Securities and Exchange Commission v. Langford
MEMORANDUM AND ORDER denying 16 Motion to Dismiss for Failure to State a Claim. Ordered by Judge Joseph F. Bataillon. (ADB)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
SECURITIES AND EXCHANGE
MEMORANDUM AND ORDER
DON A. LANGFORD,
This matter is before the court on the defendant’s motion to dismiss for failure to
state a claim, Filing No. 16. This is an enforcement action brought by the Securities and
Exchange Commission (“SEC”) for securities violations under the Securities Exchange
Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78a et seq. In the complaint, the SEC
alleges that defendant Don A. Langford, former chief credit officer and a senior vicepresident at TierOne Bank, performed a number of deceptive acts in order to further a
scheme to defraud investors.1
The facts alleged in the SEC’s complaint involve the receivership and eventual
closure of TierOne Bank (hereinafter referred to as “TierOne” or “the Bank”) in Omaha,
Nebraska. In a detailed 30-page complaint, the SEC alleges that, as the chief credit
officer and a senior vice-president, Langford played a dominant role in a scheme to hide
The court is familiar with litigation involving the demise of TierOne. The SEC also filed an
enforcement action against TierOne’s former Chairman, Gilbert Lundstrom, and its President and CEO,
James Laphen, for securities fraud, and against Gilbert Lundstrom’s son, Trevor Lundstrom, for insider
trading. See SEC v. Lundstrom, No. 12-cv-343 (D. Neb.). Those actions have been resolved through
consent judgments. See id., Filing Nos. 10, 14, and 15. Also, ERISA class action suits for breach of
fiduciary duty were filed by beneficiaries of TierOne’s Employee Stock Ownership and 401K Plans
against the fiduciaries of those Plans. See Bredthauer v. Lundstrom, No. 4:10-cv-3132 (D. Neb.); Laird v.
Lundstrom, No. 4:10-cv-3139 (D. Neb.); and Barker v. Baird, 8:10-cv-326 (D. Neb.) Those actions have
also settled. See, e.g., Filing No. 209 in 4:10-cv-3139.
millions of dollars of loan losses from the Bank’s regulators, auditors and the investing
public. Specifically, the SEC alleges that the defendant participated in a scheme to
defraud; aided and abetted TierOne’s fraud; violated various books, records, and
reporting requirements; deceived TierOne’s auditors; and aided and abetted TierOne’s
false SEC filings and false books and records.
TierOne Bank had traditionally been a thrift bank focused on residential and
agricultural loans in Nebraska, Iowa and Kansas.
Filing No. 1, Complaint at 1.
Beginning in about 2004, the Bank expanded beyond its traditional borders and began
making riskier loans to real estate developers in Las Vegas, Florida and Arizona. Id.
When real estate prices plummeted in 2008, many of the loans had faltered or were
faltering. Id. at 5. In June 2008, the Office of Thrift Supervision (“OTS”) conducted a
periodic examination of TierOne and reported significant concerns with the Bank’s
management and financial condition. Id. at 5. As a result, the OTS directed TierOne to
maintain higher capital ratios. Id. The SEC alleges that Langford and other senior
executives then began a scheme to manipulate and materially understate TierOne’s
losses. Id. at 2, 6.
The SEC alleges that TierOne was required to report losses on loans if the value
of the underlying collateral (i.e., the underlying real estate project) dropped below the
book value of the loan and to record the value of real estate repossessed by the Bank—
called Other Real Estate Owned, or OREO—at the property’s fair value. Id. at 2, 6-7. It
alleges that declines in value generally required the Bank to report a loss. Id. at 7.
Under Generally Accepted Accounting Principles (“GAAP”), TierOne was required to
use all current, relevant information to value the collateral or OREO property.
Generally, an increase in loan or OREO losses would drive the Bank’s capital ratios
down, which meant TierOne would be closer to falling below the OTS-mandated levels.
Id. at 6. The SEC alleges that TierOne’s management, including Langford, “intentionally
delayed the process of obtaining current appraisals for properties that had declined in
value, relying instead on inaccurate data and assumptions.” Id. at 7.
The SEC alleges that Langford was part of an informal committee that evaluated
the Bank’s impaired or potentially impaired loans, which were documented in
spreadsheets that contained estimates of the value of the collateral underlying the loans
and loan impairment determinations (the “impaired loan templates”).
Id. at 7-8.
