the Court found that there was nothing in the complaint to suggest that Uber’s representations about safety caused his injuries as opposed to the attack allegedly undertaken by Barga: “ othing in the pleading … suggests loss causation— i.e. , that Uber’s alleged misrepresentations of safety, rather than Barga’s attack, directly caused plaintiff’s loss. Id. at *5-*6 (citing Greentech Research, LLC v. Wissman , 104 A.D.3d 540, 540 (1st Dept. 2013) and Laub , supra .). In addition, the Court held that Minzer failed to plead his fraud and fraud-based claims with particularity. Slip Op. at *6.  The Court found that Minzer merely pleaded “that he was aware of Uber’s alleged safety promises.” Id.   He did not allege, said the Court, “how or when came to possess this information, thereby failing the particularity requirement.” Id. Under CPLR § 3016(b), a plaintiff alleging fraud must state “‘the circumstances constituting the wrong’ with ‘specific facts with respect to the time, place, or manner of the defendant’s purported misrepresentations,’ as well as the specific words used by the defendant.” Id. (quoting CPLR § 3016(b) and Lanzi v. Brooks , 43 N.Y.2d 778, 780 (1977), and citing Brown v. Wolf Group Integrated Communications, Ltd. , 23 A.D.3d 239 (1st Dept. 2005); Riverbay Corp. v. Thyssenkrupp N. Elevator Corp. , 116 A.D.3d 487, 488 (1st Dept. 2014)).  The Court found that Minzer’s GBL § 349 claim “suffer similar defects as the claims.” Slip Op. at *6. In this regard, the Court found, relying on Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris USA Inc. , 3 N.Y.3d 200, 207 (2004), that “Barga’s assault the only direct cause of plaintiff’s injury.” Id. In Blue Cross , the Court of Appeals deemed causation too derivative when the plaintiff insurers’ losses resulted directly from smoking-related illnesses of their subscribers, rather than from the defendant tobacco companies’ products. 3 N.Y.3d at 207.   Moreover, “ ven if plaintiff would not have suffered the injury but for Uber’s promises,” Minzer’s claim would still fail because “but for” causation is insufficient to “‘to state a claim for relief under §349(h).’” Id. (quoting City of New York v. Smokes-Spirits.Com, Inc. , 12 N.Y.3d 616, 623 (2009)). Takeaway Plaintiffs alleging fraud must do so with particularity. This pleading requirement applies to each element of the fraud claim.  Minzer is a good reminder that a plaintiff can get to the finish line but not cross it because of a failure to satisfy one of the elements of his/her fraud claim. In Minzer , that element was causation.  Although the causation element is inherently factual, it does not mean that courts will not dismiss a fraud claim because of the failure to plead and/or prove causation. In fact, as shown in Minzer , where the plaintiff fails to allege facts sufficient to support a reasonable inference that the causation allegations are true ( Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559-60 (2009)), a fraud cause of action will be dismissed. For this reason, litigants alleging fraud should be mindful of the particularity requirements attendant to each element of the claim. As relevant in Minzer , this means providing allegations that show “the misrepresentations directly caused the loss about which plaintiff complains.” Laub , 297 A.D.2d at 31.

