Page 1

Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page *
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
/nited State& Di&trit Court, C.D. Cali2ornia.
#n re ZZZZ BEST S3C/R#,#3S L#,#'4,#$N.
No. C56!76("746RSWL (%7).
$t. *6, 1994.
L3W, Di&trit 8udge.
#. #N,R$D/C,#$N
*1 9o0ant& :e2ore t-e Court are t-e Non69anaging
/nder;riter De2endant& (<N9/ De2endant&=) in t-e
ZZZZ Best (<> %e&t=) &euritie& litigation.
FN1
N9/
De2endant& -a0e .o0ed t-e Court 2or &u..ar? @udg.ent
on all lai.& :roug-t again&t t-e.. ,-e .atter a.e up
regularl? 2or -earing on $to:er 17, 1994.
No;, -a0ing are2ull? on&idered all o2 t-e paper&
2iled in &upport o2 and in oppo&ition to N9/ De2endant&A
9otion, t-e Court -ere:? 'R4N,S #N P4R, 4ND
D3N#3S #N P4R, De2endant&A 9otion 2or Su..ar?
8udg.ent.
##. %4CB'R$/ND
/ntil it& &udden ollap&e into :an1rupt? in 8ul?,
19!7, > %e&t ;a& ;idel? on&idered to :e a o.pan? t-at
-ad a-ie0ed tre.endou& 2inanial &ue&&, gro;ing in
@u&t a 2e; ?ear& to one o2 t-e -ig-e&t pro2it .argin pu:li
o.panie& in t-e nation. $n Dee.:er 9, 19!6, 4 %e&t
.ade a pu:li o22ering o2 1,1++,+++ unit& o2 &euritie&
pur&uant to a pro&petu& and ot-er 2iling& ;-i- ;ere
later re0ealed to :e largel? 2raudulent.
> %e&tA& pu:li o22ering ;a& 2ailitated :? a
.anaging under;riter, De2endant Roone? Pae, #n. #t
;a& Roone? PaeA& dut? to negotiate t-e detail& o2 t-e >
%e&t o22ering ;it- > %e&t it&el2, a& ;ell a& to dra2t
nee&&ar? S3C 2iling& a&&oiated ;it- t-e o22ering. #n
addition to it& role a& .anaging under;riter, Roone? Pae
&oliited ot-er &euritie& 2ir.& to partiipate in t-e > %e&t
o22ering a& .e.:er& o2 an under;riting &?ndiate. ,-e&e
ot-er &euritie& 2ir.& pla?ed a le&& ati0e role in t-e >
%e&t o22ering and o.pri&e t-e N9/ De2endant& no;
:e2ore t-e Court.
Pur&uant to a ;ritten <4gree.ent %et;een
/nder;riter&= t-e N9/ De2endant& ga0e Roone? Pae
t-e po;er to at on t-eir :e-al2 2or purpo&e& o2 t-e > %e&t
o22ering. See Cou&e Del., 3D. C, E (. ,-e 4gree.ent
pro0ided t-at Roone? Pae ;ould deter.ine t-e ti.e and
.anner o2 t-e > %e&t pu:li o22ering, ;ould a.end or
&upple.ent t-e S3C regi&tration &tate.ent and pro&petu&
a& nee&&ar?, and ;ould re&er0e 2or it&el2 unit& o2 t-e >
%e&t &to1 o22ering alloated 2or re&ale :? t-e N9/
De2endant&. #n eD-ange, t-e N9/ De2endant& agreed to
pur-a&e a &pei2ied nu.:er o2 > %e&t unit& on t-e
lo&ing date o2 t-e o22ering. ,-e role o2 t-e N9/
De2endant& in t-e > %e&t o22ering (and o2 under;riter& in
general) ;a& to at a& ;-ole&aler& 2or t-e ne; > %e&t
&euritie&, -elping to en&ure a .ar1et 2or t-e o22ering.
W-ile t-e N9/ De2endant& did not partiipate
diretl? in t-e preparation o2 t-e 2raudulent > %e&t
pro&petu&, t-eir na.e& all appeared on t-e 2inal
dou.ent di&&e.inated to t-e pu:li. Plainti22& ontend
t-at t-i& 2at, along ;it- t-e ;ritten 4gree.ent %et;een
/nder;riter& and ot-er dealing& :et;een Roone? Pae, >
%e&t and t-e N9/ De2endant& reate t-e potential 2or
lia:ilit? under 0ariou& &tate and 2ederal au&e& o2 ation.
,-i& lia:ilit? i& &upported, Plainti22& ontend, :? N9/
De2endant&A la1 o2 due diligene in in0e&tigating eit-er >
%e&t, or t-e .anaging under;riter, Roone? Pae.
FN*
Plainti22& allege t-at -ad De2endant& N9/& .ade e0en a
ur&or? inFuir? into eit-er o2 t-e&e entitie&, t-e? ;ould
-a0e uno0ered &eriou& pro:le.& ;it- t-e > %e&t pu:li
&to1 o22ering.
*2 N9/ De2endant& ounter t-at &u..ar? @udg.ent
on t-e &euritie& 2raud lai.& again&t it &-ould :e granted.
,-e? ontend t-at t-e N9/& -ad onl? a pa&&i0e role in
t-e > %e&t o22ering and t-at t-e? -ad not-ing to do ;it-
t-e due diligene in0e&tigation o2 > %e&t or t-e reation
and di&&e.ination o2 an? pu:li &tate.ent& regarding >
%e&t. 9oreo0er, t-e N9/ De2endant& allege t-at t-e?
