U.S. Securities and Exchange Commission v. Big Apple Consulting USA, Inc. et al

Filing 92

ORDER granting 83 Motion for Leave to File; denying 86 Motion to Dismiss; denying 90 Motion for Leave to File; and setting deadlines for filing of First Amended Complaint and Answer thereto. Signed by Judge John Antoon II on 8/25/2011. (EK)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
U.S. SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
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Case No. 6:09-cv-1963-Orl-28GJK

BIG APPLE CONSULTING USA, INC.,
MJMM INVESTMENTS, LLC, MARC
JABLON, MATTHEW MAGUIRE, MARK
C. KALEY, KEITH JABLON,
Defendants.
______________________________________

ORDER
This cause is before the Court on the Motion for Leave to File a First Amended
Complaint (Doc. 83) filed by the U.S. Securities and Exchange Commission (“the SEC”),
Defendants’ Response and Cross-Motion to Dismiss Counts One Through Twelve of
Complaint (Doc. 86), and the SEC’s Reply (Doc. 89).1 In light of the Supreme Court’s recent
decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), the
SEC seeks to withdraw its claims that Defendants directly violated § 10(b) of the Securities
Exchange Act of 1934 (“the Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R.
§ 240.10b-5, and add claims that Defendants violated § 20(e) of the Exchange Act, 15

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Defendants have also filed a motion to file a Reply in support of their cross-motion
to dismiss counts one through twelve and a sur-reply in opposition to the SEC’s motion for
leave to file (Doc. 90). Because the issues are adequately addressed in the filings currently
before the court, Defendants’ Motion shall be denied.

U.S.C. § 78t(e), by aiding and abetting the violations of § 10(b) and Rule 10b-5 by non-party
CyberKey Solutions, Inc. and its CEO James Plant.
Pursuant to Federal Rule of Civil Procedure 15(a), leave to amend a complaint before
trial should be freely given “when justice so requires.” “[T]hus, unless a substantial reason
exists to deny leave to amend, the discretion of the district court is not broad enough to
permit denial.” Shipner v. E. Air Lines, Inc., 868 F.2d 401, 407 (11th Cir. 1989). A motion
to amend may be denied for reasons such as “undue delay, bad faith or dilatory motive on
the part of the movant, repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by virtue of allowance of the amendment,
[and] futility of amendment.” Burger King Corp. v. Weaver, 169 F.3d 1310, 1319 (11th Cir.
1999) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Furthermore, if the motion to
amend is made after the deadline set in the scheduling order, the moving party must show
good cause why the motion should be granted. Fed. R. Civ. P. 16(b).
The SEC has shown good cause for amending its complaint. The Janus decision
substantially limited the scope of primary liability under Rule 10b-5 and therefore constitutes
an intervening change in the law. The SEC’s motion is not the product of undue delay, bad
faith, or dilatory motive, and granting the motion will not be unduly prejudicial to Defendants
because the new claims are based on the same factual allegations that are currently in the
complaint.
Defendants also assert that the SEC’s motion should be denied and counts one
through twelve should be dismissed because the counts fail to state a claim and amendment
would be futile. Defendants base this argument on the fact that in the proposed First
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Amended Complaint (Ex. A to Doc. 83), the SEC alleges that Defendants acted either
knowingly or with severe recklessness, and Defendants claim that severe recklessness is
insufficient to establish aider and abettor liability under § 20(e). As discussed in this Court’s
previous Order (Doc. 91), the law in this circuit is that “‘severe recklessness’ satisfies the
scienter requirement” under § 20(e). Woods v. Barnett Bank of Ft. Lauderdale, 765 F.2d
1004, 1009 (11th Cir. 1985). Accordingly, the SEC’s proposed First Amended Complaint
states a claim under § 20(e).
In accordance with the foregoing, it is ORDERED and ADJUDGED that the SEC’s
Motion for Leave to File a First Amended Complaint (Doc. 83) is GRANTED; Defendants
Motion for Leave to File a Reply and Sur-Reply (Doc. 90) is DENIED; and Defendants’
Cross-Motion to Dismiss Counts One Through Twelve of Complaint (Doc. 86) is DENIED.
The SEC shall file its First Amended Complaint attached as Exhibit A to the Motion as a
separate document on or before Friday August 26, 2011. Additionally, Defendants shall file
an Answer to the SEC’s First Amended Complaint on or before Tuesday September 6, 2011.
DONE and ORDERED in Chambers, Orlando, Florida this 25th day of August, 2011.

Copies furnished to:
Counsel of Record
Unrepresented Party

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