Last week, the New York State court system, which is following Governor Cuomo’s plan to reopen the economy on a regional, phased-in basis, resumed in-person court operations in 40 counties in the six regions meeting the public health benchmarks for economic reopening: the Finger Lakes, Mohawk Valley, Southern Tier, North Country, Central New York and Western New York regions. As of May 26, 2020, eight additional counties in the Capital Region restored in-person court operations. By the end of the week, the Mid-Hudson and Long Island regions are expected to join the foregoing regions in restoring in-person operations – the former to resume in-person operations on May 28 and the latter to resume operations on May 29. In total, the court system has resumed in-person courthouse operations in 48 of the state’s 62 counties. Although in-person operations have resumed in these regions, Chief Judge DiFiore stressed in her weekly update video ( here ) that the resumption of operations “is not a return to business as usual.” Instead, said Chief Judge DiFiore, it is “a return to a ‘new normal’ defined by limited courthouse traffic and procedures and safety measures designed to reduce the risk of virus transmission and ensure the health and safety of judges, court staff and all court users and visitors.” Thus, the court system will continue to “rely[ ] on virtual technology to conduct as much court business as possible” and implement “safety measures” where in-person operations have been restored, “including: COVID screening; the wearing of masks by all who enter our courthouses; social distancing protocols; availability of PPE; strict cleaning and sanitizing standards; and the installation of plexiglass partitions in strategic courthouse locations.” Chief Judge DiFiore noted that the court system took “a[]nother important step in return to a new normal” on May 25, by allowing “the filing of new lawsuits and court matters previously classified as ‘nonessential.’” Thus, new lawsuits can be filed in all 62 counties of the state. In allowing new filings, Chief Judge DiFiore explained that in the “regions that have reopened, new matters must be filed electronically in those courts that use NYSCEF e-filing system, and by mail in those courts where NYSCEF is unavailable.” In the regions “that have not yet met the benchmarks for reopening, new matters may now be filed electronically in those courts that use the NYSCEF system.” Chief Judge DiFiore encouraged those looking for more information about the filing of new matters to visit the court system’s website, where visitors can review Administrative Order 114 ( here ).  Chief Judge DiFiore also noted the progress judges have made to reduce the backlog of pending, undecided motions. In courts outside New York City, all but one county has reduced the backlog to zero, and, as to that county, it “is fast approaching zero”, said Chief Judge DiFiore. In New York City, the “backlog has been reduced by more than half.” Finally, the Court of Appeals announced ( here ) that it will begin the transition to in-person courthouse operations. By May 28, 2020, the full complement of Albany-based Court staff will return to Court of Appeals Hall. During its June 2020 session, the Court will be available to hear in-person oral argument from counsel, following appropriate safety protocols. However, the courtroom will be closed to the public. The Court will webcast oral arguments in real time. Court of Appeals Hall otherwise will not be open to public visitors until further notice. Filings, including applications for stays, will not be accepted in person at the Clerk’s Office until further notice. Persons who wish to file papers in person should call the Clerk’s Office at 518-455-7700 for instructions on alternative ways to file. The Court will continue to accept submissions by mail and, as permitted by its Rules, electronically. Attorneys, litigants and the public are encouraged to check the Court’s website ( here ) for updates on Court procedures.

Elder financial exploitation is a significant problem. Everyone reading this article may be affected in some way. Family, friends, neighbors, colleagues, and/or customers can fall victim to financial exploitation. All of us are at risk of being financially abused and/or exploited as we grow older. Seniors are Particularly Vulnerable to Financial Abuse and Exploitation “Scam artists prey on seniors who are too polite and have difficulty saying ‘no’ or feel indebted to someone who has provided unsolicited investment advice.” (See SEC Guide, “Before You Invest”, here.) Research indicates that as seniors grow older, they become too trusting and fail to recognize false or misleading claims, suspicious intentions and evidence of risky behavior. One study of senior adults found that many exhibited risky behaviors, such as believing deceptive and misleading advertisements and buying falsely advertised products (here). Other researchers have found that older persons possess a “doubt deficit,” in which false and misleading claims fail to trigger doubt in the listener (here). Such persons are often unable to detect the intentions of others, including those with the intent to deceive. As a result, the inability to doubt “provide a compelling rationale why highly knowledgeable and intelligent older people are often susceptible to deception and fraud.” (Id.) The Financial Costs of Elder Financial Abuse and Exploitation As the incidence of financial exploitation and abuse increases, so do the costs to its victims. An oft-cited study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Polytechnic Institute and State University, titled “Broken Trust: Elders, Family & Finances,” estimates that about one million seniors lose approximately $2.6 billion annually from financial exploitation and abuse. (Here.) In 2011, MetLife updated its estimate to at least $2.9 billion. Other, more recent studies estimate the losses to exceed $36 billion a year, 12 times the MetLife estimate. (Here.) Seniors and Pyramid Schemes Ponzi schemes remain a familiar and unfortunate risk for investors, especially the elderly. (Here.) Because Ponzi schemes purport to offer high returns with little or no risk, and rely on inflated credentials of a