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page (
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
o.pletel? relied on t-e due diligene in0e&tigation
(allegedl?) per2or.ed :? Roone? Pae, and t-at &u- total
reliane ;a& @u&ti2ied and <u&to.ar? in t-e indu&tr?.=
#n addition, t-e N9/ De2endant& ontend t-at an?
role t-e? -ad in t-e > %e&t o22ering ;a& li.ited to (+ da?&
duration, t-at i&, t-e e22eti0e ti.e 2ra.e o2 t-e ;ritten
4gree.ent %et;een /nder;riter&. Furt-er, t-e? argue
t-at t-e lai.& again&t t-e. &-ould :e di&po&ed o2
:eau&e di&o0er? -a& 2ailed to re0eal t-at an? la&&
repre&entati0e plainti22& -ad an? diret dealing& ;it- t-e
N9/& ;-at&oe0er.
###. D#SC/SS#$N
4. Standard 2or #&&uane o2 Su..ar? 8udg.ent
Su..ar? @udg.ent i& appropriate ;-en t-ere i& no
genuine i&&ue o2 .aterial 2at and t-e .o0ing part? i&
entitled to @udg.ent a& a .atter o2 la;. Fed.R.Ci0.P. "6.
/nder Rule "6, t-e Court .a? entertain .otion& 2or
&u..ar? @udg.ent on an? part o2, or all o2 a part?A&
lai.&. Fed.R.Ci0.P. "6(a), (:). ,-e .o0ing part? :ear&
t-e initial re&pon&i:ilit? o2 identi2?ing t-e a:&ene o2 a
genuine .aterial i&&ue o2 2at. Celotex v. Catrett, 477 /.S.
(17, (*(, 1+6 S.Ct. *"4!, *""( (19!6). Co;e0er, ;-ere
t-e nonG.o0ing part? ;ill :ear t-e :urden o2 proo2 at trial
on a di&po&iti0e i&&ue, t-e .o0ing part? .a? properl?
.o0e 2or &u..ar? @udg.ent :a&ed &olel? on t-e
<pleading&, depo&ition&, an&;er& to interrogatorie&, and
ad.i&&ion& on 2ile.= Id. at (*4, 1+6 S.Ct. at *""( . ,-u&,
on i&&ue& ;-ere it ;ill not -a0e t-e :urden o2 proo2 at
trial, t-e .o0ing part? .a? .eet it& :urden at t-e
&u..ar? @udg.ent &tage &i.pl? :? &-o;ing t-at t-ere i&
an <a:&ene o2 e0idene= to &upport t-e nonG.o0ing
part?A& a&e. Id. at (*", 1+6 S.Ct. at *""4 . ,-e nonG
.o0ing part?, on t-e ot-er -and, i& reFuired :? Rule "6(e)
to go :e?ond t-e pleading& and de&ignate &pei2i 2at&
&-o;ing t-at t-ere i& a genuine i&&ue 2or trial. Id. at (*4,
1+6 S.Ct. at *""(. NonG.o0ing partie& an .eet t-i&
reFuire.ent :? u&e o2 a22ida0it&, depo&ition&, an&;er& to
interrogatorie&, or ad.i&&ion& on 2ile. Id. Co;e0er,
onlu&or? allegation& un&upported :? 2atual data are
in&u22iient to reate a tria:le i&&ue o2 2at &o a& to
prelude i&&uane o2 &u..ar? @udg.ent. Marks v. United
States Dep't of Justice, "7! F.*d *61, *6( (9t- Cir.197!) .
%. Clai.& 4&&erted 4gain&t N9/ De2endant&.
1. Alleged iolations of 1! U.S.C. "" ##k, ##l, and ##o
,-e Fi2t- 4.ended Co.plaint in t-i& a&e
FN(
allege&
t-at t-e N9/ De2endant& 0iolated &etion& 11, 1* and 1"
o2 t-e Seuritie& 4t o2 19((, 1" /.S.C. HH 771, 77l, and
77o re&peti0el?.
FN4
#n 0iolation o2 t-e&e &tatute&,
Plainti22& allege t-at t-e N9/ De2endant& <a&&i&ted in
preparing, 2iling and irulating t-e Dee.:er 9, 19!6 I>
%e&tJ Regi&tration State.ent and Pro&petu& inluded
t-erein.= Co.plaint E 17*. 9oreo0er, Plainti22& ontend
t-at De2endant N9/& ;ere <nee&&ar? partiipant& in t-e
&ale o2 > %e&t &euritie& to t-e in0e&ting pu:li,= t-at t-e?
&old > %e&t &euritie& to t-e pu:li, inluding la&&
.e.:er&, and t-at t-e? 2ailed rea&ona:l? to in0e&tigate
t-eir &ale o2 > %e&t Seuritie&. Co.plaint EE 1!161!(.
a. argu$ent
%1& Section 11' (ia)ilit* for Misstate$ents and +$issions
in t,e -egistration State$ent.
*3 Setion 11 o2 t-e Seuritie& 4t o2 19((, 1"
/.S.C. H 771 i.po&e& lia:ilit? on per&on& in0ol0ed in t-e
preparation and 2iling o2 a regi&tration &tate.ent i2 an?
part o2 t-at &tate.ent ontain& an untrue &tate.ent o2
.aterial 2at or i2 it o.it& a .aterial 2at nee&&ar? to
.a1e t-e regi&tration &tate.ent not .i&leading. 1" /.S.C.
