In Re RenovaCare, Inc. Securities Litigation

Filing 154

OPINION. Signed by Judge Brian R. Martinotti on 6/3/2024. (qa, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

IN RE RENOVACARE, INC.
SECURITIES LITIGATION

Case No. 2:21-cv-13766 (BRM) (JSA)
OPINION

MARTINOTTI, DISTRICT JUDGE
Before the Court are three Motions to Dismiss Plaintiffs’ Second Amended Class Action
Complaint 1 (“SAC”) (ECF No. 91) pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6)
filed by: (1) Defendants RenovaCare, Inc. (“RenovaCare” or the “Company”), Harmel Rayat
(“Rayat”), Jatinder Bhogal (“Bhogal”), and 1420527 Alberta Ltd. (“Alberta Ltd.”) (collectively,
the “RenovaCare Defendants”) (ECF No. 135); (2) Defendant Capitol Information Group, Inc.
d/b/a StreetAuthority.com (formerly StreetAuthority, LLC) (“CIG”) (ECF No. 136); and (3)
Defendants Jeetenderjit Singh Sidhu (“Sidhu”), Treadstone Financial Group LLC (“Treadstone
LLC”), and Blackbriar Asset Management Ltd. (“Blackbriar Ltd.”) (collectively, the “Sidhu
Defendants,” and together with the RenovaCare Defendants and CIG, “Defendants”) (ECF No.
137). Plaintiffs filed an omnibus opposition to the Motions. (ECF No. 147.) Defendants filed their
respective replies. (ECF Nos. 149–51.) Having reviewed the parties’ submissions filed in
connection with the Motions and having declined to hold oral argument pursuant to Federal Rule
of Civil Procedure 78(b), for the reasons set forth below and for good cause having been shown,
the RenovaCare Defendants’ Motion to Dismiss (ECF No. 135) is GRANTED IN PART and

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Lead Plaintiff Diana Deidan brings this putative class action individually and on behalf of all
others similarly situated. (ECF No. 91.)

DENIED IN PART; CIG’s Motion to Dismiss (ECF No. 136) is GRANTED; and the Sidhu
Defendants’ Motion to Dismiss (ECF No. 137) is GRANTED IN PART and DENIED IN PART.
I.

BACKGROUND
A.

Factual Background

For the purpose of these motions to dismiss, the Court accepts the factual allegations in the
Amended Complaint as true and draws all inferences in the light most favorable to Plaintiffs. See
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). The Court also considers any
“document integral to or explicitly relied upon in the complaint.” In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digit. Equip. Corp., 82 F.3d 1194,
1220 (1st Cir. 1996)).
This is a federal securities putative class action on behalf of persons and entities that
purchased or acquired RenovaCare securities between August 14, 2017 and May 28, 2021 (the
“Class Period”). (ECF No. 91 ¶ 1.) RenovaCare currently advertises itself as a medical and
development stage company engaged in research and development, business development, and
capital raises. (Id. ¶ 2.) RenovaCare owns the CellMist System, which consists of a treatment
method for burn patients including cell isolation for the regeneration of human skin cells and other
tissues, and an experimental solution sprayer medical device to deliver healing cells to burn wound
treatment areas known as the “SkinGun.” 2 (Id.) RenovaCare’s common stock is traded on the overthe-counter market (the “OTC Market”) under the symbol “RCAR.” (Id. ¶ 61.) Rayat has been the
Company’s majority and controlling shareholder since 1999. (Id.) As of March 24, 2022, Rayat

2

As late as 2013, RenovaCare operated under the name of Janus Resources Inc. and purported to
be in the business of oil-and-gas production. (Id. ¶ 97.) Eventually the Company’s business plan
was altered and in the middle of 2013 the Company purchased the technology related to the
SkinGun. (Id.)
2

also serves as RenovaCare’s interim President, Chief Executive Officer, Chief Financial Officer,
and Secretary. (Id. ¶ 65.)
Plaintiffs allege there was a longstanding, concealed, and wide-reaching fraudulent stock
promotion scheme (the “Scheme”) to artificially increase the share price and trading volume of
RenovaCare’s common stock that was never disclosed to investors. (Id.) The Scheme was intended
to permit Defendants to sell their RenovaCare shares at an inflated price and involved a number of
steps including: (i) accumulating millions of shares of RenovaCare stock at below-market prices
and distributing them; (ii) coordinating the registration of restricted shares for resale and depositing
them as “free trading” shares in brokerage accounts in the United States and Canada; (iii)
promoting RenovaCare stock to investors through a paid promotional campaign via a third-party
company while intending to sell the Company’s stock—a practice known as “scalping”; (iv)
disseminating materially false statements in a press release and a Form 8-K filed with the Securities
Exchange Commission (the “SEC”), both of which contained statements denying any involvement
in the promotional campaign; (v) orchestrating RenovaCare press releases to coincide with the
third-party company’s promotion; and (vi) manipulative trading across multiple accounts to
support the share price and trading volume of RenovaCare stock while selling over one million of
shares to monetize the scheme. (Id. ¶ 6.)
The foundation for the Scheme included the arranged sale of below-market value
RenovaCare stock, an aggressive investor relations program, and the establishment of brokerage
accounts held by various entities so that RenovaCare’s stock could be sold once the stock price
was “pumped.” (Id. ¶ 3.) Between 2007 and 2013, Rayat sold millions of RenovaCare shares to

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entities owned and controlled by Sidhu 3 and Bhogal 4 that assisted in the fraud by transacting in
RenovaCare stock. (Id. ¶¶ 4, 73.) These transactions allowed Bhogal and Sidhu to acquire millions
of shares of RenovaCare stock for little or no money, and in exchange, Rayat received debt or
equity interests that permitted him to maintain a financial interest in later sales of these shares.
(Id.) In 2008, Sharon Fleming (“Fleming”) 5 acquired 300,000 RenovaCare shares in a private
transaction with the Company. (Id. ¶ 74.)
Sidhu, Bhogal, Rayat, and Fleming closely coordinated brokerage accounts that were used
for trading RenovaCare shares. (Id. ¶¶ 79–88.) Pursuant to federal securities laws, the RenovaCare
shares in Sidhu and Bhogal’s brokerage accounts were restricted from sale as of April 2017. (Id. ¶
83.) On June 6, 2017, RenovaCare amended a Form S-1 Registration Statement (“S-1”)—which
was already pending with the SEC—to add Sidhu and Bhogal’s shares to the list of shares that the
Company sought to register for resale. 6 (Id. ¶ 85.) On July 15, 2017, the SEC declared
RenovaCare’s amended S-1 effective, removing any restrictions on the ability of Rayat, Bhogal,
and Sidhu to sell their shares. (Id. ¶ 87.) In June and October 2017, Rayat and Sidhu orchestrated
below-market sales of RenovaCare stock that would later be used to pay StreetAuthority, LLC

3

Sidhu owned and controlled Blackbriar Ltd. and Treadstone LLC. (Id. ¶ 40.) Sidhu received the
RenovaCare stock either directly from Rayat or in transactions financed by Rayat. (Id.) Sidhu
served on the Board of Directors of RenovaCare’s predecessor entity from September 2008
through 2010. (Id.)

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Bhogal owned and controlled Alberta Ltd. and received the RenovaCare stock in transactions
financed or arranged by Rayat. (Id. ¶ 39.) Bhogal also served as an advisor to RenovaCare through
his wholly owned consulting firm Vector Asset Management, Inc. (“Vector”) from August 1, 2013
through June 26, 2018, when he was appointed as RenovaCare’s Chief Operating Officer. (Id.)
5

Fleming served as a third-party investor relations consultant to RenovaCare through her wholly
owned consulting firm Inspiren LLC (“Inspiren”). (Id. ¶ 41.)

6

The prior version of the S-1 had sought to register approximately 2 million RenovaCare shares
owned by Rayat and other friends and associates. (Id. ¶ 85.)
4

(“StreetAuthority”). 7 (Id. ¶ 76–78.)
In July 2017, Rayat first approached StreetAuthority to promote RenovaCare and another
company that Rayat controlled, SolarWindow. (Id. ¶ 108.) Betancourt and Rayat agreed that
RenovaCare and SolarWindow would each pay StreetAuthority $50,000.00 per month for a stock
promotional campaign (the “Promotional Campaign”). 8 (Id. ¶¶ 110, 138, 159.) Rayat arranged for
the payments to be made through three separate third-party investor relations companies including
Inspiren for the purpose of concealing Rayat and RenovaCare’s involvement. (Id. ¶¶ 138, 158–
67.) StreetAuthority agreed to use the money to pay for advertising and other distribution costs
related to the publication and dissemination of its promotion of RenovaCare and SolarWindow.
(Id. ¶ 159.)
Ultimately, RenovaCare and SolarWindow were StreetAuthority’s “lead predictions” for
its annual Predictions Report. (Id. ¶¶ 13, 114.) The substance of the Promotional Campaign
relevant to this matter focused on RenovaCare stock as well as the SkinGun and included false
“before and after” pictures of a burn patient purportedly treated with the SkinGun. (Id. ¶¶ 13, 16.)
The Promotional Campaign claimed that the SkinGun was a “revolutionary wound-healing
device,” and encouraged readers to buy RenovaCare stock and hold it for “10, 20x, even 40x
gains.” (Id. ¶ 179.) Further, the Promotional Campaign misleadingly claimed that the SkinGun

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StreetAuthority was an online financial publishing and research company that sold subscriptions
to its investment research bulletins and newsletters. (Id. ¶ 42.) StreetAuthority was co-founded,
owned, and operated by Lou Betancourt (“Betancourt”), a long-time friend of Rayat. (Id. ¶ 12.) In
early 2019, StreetAuthority was acquired by Investing Daily, a division of CIG that is an online
and print publishing company serving various markets. (Id. ¶ 42.) After the acquisition,
StreetAuthority’s domain name (StreetAuthority.com) became a division of CIG, and Plaintiffs
allege StreetAuthority began operating as a fictitious business d/b/a CIG. (Id.)
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Each year, StreetAuthority built a promotional campaign called the “Predictions Campaign”
around an annual “Predictions Report.” (Id. ¶ 13.)
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would be approved by the Food and Drug Administration (the “FDA”) because RenovaCare had
submitted a 510(k) application. (Id. ¶ 184.) However, RenovaCare did not have a pending 510(k)
application before the FDA. (Id. ¶ 185.)
While the Promotional Campaign was ongoing, Bhogal sold millions-of-dollars’ worth of
RenovaCare stock through Alberta Ltd., a company in which Rayat held a substantial financial
interest. (Id. ¶ 18.) Through the use of the aforementioned brokerage accounts, Sidhu also sold
millions-of-dollars’ worth of RenovaCare stock and engaged in manipulative trading to artificially
inflate the market for RenovaCare as late as February 2018. (Id. ¶¶ 19, 279, 281, 282, 284.)
Similarly, Fleming sold over 50,000 RenovaCare shares and also engaged in manipulative trading.
(Id. ¶ 20.)
The Scheme was initially “discovered in January 2018,” and this discovery resulted in a
regulatory investigation, a litigation release filed by the SEC, and a downgrade of RenovaCare’s
stock by the OTC Markets Group, Inc. (“OTC Markets Group”). 9 (Id. ¶ 5.) On January 2, 2018,
OTC Markets Group learned of StreetAuthority’s ongoing promotion of RenovaCare. (Id. ¶ 207.)
Thereafter, OTC Markets Group sent RenovaCare a letter on January 3, 2018 wherein OTC
Markets Group demanded that RenovaCare make public disclosures regarding the Promotional
Campaign (the “OTC Markets Letter”). 10 (Id. ¶ 212.) In response, on January 8, 2018, RenovaCare
issued a press release (the “January 2018 Press Release”) that “publicly disclosed” the January 3,
2018 inquiry from OTC Markets Group. (Id. ¶¶ 169, 224, 226.) The January 2018 Press Release

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OTC Markets Group, the entity that supervised the exchange on which RenovaCare stock was
listed, is an American financial market providing price and liquidity information for almost
100,000 over-the-counter securities. (Id. ¶ 5 n.2.)
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OTC Markets Group has a strict disclosure policy regarding company promotions, as the
motivation to provide false information through promotional campaigns could impact the integrity
of OTC Markets Group. (Id. ¶ 208.)
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disclosed that RenovaCare, through its investor relations agencies, paid $90,005.00 for out-ofpocket costs incurred by unnamed investor relations agencies relating to the dissemination of the
StreetAuthority publications. (Id. ¶ 226.) Additionally, the January 2018 Press Release stated that
“the substance of the material statements pertaining to the Company’s technology and products
are not materially false or misleading” and that RenovaCare “had no editorial control over the
content,” “is not affiliated in any way with the authors of the annual predictions report or its
publisher,” and “was not involved in the creation, or directing the dissemination, of the report.”
(Id.) After issuing the January 2018 Press Release, Defendants resumed their coordinated trading
of RenovaCare stock. (Id. ¶¶ 265–69.)
Throughout the month of February 2018, RenovaCare dealt with multiple instances of bad
publicity. On February 8, 2018, an online financial media company (“Media Company 1”)
published an article on RenovaCare that, among other things, called it “the most dangerous stock
covered to date.” (Id. ¶ 272.) On February 12, 2018, Media Company 1 issued another negative
article suggesting that RenovaCare was involved in a pump-and-dump scheme (together with
Media Company 1’s February 8, 2018 article, “Media Company 1’s Articles”). (Id. ¶ 280.) On the
same date, TheStreetSweeper (“StreetSweeper”), an investigative reporting website, published an
article entitled “RenovaCare: Many Catalysts, Untold Downside” that exposed deficiencies with
RenovaCare’s business operations, products, financials, insider trading practices, and
RenovaCare’s questionable response to the OTC Markets Letter (the “StreetSweeper Article”).
(Id. ¶ 248.) Specifically, the StreetSweeper Article raised questions about the Company’s
operations and highlighted that: (i) despite being a roughly $600 million market cap company,
RenovaCare “is operated by one full-time employee and three part-time contractors . . . including
the CEO”; (ii) the SkinGun was “acquired on the cheap [(for only $400,000)] and has not been

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presented to the FDA for approval”; (iii) within its 35 years of existence, RenovaCare had no sales,
little cash, big operating losses, and auditors expressed doubt that the company could continue as
a going concern; (iv) RenovaCare had “[h]eavy, sometimes misleading promotions, questioned by
[OTC Markets Group]”; (v) Rayat was formerly in trouble with the SEC for unlawful stock
promotion; and (vi) RenovaCare’s operations were suspicious when compared to
financial/operations data from RenovaCare’s industry competitor. (Id. ¶ 249.)
In response, RenovaCare issued a press release on February 12, 2018 entitled “RenovaCare
Issues Stern Response to Admitted Short-Seller, StreetSweeper, Affiliated with Felon Convicted
of Securities Fraud” (the “February 12, 2018 Press Release”). (Id. ¶ 255.) RenovaCare accused
StreetSweeper of undertaking “irresponsible and nefarious actions” designed to “damage the
public trust” by “spreading ‘short and distort’ commentary” about the company and reiterated
RenovaCare’s supposed “incredible strides” and the upcoming “major milestone” of an initial
FDA filing. (Id. ¶ 256.) Thereafter, RenovaCare issued two more misleading press releases on
February 15, 2018 and February 21, 2018. 11 (Id. ¶¶ 275–76.) On February 21, 2018, RenovaCare’s
share price reached an all-time high of over $10.50 per share. (Id. ¶¶ 283, 289.)
On February 23, 2018, after becoming aware of further promotional activity related to
RenovaCare, OTC Markets Group downgraded the Company’s stock to its lowest tier, the Pink
Open Market, also known as the “pink sheets,” and placed a “Caveat Emptor” warning and skull
and crossbones symbol 12 on RenovaCare’s company profile (the “February 2018 Downgrade”).