financial professional, investors are attracted to the investment products these scammers offer. “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. With little or no legitimate earnings, Ponzi schemes require a constant flow of money from new investors to continue. Ponzi schemes inevitably collapse, most often when it becomes difficult to recruit new investors or when a large number of investors ask for their funds to be returned.” Seehttps://www.sec.gov/spotlight/enf-actions-ponzi.shtml. Many Ponzi schemes share common characteristics. These include, among others: high returns with little or no risk – i.e., “guaranteed” investment opportunities; overly consistent returns – i.e., investments that consistently generate positive returns regardless of overall market conditions; unregistered investments – i.e., investments that are not registered with the SEC or with state regulators; unlicensed sellers – i.e., investment professionals and firms that are not licensed or registered with state and federal regulators; secretive, complex strategies – i.e., investment strategies that are locked away in a black box or are the scammer’s “secret sauce”; and difficulty receiving payments – i.e., difficulty cashing out or obtaining redemptions. Shutting down Ponzi schemes and holding the organizers accountable for such frauds is an important part of the SEC’s enforcement mission. Recently, the SEC announced an emergency action against a Ponzi scheme organizer allegedly responsible for bilking seniors out of millions of dollars. SEC v. Paul Horton Smith, et al. On May 22, 2020, the SEC announced (here) that it filed an emergency action and obtained a temporary restraining order and asset freeze against a California-registered investment adviser and his entities to stop an ongoing Ponzi scheme targeting senior citizens in Southern California. According to the SEC’s complaint (here), from at least January 2018 through the present, Paul Horton Smith Sr. (“Smith”) offered and sold securities in his company Northstar Communications LLC (“Northstar”), and used his investment advisory firm eGate LLC (“eGate”) and insurance and estate planning company Planning Services Inc. (“Planning Services”) to market the securities. Smith and Northstar through free workshops and other investor events allegedly promised investors guaranteed annual interest payments of between 3% and 10.5% if they invested in “private annuity contracts.” The SEC alleged that, in reality, Smith did not invest the funds raised in any securities and instead used new investor funds to pay investor returns “in a classic Ponzi scheme.” According to the SEC, Northstar raised more than $5.6 million from at least 35 investors and paid out $5.2 million to those investors as interest payments or principal returned. Smith also allegedly used investor funds to settle investor fraud lawsuits. Smith allegedly perpetrated the fraud by holding himself out as a trusted fiduciary through his position as an investment adviser with eGate and a licensed insurance agent with Planning Services. Smith allegedly touted himself to potential clients as a “veteran of the financial services industry” with years of experience, at free financial workshops and free meal seminars. Through his promotion of advisory, tax, and financial planning services, said the SEC, Smith created a trusting relationship he then used to solicit investors to purchase securities issued by Northstar. Smith allegedly told investors during a February 2020 workshop, “your pockets aren’t going to get picked, okay? . . . We are all fiduciaries.” In fact, alleged the SEC, “clients’ pockets were getting picked clean through his Ponzi scheme.” According to the SEC, Northstar’s bank records for the period January 2018 to April 2020 showed investor deposits of approximately $5.6 million into its bank account, representing approximately 95% of total deposits during that period. During the same period, said the SEC, over $5.3 million was paid to investors as interest payments or return of principal, or approximately 89% of the total disbursements from the Northstar account. “As alleged in our complaint, Paul Horton Smith Sr. raised millions of dollars by touting his purported investment expertise and guaranteeing returns,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “Investors should be wary of investments promising no risk and high returns, which are classic warning signs of investment fraud.” The SEC charged Smith, Northstar, eGate, and Planning Services with violating the antifraud provisions of the federal securities laws. The SEC seeks injunctions, the return of ill-gotten gains plus interest, and civil penalties. On May 20, 2020, in addition to granting a temporary restraining order and an asset freeze, the court ordered an accounting and appointed a temporary receiver. The court scheduled a hearing for June 3, 2020, to consider continuing the asset freeze, issuance of a preliminary injunction, and appointment of a permanent receiver. In a parallel action, the U.S. Attorney’s Office for the United States District Court for the Central District of California announced (here) on May 21, 2020 that it filed a criminal complaint against Smith. According to the DOJ, the alleged fraud occurred “from at least 2013 until the present”. Over that time, Smith allegedly bilked investors, mainly seniors, out of more than $10 million. One victim, a 70-year-old woman who had known Smith from their mutual church association in the 1990s, sold a home in Arizona in August 2016 and wrote a $175,000 check to Northstar for investment. Instead of investing the victim’s money, the DOJ claimed that Smith transferred her funds to other investors, and used her money to pay off the other investors’ tax bills with the IRS and the Franchise Tax Board. In November 2019, another victim, an 86-year-old woman who had known Smith for many years, allegedly invested approximately $169,126 in Northstar from the sale of a rental property. The following day, charged the government, Smith took $134,863 of the victim’s money to pay off another victim investor. According to the DOJ, a review of bank records showed that Smith’s victims transferred more than $10 million to Smith’s business entities since 2013.