H 771. ,-ere i& no Fue&tion in t-i& a&e t-at t-e > %e&t
regi&tration &tate.ent ontained .aterial
.i&repre&entation& and o.i&&ion&.
Lia:ilit? under Setion 11 i& eDpre&&l? i.po&ed upon
<e0er? under;riter ;it- re&pet to &u- &eurit?.= Id. H
771(a)("). #n order to -old an under;riter lia:le under
Setion 11, -o;e0er, a plainti22 .u&t pro0e t-at t-e &-are&
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 4
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
pur-a&ed are traea:le to t-e o22ering o0ered :? t-e
o22ending regi&tration &tate.ent. A))e* v. Co$puter
Me$ories, Inc., 6(4 F.Supp. !7+, !74 (N.D.Cal.19!6)
(<ICJourt& -a0e uni2or.l? interpreted &etion 11 a&
reFuiring .ore t-an a &-o;ing t-at a plainti22A& &to1
K.ig-tL -a0e o.e 2ro. t-e rele0ant o22ering.=)M see also
ZZZZ Best Dis$issal +rder at 9(,+9*.
N9/ De2endant& ontend t-at <IdJi&o0er? -a&
onlu&i0el? de.on&trated t-at none o2 t-e plainti22& an
trae t-eir ZZZZ Best &euritie& to t-e Dee.:er 9, 19!6
pu:li o22ering,= and t-at t-ere2ore, &u..ar? @udg.ent
&-ould :e granted on t-e Setion 11 lai.&. #n &upport o2
t-eir argu.ent, N9/ De2endant& ite &e0eral a&e&
re@eting Setion 11 lai.& ;-en plainti22&A 2ail to
adeFuatel? <trae= t-eir pur-a&e o2 &euritie& to a
partiular o22ending &euritie& i&&ue. See In re .lscint, (td
Securities (itigation, 674 F.Supp. (74, (79
(D.9a&&.19!7)M A))e*, 6(4 F.Supp. at !74M Mc/arland v.
Me$orex Corp., 49( F.Supp. 6(1, 64* (N.D.Cal.19!+) . #n
t-e&e a&e&, plainti22&A Setion 11 lai.& 2ailed :eau&e
t-ere ;ere alread? &-are& o2 t-e rele0ant &eurit? :eing
pu:lil? traded ;-en an o22ending regi&tration &tate.ent
;a& i&&ued. ,-ere2ore, &ine t-e plainti22& ould not
onlu&i0el? e&ta:li&- t-at t-eir &-are& ;ere part o2 t-e
ne;, o22ending o22ering, t-eir Setion 11 lai.& -ad to
2ail. See, e.g., A))e*, 6(4 F.Supp. at !74 .
Li1e;i&e, in t-i& a&e N9/ De2endant& lai. t-at >
%e&t &-are& ;ere alread? on t-e open .ar1et at t-e ti.e
o2 t-e Dee.:er 9, 19!6 o22ending > %e&t &euritie&
i&&ue. Plainti22& onede a& .u-. $ppAn at 1" n. **.
Plainti22& retort, -o;e0er, t-at t-e Dee.:er 9, 19!6
o22ering al&o in0ol0ed <;arrant&= 2or 2uture > %e&t &to1
pur-a&e&, ;-i- ;ere not alread? :eing pu:lil?
traded.
FN"
,-e eDi&tene o2 t-e&e ne0 ;arrant& and la&&
repre&entati0e Plainti22&A pur-a&e o2 t-e. i& &u22iient,
Plainti22& ontend, to allo; t-e. to <trae= t-eir
pur-a&e& to t-e Dee.:er 9, 19!6 > %e&t $22ering.
$ppAn at 1".
4 2urt-er i&&ue i& rai&ed in N9/ De2endant&A Repl?.
De2endant& argue t-at a pro0i&ion in Roone? PaeA&
under;riting agree.ent ;it- > %e&t allo;ed it to &ell
<unit&= o2 > %e&t &euritie& (:ot- &to1 and t-e ne;
;arrant&) outside it& apait? a& a repre&entati0e 2or
under;riter de2endant&. See Repl? at 961+M /nder;riting
4gree.ent, Cou&e Del., 3D. D, E *(:). De2endant& lai.
t-at t-i& option 2or Roone? Pae to &ell unit& o0er and
a:o0e t-e 1,1++,+++ at i&&ue in t-e initial > %e&t pu:li
o22ering indiate& t-at Plainti22&A ;arrant& .a? trae :a1
to t-e additional Roone? Pae, <option= unit&,
independent o2 t-e pu:li o22ering and t-e o22ending
regi&tration &tate.ent o0ering it.
*4 De2endant&A argu.ent .u&t 2ail. Regardle&& o2
;-et-er Plainti22&A ;arrant& are traea:le to t-e initial
Dee.:er 9, 19!6 pu:li o22ering or to later <option&=
&old :? Roone? Pae pur&uant to it& > %e&t under;riting
agree.ent, all ;arrant& ;ere i&&ued pur&uant to t-e 2al&e
regi&tration &tate.ent and t-ere2ore an :e <traed= to t-e
o22ending > %e&t o22ering. N9/ De2endant&A 9otion 2or
Su..ar? 8udg.ent on t-e Setion 11 lai.& &-all
t-ere2ore :e D3N#3D.