Langford was central to the scheme in that he managed the Bank’s loan and OREO
Id. at 6-8.
He was directly involved in the preparation of the
so-called “impaired loan templates” that contained purported valuation estimates, and
allegedly falsified the templates that were provided to the Bank’s outside auditors. Id. at
6-7, 25. It contends that Langford played a key role in a scheme to inflate collateral
values, hide loan losses, and thereby falsely report—to the regulators as well as the
investing public—that TierOne was in compliance with the OTS-mandated capital ratios.
Id. at 13-16. The SEC alleges that Langford’s conduct in this regard included: “(1)
ignoring new appraisals; (2) failing to obtain updated appraisals of collateral and OREO
even when observable market conditions established that there was substantial
deterioration in value since the last appraisal; (3) masking problem loans by extending
additional credit to establish interest reserves (‘extend and pretend’); and (4) failing to
properly evaluate loans for impairments.” Id. at 9.
The SEC outlines several specific actions that Langford allegedly performed to
further the scheme. Id. at 13-18. In the summer of 2008, Langford refused to sell an
OREO property (Gemm Homes) at a significant loss because, in Langford’s words, “we
no longer have the luxury of hitting the loan loss reserves.” Id. at 10. He voiced that
concern within one week of meeting with OTS to discuss the Bank’s loan losses. Id.
Later, in the fall of 2008, Langford fired an employee who requested an appraisal on an
OREO property that showed the Bank should have taken an $800,000 loss, and he
refused to take the write-down. Id. at 12. Langford then allegedly helped to extend
millions of dollars in additional credit to a delinquent borrower without a new appraisal—
in violation of TierOne’s lending policy—despite stating he was “bewildered” that the
property was worth “even half of what we’re being told it’s worth.” Id. at 15.
The SEC alleges that Langford’s actions allowed the Bank to mask delinquency
of loans, thereby delaying the recognition of any additional loss.
Id. at 15-16.
September 2008, Langford refused to accept an offer on property stating that “[w]e have
a 2008 appraisal which would allow us to . . . hold at our current reserved position and
that’s all we can afford until we earn our way out.” Id. at 13. The SEC alleges that in
connection with that property, although he knew of significant deterioration in the value
of the collateral, he did not order new appraisals for the properties, nor take into
consideration the estimates of a Las Vegas workout consultant’s estimates in preparing
the impaired loan templates for those loans. Id. at 13.
In early 2009, Langford disregarded a new appraisal on the certain property that
would have resulted in a $1.8 million write-down, in spite of warnings from the Bank’s
special assets executive. Id. at 11. Further, the SEC alleges that Langford continued
using a four-year-old appraisal to value a major, $30 million Las Vegas loan during the
first and second quarters of 2009, despite acknowledging that an updated appraisal
would show the Bank was “wildly deficient on collateral,” and despite being informed of
an updated valuation showing the property was likely worth only half the loan amount.
Id. at 13-14. Also, the SEC alleges that in the spring of 2009, Langford deleted an
impairment loan template showing a delinquency that would have required a $5.8
million write-off and told TierOne’s special assets executive that he knew certain loans
were impaired, but that the Bank could not afford the losses that would result from that
determination. Id. at 17. In addition, the SEC alleges that Langford failed to include
critical information about collateral values in the Bank’s impaired loan templates even
though he knew those inaccurate templates would be provided to TierOne’s external
auditors. Id. at 7-8.
The SEC also alleges that Langford failed to inform TierOne’s accounting staff or
external auditors of current, relevant valuation information on a number of loans and
OREO properties. Id. at 11, 13-15, 16. It also alleges that Langford did nothing in
response to an email in February 2009 from the Bank’s special assets executive that
expressed concern about the use of outdated appraisals, listed stale appraisals, and
informed Langford that “astronomical” write-downs would result from properly valuing
the loans. Id. at 19. The special assets executive asked, “In good conscience how long
can we continue to believe these [loans] are properly reserved?” Id. Several months
later, the special assets executive again wrote to Langford, reiterating the concern that
the Bank “refuse[d] to update collateral valuations, out of the fear of what impact these
actions may have on reserve levels,” and explicitly expressing fear that the Bank was
“misleading the public.” Id. at 20-21. The SEC alleges that Langford took no action to
correct the loan and OREO losses in TierOne’s financial statements, nor did he forward
the email to TierOne’s accounting staff or outside auditors. Id. Also, he made no
mention of the troubling email at the Sarbanes-Oxley (SOX) Committee meeting three
days later, when he provided positive assurances to the committee that no one believed
the financial statements contained material misstatements or omissions. Id. at 21.