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The February 15, 2018 Press Release announced a “successful FDA meeting,” even though the
meeting had occurred a year earlier. (Id. ¶ 275.) The February 21, 2018 Press Release announced
that RenovaCare had “secure[d] a patent victory,” but this “victory” had occurred months earlier
in December 2017. (Id. ¶ 276.)
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OTC Markets Group “designates certain securities with ‘Caveat Emptor’ and places a skull and
crossbones icon next to the stock’s ticker symbol on OTC Markets Group’s websites, data feeds
8

(Id. ¶ 286.) RenovaCare’s stock price simultaneously dropped approximately thirty percent, from
$9 per share to $6.28 per share. (Id. ¶ 237.) In further response to the StreetSweeper Article,
RenovaCare issued another press release entitled “RenovaCare Takes Action to Protect
Shareholder Interests” on March 5, 2018 (the “March 5, 2018 Press Release”). (Id. ¶ 257.) The
March 5, 2018 Press Release did not address the content of the StreetSweeper Article, but instead
used “ad hominem arguments” and, although not addressing StreetSweeper by name, stated that
“a known short and distort syndicate has engaged in an ongoing smear campaign of disseminating
grossly misleading, inaccurate and distorted facts and misinformation, including false allegations
of insider sell[ing].” (Id.)
On April 12, 2019, over a year after RenovaCare issued the January 8, 2018 Press Release
denying the statements in the OTC Markets Letter, RenovaCare admitted in SEC filings that its
disclosure controls and procedures were ineffective (the “April 2019 Disclosure”). (Id. ¶¶ 25, 298.)
RenovaCare identified several material weaknesses in internal control over financial reporting
including: an “[i]neffective control environment due to an insufficient number of independent
board members”; “[i]neffective design, implementation, and documentation of internal controls
impacting financial statement accounts and general controls over technology”; and “[i]neffective
monitoring controls related to the financial close and reporting process.” (Id. ¶ 298.)
On May 28, 2021, the SEC issued a litigation release (the “SEC Complaint”) stating that
RenovaCare was being charged with alleged securities fraud because of RenovaCare’s undisclosed

and social media, as notice of a potential public interest concern associated with the security, and
to caution investors to exercise additional care and perform thorough due diligence before making
any investment decision. OTC Markets Group may designate a security undergoing promotion as
Caveat Emptor, if, in OTC Markets Group’s determination, the stock promotion presents a public
interest concern or if the company has not made adequate current information available to
investors.” (Id. ¶ 237 n.41.)
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role in the Promotional Campaign with StreetAuthority. (Id. ¶ 354.) The SEC Complaint alleged
that Rayat “arranged, and caused RenovaCare to pay for, a promotional campaign designed to
increase the company’s stock price.” (Id.) Additionally, the SEC Complaint alleged that in January
2018, when OTC Markets Group had requested that RenovaCare explain its relationship to the
Promotional Campaign, “Rayat and RenovaCare then drafted and issued a press release and a Form
8-K that contained material misrepresentations and omissions denying Rayat’s and the company’s
involvement in the promotion.” (Id.) Specifically, the SEC Complaint alleged that “Rayat was
closely involved in directing the promotion and editing promotional materials,” by providing “false
information to StreetAuthority regarding the efficacy of RenovaCare’s experimental burn-wound
healing medical device.” (Id. ¶ 355.) This false information included images of a burn patient who
purportedly recovered from severe burns in three days using the SkinGun, when in reality, the
images were taken five years apart. (Id.) The SEC also alleged RenovaCare’s claim that it had a
510(k) application for the SkinGun pending before the FDA was false. (Id.) Further, the SEC
Complaint alleged that Rayat arranged for third parties to make monthly payments to
StreetAuthority’s publisher “for the fraudulent purpose of concealing Rayat’s and the company’s
involvement,” and that Rayat “knew or was reckless in not knowing that the publisher was required
to disclose payments from RenovaCare” under Section 17(b) of the Securities Act of 1933 (the
“Securities Act”). (Id. ¶ 356.) Following the SEC Complaint’s issuance, the Company’s stock price
fell $0.66, or 24.8 percent, over three consecutive trading sessions to close at $2.00 per share on
June 2, 2021. (Id. ¶ 357.)

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B.

Procedural History 13

On July 16, 2021, the original class action complaint was filed in this matter, previously
bearing the caption Boller v. RenovaCare, Inc. et al., Civ. A. No. 21-13766 (BRM)(ESK). (ECF
No. 1.) This original class action complaint named RenovaCare, Rayat, and Thomas Bold (“Bold”)
as defendants and brought the following two claims pursuant to the Securities Exchange Act of
1934 (the “Exchange Act”): Count I (Violation of Section 10(b) of the Exchange Act and Rule
10b-5 Promulgated Thereunder), and Count II (Violation of Section 20(a) of The Exchange Act).
(Id.) Thereafter, another prospective plaintiff filed a complaint in a separate action titled Solakian
v. RenovaCare, Inc. et al., Civ. A. No. 21-13930 (BRM)(ESK). On November 23, 2021, the
Honorable Edward S. Kiel, U.S.M.J. 14 consolidated Solakian and Boller, appointed Diana Deidan
as lead plaintiff, and ordered that Civil Action No. 21-13766 would constitute the Master Docket
bearing the caption In Re RenovaCare, Inc. Securities Litigation (“In Re RenovaCare”). (ECF No.
34.) On February 11, 2022, Plaintiffs filed the First Amended Class Action Complaint naming
RenovaCare, Rayat, Bold, CIG, and Betancourt as defendants and bringing the following three
claims pursuant to the Exchange Act: Count I (Violations of Section 10(b) of the Exchange Act
and Rule 10b-5 Promulgated Thereunder); Count II (Violations of Section 20(a) of the Exchange
Act); and Count III (Violation of Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c)
Promulgated Thereunder). (ECF No. 37.)
On February 14, 2022, Judge Kiel consolidated Emberland v. Rayat, Civ. A. No. 21-20569

13

This matter was initially assigned to the Honorable Susan D. Wigenton, U.S.D.J. Thereafter,
this matter was reassigned to the undersigned. (ECF No. 3.) On December 15, 2023, this matter
was reassigned to the Honorable Jamel K. Semper, U.S.D.J. (ECF No. 148.) On January 11, 2024,
this matter was again reassigned to the undersigned. (ECF No. 152.)
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Judge Kiel was recently sworn in as a District Judge and now bears the title the Honorable
Edward S. Kiel, U.S.D.J.
11

(BRM)(ESK), Vargas v. Rayat, Civ. A. No. 22-00053 (BRM)(ESK), and Meyer v. Rayat, Civ. A.
No. 22-00430 (the “Shareholder Derivative Actions”) into In Re RenovaCare. (ECF No. 38.) On
February 24, 2022, Plaintiffs filed a Motion for Reconsideration of the February 14, 2022
consolidation. (ECF No. 39.) On September 23, 2022, Judge Kiel entered an Order granting the
Motion for Reconsideration thereby separating the Shareholder Derivative Actions from In Re
RenovaCare. 15 (ECF No. 88.)
On December 15, 2022, Plaintiffs filed the SAC bringing the following claims pursuant to
the Exchange Act: Count I (Violations of Section 9(f) of the Exchange Act 16 Against Defendants
Bhogal, Sidhu, and Fleming; Count II (Violations of Section 10(b) of the Exchange Act and Rule
10b-5(b) Promulgated Thereunder Against All Defendants); Count III (Violation of Section 10(b)
of the Exchange Act and Rule 10b-5(a) and (c) Promulgated Thereunder Against All Defendants);
Count IV (Violations of Section 20(a) of the Exchange Act Against Defendants Rayat, Bold, and
Betancourt); and Count V (Violations of Section 20(b) of the Exchange Act Against Defendants
Rayat, Bhogal, Sidhu, and Fleming). (ECF No. 91.) In the SAC, Plaintiffs brought claims against
RenovaCare, Rayat, Bold, Bhogal, Sidhu, Fleming, CIG, Betancourt, Treadstone Financial Group
Ltd. (“Treadstone Ltd.”), Treadstone LLC, Blackbriar, and Alberta Ltd. 17 (Id.) On July 11, 2023,

15

Judge Kiel separately consolidated the Shareholder Derivative Actions and ordered that Civ. A.
No. 21-20569 would constitute the Master Docket and that the matter would bear the caption, In
Re RenovaCare Derivative Litigation. (ECF No. 88.)

16

The SAC cites to Section 9(e) of the Exchange Act (see generally ECF No. 91), however, the
express private right of action for Section 9(a) is codified at Section 9(f). 15 U.S.C. § 78i(f).
Section 9(e) merely provides that “the terms ‘put,’ ‘call’, ‘straddle’, ‘option’, or ‘privilege’ as used
in [Section 9] shall not include any registered warrant, right, or convertible security.” 15 U.S.C. §
78i(e).
17

Plaintiffs filed executed affidavits of service as to Fleming and Betancourt. (ECF Nos. 96, 102.)
As of the date of this Opinion, neither Fleming nor Betancourt have answered or otherwise pled to
the SAC.
12

Plaintiffs filed a Notice of Voluntary Dismissal as to their claims against Bold and Treadstone Ltd.
(ECF No. 104.)
On October 10, 2023, Defendants filed their respective Motions to Dismiss the SAC. (ECF
Nos. 135–37.) On December 11, 2023, Plaintiffs filed an omnibus opposition to the Motions. (ECF
No. 147.) On January 10, 2024, Defendants filed their respective replies. (ECF Nos. 149–151.)
II.

LEGAL STANDARD
A.

Rule 12(b)(6)

In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a
district court is “required to accept as true all factual allegations in the complaint and draw all
inferences from the facts alleged in the light most favorable to [the non-moving party].” Phillips,
515 F.3d at 228. “[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations
omitted). However, “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.” Id. (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). A court is “not
bound to accept as true a legal conclusion couched as a factual allegation.” Papasan, 478 U.S. at
286. Instead, assuming the factual allegations in the complaint are true, those “[f]actual allegations
must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). This

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“plausibility standard” requires the complaint to allege “more than a sheer possibility that a
defendant has acted unlawfully,” but it “is not akin to a ‘probability requirement.’” Id. (citing
Twombly, 550 U.S. at 556). “[D]etailed factual allegations” are not required, but “more than an
unadorned, the-defendant-unlawfully-harmed-me accusation” must be pleaded; it must include
“factual enhancement” and not just conclusory statements or a recitation of the elements of a cause
of action. Id. (citations omitted). In assessing plausibility, the court may not consider any “[f]actual
claims and assertions raised by a defendant.” Doe v. Princeton Univ., 30 F.4th 335, 345 (3d Cir.
2022).
“Determining whether a complaint states a plausible claim for relief [is] . . . a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer
more than the mere possibility of misconduct, the complaint has alleged—but it has not
‘show[n]’—‘that the pleader is entitled to relief.’” Id. (quoting Fed. R. Civ. P. 8(a)(2)). Indeed,
after Iqbal, conclusory or “bare-bones” allegations will no longer survive a motion to dismiss:
“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. at 678. To prevent dismissal, all civil complaints must set out
“sufficient factual matter” to show that the claim is facially plausible, “allow[ing] the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Supreme
Court’s ruling in Iqbal emphasizes that a plaintiff must show that the allegations of his or her
complaints are plausible. See id. at 670.
B.

Rule 9(b)

Pursuant to Federal Rule of Civil Procedure 9(b), when alleging fraud, “a party must state
with particularity the circumstances constituting fraud or mistake, although intent, knowledge, and

14

other conditions of a person’s mind may be alleged generally.” In re Lipitor Antitrust Litig., 868
F.3d 231, 249 (3d Cir. 2017) (citations omitted); see also United States ex rel. Moore & Co., P.A.
v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016) (holding that a “plaintiff alleging
fraud must . . . support its allegations with all of the essential factual background that would
accompany the first paragraph of any newspaper story – that is, the who, what, when, where and
how of the events at issue”) (citations omitted). Accordingly, “a party must plead [its] claim with
enough particularity to place defendants on notice of the ‘precise misconduct with which they are
charged.’” United States ex rel. Petras v. Simparel, Inc., 857 F.3d 497, 502 (3d Cir. 2017) (quoting
Lum v. Bank of Am., 361 F.3d 217, 223–24 (3d Cir. 2004), abrogated on other grounds by
Twombly, 550 U.S. at 557.
The heightened pleading standard set forth in Rule 9(b) “has been rigorously applied in
securities fraud cases.” Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 144 (3d Cir.
2004) (citing In re Burlington Coat Factory, 114 F.3d at 1417). Further, the Private Securities
Litigation Reform Act of 1995 (“PSLRA”) “imposes another layer of factual particularity to
allegations of securities fraud.” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217
(3d Cir. 2002). To sufficiently allege fraud under the PSLRA, the plaintiff must “state with
particularity both the facts constituting the alleged violation, and the facts evidencing scienter, i.e.,
the defendant’s intention ‘to deceive, manipulate, or defraud.’” Tellabs, Inc., v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 313 (2007) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194,
& n.12 (1976)). In order to satisfy this particularity requirement, the plaintiff must plead “facts
giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C.
§ 78u-4(b)(2)(A). “A complaint will survive . . . only if a reasonable person would deem the
inference of scienter cogent and at least as compelling as any opposing inference one could draw

15

from the facts alleged.” Tellabs, 551 U.S. at 324.
III.

DECISION
The Court first addresses the parties’ arguments related to the timeliness of Plaintiffs’

claims. Next, the Court addresses CIG’s assertion that Plaintiffs have not sufficiently alleged that
CIG is liable as a successor-in-liability. The remainder of the opinion addresses the RenovaCare
Defendants and the Sidhu Defendants’ Motions to Dismiss relative to each count of the SAC.
A.

Timeliness of Plaintiffs’ Claims

Defendants assert Plaintiffs’ claims are time barred by the relevant statute of limitations.
Alternatively, the Sidhu Defendants submit Plaintiffs’ claims, to the extent they are premised on
the Sidhu Defendants’ conduct preceding December 15, 2017, are barred by the statute of repose.
A district court may grant the dismissal of untimely claims on a 12(b)(6) motion where “the face
of the complaint demonstrates that the plaintiff’s claims are untimely.” Stephens v. Clash, 796 F.3d
281, 288 (3d Cir. 2015) (citation and internal quotations omitted). The time limitations for
Plaintiffs’ securities fraud claims is “the earlier of—(1) 2 years after the discovery of the facts
constituting the violation; or (2) 5 years after such violation.” 28 U.S.C. § 1658(b). “[C]ourts have
consistently referred to the shorter time period as a statute of limitations and the longer period as
a statute of repose.” In re Exxon Mobile Corp. Sec. Litig., 500 F.3d 189, 199 (3d Cir. 2007). 18 The
Court addresses the arguments related to the statute of limitations and the statute of repose in turn.
1.