Discovery, an important part of litigation, is designed to assist litigants in the prosecution or the defense of the claims being asserted in the action.  For the litigation process to yield fair results, it is imperative that the parties exchange necessary information. See CPLR 3101 (“There shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof...”).  Accordingly, there is a duty to preserve evidence that may be useful during litigation and there is a consequence for failing to preserve evidence – whether the failure is willful, negligent, or anywhere in between.  This BLOG previously discussed spoliation of evidence. < HERE =">HERE"> “To obtain sanctions for spoliation, a party must establish that the non-moving party had an obligation to preserve the item in question, that the item was destroyed with a ‘culpable state of mind,’ and that the destroyed item was relevant to the party’s claim or defense.”  Rossi v. Doka USA, Ltd. , 181 A.D.3d 523, 526 (1 st Dep’t 2020) (quoting, Voom HD Holdings LLC v. EchoStar Satellite LLC , 93 A.D.3d 33, 45 (1 st Dep’t 2012).  A “culpable state of mind” for the purposes of spoliation analysis can include “ordinary negligence.”  Voom , 93 A.D.3d at 45.  Further, “ ailures which support a finding of gross negligence, when the duty to preserve electronic data has been triggered, include: (1) the failure to issue a written litigation hold, when appropriate; (2) the failure to identify all of the key players and to ensure that their electronic and other records are preserved; and (3) the failure to cease the deletion of e-mail.”  Voom , 93 A.D.3d at 36 (citations omitted). When it is determined that evidence was “intentionally or willfully” destroyed the documents will be presumed to be relevant, but in circumstances where evidence is destroyed through negligence, “the party seeking spoliation sanctions must establish that the destroyed documents were relevant to the party’s claim or defense.”  Pegasus Aviation I, Inc. v. Varig Logistica S.A . , 26 N.Y.3d 543, 547-548 (2015) (citing Zubulake , infra ); see also, Arbor Realty Funding, LLC v. Herrick Feinstein LLP , 140 A.D.3d 607, 609 (1 st Dep’t 2016).   The First Department in Voom, adopting the preservation standard set forth in Zubulake v. UBS Warburg LLC , 220 F.R.D. 212 (S.D.N.Y. 2003), stated that “’ nce a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.’”  Voom , 93 A.D.3d at 36 (quoting, Zubulake , 220 F.R.D. at 218).   Often litigation holds must be put in place before litigation is commenced.  In Voom , the Court determined that while the action was commenced on January 31, 2008, defendant should have “reasonably anticipated litigation no later than June 20, 2007” ( Voom , 93 A.D.3d at 39) because on that date defendant “sent a letter to Voom demanding an audit and threatening termination of the contract based on allegations that Voom ”  ( Voom , 93 A.D.3d at 43). In Voom , the Court imposed the sanction of an adverse inference based on defendant’s destruction of evidence and its failure to timely implement a litigation hold – particularly since defendant “was well aware of its preservation obligation” because it had been sanctioned before.  Voom , 93 A.D.3d at 46.  Conversely, in Arbor , the Court reversed the motion court’s dismissal of the complaint as a sanction for spoliation.  The Arbor Court reasoned that “dismissal of the complaint is warranted only where the spoliated evidence constitutes ‘the sole means’ by which the defendant can establish its defense or where the defense was otherwise ‘fatally compromised’ or defendant is rendered ‘prejudicially bereft’ of its ability to defend as a result of the spoliation.”  Arbor , 140 A.D.3d at 609-610 (citations omitted).  Because witnesses were available to testify and because plaintiff made a “massive document production,” the Arbor Court determined that an adverse inference charge was a sufficient sanction for plaintiff’s spoliation of evidence.  Arbor , 140 A.D.3d at 610 (citations omitted).   On May 21, 2020, the First Department decided China Development Industrial Bank v. Morgan Stanley & Co., Inc.   The motion court in China, denied defendant’s motion to dismiss the complaint as a sanction for spoliation of evidence, but did sanction plaintiff for spoliation “to the extent of precluding plaintiff from introducing any e-mails or audio recordings in its or defendants’ files to support its claims at trial.”  The China Court modified the motion court’s ruling by denying sanctions.  The Court noted that while Plaintiff did not “impose a litigation hold until July 2010,” the “record does not support the court’s conclusion that plaintiff was obligated to preserve documents relevant to the transaction between the parties as early as October 2007.” There was no evidence “that plaintiff ‘reasonably anticipated’ litigating against defendants , but shows rather that a credible probability of litigation against defendants arose only significantly later.”   In light of the above, the China Court stated: Since plaintiff had no duty to preserve evidence in 2007 and reasonably implemented a litigation hold in 2010 upon notice, there is no issue regarding the destruction of records neither intentionally, willfully nor negligently.  Accordingly, a spoliation sanction is not triggered and a culpable state of mind analysis is not reached.