Further, the SEC alleges that Langford played a major role in developing an
internal estimate of losses embedded in TierOne’s loan portfolio, but did not disclose
that estimate to auditors or regulators. Id. at 19. Langford’s initial analysis indicated the
Bank needed an additional $65 million in loan loss reserves; a refined analysis, entitled
the “Best/Worst Case Scenario,” showed losses ranging from a “best case” of $36
million to a “worst case” of $114 million. Id. at 19-20. The SEC alleges that Langford
did not incorporate his Best/Worst Case Scenario figures into the impaired-loan
templates, or share those figures with the Banks’ accounting staff or external auditors.
Id. at 20. The Bank’s outside auditors resigned when they learned the analysis had
been withheld. Id.
The SEC also alleges that Langford’s role in the scheme to defraud the
regulators is shown in emails in the spring of 2009, including one that stated “I’ve been
telling people around here for months now that this unwillingness/inability to admit what
appears to be a reality must come to an end with new appraisals in hand before the
regulators show up in October.” Id. at 22. When the OTS ultimately required TierOne
to update its appraisals, the appraisals revealed more than $130 million in loan losses.
Id. at 23. TierOne was shut down by the OTS in June 2010, and filed for bankruptcy
later that month. Id. The SEC further alleges that as a result of the scheme to defraud,
TierOne issued financial statements that were materially misstated in several public
filings. Id. at 23-25.
The SEC asserts seven claims against Langford: (1) violations of Section 10(b)
and Rules 10b-5(a) and (c); (2) aiding and abetting violations of Section 10(b) and
Rules 10b-5(a) and (c); (3) Violations of Section 13(b)(5) of the Exchange Act, 15
U.S.C. § 78m(b)(5)—Circumvention of Internal Controls and Falsified Books and
Records; (4) violations of Exchange Act Rule 13b2-1, 17 C.F.R. § 240.13b2-1—Falsified
Books and Records (Fourth Claim for Relief); (5) violation of Rule 13b2-2 of the
Exchange Act, 17 C.F.R. § 240.13b2-2—Deceit of Auditors; (6) violations of Section
13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13, 15 U.S.C. §
78m(a) and 17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13—Aiding
and Abetting False SEC Filings; and (7) violations of Section 13(b)(2)(A) of the
Exchange Act, 15 U.S.C. § 78m(b)(2)(A)—Aiding and Abetting False Books and
Records. The first two claims can be categorized as anti-fraud provisions claims and
the third to seventh claims can be categorized as reporting and recordkeeping claims.2
The defendant moves to dismiss for failure to state a claim on which relief can be
granted. He argues that the SEC’s complaint is deficient in that: (1) the SEC does not
provide adequate notice of the operative facts on which the claims are based; (2) the
SEC has failed to plead fraud with particularity as required under Fed. R. Civ. P. 9; (3)
the SEC fails to allege that Langford acted with the requisite scienter; (4) the SEC does
Langford is expressly not charged with violating Rule 10b-5(b), which prohibits making an
untrue statement of fact or material omission in public filings, but rather is charged with “scheme liability”
under Rules 10b-5(a) and (c).
not adequately allege the requisite actionable conduct for imposition of either primary or
secondary liability; and (5) the SEC attempts to circumvent the requirement that only
“makers” of public statements can be held primarily liable under federal securities laws.
A. Federal Rules
As a general proposition, a complaint must contain no more than “a short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ.
P. 8(a)(2). But even though a complaint need not plead “detailed factual allegations,”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), it must nonetheless “contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its
face,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).
The complaint must include “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. If the factual
allegations in the complaint are too meager, vague, or conclusory to remove the
possibility of relief from the realm of mere conjecture, the complaint is open to dismissal.
Twombly, 550 U.S. at 555. The court relies on the factual allegations in the complaint
as true and affords the nonmoving party all reasonable inferences from those
allegations. See Palmer v. Illinois Farmers Ins. Co., 666 F.3d 1081, 1083 (8th Cir.