Statute of Limitations

Defendants assert Plaintiffs’ claims are time barred by the two-year statute of limitations

18

“A statute of limitations is ‘[a] law that bars claims after a specified period.’ . . . It is generally
subject to a ‘discovery rule,’ meaning that it does not begin to run until the plaintiff is aware (or
should be aware) of his claim. A statute of repose is ‘[a] statute barring any suit that is brought
after a specified time since the defendant acted.’ . . . It is generally not subject to a discovery rule.”
Id. at 194 n.6 (citations omitted).
16

set forth in 28 U.S.C. § 1658(b) because the SAC clearly alleges that the stock promotion scheme
was “discovered” in January 2018. (ECF No. 135-1 at 14; ECF No. 136-1 at 28; ECF No. 149 at
2; ECF No. 150 at 13; ECF No. 151 at 2) (quoting ECF No. 91 ¶ 5). In the alternative, Defendants
argue the statute of limitations began to toll on April 12, 2019 at the latest due to the contents of
the April 2019 Disclosure. (ECF No. 135-1 at 20; ECF No. 136-1 at 28; ECF No. 137-1 at 8–9.)
Defendants contend various “storm warnings” including the January 2018 Press Release, Media
Company 1’s Articles, the StreetSweeper Article, the February 2018 Downgrade and the
simultaneous RenovaCare stock price drop of thirty percent (collectively, the “Storm Warnings”)
would have placed a reasonable investor on notice of the information they would need to plead the
securities fraud claims. (ECF No. 135-1 at 13–17; ECF No. 136-1 at 28; ECF No. 137-1 at 8–9.)
CIG argues the date the SEC files a complaint is not the date at which a reasonably diligent plaintiff
could have discovered the alleged fraud. (ECF No. 136-1 at 28–29.) 19
In opposition, Plaintiffs assert their claims are not barred by the statute of limitations
because a reasonably diligent plaintiff would not have discovered facts constituting falsity and
scienter until the SEC Complaint was issued on May 28, 2021. (ECF No. 147 at 14–24.) Plaintiffs
contend Defendants’ reassurances and denials of the Storm Warnings prevent Plaintiffs’ inquiry

19

The Sidhu Defendants also assert that Plaintiffs claims are untimely because they were not
named as defendants until the SAC was filed on December 15, 2022. (ECF No. 137-1 at 7.) Based
off this filing date, the Sidhu Defendants submit, in a footnote, that “[t]he date of the SAC, which
first named Sidhu as a defendant, cannot relate back to the original Complaint or the First Amended
Complaint.” (Id. at 7 n.3 (citing Krupski v. Costa Crociere S. p. A., 560 U.S. 538, 544–45 (2010)).)
Plaintiffs do not address the relation back argument in their opposition and the Sidhu Defendants
do not raise this argument again in their reply. (See ECF Nos. 147, 151.) The Court declines to
consider this argument because it was not adequately argued by either the Sidhu Defendants or
Plaintiffs. See John Wyeth & Bro. Ltd. v. CIGNA Int’l Corp., 119 F.3d 1070, 1076 n.6 (3d Cir.
1997) (“[A]rguments raised in passing (such as, in a footnote), but not squarely argued, are
considered waived.”); see also Casco v. Ponzios RD, Inc., Civ. A. No. 16-2084, 2021 WL
3124321, at *5 (D.N.J. July 23, 2021) (“Because Plaintiffs’ argument . . . was only . . . at best,
vaguely referenced in a footnote in Plaintiffs’ Opening Memorandum, this issue was waived.”).
17

notice from being triggered. (Id. at 20–23.) Plaintiffs submit the April 2019 Disclosure did not
mention the undisclosed Promotional Campaign or provide any evidence supporting scienter. (Id.
at 23–24.)
In reply, the RenovaCare Defendants submit the Storm Warnings that occurred in February
2018 after the January 2018 Press Release undermine any reassurances that investors may have
taken from the January 2018 Press Release. (ECF No. 149. at 5–6.) The RenovaCare Defendants
further argue Plaintiffs’ arguments are misplaced because RenovaCare did not issue specific and
express reassurances and denials of the Storm Warnings that occurred in February 2018. (Id. at 7–
9.) Specifically, the RenovaCare Defendants contend neither the February 12, 2018 nor the March
5, 2018 Press Releases included statements denying the stock promotion scheme and Rayat’s
alleged involvement. (Id. at 8–9 (citing ECF No. 91 ¶¶ 255–60).) 20
Under the discovery standard, the statute of limitations period for the federal securities
claims at issue “begins to run once the plaintiff did discover or a reasonably diligent plaintiff would
have ‘discovered the facts constituting the violation’ [including scienter]—whichever comes first.”
Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Sec. Transactions, Inc., 730 F.3d 263, 276
n.6 (3d Cir. 2013) (quoting Merck & Co. v. Reynolds, 559 U.S. 633, 653 (2010)). 21 A fact is

20

In their reply briefs, CIG and the Sidhu Defendants reiterate the arguments raised in their
underlying briefs as to why Plaintiffs’ claims are time barred. (See ECF No. 150 at 13–14, ECF
No. 151 at 2–3.)
21

In Merck, the Supreme Court “rejected and replaced [the Third Circuit’s] inquiry notice standard
with a discovery standard.” Pension Tr. Fund, 730 F.3d at 272 (citing Merck, 559 U.S. 633). The
Supreme Court explained, “[i]f the term ‘inquiry notice’ refers to the point where the facts would
lead a reasonably diligent plaintiff to investigate further, that point is not necessarily the point at
which the plaintiff would already have discovered facts showing scienter or other ‘facts
constituting the violation.’” Merck, 559 U.S. at 651. The “inquiry notice” standard was rejected
“[b]ecause [28 U.S.C. § 1658(b)] contains no indication that the limitations period should occur at
some earlier moment before ‘discovery,’ [such as] when a plaintiff would have begun
investigating.” Id. (emphasis in original).
18

considered “discovered” when “a reasonably diligent plaintiff would have sufficient information
about that fact to adequately plead it in a complaint . . . with sufficient detail and particularity to
survive a 12(b)(6) motion to dismiss.” Id. at 275 (quoting Pontiac Gen. Emps.’ Ret. Sys. v. MBIA,
Inc. 637 F.3d 169, 175 (2d Cir. 2011)). The analysis of whether federal securities claims are barred
by the statute of limitations is “typically fact intensive, and thus, courts are reluctant to dismiss a
complaint as untimely prior to discovery.” Hull v. Glob. Digit. Sols., Inc., Civ. A. No. 16-5153,
2017 WL 6493148, at *8 (D.N.J. Dec. 19, 2017) (citation omitted).
“In determining the time at which ‘discovery’ of those ‘facts’ occurred, terms such as
‘inquiry notice’ and ‘storm warnings’ may be useful to the extent that they identify a time when
the facts would have prompted a reasonably diligent plaintiff to begin investigating.” Merck, 559
U.S. at 653. Inquiry notice “is not necessarily the point at which the plaintiff would have
discovered . . . ‘facts constituting the violation,’” but rather, “the point where the facts would lead
a reasonably diligent plaintiff to investigate further.” Id. at 651. “[A] reasonably diligent plaintiff
would undertake an investigation based on [storm warnings such as] the filing of related lawsuits,
news articles and analyst’s reports, [as well as] prospectuses, quarterly reports, and other
information related to their investments . . . even when the information therein is not companyspecific or security-specific.” Pension Tr. Fund, 730 F.3d at 277 (citations and internal quotations
omitted). 22 Inquiry notice and storm warnings “only play a supporting role because ‘the limitations

22

“The test for ‘storm warnings’ is an objective one, based on whether a ‘reasonable investor of
ordinary intelligence would have discovered the information and recognized it as a storm
warning.’” Benak v. Alliance Cap. Mgmt. L.P., 435 F.3d 396, 400 (3d Cir. 2006) (quoting In re
NAHC, Inc. Sec. Litig., 306 F.3d 1314 (3d Cir. 2002)). Storm warnings take numerous forms
including “the accumulation of information over a period of time that conflicts with representations
that were made when the securities were originally purchased, or any financial, legal or other data
that would alert a reasonable person to the probability that misleading statements or significant
omissions had been made.” Mathews v. Kidder, Peabody & Co., Inc., 260 F.3d 239, 252 (3d Cir.
2001) (citation and internal quotations omitted).
19

period does not begin to run until the plaintiff . . . discovers or a reasonably diligent plaintiff would
have discovered the facts constituting the violation, . . . irrespective of whether the actual plaintiff
undertook a reasonably diligent investigation.’” Id. at 275 (quoting Merck, 559 U.S. at 653).
Here, the original class action complaint in this case was filed on July 16, 2021, and
therefore “the critical date for timeliness purposes” is July 16, 2019, the date “two years before
th[e] complaint was filed.” Merck, 559 U.S. at 638. The Court will address Defendants’ arguments
as to when the statute of limitations was triggered in a chronological order.
Defendants’ arguments that the SAC clearly alleges that the stock promotion scheme was
“discovered” in January 2018 are misguided. 23 Paragraph 5 of the SAC does not expressly state
that Plaintiffs were the ones to discover the Promotional Campaign; instead, the SAC merely states
that it was discovered. (See ECF No. 91 ¶ 5 (“When the concealed stock promotion campaign was
finally discovered in January 2018, the discovery triggered a regulatory investigation, the initiation
of the pending lawsuit by the SEC, and a downgrade of RenovaCare’s stock by OTC Markets
Group.”)) A detailed review of the SAC also guides the Court. The January 2018 Press Release,
the only storm warning that had been publicly available at the time, merely disclosed that
RenovaCare paid $90,005.00 for out-of-pocket costs incurred by unnamed investor relations
agencies relating to the dissemination of the StreetAuthority publications. (Id. ¶ 226.) The January
2018 Press Release did not disclose any facts that would lead a reasonably diligent investor to
discover Defendants’ scienter to further the Scheme’s purpose of fraudulently increasing the share

23

Plaintiffs do not address this argument raised by Defendants. (See generally ECF No. 147.) The
SAC alleges the following events in January 2018: OTC Markets Group uncovered
StreetAuthority’s ongoing promotion of RenovaCare on January 2, 2018 (ECF No. 91 ¶ 207); OTC
Markets Group subsequently demanded RenovaCare make public disclosures regarding the
Promotional Campaign (id. ¶ 212); and RenovaCare issued the January 2018 Press Release,
disclosing it paid $90,005.00 for out-of-pocket costs incurred by unnamed investor relations
agencies relating to the dissemination of the StreetAuthority publications (id. ¶¶ 169, 224, 226).
20

price and trading volume of RenovaCare’s common stock.
Additionally, the January 2018 Press Release included reassurances that “the substance of
the material statements pertaining to the Company’s technology and products are not materially
false or misleading” and that RenovaCare “had no editorial control over the content,” “is not
affiliated in any way with the authors of the annual predictions report or its publisher,” and “was
not involved in the creation, or directing the dissemination, of the report.” (Id.) The Third Circuit
has held that “[r]eassurances can dissipate apparent storm warnings if an investor of ordinary
intelligence would reasonably rely on them to allay the investor’s concerns.” Benak v. All.
Cap. Mgmt. L.P., 435 F.3d 396, 402 n.16 (3d Cir. 2006) (citation and internal quotations omitted).
An investor of ordinary intelligence would have reasonably relied on RenovaCare’s reassurances
in the January 2018 Press Release. See Pension Tr. Fund, 730 F.3d at 277 (holding “despite widelypublicized reports about widespread problems with underwriting standards . . . an investor of
ordinary intelligence would reasonably rely on [defendant]’s reassurances that the particular loans
[at issue] were not afflicted with the common ailment”). Based on the foregoing, the Court finds
that the statute of limitations was not triggered in January 2018.
Next, Defendants assert a series of storm warnings in February 2018 including Media
Company 1’s Articles, the StreetSweeper Article, the February 2018 Downgrade, and the
simultaneous RenovaCare stock price drop of thirty percent triggered the statute of limitations.24

24

The RenovaCare Defendants argue the amended S-1, which enabled Rayat, Bhogal, Sidhu, and
others to sell their RenovaCare shares without restriction, when considered in tandem with the
storm warnings in January and February 2018, “provided investors with a reasonable factual basis
to allege their Section 9(f) claim against Bhogal by February 2018.” (ECF No. 135-1 at 18 (citing
ECF No. 91 ¶¶ 83, 85, 87).) The Court does not agree with this assertion as the amended S-1
merely removed restrictions on resale; it is doubtful that a reasonable investor would have been
able to connect the dots and realize he or she could properly plead the alleged Section 9(f) violation
at that time. (See id. ¶ 87.) The Court also notes the RenovaCare Defendants do not cite to any
case law to support this argument.
21

The Court does not find these arguments persuasive. Media Company 1’s Articles referred to
RenovaCare as “the most dangerous stock covered to date” (ECF No. 91 ¶ 272), and suggested
that RenovaCare was involved in a pump-and-dump scheme (id. ¶ 280). The StreetSweeper Article
exposed deficiencies with RenovaCare’s business operations, products, financials, insider trading
practices, and RenovaCare’s questionable response to the OTC Markets Letter (the “StreetSweeper
Article”). (Id. ¶ 248.) The StreetSweeper Article also detailed that Rayat was previously in trouble
with the SEC for illegal stock promotion. (Id. ¶ 249.) Neither Media Company 1’s Articles, the
StreetSweeper Article, nor the February 2018 Downgrade and the simultaneous RenovaCare stock
price drop 25 provided Plaintiffs with the facts necessary to adequately plead the elements of their
securities fraud claims with sufficient detail and particularity to survive a Rule 12(b)(6) motion
and the heightened pleading standards of Rule 9(b) and the PSLRA. See Pension Tr. Fund, 730
F.3d at 275; see also Hull, 2017 WL 6493148, at *9 (finding storm warnings “did not reveal any
facts that would lead a reasonably diligent investor to discover [d]efendants’ scienter, i.e., to
allegedly perpetuate schemes of inflating [defendant company]’s stock for acquisition purposes, a
necessary component of a § 10(b) claim”); Alaska Elec. Pension Fund v. Pharmacia Corp., Civ.
A. No. 03-1519, 2012 WL 1680097, at *7 (D.N.J. May 11, 2012) (“Viewed in the light most

25

The Court is not persuaded by the RenovaCare Defendants’ reliance on Barbee v. Amira Nature
Foods, Ltd. for the notion that the significant drop in RenovaCare’s stock price constituted a
sufficient storm warning. (ECF No. 135-1 at 17 (citing Barbee v. Amira Nature Foods, Ltd., Civ.
A. No. 21-12894, 2023 WL 4627744, at *7 (D.N.J. July 19, 2023)).) In Barbee, the court merely
held that a “market collapse” may constitute a “clear storm warning” to put the plaintiff on “inquiry
notice” and then cited to two pre-Merck decisions. Id. (citing Brimo v. Corp. Express, Inc., 229
F.3d 1135 (2d Cir. 2000)); In re Adelphia Commc’ns Corp., Civ. A. No. 03-1529, 2005 WL
1278544, at *10 (S.D.N.Y. May 31, 2005)). As noted above, inquiry notice and storm warnings
“only play a supporting role because ‘the limitations period does not begin to run until the plaintiff
. . . discovers or a reasonably diligent plaintiff would have discovered the facts constituting the
violation, . . . irrespective of whether the actual plaintiff undertook a reasonably diligent
investigation.’” Pension Tr. Fund, 730 F.3d at 275 (quoting Merck, 559 U.S. at 653).
22

favorable to Plaintiffs, the Washington Post article published in August of 2001 does not meet
[the scienter pleading] standard. Although . . . this article showed the possibility that [d]efendants
acted with scienter, this article did not raise a strong inference that [d]efendants had the necessary
state of mind. At best, the Washington Post article shows facts indicating that [d]efendants made
a materially false statement by withholding data.”)
Further, RenovaCare again issued misleading press releases in response. The February 12,
2018 Press Release was entitled “RenovaCare Issues Stern Response to Admitted Short-Seller,
StreetSweeper, Affiliated with Felon Convicted of Securities Fraud” and accused StreetSweeper
of undertaking “irresponsible and nefarious actions” designed to “damage the public trust” by
“spreading ‘short and distort’ commentary” about the company and reiterated RenovaCare’s
supposed “incredible strides” and the upcoming “major milestone” of an initial FDA filing. (ECF
No. 91 ¶¶ 255–56.) Although not completely relevant to the Scheme, RenovaCare also issued
misleading press releases on February 15, 2018 and February 21, 2018 intended to obfuscate the
discourse surrounding the Company. (Id. ¶¶ 275–76.) The March 5, 2018 Release was entitled
“RenovaCare Takes Action to Protect Shareholder Interests” and without addressing
StreetSweeper by name stated “a known short and distort syndicate has engaged in an ongoing
smear campaign of disseminating grossly misleading, inaccurate and distorted facts and
misinformation, including false allegations of insider sell[ing].” (Id. ¶ 257.) These reassurances
again “dissipate[d]” the storm warnings contained in Media Company 1’s Articles, the
StreetSweeper Article, and the February 2018 Downgrade as well as the simultaneous RenovaCare
stock price drop. See Benak, 435 F.3d at 402 n.16; see also Pension Tr. Fund, 730 F.3d at 277;
DoubleLine Cap. LP v. Odebrecht Fin., Ltd., 323 F. Supp. 3d 393, 438 (S.D.N.Y. 2018)
(“[E]xpress denials of the reported allegations could have allayed a reasonable investor’s