Successfully pleading a fraud-in-the-inducement claim in the context of an employment at will relationship is difficult, if not impossible. The reason, as is often the case in non-employment cases, has to do with pleading justifiable reliance. Employees at will are generally unable to establish reasonable reliance on a prospective employer’s representations. Recently, Justice Peter P. Sweeney of the Supreme Court, Kings County reiterated this principle by granting summary judgment to the defendants in a case in which the plaintiff sought unpaid salary and commissions. Moore v. Scherer , 2020 N.Y. Slip Op. 31357(U) (Sup. Ct., Kings County May 11, 2020) ( here ).  Applicable Law Like most states in the country, New York is an “employment at will” state.  This means that if there is no written agreement between the employer and employee (such as, a collective bargaining agreement) governing when the employer can fire the employee, the employer has the right to fire the employee at any time for any reason. Smalley v. Dreyfus Corp. , 10 N.Y.3d 55, 58 (2008) ( here ). The Court of Appeals has “repeatedly refused to recognize exceptions to, or pathways around, these principles.” Id .  Thus, when an employee at will is fired, the employee has no legal recourse even when the termination is arbitrary, unfair or unreasonable.  There are a few exceptions to an “employment-at-will” relationship.  For example, employers cannot discharge an employee in violation of any law that prohibits discrimination.  Additionally, an employer cannot discharge an employee: in violation of the company’s employee handbook; in retaliation for whistleblowing a violation of law to a supervisor or to a public agency; for participation, on his/her own time, in lawful political or recreational activities; in retaliation for filing a Workers’ Compensation or Disability Benefits claim or testifying before the Workers’ Compensation Board; and because of the employee’s absence from work to fulfill a jury duty obligation.  Under any of the foregoing circumstances, an employee at will may sue his/her employer for damages and/or reinstatement for wrongful termination. Generally, employees at will may not claim that they were induced to accept their position based on the belief that they would enjoy continued employment ( see Montchal v. Northeast Sav. Bank , 243 A.D.2d 452, 453 (2d Dept. 1997)), “even where the circumstances pertain to a plaintiff’s acceptance of an offer of a position rather than his or her termination.” Guido v. Orange Regional Med. Ctr. , 102 A.D.3d 828, 831 (2d Dept. 2013). Where a plaintiff is offered only at will employment, he/she will generally be unable to establish reasonable reliance on a prospective employer’s representations, an element necessary to the recovery of damages under a fraud-in-the-inducement theory of liability. See Epifani v. Johnson , 65 A.D.3d 224, 230 (2d Dept. 2009); Stone v. Schulz , 231 A.D.2d 707, 708 (2d Dept. 1996). Moore v. Scherer Background Moore involved an at will employment relationship between Plaintiff Musa Moore (“Moore”), a political consultant and lobbyist, and Defendants State & Broadway, Inc. (“S&B”), an Albany-based lobbying firm, and S&B’s founding member, Defendant Larry Scherer (“Scherer”). As discussed below, Moore claimed that he was fraudulently induced to enter into the employment relationship with S&B. The events giving rise to Moore’s fraudulent inducement claim arose in late 2015. In November 2015, Moore and S&B entered into an employment contract pursuant to which Moore was to commence employment with S&B at an annual salary of $80,000. The contract also entitled Moore to forty percent (40%) of all revenue received from any new clients that he brought to S&B, health benefits (which Defendants contended Moore declined), the option to join S&B’s 401(k) plan after six months, two weeks of annual vacation days, and three personal days. In pertinent part, the contract provided that Moore was an employee at will: “Employee understands that this contract constitutes employment at the will of the employer and mutual understanding between the parties” and that “ his Agreement constitutes the complete understanding between the parties, unless amended by a subsequent written instrument signed by the employer and the employee.” Defendants contended that at the time the contract was signed, Moore represented that he was a party to a consulting contract with the New York State Public Employees Federation (“PEF”). According Defendants, Moore claimed to be a government relations consultant engaged in political consulting since 2000, who represented candidates running for public office, particularly, in Kings County, New York. Moore estimated that he would generate revenues of $50,000 and could bring the PEF contract to S&B when he began working for the firm. Defendants maintained that the parties understood