The Federal Rules also require that allegations of fraud must be stated with
particularity.3 Fed. R. Civ. P. 9(b). To satisfy this particularity requirement, the pleader
With respect to actions for securities fraud by private individuals, the pleading requirements
under the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b)(1), are more rigorous than the
requirements under Fed. R. Civ. P. 9(b). See Lustgraaf v. Behrens, 619 F.3d 867, 874 n.2 (8th Cir.
must set out the “time, place, and content of the alleged misrepresentation with
specificity.” Drobnak v. Anderson Corp., 561 F.3d 778, 783 (8th Cir. 2009). Essentially,
the complaint “must plead the ‘who, what, when, where, and how’ of the alleged fraud.”
Id. A plaintiff must state an underlying basis for its assertions that is sufficient to provide
some indicia of reliability. United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d
552, 556 (8th Cir. 2006). Although a plaintiff need not allege specific details of every
alleged fraud, the plaintiff must provide some representative examples of the alleged
Section 10(b) of the Securities Exchange Act makes it “unlawful for any
person . . . to use or employ, in connection with the purchase or sale of any security . . .,
any manipulative or deceptive device or contrivance in contravention of such rules and
regulations the SEC may prescribe.”
SEC v. Zandfor, 535 U.S. 813, 819 (2002)
(quoting 15 U.S.C. § 78j). The Congressional intent in passing this legislation was to
inculcate a policy of full disclosure instead of the philosophy of caveat emptor and thus
to achieve a high standard of business ethics in the securities industry. Id. The statute
should be interpreted flexibly to effectuate its remedial purpose. Id.
Rule 10b-5 implements the statute. See 17 C.F.R. § 240.10b-5. Subsection (a)
of that Rule forbids any person “to employ any device, scheme, or artifice to defraud.”
17 C.F.R. § 240.10b-5(a). Subsection(b) of the Rule prohibits a person from making
“any untrue statement of a material fact” or from omitting “a material fact necessary in
2010). However, the heightened pleading standards of the PSLRA do not apply to complaints filed by the
SEC. See In re Reserve Fund Sec. & Derivative Litig., 732 F. Supp. 2d 310, 317–19 (S.D.N.Y. 2010)
(holding that when the SEC brings suit under Section 10(b) and Rule 10b-5, the PSLRA does not apply to
the action); SEC v. Rana Research, 8 F.3d 1358, 1364 (9th Cir. 1993) (securities laws apply differently to
the SEC than they do to a private plaintiff, because “Congress designated the SEC as the primary
enforcement agency for the securities laws”).
order to make the statements made, in the light of the circumstances under which they
were made, not misleading.” 17 C.F.R. § 240.10b-5(b). Subsection (c) of the Rule
forbids any person “to engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person.” 17 C.F.R. § 240.10b-5(c).
Only the “maker” of a statement is liable under Rule 10b-5(b). Janus Capital
Group, Inc. v. First Derivative Traders, –– U.S. —-, —- 131 S. Ct. 2296, 2302 (2011)
(stating that for purposes of Rule 10b-5(b), “the maker of a statement is the person or
entity with ultimate authority over the statement, including its content and whether and
how to communicate it” and analogizing the situation to the relationship between a
speechwriter and speaker—the speechwriter drafts the speech, but the speaker is
responsible for its content and is the person who takes the credit or the blame for what
is said). Conduct itself can be deceptive, such that liability under Rule 10(b)-5(a) or (c)
could be sustained without a specific oral or written statement.
Partners, LLC v. Scientific–Atlanta, 552 U.S. 148, 158 (2008). Violations of subsections
(a) and (c) are referred to as “scheme liability.” Id. at 159-60. In the Eighth Circuit, “‘[a]
defendant may only be liable as part of a fraudulent scheme based upon
misrepresentations and omissions under Rules 10b-5(a) or (c) when the scheme also
encompasses conduct beyond those misrepresentations or omissions.’” Public Pension
Fund Grp. v. KV Pharms. Co., 679 F.3d 972, 987 (8th Cir. 2012) (quoting WPP
Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1057 (9th Cir.
2011). In other words, “scheme liability” is viable only if Rule 10b-5(b) cannot fully cover
the acts—that is, the “scheme” must include deceptions beyond misrepresentations and
omissions. See Public Pension Fund Grp., 679 F.3d at 987(“We join the Seventh and
Ninth Circuits in recognizing a scheme liability claim must be based on conduct beyond
misrepresentations or omissions actionable under Rule 10b-5(b).”); Lentell v. Merrill
Lynch & Co., Inc., 396 F.3d 161, 177 (2d Cir. 2005) (“We hold that where the sole basis
for such claims is alleged misrepresentations or omissions, plaintiffs have not made out
a market manipulation claim under Rule 10b-5(a) and (c).”).