23

concerns.”); LC Cap. Partners, LP v. Frontier Ins. Grp., Inc., 318 F.3d 148, 155 (2d Cir. 2003)
(“There are occasions when, despite the presence of some ominous indicators, investors may not
be considered to have been placed on inquiry notice because the warning signs are accompanied
by reliable words of comfort from management.”). Therefore, the Court finds that the statute of
limitations was not triggered in February 2018.
Lastly, the Court addresses Defendants’ arguments that the statute of limitations began to
toll on April 12, 2019 at the latest due to the contents of the April 2019 Disclosure. In the April
2019 Disclosure, RenovaCare admitted that its disclosure controls and procedures were
ineffective. (ECF No. 91 ¶¶ 25, 298.) RenovaCare identified several material weaknesses in
internal control over financial reporting. (Id. ¶ 298.) However, the April 2019 Disclosure did not
disclose any information that would lead a reasonably diligent plaintiff to discover the facts
constituting Plaintiffs’ claims including Defendants’ scienter, manipulative market activity, and
their false and misleading statements and material omissions in furtherance of the Scheme.
Therefore, the Court finds that the statute of limitations was not triggered in April 2019 because
the April 2019 Disclosure did not provide Plaintiffs with the facts necessary to adequately plead
the elements of their securities fraud claims with sufficient detail and particularity to survive a
Rule 12(b)(6) motion and the heightened pleading standards of Rule 9(b) and the PSLRA. See
Pension Tr. Fund, 730 F.3d at 275; see also Hull, 2017 WL 6493148, at *9; Alaska Elec., 2012
WL 1680097, at *7.
Rather, the Court finds that a reasonably diligent plaintiff would have discovered the facts
necessary to plead the elements of their securities claims with sufficient detail and particularity to
survive a 12(b)(6) motion on May 28, 2021 when the SEC Complaint was filed. Pension Tr. Fund,
730 F.3d at 275. SEC actions and securities lawsuits have been held to toll the statute of limitations

24

period and provide notice of actionable wrongdoing as well as the ability to adequately plead a
securities complaint. See Pension Tr. Fund, 730 F.3d at 277 (finding that “reasonably diligent
plaintiff[s] would have begun to inquire” when a separate class of plaintiffs filed a complaint
alleging violations of the Securities Act); see also DeMarco v. Lehman Bros., Inc., 309 F. Supp.
2d 631, 637 (S.D.N.Y. 2004) (holding plaintiffs “had no basis for believing that [defendant] had
intentionally lied . . . until the SEC disclosed [defendant’s] emails to the public”). The SEC
Complaint was the first point at which a reasonably diligent plaintiff would have been provided
with sufficient information to plead Defendants’ scienter, manipulative market activity, and their
false and misleading statements and material omissions. (See ECF No. 91 ¶¶ 354–56.) Although a
reasonably diligent plaintiff may have started an investigation based on one or more of the Storm
Warnings, the statute of limitations does not begin to run until a reasonably diligent plaintiff would
have discovered sufficient facts to adequately plead the alleged securities violations, Pension Tr.
Fund, 730 F.3d at 277, which here would not have occurred until May 28, 2021 when the SEC
Complaint was filed.
Accordingly, Defendants’ Motions to Dismiss the SAC on statute of limitation grounds is
DENIED. Defendants may renew their statute of limitations defense at a later stage. See Hull,
2017 WL 6493148, at *10 (denying defendants’ motion to dismiss 10(b) claim as untimely but
noting defendants “may renew their timeliness defense on a summary judgment motion”).
2.

Statute of Repose

The Sidhu Defendants argue the statute of repose bars any claims against them to the extent
they are premised on misconduct occurring more than five years before Plaintiffs filed their SAC.
(ECF No. 137-1 at 9–10; ECF No. 151 at 3–4.) In opposition, Plaintiffs assert the statute of repose
does not bar any of their claims against the Sidhu Defendants because it did not begin to run until

25

February 2018, which is the date of the last wrongful acts alleged against Sidhu. (ECF No. 147 at
24–25.)
The five-year statute of repose set forth in 28 U.S.C. § 1658(b)(2) “begins to run on the
date of the alleged misrepresentation.” In re Exxon Mobile, 500 F.3d at 200. “Although the law in
this area is somewhat unresolved, the majority of courts have held that the statute of repose in §
1658(b)(2) begins to run on the date of the last alleged misrepresentation regarding related subject
matter.” McCullough v. Advest, Inc., Civ. A. No. 17-407, 2017 WL 3675787, at *3 (W.D. Pa. Aug.
25, 2017), aff’d on other grounds, 754 F. App’x 109 (3d Cir. 2018) (collecting cases); N. Sound
Cap. LLC v. Merck & Co., Inc., Civ. A. No. 13-7240, 2015 WL 5055769, at *11 (D.N.J. Aug. 26,
2015), rev’d on other grounds, 702 F. App’x 75 (3d Cir. 2017) (quoting CTS Corp. v. Waldburger,
573 U.S. 1, 8 (2014)) (“A statute of repose . . . puts an outer limit on the right to bring a civil
action. That limit is measured not from the date on which the claim accrues but instead from the
date of the last culpable act or omission of the defendant.”); see Cal. Pub. Emps.’ Ret. Sys. v. ANZ
Sec., Inc., 582 U.S. 497, 505 (2017) (quoting CTS Corp., 573 U.S. at 8) (holding, although not in
the context of claims under the Exchange Act, that “statutes of repose begin to run on ‘the date of
the last culpable act or omission of the defendant’”). 26
Here, the latest misrepresentation by Sidhu that Plaintiffs allege is in February 2018. (See

26

In their reply brief, the Sidhu Defendants also describe the issue of when the statute of repose
begins to run as an “unresolved question of law.” (ECF No. 151 at 4.) Notwithstanding, the Sidhu
Defendants place reliance on a District of Connecticut decision that “expressly rejected
McCullough’s statement that a ‘majority of courts’ hold that the statute of repose begins to run on
the date of the last alleged misrepresentation, instead observing that ‘the weight of authority,’
including the ‘more recent’ case law, ‘holds that the statute of repose . . . begins to run from the
date of each alleged misrepresentation or omission that could constitute a violation of Section
10(b) of the Exchange Act.’” (Id. at 3 (quoting In re Teva Sec. Litig., 512 F. Supp. 3d 321, 334
n.17 (D. Conn. 2021)). The Court is not persuaded by the Sidhu Defendants’ reliance on In re Teva
as In re Teva relies on non-binding, out-of-circuit district court decisions. See In re Teva, 512 F.
Supp. 3d at 333–34.
26

ECF No. 91 ¶¶ 279, 281, 282, 284.) The Court therefore finds that Plaintiffs’ claims against the
Sidhu Defendants are not barred by the five-year statute of repose because Plaintiffs brought their
claims against the Sidhu Defendants in December 2022, i.e., within five years of the last alleged
misrepresentation against them. Accordingly, the Sidhu Defendants’ Motion to Dismiss the SAC
on statute of repose grounds is DENIED.
B.

Plaintiffs Have Not Sufficiently Pled CIG Is Liable As A Successor-In-Liability
for Securities Fraud Violations Committed By StreetAuthority

CIG asserts Plaintiffs have failed to allege that CIG should be held liable solely because it
purchased assets from StreetAuthority. (ECF No. 136-1 at 11–19.) CIG notes the only allegations
against itself is that CIG was “formerly StreetAuthority, LLC.” (Id. at 11 (citing ECF No. 91 ¶
42).) CIG submits it entered into an asset purchase agreement (the “APA”) 27 with StreetAuthority
and other entities, which “confirms that CIG merely purchased certain assets from StreetAuthority
. . . and never has been ‘formerly’ [sic] StreetAuthority which continued to exist as a separate and
distinct entity.” (Id.) CIG argues that pursuant to the express terms of the APA, it did not agree to
assume StreetAuthority’s liabilities. (Id. at 12–16.) Primarily in reliance upon Texas law, 28 CIG
argues it is not a successor-in-liability to StreetAuthority and therefore cannot be held liable to
Plaintiffs. (Id.)
In opposition, Plaintiffs assert the Court cannot consider the APA as it is not integral to the
SAC, properly authenticated, or “explicitly referenced.” (ECF No. 147 at 44–45.) Plaintiffs submit

27

CIG contends the APA is “integral to or explicitly relied upon in the complaint” and therefore
the Court may consider the APA and its provisions. (Id. at 8 n.7; ECF No. 150 at 4–6.) CIG’s
counsel attached the APA as an exhibit to its Motion and declared it “is a true and correct copy.”
(ECF No. 136-2 ¶ 5.)
28

CIG submits Texas law governs the interpretation of the APA pursuant to the APA’s “Governing
Law” provision. (ECF No. 136-1 at 12.)
27

CIG’s counsel “cannot properly authenticate the agreement” because “he did not sign the
document, and he does not allege that he has any personal knowledge of it.” (Id. at 44.)
Additionally, Plaintiffs argue CIG’s arguments regarding successor liability are premature. (Id. at
46–47.) Plaintiffs contend an exception to successor liability may apply under New Jersey law29
and therefore they are entitled to discovery on this issue. (Id. at 47.)
In reply, CIG asserts Plaintiffs’ failure to plead the facts of successor liability is a
standalone basis to dismiss the SAC. (ECF No. 150 at 3.) CIG also contends the APA is
indisputably authentic. 30 (Id. at 6–9.) Further, CIG submits “the authenticity of the APA could not
be seriously disputed” because “[CIG’s counsel] served as deal counsel to CIG as purchaser . . .
and thus has personal knowledge of the authenticity of the APA.” (Id. at 7–8.) CIG argues
discovery is not necessary to resolve Plaintiffs’ successor liability claim and that Plaintiffs’ claims
against CIG should be dismissed. (Id. at 9–13.)
1.

The Court Will Not Consider the APA

While, as a general rule, the court may not consider anything beyond the four corners of
the complaint on a motion to dismiss pursuant to Rule 12(b)(6), the Third Circuit has held that “a
court may consider certain narrowly defined types of material without converting the motion to
dismiss [to one for summary judgment pursuant to Rule 56].” In re Rockefeller Ctr. Props. Sec.
Litig., 184 F.3d 280, 287 (3d Cir. 1999). Specifically, courts may consider any “document integral
to or explicitly relied upon in the complaint.” In re Burlington Coat Factory, 114 F.3d at 1426
(quoting Shaw, 82 F.3d at 1220); In re Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 368 n.9

29

Plaintiffs submit the Court should apply New Jersey law to successor liability because the Court
“must disregard” the APA. (Id. at 46 n.17.)
30

CIG provided a declaration of CIG’s chief operating officer who signed the APA on behalf of
CIG in support of its reply. (ECF No. 150-2.)
28

(3rd Cir. 1993) (“[A] court may consider an undisputedly authentic document that a defendant
attaches as an exhibit to a motion to dismiss if the plaintiff’s claims are based on the document.”).
“The rationale underlying this exception is that the primary problem raised by looking to
documents outside the complaint—lack of notice to the plaintiff—is dissipated ‘[w]here the
plaintiff has actual notice . . . and has relied upon these documents in framing the complaint.” In
re Burlington Coat Factory, 114 F.3d at 1426 (quoting Watterson v. Page, 987 F.2d 1, 3–4 (1st
Cir. 1993)).
Here, Plaintiffs assert claims against CIG for material misstatements or omission under
Section 10(b) of the Exchange Act and SEC Rule 10b-5(b) (Count II) and scheme liability under
Section 10(b) of the Exchange Act and SEC Rules 10b-5(a) and (c) (Count III). The extent of the
allegations against CIG are that “[i]n early 2019, StreetAuthority was acquired by Investing Daily,
a division of [CIG], an online and print publishing company serving various markets. After the
acquisition, StreetAuthority’s domain name StreetAuthority.com became a division of CIG and
began operating as a fictitious business name (d/b/a) for CIG.” (ECF No. 91 ¶ 42.) 31 The SAC
does not contain any allegations as to CIG’s actions related to Plaintiffs’ claims for securities
violation. (See generally ECF No. 91.) Instead, as Plaintiffs put it, the SAC “alleges that CIG is
liable as StreetAuthority’s successor.” (ECF No. 147 at 50 n.21.) CIG correctly asserts that just
because the APA is not “explicitly referenced,” this aspect of the pleading is not determinative of
whether the Court may consider the APA. See In re Burlington Coat Factory, 114 F.3d at 1426
(“[W]hat is critical is whether the claims in the complaint are ‘based’ on an extrinsic document
and not merely whether the extrinsic document was explicitly cited. . . . Plaintiffs cannot prevent

31

The SAC also cites to a URL for a press release entitled “Investing Daily Continues Rapid
Growth by Acquiring 10 Street Authority Investment Publications,” which states: “Capitol
Information Group . . . acquired the assets of [StreetAuthority, LLC].” (EF No. 91 ¶ 42 n.9.)
29

a court from looking at the texts of the documents on which its claim is based by failing to attach
or explicitly cite them.”) Although Plaintiffs’ claims for securities violations are not based on the
APA, it certainly appears that the APA is integral to the SAC in establishing Plaintiffs’ theory that
CIG acquired StreetAuthority and is liable as a successor-in-interest. See B&S Int’l Trading Inc.
v. Meer Enters. LLC, Civ. A. No. 18-11546, 2020 WL 5088257, at *4 (D.N.J. Aug. 28, 2020)
(noting the parties did not dispute this issue and finding an asset purchase agreement integral to
complaint in successor liability claim).
However, Plaintiffs argue that the APA is not “properly authenticated.” (ECF No. 147 at
44–45.) In support of its Motion, CIG provided two declarations from its counsel (ECF Nos. 1362, 150-1), as well as a declaration from its Chief Operating Officer (ECF No. 150-2), attesting to
the authenticity of the APA. Notwithstanding, the Court will not engage in an evidentiary
determination at this stage given that Plaintiffs dispute the authenticity of the APA. 32 Therefore,

32

There may be a basis for the Court to consider the APA and to reject Plaintiffs’ authenticity
arguments at this stage. See Atl. Neurosurgical Specialists, PA ex rel. Patient DC v. Anthem Blue
Cross & Blue Shield, Civ. A. No. 20-10415, 2021 WL 4148149, at *2 n.4 (D.N.J. Sept. 10, 2021)
(considering a document at the motion to dismiss stage, citing to Federal Rule of Evidence 901,
and finding “Plaintiff’s argument that Defendants failed to properly authenticate this document is
misplaced as Defendants submitted the Declaration of . . . a ‘Senior Legal Specialist’ employed by
[defendant], who provided a sworn statement of her personal knowledge”); see also Fed. R. Evid.
901 (providing that a document may be authenticated by: “testimony of a witness with knowledge:
that the document ‘is what it is claimed to be’; and its ‘appearance, contents, substance, internal
patterns, or other distinctive characteristics’”). But the vast majority of case law uses the language
“undisputedly authentic” in analyzing whether a district court may consider an extraneous
document as part of a motion to dismiss. See Trump Casino, 7 F.3d at 368 n.9; see also Est. of
Roman v. City of Newark, 914 F.3d 789, 796–97 (3d Cir. 2019) (providing that a district court may
consider documents “that a defendant attaches as an exhibit to a motion to dismiss,” if it is
“undisputedly authentic” and “the [plaintiff's] claims are based [on them]”); Premier Orthopaedic
Assoc. of S. N.J., LLC v. Anthem Blue Cross Blue Shield, 675 F. Supp. 3d 487, 492 (D.N.J. 2023)
(“Because [plaintiff] disputes the [document]’s authenticity, this Court declines to consider it.”);
Second Wave Acquisition, LLC v. Exceptional Software Strategies, Inc., Civ. A. No. 19-02870,
2021 WL 615122, at *6 (D. Md. Feb. 17, 2021) (“Because [plaintiffs] challenge the authenticity
of the Asset Purchase Agreements, the Court may not consider [defendant]’s exhibits . . . at this
juncture.”).
30

the Court will not consider the APA.
2.