the employment contract was contingent upon Moore securing the PEF contract for S&B. For various reasons, Moore could not bring PEF in as an S&B client. When this became apparent, Moore agreed to accept a $50,000 decrease in his annual salary. On December 11, 2015, Jacqueline S.L. Williams, the co-founder of S&B and Scherer’s partner, advised S&B’s payroll company to reduce Moore’s salary from $80,000 to $30,000. Defendants maintained that Moore agreed to the reduction of his salary, without complaint until August 10, 2016, when he was terminated. Defendants contended that S&B terminated Moore’s employment because, on August 9, 2016, they discovered that Moore was seeking to void his contract with S&B and open his own lobbying firm, “Moore Consultancy,” and that he had already solicited S&B clients to void their contracts with S&B and re-sign with his new entity. After he was terminated, Moore commenced the action, alleging causes of action against Defendants for breach of contract and fraud in the inducement. With respect to the cause of action for breach of contract, Moore alleged that he performed all his duties under the employment contract and that Defendants breached the contract by failing to pay him his salary and his earned commission. He alleged that at the time he was terminated, he was owed $40,222.22 in salary and $39,600.00 in commissions. With respect to his cause of action for fraud in the inducement, Moore alleged that in November of 2015, S&B represented to him that once he brought in $50,000 in revenues, he would be made an equal partner and a shareholder, which would entitle him to profits exceeding the salary and commission he was entitled to under the contract. Moore alleged that these representations were false, that Defendants knew them to be false, that he reasonably relied on these representations when entering into the employment contract, that by June of 2016, his efforts generated revenues in excess of $50,000 and that when he asked to become a full partner, Defendants reneged on the bargain. On the fraud-in-the-inducement claim, Moore sought compensatory damages of approximately $102,465 and punitive damages exceeding $300,000. Defendants moved for summary judgment dismissing Moore’s complaint in its entirety. Moore cross-moved for summary judgment on both causes of action and sought judgment for unpaid salary and commissions in the amount of $110,707.71, plus interest. The Court granted Defendants’ motion with respect to Moore’s fraudulent inducement claim and denied Moore’s cross-motion for summary judgment.  We look at the Court’s decision with regard to the fraudulent inducement claim. The Court’s Decision The Court held that “as a matter of law, demonstrate that he justifiably relied upon S&B’s alleged oral representations.” Slip Op. at *4.  First, the Court noted that the alleged oral misrepresentations – i.e. , once Moore generated revenues of $50,000, he would be made an equal partner and a shareholder entitling him to profits exceeding the salary and commission he was otherwise entitled to receive under the employment contract – conflicted with an express term in the employment agreement. As such, “the conflict negate a claim of a justifiable reliance upon the oral representation.” Id . (citations omitted).  Second, because Moore was an employee at will, he could not “establish reasonable reliance” on anything Defendants represented “for purposes of establishing fraud.” Id. (citations omitted). “Since there was no familial or fiduciary relationship between the parties,” explained the Court, “there no basis to apply a different standard.” Id. (citations omitted). Accordingly, the Court granted Defendants’ motion for summary judgment dismissing Moore’s fraud-in-the-inducement cause of action. Takeaway In Murphy v. American Home Prods. Corp. , 58 N.Y.2d 293 (1983) ( here ), the Court of Appeals established the employment-at-will rule discussed above, under which an employer is legally permitted to terminate the employment relationship for any or no reason at all so long as the action is not motivated by “a constitutionally impermissible purpose,” proscribed by statute, or expressly limited by a contract of employment. In Smalley , the Court of Appeals reinforced these principles. 10 N.Y.3d at 58 (noting, “In the decades since Murphy , we have repeatedly refused to recognize exceptions to, or pathways around, these principles.”) (citations omitted) ( here ).  Based upon the employment-at-will principles, as the plaintiff in Moore learned, claims seeking recovery for alleged fraudulent inducement in connection with the offer of employment rarely succeed.  Moore is also noteworthy because it shows what happens when a plaintiff claiming fraudulent inducement relies on an oral representation that conflicts with an express term in the parties’ contract – the reasonable reliance element is negated.