%1& Section 11%1&' (ia)ilit* for Material Misstate$ents or
+$issions )* Sellers of Securities.
Setion 1*(*) o2 t-e Seuritie& 4t o2 19(( pro0ide&
lia:ilit? 2or <IaJn? per&on ;-o o22er& or &ell& a &eurit? ...
:? .ean& o2 a pro&petu& or oral o..uniation= t-at
ontain& a .i&repre&entation or o.i&&ion o2 .aterial 2at.
1" /.S.C. H ##l . #n general, a de2endant an onl? :e 2ound
lia:le under Setion 1*(*) i2 it ;a& a <&eller= o2 t-e
&eurit? allegedl? &old :? .ean& o2 an o22ending
pro&petu&. ZZZZ Best Dis$issal +rder at 9(,+!4. N9/
De2endant& ontend t-at Plainti22& -a0e 2ailed to &-o; an?
e0idene t-at t-e? <-ad an? dealing&, or tran&ated an?
:u&ine&& of an* kind ;it- an? o2 t-e IN9/&J.= De2A&
9otion at 1!. ,-u&, t-e? argue t-at t-e? annot :e
-arateriNed a& <&eller&= o2 Plainti22&A &euritie& under
Setion 1*(*), and t-at &u..ar? @udg.ent &-ould :e
granted in t-eir 2a0or.
Plainti22& ounter t-at &trit pri0it? i& not reFuired
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page "
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
under Setion 1*(*) and t-at t-e 2at t-at t-e? -a0e not
&-o;n diret dealing& :et;een t-e.&el0e& and t-e N9/&
i& not 2atal to t-eir lai.&. $ppAn at **6*(M see S.C v.
Sea)oard Corp., 677 F.*d 1*!9, 1*9469" (9t- Cir.19!*)
(<,-e .eaning o2 K&ellerL 2or purpo&e& o2 H 1* -a& :een
@udiiall? eDpanded :e?ond t-e per&on ;-o tran&2er& title
to inlude Kpartiipant&A in t-e tran&ation.=). #n 2inter v.
Da,l, 4!6 /.S. 6**, 1+! S.Ct. *+6( (19!!) , t-e Supre.e
Court, in interpreting t-e ;ord <&eller= under related
Setion 1*(1) o2 t-e Seuritie& 4t o2 19((, -eld t-at t-e
ter. i.po&ed lia:ilit? not onl? on t-o&e ;-o pa&& title to
a &eurit?, :ut al&o to per&on& ;-o solicit a purc,ase o2
&euritie& and are .oti0ated, at lea&t in part, :? 2inanial
gain. Id. at 647, 1+! S.Ct. at *+7! . ,-i& de2inition o2
<&eller= ;a& applied :? t-e Nint- Ciruit in Moore v.
3a*port 2ackage .xp., Inc., !!" F.*d "(1, "(6 (9t-
Cir.19!9) to lai.& :roug-t under Setion 1*(*) a& ;ell.
Plainti22& a&&ert t-at i&&ue& o2 2at re.ain a& to
;-et-er or not N9/ De2endant&A <&elling ati0itie&
a&&oiated= ;it- t-e > %e&t o22ering on&tituted
<&oliitation= &u22iient 2or a 2inding o2 lia:ilit? under
Setion 1*(*). #n t-e pre&ent a&e, Plainti22& -a0e alleged
t-at t-e N9/ De2endant&A <&elling ati0itie&= inluded
plaing t-eir na.e on t-e > %e&t pro&petu&, under;riting
**+,+++ o2 t-e 1,1++,+++ unit& in t-e > %e&t pu:li
o22ering, &-aring eDpen&e& 2or ad0erti&e.ent o2 t-e
o22ering, partiipating or :eing in0ited to partiipate in
<road &-o;&= pro.oting t-e > %e&t o22ering, and earning
O1.( .illion in 2ee& 2ro. t-e > %e&t o22ering. See Willen&
Del., S.it- ,r. at (*M Cou&e Del. 3D. C at *(7M Cou&e
Del., 3D. C at *7+. ,-e? allege t-at &u- ati0itie& are
&u22iient to reate an i&&ue o2 2at on ;-et-er t-e N9/
De2endant& 2all ;it-in t-e de2inition o2 <per&on& ;-o
&oliit a pur-a&e o2 &euritie&= &o a& to &u&tain lia:ilit?
under Setion 1*(*). ,-e Court 2ind& t-at Plainti22&A
po&ition &-ould pre0ail.
*5 N9/ De2endant& :a&e t-eir argu.ent t-at t-e?
are not <&oliitor&= on t-e Nint- CiruitA& opinion in
Moore, !!" F.*d at "(1 . ,-ere, t-e Court up-eld t-e
di&.i&&al o2 Setion 1*(*) lai.& again&t aountant and
la;?er de2endant&, 2inding t-at t-e allegation& again&t
t-o&e de2endant& did not a.ount to &oliitation o2
&euritie& pur-a&er& under Setion 1*(*). Id. at "(7. #n
Moore, -o;e0er, <t-e in0e&tor& did not allege t-at t-e
la;?er& or aountant& pla?ed an* role at all in &oliiting
t-e pur-a&e&.= Id. at "(7 (e.p-a&i& added). Rat-er, t-e
di&.i&&al in Moore ;a& :a&ed on t-e CourtA& 2inding t-at
t-e la;?er&A and aountant&A ati0itie& ;ere li.ited &olel?
to t-e per2or.ane o2 pro2e&&ional &er0ie&, and ;ere not
related to t-e diret &oliitation o2 &euritie& pur-a&er&.