Plaintiffs Have Not Adequately
StreetAuthority’s Successor

Pled

CIG

Is

Liable

As

Under New Jersey law, 33 “[t]he general rule of corporate-successor liability is that when a
company sells its assets to another company, the acquiring company is not liable for the debts and
liabilities of the selling company simply because it has succeeded to the ownership of the assets
of the seller.” Pub. Serv. Elec. & Gas Co. v. Cooper Indus., LLC, 678 F. Supp. 3d 611, 620 (D.N.J.
2023) (quoting Lefever v. K.P. Hovnanian Enters., 734 A.2d 290, 292 (N.J. 1999)). There are four
traditional exceptions to this general rule: “(1) the successor expressly or impliedly assumes the
predecessor’s liabilities; (2) there is an actual or de facto consolidation or merger of the seller and
the purchaser; (3) the purchasing company is a mere continuation of the seller; or (4) the
transaction is entered into fraudulently to escape liability.” Id. (citation omitted).
Here, Plaintiffs solely allege StreetAuthority was acquired by CIG in early 2019 (well after
the

events

of

the

Promotional

Campaign)

and

“StreetAuthority’s

domain

name

StreetAuthority.com became a division of CIG and began operating as a fictitious business name
(d/b/a) for CIG,” (ECF No. 91 ¶ 42), without alleging any additional facts to support their claims
against CIG. Plaintiffs have failed to properly allege any exceptions to the general rule of successor

33

To determine whether Plaintiffs have sufficiently pled CIG is a successor-in-liability, the Court
will apply New Jersey law. See Weikel v. Tower Semiconductor, Ltd., 183 F.R.D. 377, 400 (D.N.J.
1998) (“In construing matters of State law in pendent claims or in state law matters otherwise
subsidiary to its federal question jurisdiction, a federal court . . . is duty-bound to apply the law of
the state in which it sits.”). Accordingly, the Court will not undertake a choice-of-law analysis as
CIG and Plaintiffs did not brief this issue separate from the effect of the choice-of-law provision
in the APA. Further, “[d]ue to the factual inquiry that may be necessary to properly weigh the
Restatement factors, ‘it can be inappropriate or impossible for a court to conduct [a choice-of-law]
analysis at the motion to dismiss stage when little or no discovery has taken place.’” Snyder v.
Farnam Cos., Inc., 792 F. Supp. 2d 712, 718 (D.N.J. 2011) (quoting In re Samsung DLP Television
Class Action Litig., Civ. A. No. 07–2141, 2009 WL 3584352, at *3 (D.N.J. Oct. 27, 2009)).
31

liability. Instead, Plaintiffs rely on “mere conclusory statements” which do not set forth a plausible
claim for successor liability against CIG. Iqbal, 556 U.S. at 678. Therefore, the Court finds a basis
to dismiss Plaintiffs’ claims against CIG. See A&E Harbor Transp., Inc. v. Tri-Coastal Design
Grp., Inc., Civ. A. No. 20-18509, 2021 WL 663747, at *2 (D.N.J. Feb. 19, 2021) (granting motion
to dismiss for failure to plead “sufficient facts to make plausible . . . successor liability”); see also
Munezon v. Peters Advisors, LLC, 553 F. Supp. 3d 187, 209 (D.N.J. Aug. 11, 2021) (dismissing
complaint when the complaint did not contain specific allegations as to a successor liability
exception because “[w]ithout them . . . [plaintiff] fails to plead successor liability”). Accordingly,
CIG’s Motion to Dismiss the SAC is GRANTED. 34
C.

The RenovaCare Defendants and the Sidhu Defendants’ Motions to Dismiss
Count I of the SAC As Against Bhogal and Sidhu for Failing to Sufficiently
Allege Market Manipulation in Violation of Section 9(f) of the Exchange Act

The RenovaCare Defendants argue the Court should dismiss Plaintiffs’ market
manipulation claim under Section 9 of the Exchange Act (Count I of the SAC) as against Bhogal
because the SAC does not allege: (1) Bhogal engaged in the specific type of trading activity
prohibited under Section 9(a)(1) 35; (2) Bhogal’s trading of RenovaCare stock was done for the
purpose of inducing others to purchase or sell RenovaCare stock as prohibited under Section
9(a)(2); and (3) Bhogal’s stock sales and unexecuted buy orders manipulated the stock price. (ECF
No. 135-1 at 21–24.) The Sidhu Defendants similarly argue the Court should dismiss Plaintiffs’

34

Because the Court dismisses the SAC as to CIG based on Plaintiffs’ failure to set forth a plausible
claim for successor liability against CIG, the Court will not address CIG’s remaining arguments
as to why Plaintiffs have failed to properly allege claims for material misstatements or omission
under Section 10(b) of the Exchange Act and SEC Rule 10b-5(b) (Count II), and scheme liability
under Section 10(b) of the Exchange Act and SEC Rules 10b-5(a) and (c) (Count III).
35

Plaintiffs assert they “do not bring a claim for violation of Section 9(a)(1).” (ECF No. 147 at
26.)
32

claim for market manipulation as against Sidhu because Plaintiffs do not allege that Sidhu’s
allegedly manipulative trading affected the price of any of their own purchases or sales of
RenovaCare securities. (ECF No. 137-1 at 19–20.)
In opposition, Plaintiffs assert they have adequately alleged market manipulation in
violation of Section 9(a)(2) of the Exchange Act against Bhogal and Sidhu because the SAC
alleges that they engaged in manipulative trading which induced others to purchase or sell
RenovaCare stock. (ECF No. 147 at 26–28, 28 n.9.) Additionally, Plaintiffs argue that the SAC
sufficiently alleges Bhogal and Sidhu’s manipulative trading affected the Company’s stock price.
(Id. at 28–29.)
In reply, the RenovaCare Defendants assert the SAC fails to plausibly allege that Bhogal
acted with “manipulative intent” when selling his RenovaCare shares. (ECF No. 149 at 10.)
Further, the RenovaCare Defendants argue Plaintiffs’ “allegations about unexecuted buy orders
and Bhogal’s alleged intent for doing so are conclusory and lack sufficient supporting factual
details.” (Id. at 11.) The Sidhu Defendants submit “Plaintiffs’ Opposition provides no meaningful
response” to their argument that the SAC does not draw a link between Sidhu’s trading and
RenovaCare’s stock price as required to state a claim under Section 9(a)(2). (ECF No. 151 at 4.)
The Sidhu Defendants reiterate that the SAC “fails to allege whether or how Sidhu’s purchases
affected the price of RenovaCare securities, let alone allege that Plaintiffs themselves purchased
or sold securities at an affected price.” (Id.)
Section 9(a)(2) of the Exchange Act prohibits “effect[ing] . . . a series of transactions in
any security registered on a national securities exchange . . . for the purpose of inducing the
purchase or sale of such security by others.” 15 U.S.C. § 78i(a)(2). To state a claim under Section
9(a)(2), a plaintiff must allege:

33

(1) a series of transactions in a security creating actual or apparent
trading in that security or raising or depressing the price of that
security, (2) carried out with scienter, (3) for the purpose of inducing
the security’s sale or purchase by others, [that] (4) was relied on by
the plaintiff, (5) and affected plaintiff’s purchase or selling price.
He v. China Zenix Auto Int’l Ltd., Civ. A. No. 18-15530, 2020 WL 3169506, at *13 (D.N.J. June
12, 2020) (citation and internal quotations omitted). The RenovaCare Defendants and Sidhu
Defendants dispute the adequacy of the SAC’s pleading of the third and fifth elements. (See ECF
No. 135-1 at 23–24; ECF No. 137-1 at 19–20.) Therefore, the Court focuses its analysis on these
two elements.
1.

The SAC Sufficiently Alleges that Bhogal and Sidhu Engaged in
Manipulative Trading For the Purpose of Inducing Others to Purchase
Or Sell RenovaCare Stock

“Section 9(a) ‘proscribes specific behavior . . . that may constitute market manipulation.’”
SEC v. Gallagher, Civ. A. No. 21-8739, 2023 WL 6276688, at *14 (S.D.N.Y. Sept. 26, 2023)
(quoting SEC v. Competitive Techs., Inc., Civ. A. No. 04-1331, 2005 WL 1719725, at *6 (D. Conn.
July 21, 2005)). Generally, market manipulation includes “practices, such as wash sales, matched
orders, or rigged prices, that are intended to mislead investors by artificially affecting market
activity.” Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 476 (1977). “Market manipulation can also
encompass ‘open-market activity’ that is not expressly prohibited, such as ‘short sales and large
or carefully timed purchases or sales of stock.’” Gallagher, 2023 WL 6276688, at *14 (quoting
SEC v. Masri, 523 F. Supp. 2d 361, 367 (S.D.N.Y. 2007)). Notably, “[o]pen-market transactions
that are not inherently manipulative may constitute manipulative activity when accompanied by
manipulative intent.” See Set Cap. LLC v. Credit Suisse Grp. AG, 996 F.3d 64, 77 (2d Cir. 2021)
“Proof of a violation of § 9(a)(2) requires evidence of ‘manipulative motive and willfulness,’
which are normally inferred from the circumstances of the case.” SEC v. Lek Sec. Corp., 276 F.

34

Supp. 3d 49, 62 (S.D.N.Y. 2017) (quoting Crane Co. v. Westinghouse Air Brake Co., 419 F.2d
787, 794 (2d Cir. 1969)).
Here, Plaintiffs allege sufficient facts to support their claim that Bhogal and Sidhu engaged
in trading activity intended to manipulate RenovaCare’s share price and induce others to purchase
or sell it. (See, e.g., ECF No. 91 ¶¶ 73, 85–87 (Bhogal and Sidhu acquired large quantities of
RenovaCare shares and thereafter the shares were registered so that they could be sold without
restriction during the Scheme); id. ¶¶ 39–40 (Bhogal and Sidhu transacted in RenovaCare shares
in furtherance of the Scheme); id. ¶¶ 39, 108, 131, 134–36 (Bhogal orchestrated the Promotional
Campaign through his wholly owned consulting firm, Vector); id. ¶¶ 196–99 (“In early November
2017 . . . Sidhu and Bhogal began selling RenovaCare shares in a highly coordinated manner. Their
trades tracked the [Promotional Campaign], and evidences their knowing participation in the
scheme.”); id. ¶ 278 (Bhogal and Sidhu “took steps to bolster RenovaCare’s share price and trading
volume. . . . First, they stopped selling shares, which could depress the share price, Second, they
soon began aggressively buying RenovaCare stock at historically high prices to artificially inflate
the market.”); id. ¶ 283 (“Bhogal placed several buy orders for RenovaCare stock to further support
RenovaCare’s share price and trading volume. Although these orders were never executed, they
created a false impression of demand for the stock at the order prices. . . . These buy orders were
intended to manipulate the market for the purpose of inducing its purchase or sale by others.”); id.
¶ 290 (During the Promotional Campaign, Bhogal sold over 491,000 shares and reaped over $2.6
million in sale proceeds and Sidhu sold over 332,000 shares and reaped over $2.8 million in sales
proceeds).)
Drawing all inferences in the light most favorable to Plaintiffs, the Court finds that
Plaintiffs have plausibly pled that Bhogal and Sidhu engaged in manipulative trading for the

35

purpose of inducing others to purchase or sell RenovaCare shares in violation of Section 9(a)(2)
of the Exchange Act. See Lek Sec. Corp., 276 F. Supp. 3d at 62 (finding SEC adequately alleged
Section 9(a)(2) violation where complaint alleged manipulative trading activity was “designed to
create a false impression of supply or demand for securities and to induce other market participants
to purchase or sell securities”); see also SEC v. Hwang, Civ. A. No. 22-3402, 2023 WL 6124041,
at *13 (S.D.N.Y. Sept. 19, 2023) (finding allegations that defendant engaged in trading activity
“with the intent of sending false pricing signals to the market about the true demand for the
securities” sufficiently alleged manipulative intent).
2.

Plaintiffs Have Adequately Pled that Bhogal and Sidhu’s Manipulative
Trading Affected RenovaCare’s Stock Price

Section 9 limits a private right of action to “person[s] who . . . purchase or sell any security
at a price which was affected by [the alleged manipulative] act or transaction.” 15 U.S.C. § 78i(f).
“Under this clause it is clear that the party claiming injury must plead and prove some change in
price, because of the prohibited acts. He must either have entered a false market or paid a false
price to enter a genuine market.” Rosenberg v. Hano, 121 F.2d 818, 821 (3d Cir. 1941); see MTB
Inv. Partners, LP v. Siemens Hearing Instruments, Inc., Civ. A. No. 12-00340, 2013 WL
12149253, at *7 (D.N.J. Feb. 19, 2013) (“[T]he law in this Circuit is clear that section 9(a) liability
must be predicated on a purchase or sale at a price affected by the offending conduct.”) (citation
omitted). Here, Plaintiffs have satisfied this requirement by alleging the following: Bhogal and
Sidhu sold their shares in a coordinated manner that essentially tailed the Promotional Campaign
(ECF No. 91 ¶¶ 196–99); “internet users clicked on tens of thousands of RenovaCare ads created
by StreetAuthority” pursuant to the Promotional Campaign resulting in “an uptick in volume and
price” for RenovaCare stock (id. ¶¶ 192–93); “On October 23, 2017, RenovaCare’s stock price
closed at $3.10 per share, and by January 5, 2018, it had risen to $4.91 per share, an approximately
36

58 percent increase” (id. ¶ 193); Sidhu coordinated the purchase of shares between February 12
and 16, 2018 “with no economic justification other than to manipulate the share price and trading
volume by creating a false impression of investor interest in the stock for the purpose of inducing
its purchase or sale by others” (id. ¶ 282); on February 20 and 21, 2018, Bhogal “placed several
buy orders . . . to further support RenovaCare’s share price and trading volume” and create the
“false impression of demand for the stock at the order prices” (id. ¶ 283); RenovaCare stock then
reached an all-time high of over $10.50 per share on February 21, 2018 (id.). Based on these
allegations, Plaintiffs have sufficiently pled that Bhogal and Sidhu’s manipulative trading affected
the RenovaCare share price. 36
Accordingly, the RenovaCare Defendants and the Sidhu Defendants’ Motions to Dismiss
Count I of the SAC are DENIED.
D.