Pandemic-related fraud is in vogue these days. The unscrupulous continue to disseminate false information to the public in the hope of securing a personal benefit from the fear surrounding the virus. As we previously noted (here), since February of this year, the Securities and Exchange Commission (“SEC” or “Commission”) has released several investor warnings about the prevalence of fraud, illicit schemes and other misconduct related to the coronavirus health emergency (here). In fact, the SEC has halted trading in the securities of at least 26 companies in connection with alleged false and misleading statements relating to COVID-19. Two of these companies, Applied BioSciences Corp. (“Applied BioScience”) (here) and Turbo Global Partners, Inc. (“TGP”) (here) , are the subject of today’s article. In addition, the Commission has commenced enforcement proceedings against companies that have allegedly committed securities fraud by using the COVID-19 pandemic as its backdrop (here). here.=">here."> Applied BioSciences Corp. Until the spread of the coronavirus, Applied BioScience focused its business “on the development of science-driven Cannabinoid therapeutics/biopharmaceuticals, and delivering high-quality CBD products as well as state-of-the-art testing and analytics capabilities to our customers.” As demand for products to combat COVID-19 grew, Applied BioScience announced that it was changing its focus from cannabinoid-related products to pandemic-related products. In that connection, on March 25, 2020, Applied BioScience announced that the company had “diverted manufacturing resources to build products that help battle the spread of the coronavirus (COVID-19).” The press release included a hyperlink to a company-affiliated online store that sold hand sanitizer and other products. The press release further stated that Applied BioScience had “formulated its sanitizing blends according to the CDC guidelines to make them as effective as possible in killing harmful germs and bacteria.” The SEC alleged that the March 25, 2020 press release was misleading because Applied BioScience neither diverted “manufacturing resources” nor “formulated its sanitizing blends” in connection with the hand sanitizer it sold, but rather a third-party manufactured the hand sanitizer sold by the company. About one week later, on March 31, 2020, the company issued another press release, announcing that it had “begun shipping” a line of home finger-prick testing kits for coronavirus detection. According to the company, these kits could “be used for Homes, Schools, Hospitals, Law Enforcement, Military, Public Servants or anyone wanting immediate and private results.” The SEC claimed that the March 31, 2020 press release was materially false and misleading because, among other reasons, Applied BioSciences had not begun shipping the test kits. And, according to the SEC, the company changed its story by “now claim it did not offer, sell or intend to sell the test kit for home or private use, but rather … intended to screen potential purchasers only to allow purchases in connection with use by nursing homes, schools, military, first responders, or in consultation with a medical professional.” The SEC also alleged that the press release was materially false and misleading because the company failed to disclose that the FDA had not approved or authorized the sale of any at-home test kits, despite the fact that Applied BioSciences allegedly knew that the test kits were subject to FDA review. In fact, according to the SEC, “just days earlier, the FDA announced on its website on March 20, 2020 that no home-based coronavirus tests had been approved.” Following the issuance of the March 31, 2020 press release, the price of Applied BioScience’s stock and the volume of shares traded materially increased. The press release was issued before the market opened on March 31, 2020. Once trading began, the company’s stock price increased almost 80 percent from the previous day (from $0.45 per share to $0.80 per share), and its volume increased by a factor of 85 (136,300 shares sold, versus 1600 shares sold on the previous day). From March 31, 2020 through April 7, 2020, Applied BioScience’s closing stock price ranged from $0.45 per share to $0.80 per share, with an average trading volume of 48,985 shares. In contrast, from January 2, 2020 through March 30, 2020, Applied BioScience’s closing stock price ranged from $0.24 per share to $0.69 per share, with an average trading volume of 3,635 shares. As noted, on April 13, 2020, the Commission suspended trading in Applied BioScience’s securities for ten trading days, effective April 14, 2020. The SEC’s complaint (here) against Applied BioSciences charges the company with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief and civil penalties. Turbo Global Partners, Inc. In February 2020, TGP issued two