Id. at "(7 n. ". #n 2at, t-e Court in Moore did reogniNe a
Setion 1*(*) au&e o2 ation again&t stock)roker
de2endant& :a&ed on allegation& in t-e o.plaint &i.ilar
to t-o&e .ade :? Plainti22& in t-i& a&e. Moore, !!" F.*d
at "(!6(9. Spei2iall?, t-e Court 2ound t-at allegation&
t-at t-e &to1:ro1er& < Kdi&tri:uted &ale& pro.otion data,L
Kreo..ended t-e li.ited partner&-ip intere&t&A and K;ere
a &u:&tantial and .oti0ating 2ore in t-e &ale& toL =
plainti22& ;ere &u22iient to &tate a Setion 1*(*) au&e o2
ation. Id.
W-ile &e0eral ourt& -a0e re@eted t-e i.po&ition o2
Setion 1*(*) lia:ilit? upon under;riter& .erel? :? t-eir
&tatu& a& under;riter&, /oster v. Jesus 4 (a$on
Securities Co., 7"9 F.*d !(!, !4" (11t- Cir.19!")
(re@eting lia:ilit? under old <&u:&tantial 2ator= te&t)M
3lien v. Co$puter Devices, Inc., 6+* F.Supp. !(7, !4+
(S.D.N.P.19!"), a nu.:er o2 ot-er& -a0e 2ound t-at &u-
lia:ilit? does eDi&t ;-en it an :e &-o;n t-at an
under;riter activel* solicits t-e plainti22&A pur-a&e o2 a
&eurit?. 5ile* v. 6ug,es Capita Corp., 746 F.Supp. 1*64,
1*!+6!1 (D.N.8.199+)M In re 5orlds of 5onder Securities
(itigation, 7*1 F.Supp. 114+, 1149 (N.D.Cal.19!9) M
Sc,lueter v. Co7ad, 674 F.Supp. 1("1, 1("6
(C.D.#ll.19!7) (2inding under;riter lia:ilit? under Setion
1*(*) ;it-out diret pri0it? ;-en t-at under;riter
<ati0el? &oliit& &ale&=).
Plainti22& in t-e pre&ent a&e allege a &enario &i.ilar
to t-at 2ound :? t-e Court in Moore to &u&tain a Setion
1*(*) au&e o2 ation again&t &to1:ro1er de2endant&.
,-u&, unli1e t-e &ituation in Moore ;-ere t-e la;?er and
aountant de2endant& ;ere .erel? per2or.ing t-eir
pro2e&&ional role& in &upport o2 ot-er de2endant& atuall?
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 6
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
&oliiting t-e pur-a&e o2 &euritie&, in t-i& a&e, t-ere are
2at& &upporting a onlu&ion t-at t-e N9/ De2endant&
t-e.&el0e& ;ere engaged in &oliitation o2 > %e&t
&euritie& pur-a&er&, .oti0ated at lea&t in part, :? t-e
pro&pet o2 2inanial gain. See $ppAn at *( n. (4 and
2atual re2erene& ited t-ereinM see also 2inter, 4!6 /.S.
at 646647, 1+! S.Ct. at 1+7!. ,-ere2ore, N9/
De2endant&A 9otion 2or Su..ar? 8udg.ent on t-e
Setion 1*(*) lai.& &-all :e D3N#3D.
FN6
%8& Section 1! and Section 19%a&' (ia)ilit* of Controlling
2ersons.
*6 Plainti22&A neDt 2ederal &euritie& la; lai.& o.e
under Setion 1" o2 t-e Seuritie& 4t o2 19((. 1" /.S.C.
H ##o . Setion 1" i.po&e& &eondar? lia:ilit? on one ;-o
<ontrol&= an? per&on ;-o i& lia:le 2or a pri.ar?
0iolation under eit-er Setion 11 or Setion 1* o2 t-e
Seuritie& 4t o2 19((. N9/ De2endant& &ee1 &u..ar?
@udg.ent on t-e Setion 1" lai.&, arguing t-at Plainti22&
-a0e 2ailed to pro0e t-e eDi&tene o2 a &u22iient
relation&-ip :et;een t-e. and an? <ontrolled= pri.ar?
0iolator&.
Spei2iall?, N9/ De2endant& ite Dur,a$ v. 3ell*,
!1+ F.*d 1"++ (9t- Cir.19!7), 2or t-e propo&ition t-at to
&ueed on a Setion 1" lai., plainti22& .u&t &-o; t-e
eDi&tene o2 a ontrolled relation&-ip, and t-at de2endant&
eDerted <atual po;er or in2luene= o0er t-e allegedl?
ontrolled per&on. Id. at 1"+(6+4M see also C,ristoffel v.
../. 6utton 4 Co., "!! F.*d 66", 66! (9t- Cir.197!) ,
overruled in part on ot,er grounds, 6ollinger v. :itan
Capital Corp., 914 F.*d 1"64, 1"7467" (9t- Cir.199+) ,
cert. denied, 499 /.S. 976 (1991).