The RenovaCare Defendants’ Motion to Dismiss Count II of the SAC for
Failing to Sufficiently Allege False Statements in Violation of Section 10(b) of
the Exchange Act and SEC Rule 10b-5(b) 37

The RenovaCare Defendants assert that Plaintiffs’ claim for material misstatements or
omissions (Count II of the SAC) should be dismissed because: (1) RenovaCare, Rayat, and Bhogal

36

The RenovaCare Defendants and the Sidhu Defendants do not cite to persuasive case law in
support of their assertion that Plaintiffs have failed to allege Bhogal and Sidhu’s manipulative
trading affected the stock price. (See ECF No. 135-1 at 23–24; ECF No. 137-1 at 19–20; ECF No.
149 at 10–11; ECF No. 151 at 4.) For example, the RenovaCare Defendants’ reliance on Xu v.
Direxion Shares ETF Tr., Civ. A. No. 22-5090, 2023 WL 5509151 (S.D.N.Y. Aug. 25, 2023) is
misplaced. In that case, the Southern District of New York found that the operative complaint
“lack[ed] any conceivable, factual basis for the allegation that Defendants manipulated the price
of the [index-based ETFs] shares.” Id. at *10. Whereas here, Plaintiffs have alleged a significant
factual basis from which the Court can plausibly infer that Bhogal and Sidhu engaged in
manipulative trading that affected RenovaCare’s share price.
37

In response to the Sidhu Defendants’ arguments seeking dismissal of Count II as to Sidhu (ECF
No. 137-1 at 10–13), Plaintiffs state they “no longer advance a claim against Sidhu under Count
II for false and misleading statement” (ECF No. 147 at 30 n.11). Accordingly, the Sidhu
Defendants’ Motion to Dismiss Count II of the SAC as to Sidhu is GRANTED.
37

did not have a duty to disclose the Promotional Campaign; and (2) Bhogal and Rayat were not the
“makers” of RenovaCare’s alleged false statements. (ECF No. 135-1 at 24–31.) In opposition,
Plaintiffs argue the SAC sufficiently alleges that Bhogal and Rayat are liable for making false and
misleading statements as well as material omissions because they were “makers” of the alleged
statements and had a duty to disclose. (ECF No. 147 at 30–37.) The Court addresses each of the
RenovaCare Defendants’ arguments in turn.
Section 10(b) of the 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 as the Commission may prescribe as
necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. §
78j(b). SEC Rule 10b-5(b) applies this provision and provides that it is unlawful “[t]o make any
untrue statement of a material fact or to omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made, not misleading.”
17 CFR § 240.10b-5(b).
To state a claim for material misrepresentations or omissions under Section 10(b) and SEC
Rule 10b-5, a plaintiff must allege: “(1) a material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentations or omission and the purchase or sale
of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss
causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37–38 (2011) (citations omitted).
1.

Plaintiffs Have Sufficiently Pled Rayat, But Not Bhogal, Was the
“Maker” of RenovaCare’s Alleged Untrue Statements Or Omissions In
the January 2018 Press Release.

Plaintiffs allege Bhogal and Rayat are liable for alleged false statements and omissions in

38

thirteen RenovaCare public filings from August 2017 to May 2020. 38 (See ECF No. 91 ¶¶ 321–
53.) The RenovaCare Defendants argue (i) Bhogal was not the “maker” of false statements alleged
in any of the thirteen RenovaCare public filings and (ii) Rayat was not the “maker” of nine of the
thirteen RenovaCare public filings. (ECF No. 135-1 at 28–31.) In opposition, Plaintiffs submit
Bhogal and Rayat were “makers” of the January 2018 Press Release because they had “ultimate
authority.” (ECF No. 147 at 30–32.) In reply, the RenovaCare Defendants submit Plaintiffs
concede that Bhogal was not the “maker” of twelve of the public filings and that Rayat was not
the “maker” of eight of the public filings. (ECF No. 149 at 13–14.) The RenovaCare Defendants
also contend Bhogal and Rayat were not the “makers” of the alleged false statements in the January
2018 Press Release because Plaintiffs did not plead these allegations with the requisite
particularity. (Id. at 12–13.)
Plaintiffs only address the RenovaCare Defendants’ arguments related to the January 2018
Press Release. (See ECF No. 147 at 30–32.) By failing to address the remainder of the RenovaCare
Defendants’ arguments, Plaintiffs have waived their claims against Bhogal, to the extent they are
premised on the other twelve public filings, and against Rayat, to the extent they are premised on
the other eight public filings. 39 See Jimenez v. T.D. Bank, N.A., Civ. A. No. 20-07699, 2021 WL
4398754, at *14 (D.N.J. Sept. 27, 2021) (“The failure to respond to a substantive argument to

38

The Court did not list all thirteen of the public filings in the factual background section. The
January 2018, March 5, 2018, and February 12, 2018 Press Releases as well as the April 2019
Disclosure are four of the thirteen. (See ECF No. 91 ¶¶ 321–53.) The other nine are: (1) August
14, 2017 Form 10-Q Filing; (2) October 18, 2017 Prospectus Supplement; (3) November 14, 2017
Form 10-Q Filing; (4) February 12, 2018 Form S-1 Filing; (5) February 27, 2018 Form 8-K Filing;
(6) March 13, 2018 Form 10-K Filing; (7) April 6, 2018 Form S-1/A Filing; (8) April 25, 2018
Prospectus; (9) May 14, 2020 Form 10-K Filing. (Id.)
39

The RenovaCare Defendants acknowledge Rayat signed and therefore was the “maker” of four
of the public filings including: the April 6, 2018 Form S-1/A Filing, April 25, 2018 Prospectus,
April 2019 Disclosure, and May 14, 2020 Form 10-K Filing. (ECF No. 135-1 at 31.)
39

dismiss a [claim], when a party otherwise files opposition, results in a waiver of that [claim].”)
(quoting Griglak v. CTX Mortgage Co., LLC, Civ. A. No. 09-5247, 2010 WL 1424023, at *3
(D.N.J. Apr. 8, 2010)). Therefore, Plaintiffs’ claims against Bhogal in Count II of the SAC are
dismissed to the extent those claims are premised on any public filing referenced in the SAC other
than the January 2018 Press Release. Similarly, Plaintiffs’ claims against Rayat in Count II of the
SAC are dismissed to the extent those claims are premised on any public filing referenced in the
SAC other than the January 2018 Press Release, the April 6, 2018 Form S-1/A Filing, the April
25, 2018 Prospectus, the April 2019 Disclosure, and the May 14, 2020 Form 10-K Filing.
As to the January 2018 Press Release, the Court finds that Plaintiffs have adequately pled
Rayat was the “maker” of the alleged false statements contained therein. Only the person or entity
who “makes” the untrue statements or omissions may be liable under SEC Rule 10b-5(b). Janus
Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011) (“Rule 10b-5’s private right
of action does not include suits against aiders and abettors.”). “[T]he 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.” Id. “‘[U]ltimate authority’ . . . can be found if implicit in surrounding
circumstances, or, in other words, evidenced by various indicia of control.” Xu v. Gridsum Holding
Inc., 624 F. Supp. 3d 352, 359 (S.D.N.Y. 2022) (collecting cases). Further, “[a] statement can have
multiple makers.” JPMorgan Chase Bank, N.A. v. Javice, Civ. A. No. 22-01621, 2023 WL
4546409, at *4 (D. Del. July 13, 2023) (citation omitted). In Janus, the Supreme Court analogized
this rule to the relationship between a speechwriter and a speaker. 564 U.S. at 143 (“Even when a
speechwriter drafts a speech, the content is entirely within the control of the person who delivers
it. And it is the speaker who takes credit—or blame—for what is ultimately said.”).

40

Here, Plaintiffs allege the following facts relevant to the January 2018 Press Release:
“Rayat was instrumental in drafting and disseminating RenovaCare’s press release . . . Rayat was
in the best position to provide the substantive detail in response to OTC Market’s inquiry because
. . . he had solicited StreetAuthority to run the campaign, concealed RenovaCare’s payments” (ECF
No. 91 ¶ 217); Rayat and Bhogal participated in several conference calls with RenovaCare’s CEO,
director, and outside counsel, to strategize the response to the OTC Markets Letter (id. ¶ 218);
Bhogal coordinated with RenovaCare’s investor relations consultant on the response (id. ¶ 219);
Rayat assembled the team to work on the draft press release and provided comments to the draft
(id. ¶¶ 219–20); Rayat emailed RenovaCare’s CEO a final draft of the press release and instructed
him to add boilerplate language (id. ¶ 222); RenovaCare’s CEO followed Rayat’s instructions and
forwarded Rayat’s final draft of the press release to the investor relations consultant (id.); Rayat
determined when the January 2018 Press Release would be issued, instructing RenovaCare to wait
until 3:45 p.m. “because he wanted to limit the potential impact of [it] by releasing it shortly before
the market closed at 4 p.m.” (id. ¶ 225); and Bhogal worked with the investor relations consultant
to “correct an issue with [the] timing” of the release (id.). Based on these allegations, Rayat was
clearly the person with ultimate authority over the January 2018 Press Release and controlled its
“content and whether and how to communicate it.” See Janus, 564 U.S. at 142; see also Xu, 624
F. Supp. 3d at 359–62.
However, the Court finds Plaintiffs have not plausibly pled Bhogal was the “maker” of the
January 2018 Press Release. See Janus, 564 U.S. at 148 (finding defendant-entity was not the
“maker” of the misleading statements because although the defendant-entity “was significantly
involved,” its assistance was subject to the defendant-maker’s ultimate control and noting
“[a]lthough [defendant-entity], like a speechwriter, may have assisted [defendant-maker] with

41

crafting what [defendant-maker] said in the prospectuses, [defendant-entity] did not ‘make’ those
statements for purposes of Rule 10b-5”); see also Gavin/Solmonese LLC v. D’Arnaud-Taylor, 68
F. Supp. 3d 530, 539 (S.D.N.Y. 2014), aff’d, 639 F. App’x 664 (2d Cir. 2016) (“Any role
[defendant] played in the drafting process or in distributing the offering materials is insufficient to
impose primary liability under Janus.”); Alpha Cap. Anstalt v. Schwell Wimpfheimer & Assocs.
LLP, Civ. A. No. 17-1235, 2018 WL 1627266, at *10 (S.D.N.Y. Mar. 30, 2018) (dismissing claim
under Rule 10b-5(b) and finding “Plaintiffs’ allegations with respect to [defendant]’s relationship
to the allegedly false and misleading statements insufficiently plead that [defendant] ‘made’ the
statements under the rule of Janus. As the individual who ‘drafted’ the September 2012 8-K and
‘at least reviewed’ the other statements, [defendant] played a role much like that of a speechwriter,
without any ultimate authority over the final content.”). Accordingly, the RenovaCare Defendants’
Motion to Dismiss Count II of the SAC as to Bhogal is GRANTED.
2.

Plaintiffs Have Adequately Pled RenovaCare and Rayat Had a Duty To
Speak Truthfully and Disclose the Extent of the Promotional Campaign
in the January 2018 Press Release 40

The RenovaCare Defendants argue RenovaCare and Rayat did not have an affirmative duty
to disclose the Promotional Campaign. (ECF No. 135-1 at 25–28.) In opposition, Plaintiffs assert
RenovaCare and Rayat each had a duty to disclose the Promotional Campaign to make the January
2018 Press Release not misleading. (ECF No. 147 at 33–34.) Plaintiffs also argue Rayat and
RenovaCare had a duty to disclose the Promotional Campaign “when they crafted the January
[2018] Press Release” because they controlled it. (Id. at 34–37.)
The RenovaCare Defendants and Plaintiffs limited their arguments to the duty to disclose

40

As the Court has already dismissed Plaintiffs’ claims in Count II against Bhogal, the Court does
not address the RenovaCare Defendants and Plaintiffs’ arguments related to Bhogal’s duty to
disclose.
42

the Promotional Campaign. (See ECF No. 135-1 at 25–28; ECF No. 147 at 33–34; ECF No. 149
at 11–12.) Further, RenovaCare and Rayat’s duty to disclose the Promotional Campaign is only
specifically argued with respect to the January 2018 Press Release. (See ECF No. 147 at 33–34.)41
The Court will only address the duty to disclose relative to the January 2018 Press Release. See
Ballas v. Tedesco, 41 F. Supp. 2d 531, 533 n.2 (D.N.J. 1999) (“A moving party may not raise new
issues and present new factual materials in a reply brief that it should have raised in its initial
brief.”).
Under Rule 10b-5, “[s]ilence, absent a duty to disclose, is not misleading.” Basic Inc. v.
Levinson, 485 U.S. 224, 239 n.17 (1988); Laasko v. Endo Int’l, PLC, Civ. A. No. 20-07536, 2022
WL 3444038, at *3 (D.N.J. Aug. 17, 2022) (“Liability attaches for both affirmative misstatements
and misleading omissions, but the latter can only give rise to liability where the defendant had an
affirmative duty to disclose the information in question.”) (citing Oran v. Stafford, 226 F.3d 275,
285–86 (3d Cir. 2000)); Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015)
(“[A]n omission is actionable under the securities laws only when the corporation is subject to a
duty to disclose the omitted facts.” (citation omitted)).
Even though “non-disclosure of material information will not give rise to liability under
Rule 10b–5 unless the defendant had an affirmative duty . . . there is [still] a duty to disclose any
material facts that are necessary to make disclosed material statements, whether mandatory or

41

The RenovaCare Defendants did not address the duty to disclose specific to each of the thirteen
public filings in their moving brief (see ECF No. 135-1 at 25–28), but then they claim in their reply
brief that Plaintiffs concede they did not have a duty to disclose the Promotional Campaign in all
public filings other than the January 2018 Press Release (id. at 11–12). The Court disagrees with
the RenovaCare Defendants on this assertion as they did not submit arguments specific to each of
the thirteen public filings in the same fashion that they did in support of their arguments related to
whether Bhogal and Rayat were adequately pled as “makers.” (Compare ECF No. 135-1 at 25–28,
with id. at 28–31.)
43

volunteered, not misleading.” SEC v. Kearns, 691 F. Supp. 2d 601, 616 (D.N.J. 2010) (citing Oran
v. Stafford, 226 F.3d 275, 285 (3d Cir. 2000) and Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628,
641 (3d Cir. 1989)) (internal quotations omitted). “The duty to disclose ‘necessary’ information to
make the statements not misleading arises when each statement was made.” United States v. Schiff,
538 F. Supp. 2d 818, 830 (D.N.J. 2008). “Omissions are ‘material’ [or necessary] for purposes of
federal securities law if there is a ‘substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having significantly altered the ‘total mix’
of information made available.” Hoxworth v. Blinder, Robinson & Co., 903 F. 2d 186, 200 (3d Cir.
1990)) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
In the context of paid stock promotions, Section 17(b) of the Securities Act, commonly
known as the “anti-touting” provision, places a duty on the publisher or promoter to disclose the
payment received. See 15 U.S.C. § 77q(b) (“It shall be unlawful for any person . . . to publish, give
publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment
service, or communication, which, though not purporting to offer a security for sale, describes such
security for a consideration received or to be received, directly or indirectly, from an issuer,
underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such
consideration and the amount thereof.”); see also Cortina v. Anavex Life Scis. Corp., Civ. A. No.
15-10162, 2016 WL 7480415, at *5 (S.D.N.Y. Dec. 29, 2016) (“Section 17(b) . . . imposes a duty
to disclose payment on the promoter who receives payment, but not on the issuer who hired and
paid the promoter.”) (emphasis in original).
Notwithstanding the “anti-touting” provision and the relevant case law applying it, the
Court finds Plaintiffs have adequately pled RenovaCare and Rayat had a duty to speak truthfully
about the Promotional Campaign in the January 2018 Press Release. The SAC alleges that the

44

OTC Markets Letter demanded that RenovaCare make public disclosures regarding the
Promotional Campaign. (ECF No. 91 ¶ 212.) The SAC further alleges that RenovaCare thereafter
issued the January 2018 Press Release, which included numerous material misrepresentations and
omissions (id. ¶¶ 227–35), and misleadingly stated that “[t]he Company had no editorial control
over the content” of the Promotional Campaign, and that “the Company, its executive officers,
directors or, its controlling shareholder, or any third-party service providers” were not directly or
indirectly involved with the creation or distribution of the promotional materials (id. ¶ 226). As
discussed above, Plaintiffs have sufficiently pled Rayat was the “maker” of the January 2018 Press
Release. Therefore, once Rayat, acting on behalf of RenovaCare, opened the door and began to
make disclosures about the Promotional Campaign, he was required to “tell the whole truth.” See
In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 258 (2d Cir. 2016) (quoting Meyer v. Jinkosolar
Holdings Co., Ltd., 761 F.3d 245, 250 (2d Cir. 2014)) (“It is well-established in [the Second]
Circuit that ‘once a company speaks on an issue or topic, there is a duty to tell the whole truth,’
‘[e]ven when there is no existing independent duty to disclose information’ on the issue or
topic. . . . That is because, at the moment the company chooses to speak, it takes upon itself the
obligation to speak truthfully, and it is the breach of that obligation which forms the basis for the
§ 10(b) claim.”); see also Caiola v. Citibank, N.A., 295 F.3d 312, 331 (2d Cir. 2002) (“[T]he lack
of an independent duty [to disclose] is not . . . a defense to Rule 10b–5 liability because upon
choosing to speak, one must speak truthfully about material issues.”).
The RenovaCare Defendants correctly assert that “Courts routinely dismiss securities fraud
claims against public companies where plaintiffs allege the companies committed fraud by failing
to disclose paid stock promotion campaigns.” (ECF No. 27 at 27.) However, drawing all inferences
in favor of Plaintiffs, the Court finds the facts alleged set forth that Rayat is more than “an issuer

45

who merely [paid] an author to write positive articles on a stock.” Cf. Noto v. 22nd Century Grp.,
Inc., 35 F.4th 95, 104 (2d Cir. 2022) (holding the complaint did not adequately allege defendants
had duties to disclose that they paid for the publication of a promotional article because “[t]he
articles themselves did little more than republish publicly-available content. Moreover, there is no
allegation that the press releases, the content of which was captured in the articles themselves,
were false or misleading.”). For instance, Plaintiffs allege: (i) Rayat was extensively involved in
the Promotional Campaign (ECF No. 91 ¶ 229); (ii) RenovaCare was funding the Promotional
Campaign through third-party investor relation companies (id. ¶ 230); (iii) Rayat, on behalf of
RenovaCare, provided the information behind the substance of the Promotional Campaign and had
editorial control (id. ¶¶ 232, 234); and (iv) Rayat approached StreetAuthority in July 2017
regarding the potential of the Promotional Campaign (id. ¶ 35).
Accordingly, the RenovaCare Defendants’ Motion to Dismiss Count II of the SAC as to
Rayat 42 and RenovaCare is DENIED.
E.

