Securities and Exchange Commission v. Thurlow

Background

The Securities and Exchange Commission brought this enforcement action under provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC alleged that Simon Piers Thurlow, Roger Leon Fidler, Richard Oravec, Bradley Fidler, Bryce Emory Boucher, Joseph D. Jordan, and Western Bankers Capital Inc. participated in a fraudulent scheme involving Dolat Ventures, Inc. (“DOLV”), a purported mining business that was changing its business and was later alleged to have no or nominal operations and no assets.

According to the complaint, Thurlow drafted a convertible note for a debt owed by DOLV to its former accounting firm but dated the note October 13, 2015, even though it was drafted in fall 2016 and signed around December 2016. The SEC alleged that defendants used the note to facilitate purchases, conversions, and sales of DOLV shares. The SEC further alleged that defendants made false statements about when the debt was acquired, whether the shares would be resold, whether certain people had relationships with DOLV, and whether DOLV was a shell company. The complaint also described a separate transaction involving a receivable from DOLV’s former transfer agent and shares acquired and sold by Bradley Fidler.

These facts came from the SEC’s complaint. The court expressly stated that it was not making findings about whether the allegations were true.

Motion to Dismiss

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. They argued that the SEC had not adequately alleged that the accounting note was backdated, that DOLV was a shell company, that any defendant was an affiliate of DOLV, or that the transactions failed to satisfy Rule 144’s holding-period requirements for certain unregistered securities sales.

The court declined to consider affidavits, emails, financial reports, and other documents submitted by the defendants because those materials were outside the complaint. The court also declined to convert the motion into one for summary judgment, noting that the parties had not yet had an opportunity to conduct discovery.

The court held that the complaint included enough specific factual allegations to plausibly state claims under the securities laws and to satisfy the heightened pleading standard for fraud. The allegations identified the alleged false statements, the people who allegedly made them, the circumstances in which they were made, and why they were allegedly fraudulent. The court also found that the allegations supported a strong inference of fraudulent intent because defendants allegedly had a financial motive and represented that shares had been held for the required period when they allegedly knew that the debt was acquired more recently.

The court further held that the SEC adequately alleged that DOLV was a shell company under Rule 144. It also found that the complaint sufficiently alleged the relevant affiliation issue because the alleged transactions involved debt acquired from the issuer and then sold to others, and because the complaint alleged that the translator who acquired the note acted under the direction of defendants and to promote DOLV’s interests. Finally, the court found that the SEC adequately alleged that DOLV was not subject to the reporting requirements that would have allowed a shorter holding period.

Disposition and Representation Issue

The court denied the defendants’ motion to dismiss. This ruling allowed the SEC’s claims to proceed; it did not determine that the complaint’s factual allegations were ultimately proven.

The court separately addressed Roger Leon Fidler’s representation of himself and the other defendants. Although the court had not found that an actual conflict had materialized on the motion, it found that his interests could diverge from those of his co-defendants as the case continued. The court ordered the defendants, by September 27, 2024, to submit a letter explaining why Fidler should not be disqualified from representing his co-defendants and addressing whether they wished to waive any conflict and consult independent counsel.