For purpo&e& o2 de2ining ontrol under :ot- Setion
1" o2 t-e Seuritie& 4t and Setion *+(a) o2 t-e
3D-ange 4t, 1" /.S.C. H 7!t(a), t-e Nint- Ciruit -a&
adopted t-e de2inition &et 2ort- in 17 C.F.R. H *(+.4+"(2).
<ICJontrol .ean& t-e po&&e&&ion, diret or indiret, o2 t-e
po;er to diret or au&e t-e diretion o2 t-e .anage.ent
and poliie& o2 a per&on ;-et-er t-roug- t-e o;ner&-ip o2
0oting &euritie&, :? ontrat, or ot-er;i&e.= Safe0a*
2ortland .$p. /ed. Credit Union v. 5agner 4 Co., "+1
F.*d 11*+, 11*4 n. 17 (9t- Cir.1974)M see also Mc/arland
v. Me$orex Corp., 49( F.Supp. 6(1, 649 (N.D.Cal.19!+) .
N9/ De2endant& ontend t-at no &u- e0idene o2
ontrol eDi&t& in t-i& a&e to &-o; t-at t-e? atuall?
eDerted po;er or in2luene o0er > %e&t it&el2 or o0er an?
ot-er pri.ar? de2endant in t-i& a&e. Plainti22&A re&pon&e
to t-e 9otion 2or Su..ar? 8udg.ent on t-e Setion 1"
lai.& i& ontained ;it-in a &ingle 2ootnote. ,-e? a&&ert
t-at t-e i&&ue o2 ;-o i& a ontrolling per&on i& <o2ten a
o.pleD 2atual deter.ination,= t-at N9/ De2endant&
ated in onert ;it- t-e lead under;riter, Roone? Pae,
and t-at Roone? PaeA& alleged pri.ar? 0iolation& ;ere
per2or.ed in it& apait? a& N9/ De2endant&A <agent,=
t-ere:? :ringing t-e N9/ De2endant& ;it-in t-e a.:it o2
Setion 1". $ppAn at *4 n. (6.
,-e Court 2ind& Plainti22&A allegation o2 ontrol to :e
in&u22iient to &u&tain t-eir lai.& under Setion 1". Fro.
t-e a&e& di&u&&ing &u- lia:ilit?, it i& lear t-at t-e
<ontrol= onte.plated under Setion 1" .ean& a
&u22iient degree o2 da?GtoGda? operational ontrol,
a.ounting to t-e po;er to ditate anot-er part?A& ondut
or operation&. See 6ollinger v. :itan Capital, 914 F.*d
1"64, 1"7( (9t- Cir.199+) (2inding t-at a &euritie& dealer
i& a <ontrolling per&on= o0er it& regi&tered indi0idual
repre&entati0e&), cert. denied, 499 /.S. 976 (1991)M 5ool
v. :ande$ Co$puters, Inc., !1! F.*d 14((, 144+64* (9t-
Cir.19!7) (orporate o22ier& -arged ;it- t-e da?GtoGda?
operation o2 orporation ;ere ontrolling per&on& o0er
t-at orporation)M In re 2,ilips 2etroleu$ Securities
(itigation, 7(! F.Supp !*", !41 (D.Del.199+) (&u22iient
degree o2 ontrol o0er da?GtoGda? operation& eDeri&ed :?
orporate o22ier& and diretor&)M ;orden, Inc. v. Spoor
;e,rins Ca$p)ell 4 <oung, Inc., 7(" F.Supp. "!7
(S.D.N.P.199+) (ontrolling per&on lia:ilit? 2or &ue&&i0e
parent orporation and &ole &-are-older).
*7 ,-e 2at& in t-i& a&e do not a.ount to a 2inding
t-at N9/ De2endant& <ontrolled= Roone? Pae or an?
ot-er pri.ar? de2endant, e0en a&&u.ing t-e eDi&tene o2
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 7
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
&o.e <agen?= relation&-ip :et;een t-e.. ,-ere2ore,
N9/ De2endant&A 9otion 2or Su..ar? 8udg.ent on
Plainti22&A Setion 1" Clai.& &-all :e 'R4N,3D.
Li1e;i&e, &u..ar? @udg.ent &-all :e 'R4N,3D on
Plainti22&A <ontrolling per&on= lia:ilit? lai.& under
Setion *+(a) o2 t-e Seuritie& 4t o2 19((.
FN7
1. Section 19%)&=-ule 19)>! iolations
Plainti22& 2urt-er allege t-at De2endant N9/&
0iolated Setion 1+(:) and S3C Rule 1+:6" :? t-eir
partiipation in t-e > %e&t pu:li o22ering. Co.plaint,
Count& ###, 7##, 7###. Spei2iall?, Plainti22& lai. t-at t-e
N9/& <1no;ingl? andQor re1le&&l? i&&ued, au&ed to :e
i&&ued, partiipated in t-e i&&uane o2, or aided and
a:etted=
FN!
t-e pu:li di&&e.ination o2 <0ariou&= 2al&e
and .i&leading dou.ent& regarding t-e > %e&t o22ering.
Co.plaint EE 1!6619(.
a. argu$ent
Rule 1+:6" pronoune& t-e general antiG2raud
pro0i&ion o2 2ederal &euritie& la;. #n order to &ueed on
a lai. under Rule 1+:6", a plainti22 .u&t :e eit-er a
pur-a&er or &eller o2 t-e &euritie& in Fue&tion, ;lue C,ip
Sta$ps v. Manor Drug Stores, 4*1 /.S. 7*(, 9" S.Ct.
