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United States Court of Appeals for the Second Circuit
December 3, 2002, Argued ; September 4, 2003, Decided
Docket No. 02-7503
[*191] CARDAMONE, Circuit Judge:
This is a securities fraud action. It arises out of a failed investment by plaintiff Emergent Capital Investment Management, LLC (Emergent, plaintiff, or appellant), in the preferred stock of defendant Net Value Holdings, Inc., presently known as Stonepath Group, Inc. (NETV). Plaintiff alleges [**2] that during the negotiations leading up to its investment in defendant, NETV's officers, defendants Andrew Panzo and Lee Hansen, repeatedly misrepresented the size of NETV's largest asset, its investment in a company called Brightstreet.com, Inc. (Brightstreet). Emergent further asserts that defendants unlawfully failed to disclose defendant Panzo's history of failed investment projects undertaken in collaboration with one Howard Appel, an individual barred from the securities industry by the National Association of Securities Dealers (NASD). It is plaintiff's contention that Appel effectively controlled defendant through affiliated individuals and entities, a fact defendants should have but failed to disclose to Emergent. Read in the light most favorable to Emergent, the complaint suggests that Panzo, Appel and their affiliated entities artificially inflated the stock prices of the companies controlled by Appel, including NETV, sold their own stock in those companies at high profits, and thereafter allowed the stock prices to plummet, rendering worthless other shareholders' investments.
Plaintiff sued defendants in the United States District Court for the Southern District of New [**3] York before Judge Robert W. [*192] Sweet. Defendants' motion to dismiss plaintiff's second amended complaint under Fed. R. Civ. P. 12(b)(6) was granted in a judgment entered April 22, 2002. The district court ruled that the content of the stock purchase agreement between the parties precluded plaintiff from establishing reasonable reliance on the alleged misrepresentations and omissions. It did find, however, that plaintiff's allegations of loss causation were sufficient.
To the extent that plaintiff's claims are premised on defendants' representations regarding the Brightstreet investment, we agree that it cannot establish reasonable reliance. Plaintiff's failure to insist that these representations be reflected in the written stock purchase agreement leads us to conclude that a sophisticated investor like Emergent could not have reasonably relied on them. Hence, that dismissal must be affirmed.
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343 F.3d 189 *; 2003 U.S. App. LEXIS 18274 **; Fed. Sec. L. Rep. (CCH) P92,497
EMERGENT CAPITAL INVESTMENT MANAGEMENT, LLC., Plaintiff-Appellant, v. STONEPATH GROUP, INC., previously known as NET VALUE HOLDINGS, INC., ANDREW PANZO and LEE HANSEN, Defendants-Appellees.
Prior History: [**1] Plaintiff Emergent Capital Investment Management, LLC, appeals from the judgment dated April 19, 2002, of the United States District Court for the Southern District of New York (Sweet, J.), granting defendants' motion under Fed. R. Civ. P. 12(b)(6) to dismiss plaintiff's second amended complaint for failure to state a claim upon which relief can be granted.
Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 195 F. Supp. 2d 551, 2002 U.S. Dist. LEXIS 6402 (S.D.N.Y., 2002)
Disposition: Affirmed, in part, vacated and remanded, in part.
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