United States District Court, E.D. North Carolina, Western Division
EARL BRITT SENIOR U.S. DISTRICT JUDGE.
matter is before the court on Alton Perkins
(“Perkins”), the Alton and Xiang Mei Lin Perkins
Family Trust (the “Family Trust”), Yilaime
Corporation of NC (“Yilaime NC”), Perkins Hsu
Export Corporation (“PHE”), Yilaime Corporation
of Nevada (“Yilaime NV”), and AmericaTowne
Holdings, Inc.'s (“AmericaTowne”)
(collectively “defendants”) motion to dismiss the
United States Securities and Exchange Commission's
(“SEC”) complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6). (DE # 21.) Also, before the court
is defendant Mabiala Phuati's (“Phuati”)
pro se motion to dismiss. (DE # 13.) These motions
have been fully briefed and are ripe for disposition.
SEC's allegations follow. Perkins, a resident of Wake
Forest, North Carolina, is the Chairman, Chief Executive
Officer (“CEO”), and majority shareholder, of
Yilaime NC, PHE, AmericaTowne, and Yilaime NV. (See
Compl., DE # 1, ¶ 14.) Phuati, a resident of Knightdale,
North Carolina, was the Vice-Chairman and Managing Director
of Yilaime NC and a Senior Executive Vice President of
AmericaTowne. (Id. ¶ 19.) Phuati resigned on 5
June 2018. (Id.) Yilaime NC is a North Carolina
corporation formed in May 2013. (Id. ¶ 15.) PHE
is a Nevada corporation formed in October 2013 with its
principal place of business in Raleigh, North Carolina.
(Id. ¶ 16.) AmericaTowne is a Nevada
corporation, formerly known as ATI Modular Technology
Corporation (“ATI”), formed on 1 August 2018.
(Id.) Yilaime NV is a Nevada corporation formed in
March 2013, with its principal place of business in Las
Vegas. (Id. ¶ 18.) The Family Trust “was
formed on or about January 1, 2014. Perkins and his wife are
the grantors and investment trustees of the trust and had
full control over the trust at all relevant times.”
(Id. ¶ 20.)
NC and PHE issued three Regulation D offerings raising $1.1
million between January 2014 and April 2015. (Id.
¶ 26.) Yilaime NC issued one stock offering, raising
$843, 265, and one bond offering, raising $37, 000.
(Id. ¶ 26 (graph).) PHE issued one bond
offering, raising $175, 916. (Id.) For each
offering, Yilaime NC and PHE filed a Form D with the SEC
claiming that the offerings were exempt from registration
pursuant to 17 C.F.R. § 230.506 (“Rule
506(b)”). (Id. ¶ 27.) In actuality, the
offerings were not exempt. (Id. ¶¶ 28,
31.) Further, Perkins and Yilaime NC made misrepresentations
and omissions involving “investment proceeds, entity
expenses, related party transactions and Perkins'[s] own
compensation.” (Id. ¶ 32.)
filings related to two AmericaTowne contracts are also at
issue. “Perkins directed AmericaTowne to misrepresent
in AmericaTowne's public filings that the company had two
large contracts, collectively worth approximately $2 million.
In reality, each was of limited or no value.”
(Id. ¶ 44.) The first contract was with a
Nigerian export company “FEMEB” for a shipment of
machinery and other equipment from Taiwan to Nigeria.
(Id. ¶ 45.) The contract provided FEMEB pay
AmericaTowne $849, 000, with $25, 000 due at signing.
(Id. ¶ 46.)
second contract was with the Export Company for $1 million,
with $10, 000 due at signing. (Id. ¶ 52.) On 22
February 2017, AmericaTowne filed a Form 8-K announcing the
15-year contract. (Id. ¶ 51.) No. later than
April 2017, Perkins and AmericaTowne knew that the contract
with the Export Company was of little or no value.
(Id. ¶ 53.) Besides the $10, 000 due at
signing, no money has been paid under the Export Company
contract. (Id. ¶ 55.)
result, the SEC alleges various violations of 15 U.S.C.
§§ 77e (“Section 5”) and 77q
(“Section 17”), of the Securities Act of 1934
(“Securities Act”); 15 U.S.C. §§ 78j
(“Section 10”) and 78m (“Section 13”)
of the Securities Exchange Act (“Exchange Act”);
and 17 C.F.R. §§ 240.10b-5 (“Rule
10b-5”), 240.12b-20 (“Rule 12b-20”),
240.13a-1 (“Rule 13a-1”), 240.13a-11 (“Rule
13a-11”), and 240.13a-13 (“Rule 13a-13”).
district court should dismiss a complaint pursuant to Rule
12(b)(6) if, accepting all well-pleaded allegations in the
complaint as true and drawing all reasonable factual
inferences in the plaintiff's favor, the complaint does
not allege enough facts to state a claim to relief that is
plausible on its face.” Vitol, S.A. v. Primerose
Shipping Co., 708 F.3d 527, 539 (4th Cir. 2013).
“[T]he court need not accept the [plaintiff's]
legal conclusions drawn from the facts, nor need it accept as
true unwarranted inferences, unreasonable conclusions, or
arguments.” Philips v. Pitt Cty. Mem'l
Hosp., 572 F.3d 176, 180 (4th Cir. 2009) (internal
quotation marks and citation omitted). “While a
complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, . . . a
plaintiff's obligation to provide the grounds of his
entitle[ment] to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007); accord Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
Fraud Claims [Counts One, Two, and Three]
contend the SEC fails to state a claim as to Counts One, Two,
and Three, alleging violations of Sections 17(a)(1), (2), and
(3) of the Securities Act, Section 10(b) of the Exchange Act,
and Rule 10b-5, (collectively the “fraud
claims”), against Perkins, Yilaime NC, and PHE.
Specifically, they contend the SEC fails to sufficiently
allege intent to defraud in the form of a material
misrepresentation and/or omission. (See Mem. Supp.
Mot. Dismiss, DE # 22, at 10-11.)
complaint, the SEC contends Perkins, Yilaime NC, and PHE made
misstatements and/or omissions involving the following
material facts as to one or more of the offerings: (1)
Perkins would receive investor money for trademark use; (2)
Perkins was the owner of the trademarks; (3) Perkins would
receive founder's stock in exchange for one of his
trademarks; and (4) Perkins pled nolo contendere to
a felony fraud offense in 2000 and received a cease and
desist order in 2008 concerning a failure to disclose that
plea. (Compl., DE # 1, ¶¶ 32-41; Resp. Opp'n,
DE # 27, at 10.) The SEC contends each act amounts to a
material misrepresentation and/or omission. (Resp. Opp'n,
DE # 27, at 10-11.)
Establishing a violation of Rule 10b-5 requires proof that
the defendant made (1) material misrepresentations or
materially misleading omissions, (2) in connection with the
purchase or sale of securities, (3) with scienter. Proving a
violation of § 17(a)(1) requires substantially similar
proof: ‘(1) material misrepresentations or materially
misleading omissions, (2) in the offer or sale of securities,
(3) made with scienter.' To establish a violation of
§ 17(a)(2) or (3), the SEC need only show that the first
two elements of § 17(a)(1) were committed with
negligence. Finally, the ‘in ...