press releases announcing that it had formed a “strategic alliance” with BeMotion, Inc. (“BeMotion”), a privately held technology company. Under this alliance, TGP would purchase digital vending machines from BeMotion and install them in pharmacies with which TGP had a relationship. In March 2020, as the COVID-19 crisis escalated, BeMotion signed a contract with a company in China that manufactured thermal scanning equipment. The contract authorized BeMotion to sell the thermal scanning equipment outside of China. The equipment could be installed in retail or other establishments to scan for persons with above normal body temperatures. BeMotion began looking for possible distributors to assist with the sale of the product. During March 2020, Robert W. Singerman (“Singerman”), TGP’s chief executive officer and chairman, expressed an interest in the company becoming the exclusive distributor for the scanning equipment. BeMotion declined the offer of exclusivity. However, BeMotion advised Singerman that TGP could become a distributor of the equipment only if TGP had customers willing to buy the product. BeMotion and TGP never reached agreement on the terms of any distribution arrangement. On March 30, 2020, before the close of the market, TGP issued a press release (“the March 30 release”) drafted by Singerman, which discussed BeMotion and its thermal scanning equipment. The March 30 release stated that BeMotion was “ front facing Partner in the multi-national public-private-partnership (PPP) for this innovation which simply stated, is the only scanning technology on the planet with non-contact intelligent human temperature screening and facial recognition.” According to the SEC, the foregoing quoted statement was materially false because BeMotion was not engaged in any public-private partnership or any partnership involving a governmental entity. The SEC also alleged that the scanning equipment in question did not have facial recognition technology. The technology only had face detection ability (i.e., it could distinguish between a face and an inanimate object such as a cup of coffee). The March 30 release also stated that TGP was “the lead intermediary” and “the U.S. Coordinating agent and Intermediary” for the equipment. The SEC alleged that this was materially misleading because it falsely suggested the company was the sole selling agent in the United States for the product, when BeMotion had previously advised TGP that it would not be the sole U.S. distributor and that it could only distribute the equipment if TGP had customers willing to buy it. The March 30 release also contained quotes from the CEO of BeMotion about the technology and its deployment. According to the SEC, the CEO of BeMotion did not make or authorize the statements attributed to him in the press release. On April 3, 2020, TGP issued another press release that was drafted by Singerman. In the release, the company announced that the Governor’s offices for all 50 states and their Chiefs of Staff had been contacted regarding the availability of BeMotion’s equipment, and that each office had been provided “the Technical Documents for our technology.” Singerman also represented that he had personally contacted the CEOs of various major retail companies, such as Target, WalMart, and Costco, and “advised we are standing by to assist with expedited procurement.” The SEC alleged that the April 3 release was materially false because TGP did not have the technology it described because no agreement had been entered into regarding the technology. The SEC also alleged that TGP’s “contact” with Governors, their Chiefs of Staff and major retailers was not meaningful as such contact consisted of unsolicited emails or faxes. On March 31, the first trading day after issuance of the March 30 release, TGP’s trading volume jumped to 77.8 million shares from an average volume of 31.9 million shares per day during the 11 trading days before the March 30 release, and its the share price rose to an intraday high of $0.0068, before closing at $0.0044. During the 11 trading days preceding issuance of the March 30 release, TGP’s stock traded between $0.0016 per share and $0.0059 per share. On April 3 (when TGP issued its press release regarding contacting all 50 Governors’ offices), trading volume reached 76 million shares and the price of TGP’s stock rose to an intra-day high of $0.0194 per share, before closing at $0.0154 per share. As noted, the Commission temporarily suspended trading in TGP’s securities from April 9, 2020 to April 23, 2020. The SEC’s complaint (here) against TGP and Singerman charged them with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief and civil penalties, and an officer and director bar against Singerman. A copy of the SEC’s press release announcing the enforcement proceedings against Applied BioScience and TGP can be found here.