United States District Court, W.D. Washington, Seattle
JAMES GINZKEY, RICHARD FITZGERALD, CHARLES CERF, BARRY DONNER, and on behalf of the class members described below, Plaintiffs,
NATIONAL SECURITIES CORPORATION, a Washington Corporation, Defendant.
ORDER DENYING DEFENDANT'S MOTION TO
RICARDO S. MARTINEZ, CHIEF UNITED STATES DISTRICT JUDGE.
matter comes before the Court on Defendant National
Securities Corporation (“NSC”)'s Motion to
Dismiss under Rule 12(b)(6). Dkt. #27. Plaintiffs oppose. For
the reasons stated below, the Court DENIES Defendant
purposes of this Motion, the Court will accept all facts in
the Complaint as true. The Court will briefly summarize these
facts as necessary for ruling on this Motion.
NSC is a registered broker-dealer headquartered in Seattle.
Plaintiffs James Ginzkey, Richard Fitzgerald, Charles Cerf,
and Barry Donner used NSC's services to purchase
investments in a company called Beamreach that produced solar
panels for residential and commercial use.
was founded in 2007 and, according to the Complaint,
“burned through more than $200 million in funds raised
from large institutional investors, venture capital firms,
and grants from the United States Department of
Energy.” Dkt. #1 at 2.
December 9, 2014, Beamreach and Opus Bank reached a senior
debt financing deal where Opus Bank agreed to provide
Beamreach with a $15 million line of credit with $10 million
available to draw from if the initial line of credit was
exhausted. Opus Bank was granted a security interest in all
of Beamreach's assets. This loan was at 8% and was to be
repaid on an interest-only basis until June 2016 at which
point principal payments would also be required.
February 2015, NSC began acting as a placement agent for
Breamreach's Series D securities offering. The securities
purchased by Plaintiffs and Class Members in the Series D
round consisted of preferred stock, beginning in February
2015 (the “Series D Offering”). A secondary
offering in June 2016, the Series D-1 preferred stock round,
was initially an equity offering (the “Series D-1
Offering”) then was switched to a 9% convertible
promissory note offering a 300% “principal step
up” in the event of an acquisition, in November 2016
(the “Series D-2 Offering”). NSC acted as both
the primary placement agent and exclusive broker/dealer for
the Beamreach Offerings. NSC was paid a commission of 10% of
whatever it sold. The total capital raised by NSC in the
Beamreach Offerings was approximately $34.5 million.
Beamreach Offerings were only made to “a limited group
of sophisticated ‘accredited investors' within the
meaning of Rule 501(a) under the Securities Act of 1933 as
amended (the ‘Securities Act'), in a private
placement designed to be exempt from registration under the
Securities Act, and other applicable securities laws.”
Dkt. #20-1 at 2; Dkt. #20-2 at 2; Dkt. #20-3 at 4.
“Accredited investors” are defined by law as
investors whose individual net worth, or joint net worth with
that person's spouse, exceeds $1, 000, 000 or they have
an annual income exceeding $200, 000 in each of the two most
recent years or joint income with their spouse during those
years in excess of $300, 000. See 17 C.F.R.
Series D and D-1 Offerings were presented to investors
through private placement memoranda (“PPMs”).
Dkts #20-1 and #20-2. The Series D-2 Offering was presented as a
supplement to the Series D-1 Offering PPM (collectively, the
PPMs and its supplements are identified as the
“Beamreach PPMs”). Dkt. #20-3. In each Beamreach
PPM, NSC made warnings to investors about the high-risk
nature of investing in Beamreach. In all of the Beamreach
Offerings, NSC described the Beamreach investments as having
a “high degree of risk.”
allege they relied on NSC's “approval of the
Beamreach Offerings for sale” to make their investments
in Beamreach. Dkt. #1 at 25. On November 15, 2016, Plaintiff
Ginzkey invested $89, 214.75 in the Series D2 Offering. On
April 30, 2015, Plaintiff Fitzgerald invested $175, 000 in
the Series D offering; on October 28, 2016, Fitzgerald
invested $12, 745 in the Series D-2 offering. On February 9,
2016, Plaintiff Cerf invested $52, 479 in the Series D
offering. On April 10, 2015, Plaintiff Donner invested $149,
940 in the Series D offering; on October 20, 2016, Donner
invested another $100, 459 in the Series D-1 offering.
October 19 and October 24, 2016, Beamreach paid its
bankruptcy counsel, Pachulski Stang Ziehl & Jones, LLP,
for services in connection with restructuring or bankruptcy
of the company.
February 9, 2017, Beamreach filed for Chapter 7 bankruptcy
citing a “catastrophic cash flow situation” and
“loans due.” ...