The RenovaCare Defendants and the Sidhu Defendants’ Motions to Dismiss
Plaintiffs’ Claims Against Defendants in Count III of the SAC for Scheme to
Defraud in Violation of Section 10(b) of the Exchange Act and SEC Rules 10b5(a) and (c)

In Count III, Plaintiffs raise claims against Defendants for a scheme to defraud in violation
of Section 10(b) of the Exchange Act and SEC Rules 10b-5(a) and (c). (ECF No. 91 ¶¶ 394–402.)
Plaintiffs allege Defendants perpetrated the Scheme which “was intended to, and did: (i) deceive
the investing public, including Plaintiffs and the Class; (ii) artificially inflate the market price of
RenovaCare securities; and (iii) cause Plaintiffs and the Class to purchase RenovaCare securities

42

As held above, Plaintiffs’ claims against Rayat in Count II of the SAC are dismissed to the extent
those claims are premised on any public filing referenced in the SAC other than the January 2018
Press Release, the April 6, 2018 Form S-1/A Filing, the April 25, 2018 Prospectus, the April 2019
Disclosure, and the May 14, 2020 Form 10-K Filing.
46

at artificially inflated prices.” (Id. ¶ 396.)
Claims under Rules 10b-5(a) and (c) are referred to as “‘scheme liability claims’ because
they make deceptive conduct actionable, as opposed to Rule 10b-5(b), which relates to deceptive
statements.” In re DVI, Inc. Sec. Litig., 639 F.3d 623, 643 n.29 (3d Cir. 2011). To state a claim for
relief for scheme liability, “a private plaintiff must allege (1) that the defendant committed a
deceptive or manipulative act, (2) in furtherance of the alleged scheme to defraud, (3) with scienter,
and (4) reliance.” SEC v. Lucent Techs., Inc., 610 F. Supp. 2d 342, 350 (D.N.J. 2009) (citations
omitted).
1.

Plaintiffs Have Adequately Pled Claims for Scheme Liability Against
the RenovaCare Defendants

The RenovaCare Defendants assert the Court should dismiss Plaintiffs’ claims as against
them in Count III of the SAC because Plaintiffs have not adequately pled a claim for a scheme to
defraud in violation of Section 10(b) Exchange Act and SEC Rules 10b-5(a) and (c) as Plaintiffs
do not allege they engaged in inherently deceptive conduct independent of the alleged “nondisclosure” of the Promotional Campaign that serves as the basis for their claims in Count II of the
SAC. (ECF No. 135-1 at 32–34.)
In opposition, Plaintiffs argue Count III should not be dismissed because they have
adequately alleged that Defendants engaged in a “pump-and-dump” scheme in violation of SEC
Rules 10b-5(a) and (c). (ECF No. 147 at 37–43.) Plaintiffs submit the alleged “pump-and-dump”
scheme includes allegations that extend beyond the allegations which serve the basis for their
claims in Count II against Defendants for false and misleading statements and omissions. (Id. at
38–42.)
In reply, the RenovaCare Defendants assert “even when recast as a pump-and-dump
scheme, Plaintiffs still fail to point to inherently deceptive conduct attributable to each [of]
47

RenovaCare, Rayat[,] and Bhogal that is independent of the false statements they allegedly made
in the RenovaCare public reports.” (ECF No. 149 at 14.) Additionally, the RenovaCare Defendants
note the SAC does not allege that RenovaCare and Rayat “sold or dumped their shares.” (Id.)
Importantly, “misstatements and omissions cannot form the ‘sole basis’ for liability under
the scheme subsections [Rule 10b-5(a) and (c)].” SEC v. Rio Tinto PLC, 41 F.4th 47, 53 (2d Cir.
2022) (citing Lentell v. Merrill Lynch & Co., 396 F.3d 161, 177 (2d Cir. 2005)). Notwithstanding,
a defendant may be liable under SEC Rule 10b-5(b) as well as SEC Rules 10b-5(a) and (c) based
on “the same set of facts, where the plaintiffs allege both that the defendants made
misrepresentations in violations of Rule 10b–5(b), as well as that the defendants undertook a
deceptive scheme or course of conduct that went beyond the misrepresentations.” In re Alstom SA,
406 F. Supp. 2d 433, 475 (S.D.N.Y. 2005); see In re Galena Biopharma, Inc. Sec. Litig., 117 F.
Supp. 3d 1145, 1194 (D. Or. 2015) (“The fact that some of these alleged acts are closely connected
to the alleged misrepresentations and omissions or that the alleged conduct was not disclosed until
the alleged scheme unraveled does not mean that Plaintiffs’ scheme liability claim is a mere recast
of their misrepresentation claim.”).
Plaintiffs have adequately pled claims for scheme liability against the RenovaCare
Defendants by alleging a pump-and-dump scheme. See SEC v. Dynkowski, Civ. A. No. 09-361,
2015 WL 12851237, at *1 (D. Del. July 29, 2015) (“[I]nvolvement in [] pump-and-dump schemes
in order to artificially inflate the price of securities . . . is an actionable misrepresentation under
the securities laws.”) (citing SEC v. Curshen, 888 F. Supp. 2d 1299, 1307 (S.D. Fla. 2012)). As to
the Scheme, Plaintiffs allege extensive factual allegations including that Defendants: (i)
accumulated millions of shares of RenovaCare at below-market prices, registered those shares for
sale, and opened brokerage accounts; (ii) developed an aggressive investor relations program to

48

pump RenovaCare, despite having no successful products; (iii) solicited StreetAuthority for the
Promotional Campaign designed to increase RenovaCare’s stock price and trading volume; (iv)
concealed their payments to StreetAuthority by funneling money through undisclosed third-party
investor relations companies and providing inadequate disclosures; (v) participated in the
preparation, dissemination, and approval of misleading statements about RenovaCare; (vi)
engaged in a coordinated and continuous course of conduct to disguise the statements’ falsity by
issuing materially misleading press releases; (vii) planned article releases with targeted content to
artificially inflate the value of RenovaCare stock; (viii) obtained millions of dollars of ill-gotten
gains; and (xi) placed some of the ill-gotten gains in shell entities with no legitimate claim to the
money. (See generally ECF No. 91.)
District courts have denied motions to dismiss based on similar allegations and have held
that plaintiffs adequately pled a scheme liability claim. See Curshen, 888 F. Supp. 2d at 1308
(finding plaintiffs adequately pled claim for scheme liability based on allegations that defendant
“orchestrated the false media campaign,” “arrang[ed] for the posting of a false website” touting
company developments, and issued press releases claiming fictitious achievements); see also
Swack v. Credit Suisse First Boston, 383 F. Supp. 2d 223, 239 (D. Mass. 2004) (“[Plaintiff] alleged
not just that [defendant] issued one or two misleading research reports, but rather that over time
he worked extensively with [another individual] to issue bullish research reports . . . with the
deliberate aim of boosting [the company]’s market price artificially. This adequately states a
‘scheme’ . . . under Rule[s] 10b-5(a) and (c).”); SEC v. GPL Ventures LLC, Civ. A. No. 21-6814,
2022 WL 158885, at *9 (S.D.N.Y. Jan. 18, 2022) (finding that plaintiffs adequately stated scheme
liability claim where defendants “orchestrated and contrived a marketing apparatus” and used
third-party promoters to “disguis[e] the fact that Defendants were funding the marketing or were

49

otherwise involved . . . to artificially drive up the price of the securities . . . with a plan in place to
ensure they could redeem them for a handsome profit”); In re CytRx Corp. Sec. Litig., Civ. A. No.
14-1956, 2015 WL 5031232, at *11–12 (C.D. Cal. July 13, 2015) (finding sufficient allegations
for a scheme liability claim where plaintiffs alleged “hiring of promoters, planning and editing
well-timed article releases with targeted content to artificially inflate the value of company stock
and raise revenue, and covering up the [defendant company]’s involvement”).
Based on the foregoing, the Court finds Plaintiffs have adequately pled claims for scheme
liability against the RenovaCare Defendants. Accordingly, the RenovaCare Defendants’ Motion
to Dismiss Count III of the SAC is DENIED.
2.

Plaintiffs Have Properly Pled a Scheme Liability Claim Against Sidhu
i.

Plaintiffs Have Sufficiently Alleged Sidhu Engaged in Deceptive
Conduct in Furtherance of the Scheme

The Sidhu Defendants argue Plaintiffs’ claims for scheme liability under Section 10(b) and
Rules 10b-5(a) and (c) fail as against Sidhu because Plaintiffs do not allege that Sidhu engaged in
any deceptive conduct. (ECF No. 137-1 at 13–19.) The Sidhu Defendants submit Plaintiffs do not
properly allege a “scalping” claim against Sidhu because Plaintiffs do not allege Sidhu promoted
RenovaCare stock. (Id. at 15–16.) The Sidhu Defendants also contend Sidhu’s “alleged
‘manipulative trading’ consisting of ‘stop[ping] selling shares’ and then ‘buying RenovaCare stock
at historically high prices,’ . . . cannot serve as a basis for scheme liability under Rules 10b5-(a)
and (c).” (Id. at 16 (citation omitted).) In opposition, Plaintiffs assert they have adequately alleged
a scheme liability claim against Sidhu because they allege Sidhu’s deceptive actions were in
furtherance of the “pump-and-dump” scheme. (ECF No. 147 at 42–43.) In reply, the Sidhu
Defendants submit Plaintiffs rely on “allegations that Sidhu engaged in routine, permissible
securities-market activities.” (ECF No. 151 at 5.) The Sidhu Defendants also argue Plaintiffs’
50

allegations regarding Sidhu’s involvement with StreetAuthority lack the particularity required by
Federal Rule of Civil Procedure 9(b). (Id. at 6.)
“Commission of a manipulative or deceptive act in furtherance of a scheme to defraud is
the initial step in the analysis of a Rule 10b–5(a) and (c) claim.” In re Able Lab’ys Sec. Litig., Civ.
A. No. 05-2681, 2008 WL 1967509, at *20 (D.N.J. Mar. 24, 2008) (citation omitted).
“[S]ubsections (a) and (c) of Rule 10b-5 encompass a ‘wide range of conduct’ and are not limited
to the prohibition of market manipulation.” Takata v. Riot Blockchain, Inc., Civ. A. No. 18-02293,
2020 WL 2079375, at *15 (D.N.J. Apr. 30, 2020) (quoting Lorenzo v. SEC, 587 U.S. 71, 78
(2019)).
Drawing all inferences in the light most favorable to Plaintiffs, the Court finds that
Plaintiffs have sufficiently alleged with particularity that Sidhu engaged in deceptive or
manipulative acts in furtherance of the Scheme by alleging Sidhu: participated in Defendants’
accumulation of shares and “acquire[d] millions of shares of RenovaCare stock for little or no
money” (ECF No. 91 ¶ 73); led the opening and use of brokerage accounts and facilitated the
removal of sale restrictions on RenovaCare shares (id. ¶¶ 79–90); maintained Bhogal’s and Rayat’s
brokerage accounts, as well as his own, by frequently reviewing the accounts and transferring
shares among different entities and accounts (id. ¶¶ 79–82); worked directly with StreetAuthority
to create misleading promotional materials (id. ¶¶ 131, 136); sold shares during the Promotional
Campaign at historically high prices (id. ¶¶ 196–97); stopped and started his trading in
coordination with Defendants (id. ¶¶ 197–203, 216, 266–69, 278–84); assisted RenovaCare in
issuing a new Form S-1 that sought to register for resale over 4.4 million shares held by Rayat,
Sidhu, and their associates (id. ¶ 285); and transferred shares to offshore accounts that he used to

51

sell further shares (id. ¶ 291). 43
ii.