1917 (197"), .u&t -a0e ated ;it- &ienter, .rnst 4
.rnst v. 6oc,felder, 4*" /.S. 1!", 96 S.Ct. 1(7" (1976) ,
and t-e ondut o.plained o2 .u&t -a0e :een
<deepti0e.= Santa /e Indus. v. ?reen, 4(+ /.S. 46*, 97
S.Ct. 1*9* (1977).
,-e Nint- Ciruit -a& identi2ied t-ree ele.ent&
nee&&ar? 2or a pri.ar? Rule 1+:6" 0iolationR < K(1)
ondut :? de2endant& pro&ri:ed :? t-e ruleM (*) a
pur-a&e or &ale o2 &euritie& <in onnetion ;it-= &u-
pro&ri:ed ondutM and (() re&ultant da.age& to t-e
plainti22&.L = (evine v. Dia$ant,uset, Inc., 9"+ F.*d 147!,
14!" (9t- Cir.1991) (Fuoting 5ood0ard v. Metro ;ank,
"** F.*d !4, 9( ("t- Cir.197")).
#t i& undi&puted in t-i& a&e t-at N9/ De2endant&
pla?ed little or no diret role in preparing t-e > %e&t
pro&petu&, or o.pleting t-e pri.ar? due diligene
in0e&tigation o2 > %e&t. See Cou&e Del. E 1". #n 2at, it
appear& t-at t-e&e dou.ent& and in0e&tigation& ;ere
&u:&tantiall? o.pleted, i2 at all, )efore t-e N9/
De2endant& ;ere in0ited to partiipate in t-e > %e&t
o22ering. Co;e0er, it i& al&o unonte&ted t-at t-e N9/
De2endant&A na.e& appeared on t-e 2inal pro&petu&.
,-u&, Plainti22& allege t-at t-e N9/ De2endant& are
pri.aril? lia:le under Rule 1+:6" :eau&e t-e? <agreed to
under;rite t-e I> %e&tJ pu:li o22ering and plae t-eir
na.e& on t-e pro&petu& ;it- 2ull 1no;ledge t-at t-e?
;ere in0iting t-e in0e&ting pu:li to rel? on t-e. 2or t-e
&oundne&& o2 t-e pro&petu&.= $ppAn at 17.
Plainti22& a&&ert &e0eral @u&ti2iation& 2or ;-? t-e
N9/ De2endant& an :e -eld lia:le 2or pri.ar?
0iolation& o2 Rule 1+:6". Fir&t, t-e? ontend t-at :?
plaing t-eir na.e on t-e pro&petu&, t-e N9/
De2endant& <on0e?ed t-e lear .e&&age= t-at t-e
repre&entation& ontained t-erein ;ere t-o&e o2 all o2 t-e
under;riter&. $ppAn at 16. Seond, Plainti22& argue t-at a&
a .atter o2 la;, all under;riter& are .ade re&pon&i:le 2or
t-e trut- o2 t-e pro&petu&. See .scott v. ;ar C,ris
Construction Corp., *!( F.Supp. 64(, 697 (S.D.N.P.196!)
(2inding &u- a rule under Setion 11 o2 t-e Seuritie&
4t). ,-ird, Plainti22& a&&ert t-at t-e N9/ De2endant&
-ad a dut? to underta1e t-eir o;n due diligene
in0e&tigation, and ould not (a& t-e? did) rel? &olel? on
t-e in0e&tigation purportedl? done :? t-e .anaging
under;riter, Roone? Pae. Fourt- and 2inall?, Plainti22&
ontend t-at t-e 2raudulent &tate.ent& ontained in t-e
pro&petu& an :e attri:uted to t-e N9/ De2endant&
under t-e dotrine o2 respondet superior, t-at i&, t-at
Roone? Pae ;a& ating a& t-e <repre&entati0e= o2 t-e
N9/ de2endant& and t-at t-ere2ore, it& 2raudulent
&tate.ent& &-ould :e attri:uta:le to t-e..
*8 Plainti22&A 2ir&t argu.ent ;ill pre0ail. ,-e 2at t-at
N9/ De2endant&A na.e& appeared on t-e 2inal > %e&t
pro&petu& de2eat& t-eir argu.ent t-at t-e? &-ould :e
relie0ed 2ro. an? Setion 1+(:)QRule 1+:6" lia:ilit?
:eau&e t-e? <-ad not-ing to do ;it-= preparation o2 t-e
pro&petu&. W-ile it .a? :e true t-e? .ade no
ontri:ution to t-e preparation o2 t-e pro&petu& it&el2, t-e
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page !
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
dou.ent a& it ;a& pu:lil? di&&e.inated -ad t-eir na.e
on it and ga0e no indiation t-at it ;a& not a& .u- t-e
produt o2 t-e N9/ De2endant& a& it ;a& o2 t-e
.anaging under;riter, Roone? Pae.
Ca&e& ited :? t-e N9/ De2endant& are inappo&ite.
,-e&e a&e& re@et lai.& o2 Setion 1+(:)QRule 1+:6"
lia:ilit? 2or de2endant& ;-o&e onl? onnetion ;it- an
allegedl? 2raudulent pro&petu& ;a& t-at t-eir pro2e&&ional
;or1 produt ;a& ontained ;it-in it. See ?ru)er v. 2rice
5ater,ouse, 776 F.Supp. 1+44, 1+46647 (3.D.Pa.1991) M
/ried$an v. Ari7ona 5orld @urseries, 7(+ F.Supp. "*1,
"(( (S.D.N.P.199+), aff'd $e$., 9*7 F.*d "94 (*d
Cir.1991)M In re 5orlds of 5onder Sec. (itig., 7*1 F.Supp.