In order to impose scheme liability under Rules 10b-5(a) and (c), the SEC must
allege and prove that the defendant: (1) “committed a deceptive or manipulative act,”
(2) “in furtherance of the alleged scheme to defraud,” (3) “with scienter.” See, e.g., SEC
v. Lucent Technologies, Inc., 610 F. Supp. 2d 342, 350 (D. N.J. 2009). Scienter is a
required element for claims under the Securities Act § 17(a)(1), the Exchange Act
§ 10(b) and Rule 10b-5, and the Advisers Act § 206(1). Aaron v. SEC, 446 U.S. 680,
701–02 (1980). The element of scienter requires proof of “intent to deceive, manipulate,
or defraud.” SEC v. Shanahan, 646 F.3d 536, 543 (8th Cir. 2011). “Scienter” in this
context means intentional or reckless conduct, and can be shown by allegations that the
defendant was aware of facts contradicting public statements or that he ignored obvious
signs of fraud. Kuchner v. Beverly Enterprises, Inc., 317 F.3d 820, 828 (8th Cir. 2003)
(“a finding of scienter may be based upon ‘severe recklessness’ . . . requiring proof of
‘something more egregious than even white heart/empty head good faith.’”) (citations
omitted). Scienter may be alleged generally under Rule 9(b). See Fed. R. Civ. P. 9(b)
(stating “malice, intent, knowledge, and other conditions of a person’s mind may be
B. Reporting/Recordkeeping Claims
Violations of the reporting and recordkeeping requirements of section 13(a),
codified at 15 U.S.C. § 78m, unlike violations under section 10(b), do not require
scienter. Accord Ponce v. SEC., 345 F.3d 722, 737 n. 10 (9th Cir. 2003); McNulty, 137
F.3d at 740–41; SEC v. Koenig, 469 F.2d 198, 200 (2d Cir.1972) (upholding finding of §
13(a) liability, without mention of scienter, of top corporate officer for failure to include
required information in SEC reports); SEC v. Savory Indus., 587 F.2d 1149, 1167 (D.C.
Cir. 1978) (reporting provisions of § 13 not intended to be anti-fraud provisions, and
therefore do not require scienter). Congress chose to impose a scienter requirement
only upon criminal, and not civil, violations of section 13(a); McNulty, 137 F.3d at 741;
see 15 U.S.C. 78ff.
Knowingly circumventing or failing to implement a system of
accounting controls or knowingly falsifying any books or records is also prohibited. 15
U.S.C. § 78m(b)(5).
C. Aiding and Abetting
Unlike private individuals or investors, the SEC may file actions for aiding and
abetting securities violations. See Stoneridge Inv. Partners, 522 U.S. at 162 (noting that
Congress amended the securities laws to provide for limited coverage of aiders and
abettors—aiding and abetting liability is authorized in actions brought by the SEC but
not by private parties); Central Bank of Denver, N.A. v. First Interstate Bank of Denver,
N.A., 511 U.S. 164, 176-77 (1994) (holding that there is no private right of action for
aiding and abetting a § 10(b) violation); 15 U.S.C. § 78t(e) (1995) (in § 104 of the
PSLRA, Congress granted the SEC authority to prosecute the aiding and abetting of
securities-law violations under Section 20(e) of the Exchange Act); Janus Capital Grp.
Inc., 131 S. Ct. at 2308 (stating that § 10(b) and Rule 10b-5 do not provide for “aiding
and abetting” liability in private suits).
Under 15 U.S.C. § 78t(e), “any person that
knowingly or recklessly provides substantial assistance to another person in violation of
a provision of this chapter, or of any rule or regulation issued under this chapter, shall
be deemed to be in violation of such provision to the same extent as the person to
whom such assistance is provided.” 15 U.S.C. § 78t(e).
The court finds the defendant’s motion to dismiss should be denied.
complaint, the SEC alleges deceptive acts that are distinct from TierOne’s ultimate
misstatements in its public filings.
It also alleges that the defendant took those
deceptive acts in furtherance of a fraudulent scheme. Langford’s alleged actions were
not otherwise appropriate business transactions: the conduct was inherently designed
to deceive the Bank’s regulators, regardless of whether the ultimate result was a public
misstatement. The factual detail the SEC provides in support of its claim is sufficient to
survive a motion to dismiss under Rule 9(b).