Plaintiffs Have Sufficiently Alleged a Causal Link Between
Sidhu’s Deceptive or Manipulative Actions and Plaintiffs’
Losses

The Sidhu Defendants also assert Plaintiffs’ claims in Count III under Section 10(b) and
Rules 10b-5(a) and (c) fail because Plaintiffs do not adequately plead their alleged losses were
caused by Sidhu’s alleged actions. (ECF No. 137-1 at 21; ECF No. 151 at 8–9.) In opposition,
Plaintiffs argue the Sidhu Defendants have “misread[]” the SAC, and they have adequately alleged
that Sidhu’s actions caused Plaintiffs’ losses. (ECF No. 147 at 43–44.) 44
“Under the PSLRA, a plaintiff asserting a claim under Section 10(b) bears the burden of
proving ‘loss causation,’ i.e., ‘that the act or omission of the defendant . . . caused the loss for
which the plaintiff seeks to recover damages.’” Takata, 2020 WL 2079375, at *17 (quoting 15
U.S.C. § 78u-4(b)(4)). Plaintiffs must “demonstrate that the defendants’ deceptive conduct caused
their claimed economic loss.” De Vito v. Liquid Holdings Grp., Inc., Civ. A. No. 15-6969, 2018
WL 6891832, at *38 (D.N.J. Dec. 31, 2018). “To survive a motion to dismiss, plaintiffs must allege
facts sufficient to show that they suffered a monetary loss by purchasing shares whose prices were
artificially inflated by defendants’ fraudulent actions.” Jones v. Intelli-Check, Inc., 274 F. Supp.
2d 615, 635 (D.N.J. 2003). “Allegations of loss causation are not subject to the heightened pleading
requirements of Rule 9(b) and the PSLRA: all that is required is that plaintiff provide ‘some

43

See Takata, 2020 WL 2079375, at *15 (holding plaintiff adequately alleged a “deceptive and
manipulative act” where defendant’s action “while not necessarily deceptive by itself” may be
“deceptive when viewed in the wider context of Plaintiff’s allegations that [defendant] did [the
action] in order to conceal his sales from the public as a part of scheme to pump-and-dump [the
company]’s stock”).
44

The Court notes Plaintiffs and the Sidhu Defendants submitted limited arguments on this issue.
(See ECF No. 137-1 at 21–22; ECF No. 147 at 43–44; ECF No. 151 at 8–9.)
52

indication of the loss and the causal connection that the plaintiff has in mind,’ consistent with Rule
8(a).” Dudley v. Haub, Civ. A. No. 11-05196, 2013 WL 1845519, at *18 (D.N.J. Apr. 30, 2013)
(quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005)). Further, “[t]he issue of loss
causation is usually not resolved on a motion to dismiss.” Id. (citing EP Medsystems, Inc. v.
EchoCath, Inc., 235 F.3d 865, 884 (3d Cir. 2000)); see Gross v. GFI Grp., Inc., 162 F. Supp. 3d
263, 269 (S.D.N.Y. 2016) (“[Plaintiff]’s burden to plead loss causation is ‘not a heavy one,’ and
when it is unclear whether the plaintiff's losses were caused by the fraud or some other intervening
event, ‘the chain of causation is . . . not to be decided on a Rule 12(b)(6) motion to dismiss.’”
(quoting Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 187 (2d Cir.
2015)).
Here, Plaintiffs have alleged a causal link between the Scheme and their losses by alleging
the market significantly reacted to the Scheme. See, e.g., (ECF No. 91 ¶ 396 (the Scheme carried
out by Defendants “artificially inflate[d] the market price of RenovaCare securities,” and “cause[d]
Plaintiffs and the Class to purchase RenovaCare securities at artificially inflated prices”); id. ¶ 399
(Plaintiffs relied upon the integrity of the OTC Market); id. ¶ 400 (Plaintiffs would not have
purchased RenovaCare securities if they had known of the Scheme); id. ¶ 401 (“As a direct and
proximate result of Defendants’ scheme to defraud and such unlawful course of conduct, Plaintiffs
and the Class suffered damages in connection with their purchases of RenovaCare securities during
the Class Period.”); id. ¶¶ 283, 289, 357, 382 (RenovaCare’s share price reached an all-time high
of over $10.50 per share on February 21, 2018, but after the SEC Complaint was filed, the share
price thereafter dropped to $2.00 per share on June 2, 2021). Specific to Sidhu, Plaintiffs allege
his trading in furtherance of the Scheme played a role in artificially inflating RenovaCare’s share
price. See, e.g., (id. ¶¶ 197–203, 216, 266–69, 278–84 (Sidhu sold his shares in a coordinated

53

manner with Defendants); id. ¶ 282 (Sidhu coordinated the purchase of shares between February
12 and 16, 2018 “with no economic justification other than to manipulate the share price and
trading volume by creating a false impression of investor interest in the stock for the purpose of
inducing its purchase or sale by others”); id. ¶ 283 (RenovaCare stock reached an all-time high of
over $10.50 per share on February 21, 2018).
As Plaintiffs need only “provide some indication of the loss and the causal connection,”
Dura Pharms., 544 U.S. at 347, the Court finds Plaintiffs have sufficiently alleged a causal link
by generally alleging the Scheme artificially inflated prices and by specifically alleging a causal
link between Sidhu’s deceptive or manipulative actions in furtherance of the Scheme, i.e., Sidhu’s
manipulative trading, and Plaintiffs’ losses, i.e., purchases of RenovaCare shares at artificially
inflated prices. See Jones, 274 F. Supp. 2d at 635–36 (holding plaintiffs adequately pled causation
where plaintiffs relied on generalized allegations); see also EP Medsystems, 235 F.3d at 885
(“Although . . . the allegation that it ‘sustained substantial financial losses as a direct result of the
aforementioned misrepresentations and omissions on the part of [defendant company]’ could have
more specifically connected the misrepresentation to the alleged loss, i.e., investment in a company
with little prospects, when we draw all reasonable inferences in plaintiff’s favor, we conclude that
[plaintiff] has adequately alleged loss causation.”); In re iAnthus Cap. Holdings, Inc. Sec. Litig.,
Civ. A. No. 20-3135, 2022 WL 4539119, at *20 (S.D.N.Y. Sept. 28, 2022) (finding allegations
sufficiently pled loss causation because the allegations were “more than simply pleading inflated
prices,” instead the allegations “put defendants on notice of the loss to the class and the causal
connection lead plaintiff has in mind”). 45

45

The Court is not persuaded by the Sidhu Defendants’ reliance on Takata, 2020 WL 2079375. In
Takata, the Court held that the lead plaintiff had failed to adequately allege “loss causation with
respect to the one deceptive act that [the defendant] is alleged to have committed” because “the
54

Accordingly, the Sidhu Defendants’ Motion to Dismiss Count III of the SAC as to Sidhu
is DENIED.
F.

The Sidhu Defendants’ Motion to Dismiss Counts II and III of the SAC As
Against Treadstone LLC and Blackbriar Ltd. for Failure to State a Claim

The Sidhu Defendants assert Plaintiffs fail to state claims in Counts I, II, and III against
Treadstone LLC and Blackbriar Ltd. because the SAC does not contain factual allegations
supporting primary liability as to either of these entities. 46 (ECF No. 137-1 at 26.) The Sidhu
Defendants submit “[a]t most, Plaintiffs’ conclusory allegation that these entities ‘assisted in the
fraud’ sound in the sort of aid-and-abetting liability that is unavailable to Plaintiffs in this civil
action. (Id. at 26–27 (citing Cent. Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164,
191 (1994)).)
In opposition, Plaintiffs argue they have properly alleged claims for “disgorgement of illgotten funds.” (ECF No. 147 at 53.) Plaintiffs assert the Sidhu Defendants’ Motion to Dismiss the
claims against Treadstone LLC and Blackbriar Ltd. must be denied because Plaintiffs have
properly stated claims against Sidhu and they have alleged that the aforementioned entities
“received ill-gotten funds transferred to them or for their benefit by Defendants and have no
legitimate claim to those funds.” (Id. (citing ECF No. 91 ¶¶ 294–97).)
In reply, the Sidhu Defendants assert: (1) the cases that Plaintiffs cite to in support of their

[c]omplaint [was] devoid of any allegation that [the deceptive act] was a ‘substantial cause’ of
shareholders’ economic losses or otherwise contributed in any way to a decline in [the company]’s
stock price.” Id. at *17–18. Here, however, Plaintiffs have sufficiently alleged Sidhu engaged in
multiple deceptive or manipulative acts in furtherance of the Scheme and the Scheme resulted in
artificially inflated prices and then ultimately a significant price drop once the SEC Complaint was
filed.
46

Plaintiffs do not raise a claim against Treadstone LLC or Blackbriar Ltd. in Count I of the SAC.
(See ECF No. 91 ¶¶ 383–85.) Therefore, the Court only addresses whether Plaintiffs sufficiently
state a claim against Treadstone LLC and/or Blackbriar Ltd. in Counts II and III of the SAC.
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unpled claim for “disgorgement of ill-gotten funds” are all cases brought by the SEC; and (2)
“Plaintiffs fail to identify a single case in which a court has sustained a private claim for
‘disgorgement of ill-gotten funds’ against a defendant who is not alleged to have violated the
securities laws.” (ECF No. 151 at 11–12.)
In Counts II and III, Plaintiffs assert claims against Treadstone LLC and Blackbriar Ltd.
for violations of Section 10(b) of the Exchange Act. (See ECF No. 91 ¶¶ 386–402.) As Plaintiffs
concede, they “do not allege substantive wrongdoing” by Treadstone LLC and Blackbriar Ltd.
(ECF No. 147 at 53.) Plaintiffs have therefore failed to allege with particularity that these
defendants violated Section 10(b). Plaintiffs cannot pursue their claims against Treadstone LLC
and Blackbriar Ltd. under a theory that they are secondarily liable. See Central Bank of Denver,
511 U.S. at 191 (“[A] private plaintiff may not maintain an aiding and abetting suit under § 10(b).”)
Accordingly, the Sidhu Defendants’ Motion to Dismiss Counts II and III of the SAC as to
Treadstone LLC and Blackbriar Ltd. is GRANTED. 47

47

Elsewhere in the SAC, but not as part of Counts II or III, Plaintiffs allege Treadstone LLC and
Blackbriar Ltd. “received ill-gotten funds transferred to it or for [their] benefit by the Defendants,”
do not have “a legitimate claim to the ill-gotten funds it directly or indirectly received,” and
“should be required to disgorge the amounts it directly or indirectly received from Defendants.”
(ECF No. 91 ¶¶ 295–96.) Disgorgement of ill-gotten gains is an “equitabl[e] remed[y] premised
on the powers and discretion of the Court to prevent unjust gain and to deter others.” SEC v.
Universal Express, Inc., 475 F. Supp. 2d 412, 434 (S.D.N.Y. 2007). “It is well-settled that
disgorgement is an appropriate remedy for breach of federal securities laws.” Cobalt Multifamily
Invs. I, LLC v. Arden, 857 F. Supp. 2d 349, 360 (S.D.N.Y. 2011) (citation omitted). However, the
Court also notes “once ill-gotten gains have been disgorged to the SEC, there remains no unjust
enrichment, and therefore, no basis for further disgorgement in a private action.” Litton Indus. v.
Lehman Bros. Kuhn Loeb Inc., 734 F. Supp. 1071, 1076 (S.D.N.Y. 1990). See Nat’l Westminster
Bancorp N.J. v. Leone, 702 F. Supp. 1132, 1140 (D.N.J. 1988) (“[P]laintiff may not recover from
defendants any profits already disgorged to the SEC in the prior action.”). As Plaintiffs have not
sufficiently pled Treadstone LLC and Blackbriar Ltd. are liable under the Section 10(b) claims in
Counts II and III of the SAC, the Court finds Plaintiffs’ disgorgement theory of recovery against
them also fails, to the extent it is related to Counts II and III.
56

G.

The RenovaCare Defendants’ Motion to Dismiss Plaintiffs’ Claims Against
Rayat in Count IV of the SAC for Control Person Liability in Violation of
Section 20(a) of the Exchange Act

The RenovaCare Defendants assert that Plaintiffs’ claims for control person liability under
Sections 20(a) of the Exchange Act should be dismissed because Plaintiffs do not plead any
underlying securities fraud claims. (ECF No. 135-1 at 35.) Under Section 20(a) of the Exchange
Act, “[o]ne can be liable . . . for controlling a company that committed securities fraud.” IntelliCheck, Inc., 274 F. Supp. 2d at 644. To state a claim under Section 20(a), the plaintiff must show:
“(1) an underlying violation by the company; and (2) circumstances establishing defendant’s
control over the company’s actions.” Id. at 645. The Court has held that Plaintiffs have sufficiently
pled underlying violations against the RenovaCare Defendants in Counts I, II, and III of the SAC.
Accordingly, the RenovaCare Defendants’ Motion to Dismiss Count IV of the SAC is DENIED.
H.

The RenovaCare Defendants and the Sidhu Defendants’ Motion to Dismiss
Plaintiffs’ Derivative Claims Against Rayat, Bhogal, and Sidhu in Count V of
the SAC for Violations of Section 20(b) of the Exchange Act

The RenovaCare Defendants and the Sidhu Defendants assert that Plaintiffs’ derivative
claims under Section 20(b) should be dismissed as asserted against them because there is no private
right of action for violations of Section 20(b). (ECF No. 135-1 at 35; ECF No. 137-1 at 22–24;
ECF No. 151 at 9–10.) The Sidhu Defendants submit “no court has ever found a private right of
action under [Section 20(b)]. . . . This Court should not be the first in the country, in the 85 years
since the statute was adopted, to hold that there is one.” (ECF No. 137-1 at 22–23.) The Sidhu
Defendants also argue Plaintiffs’ claims under Section 20(b) of the Exchange fail because
Plaintiffs have not alleged Sidhu had “control” over a primary violation. (Id. at 25.) In opposition,
Plaintiffs assert courts have “recognize[d] a private right of action under Section 20(b).” (ECF No.
147 at 52 (citing SEC v. Zvodihikov, Civ. A. No. 16-845, 2020 WL 634184, at *4 (D.N.J. Feb. 10,

57

2020); Union Cent. Life Ins. Co. v. Credit Suisse Sec. (USA), LLC, Civ. A. No. 11-2327, 2014 WL
7179989, at *6 (S.D.N.Y. Dec. 10, 2014); Cohen v. Citibank, N.A., 954 F. Supp. 621, 629–30
(S.D.N.Y. 1996)).)
Section 20(b) of the Exchange Act provides that “[i]t shall be unlawful for any person,
directly or indirectly, to do any act or thing which it would be unlawful for such person to do under
the provisions of this chapter or any rule or regulation thereunder through or by means of any other
person.” 15 U.S.C. § 78t(b). “Few reported cases discuss the applicability of Section 20(b), but it
is clear that the section requires a showing that a ‘controlling person knowingly used the controlled
person to commit the illegal act.’” Cohen, 954 F. Supp. at 630 (quoting Moss v. Morgan Stanley,
553 F. Supp. 1347, 1362 (S.D.N.Y.), aff’d, 719 F.2d 5 (1983)). Further, “liability under Section
20(b) of the Exchange Act” requires “(1) an underlying primary violation of the Exchange Act by
a controlled person or entity; (2) Defendant had control over the primary violator; and (3)
Defendant was a culpable participant in the fraudulent scheme.” Zvodihikov, 2020 WL 634184, at
*4.
The Court will not be the first to recognize a private cause of action under Section 20(b) of
the Exchange Act. 48 See Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S. 148, 164–
65 (“Concerns with the judicial creation of a private cause of action caution against its expansion.
The decision to extend the cause of action is for Congress, not for us.”). Further, at least one district
court has expressly refused a private right of action. See McLaughlin v. Campbell, 410 F. Supp.

48

The cases that Plaintiffs cite to do not support the assertion that Section 20(b) creates a private
cause of action. Plaintiffs’ reliance on Zvodihikov, 2020 WL 634184 is misplaced because that
matter was brought by the SEC. Plaintiffs further cite to Union Cent. Life Ins., 2014 WL 7179989,
at *6 and Cohen, 954 F. Supp. at 629–30, but neither case addresses whether there is a private right
of action under Section 20(b); instead, the courts in those cases dismissed claims brought under
Section 20(b) for failure to state a claim.
58

1321, 1325 (D. Mass. 1976) (declining private of action under Section 20(b) and noting “neither
the legislative history nor the language of [Section 20(b)]” provide a basis for a private right of
action).
Accordingly, the RenovaCare Defendants and the Sidhu Defendants’ Motions to Dismiss
Count V of the SAC are GRANTED.
IV.

CONCLUSION
For the reasons set forth above, the RenovaCare Defendants’ Motion to Dismiss (ECF No.

135) is GRANTED IN PART and DENIED IN PART; CIG’s Motion to Dismiss (ECF No. 136)
is GRANTED; and the Sidhu Defendants’ Motion to Dismiss (ECF No. 137) is GRANTED IN
PART and DENIED IN PART. All claims that have been dismissed, are dismissed without
prejudice. Plaintiffs may, within sixty (60) days of the date of this Opinion, file a third amended
class action complaint curing the deficiencies addressed herein. 49 Defendants may respond to the
third amended class action complaint, if filed, as appropriate and consistent with applicable federal
and local rules. An appropriate Order follows.
/s/ Brian R. Martinotti
HON. BRIAN R. MARTINOTTI
UNITED STATES DISTRICT JUDGE

Dated: June 3, 2024

49

Federal Rule of Civil Procedure 15(a) allows a party to amend its pleadings after obtaining the
Court’s leave or the written consent of its adversary. Under this liberal rule, the Court must “freely
give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). This lenient standard ensures that “a
particular claim will be decided on the merits rather than on technicalities.” Dole v. Arco Chem.
Co., 921 F.2d 484, 487 (3d Cir. 1990) (citation omitted). Given that this is the first motion to
dismiss that the Court has addressed, the Court will permit Plaintiffs to file a third amended class
action complaint.
59