Langford is alleged to have departed from normal bank procedures and
underwriting standards by failing to obtain or update appraisals in the face of knowledge
that the value of the property used as collateral for loans and of property the Bank
owned through repossession was deteriorating.
The court also finds that the SEC sufficiently alleges that Langford acted with
scienter. Taken as true, the SEC’s allegations alternatively allege with considerable
factual detail that Langford had a general awareness that he was part of an improper
and illegal practice, and that he knowingly or recklessly provided substantial assistance
in those alleged violations. Accordingly, the court finds that the SEC has alternatively
sufficiently stated a claim against Langford in its second claim for relief for aiding and
abetting the alleged violations in its first claim for relief. Through his actions, he aided
and abetted TierOne’s fraudulent scheme. The allegations are not implausible—the
complaint alleges lax appraisal and purposeful manipulation of loan and collateral
valuation to support an erroneous assessment of TierOne’s financial position and thus
circumvent the regulators’ capital requirements.
The SEC has satisfied its burden to state the “who, what, when, where, and how”
of the alleged fraud by detailing Langford’s conduct with respect to the valuation of
several properties. It details the actions he took in response to the need to shore up
capital and maintain capital ratios, and chronicles his efforts keep the truth of TierOne’s
precarious financial position from the regulators. He allegedly performed a deceptive
act in creating best/worst case scenarios and not disclosing the results to the auditors or
regulators. The court finds the SEC presents enough factual allegations to raise a
reasonable expectation that discovery will reveal evidence to substantiate the
necessary elements of the SEC’s claims, and dismissal under Rule 12(b)(6) is not
Contrary to the defendant’s contention, the SEC’s complaint delineates far more
than the mere possibility of misconduct. It demonstrates numerous acts by Langford
that support its allegations of fraud. Langford’s argument that, as a mid-level manager,
he lacked authority over any SEC filings is unavailing. The allegations of the complaint
show that he was in a position of control over the valuation of the loans and OREO
properties, and he failed to properly obtain appraisals knowing that the value of the
properties had declined. The court also rejects the defendant’s arguments that his
actions were not deceptive because the appraisals supporting the impaired loan
templates were accurately dated, and that auditors were not deceived into relying on
stale and outdated appraisals because the severe drop in real estate values was
obvious and well-known. Knowledge of a market downturn cannot be equated with the
specific knowledge of the nature and extent of a financial loss that would have been
revealed in accurate appraisals.
The court also rejects the defendant’s argument that the SEC’s claim is an
attempt to plead around the limitation set out in Janus Capital Grp., 131 S. Ct. at 2304,
that only a “maker” of a material misrepresentation is liable under Rule 10b-5(b), by
casting defendant’s conduct as a “scheme” rather than a misstatement under Rule 10b5(b). The court agrees with the SEC that Janus is inapposite because this is a scheme
liability claim relating to actionable conduct rather than to statements. Only if the sole
basis for liability was an alleged misrepresentation or omission, could it be said that the
SEC was attempting to plead around Janus recasting a misrepresentation claim as a
scheme claim. Here, however, the deceptive conduct alleged by the SEC goes beyond
misstatements or omissions. The scheme alleged herein did not become deceptive
only through misstatements in public filings; the alleged conduct is inherently deceptive
and distinct from the alleged misstatement. Though the defendant’s improper actions
may have resulted in misstatements as to financial condition that were eventually
reported to the public, Langford’s conduct with respect to the valuation of properties
amounts to more than making a false statement. Langford took actions designed to
deceive the regulators, and to present a false picture of the Bank as a solvent entity.
The court further finds that the SEC has adequately alleged facts supporting the
claims of books, reporting and recordkeeping violations.
The complaint adequately
alleges that the Bank’s records did not accurately reflect the value of its assets, and
also alleges that the defendant failed to comply with internal accounting controls and
failed to disclose material information to auditors and accountants. The complaint also
sets out facts that support the claim that Langford knowingly or recklessly assisted the
Bank’s reporting and recordkeeping violations. Accordingly,
IT IS ORDERED that the defendant’s motion to dismiss (Filing No. 16) is denied.
Dated this 9th day of May, 2013.
BY THE COURT:
s/ Joseph F. Bataillon
United States District Judge
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