114+, 114"646 (N.D.Cal.19!9). 9oreo0er, in one o2 t-e&e
a&e&, t-e Court eDpliitl? up-eld lai.& again&t
under;riter de2endant&, &tating t-at a Setion 1+(:) au&e
o2 ation eDi&ted again&t t-e. 2or .i&&tate.ent& in a
pro&petu& and ot-er dou.ent& <;-i- ;ere prepared in
part :? t-e Iunder;riter&J or )ear t-eir na.e&.= 5orlds of
5onder, 7*1 F.Supp. at 1146 . ,-u&, :eau&e t-eir na.e&
appeared on t-e > %e&t pro&petu&, t-e &tate.ent&
ontained t-erein an :e attri:uted to t-e N9/
De2endant&.
N9/ De2endant& 2urt-er argue t-at Plainti22&A
Setion 1+(:)QRule 1+:6" lai.& &-ould 2ail :eau&e t-e?
-a0e not .et t-eir :urden o2 &-o;ing &ienter, t-at i&, <a
.ental &tate e.:raing t-e intent to deei0e, .anipulate
or de2raud= ;-i- i& nee&&ar? to &ueed on a Setion
1+(:)QRule 1+:6" lai.. 6oc,felder, 4*" /.S. at 194 n.
1*. Plainti22& ounter t-at &u- &ienter doe& eDi&t in
N9/ De2endant&A 2ailure to in0e&tigate eit-er Roone?
Pae or > %e&t :e2ore @oining a& under;riter& in t-e >
%e&t pu:li o22ering. ,-i& 2ailure, plainti22& argue <.u&t
:e 0ie;ed a& an eDtre.e departure 2ro. t-e &tandard& o2
ordinar? are t-at, at a .ini.u., on&titute&
re1le&&ne&&.=
FN9
$ppAn at *+.
N9/ De2endant& 2ailure to in0e&tigate Roone? Pae
or > %e&t i& unonte&ted. Co;e0er, ;-et-er a& nonG
.anaging under;riter& t-e? -ad a &u22iient dut? to
in0e&tigate &u- t-at a 2ailure to per2or. t-i& dut? ould
pro0ide t-e reFui&ite &ienter 2or a Setion 1+(:)QRule
1+:6" 0iolation, i& unlear. Plainti22& ite &e0eral a&e&
;-i- &tate, under Setion 11 o2 t-e Seuritie& 4t, t-e
nonG.anaging under;riter& dut? o2 due diligene i& t-e
&a.e a& t-at o2 t-e .anaging under;riter&. See In re
Consu$ers 2o0er Co. Sec. (itig., 1+" F.R.D. "!(, 61*6
1( (3.D.9i-.19!")M .scott v. ;ar C,ris Construction
Corp., *!( F.Supp. 64(, 697 (S.D.N.P.196!) . Fro. t-e&e
a&e&, Plainti22& ontent t-at N9/ De2endant&A 2ailure to
.a1e an? inFuir? into t-e integrit? o2 eit-er > %e&t or
Roone? Pae, i& ground& 2or a 2inding o2 <at lea&t
re1le&&ne&&= to &upport t-e &ienter reFuire.ent Rule
1+:6". #n &upport o2 t-eir ontention, Plainti22& ite 2at&
pointing to t-e 1no;ledge :? N9/ De2endant& o2 t-e
in&ta:ilit? o2 :e&t > %e&t and Roone? Pae.
*9 ,-e Court 2ind& t-at Plainti22& -a0e rai&ed
&u22iient 2at& to ;it-&tand N9/ De2endant&A 9otion 2or
Su..ar? 8udg.ent on t-e Setion 1+(:)Q Rule 1+:6"
lai.&. N9/ De2endant&A o.plete a:diation
re&pon&i:ilit? in in0e&tigating eit-er > %e&t or Roone?
Pae pro0ide& a &u22iient ground on ;-i- to a&&ert a
Rule 1+:6" 0iolation. 4t trial, t-e partie& ;ill -a0e to
pre&ent e0idene a& to ;-et-er it ;a& <at lea&t re1le&&=
2or N9/ De2endant& to rel? entirel? on t-e due diligene
in0e&tigation o2 Roone? Pae. ,-ere2ore, N9/
De2endant&A 9otion 2or Su..ar? 8udg.ent on t-e
Setion 1+(:)QRule 1+:6" 0iolation& &-all :e D3N#3D.
8. Alleged -IC+ iolations
Plainti22& neDt ontend t-at N9/ De2endant&A
ati0itie& in onnetion ;it- t-e &ale o2 > %e&t &euritie&
0iolated 0ariou& pro0i&ion& o2 t-e Ra1eteer #n2luened
and Corrupt $rganiNation& 4t o2 197+ (<R#C$=), 1!
/.S.C. H 196*(a)6(d). Co.plaint, Count& #5, 7##, 7###.
Spei2iall?, Plainti22& allege a pattern o2 ra1eteering
ati0it? <on&i&ting o2 repeated ... .ail 2raud, ;ire 2raud,
2raud in t-e &ale o2 &euritie& IandJ t-e inter&tate
tran&portation o2 &euritie& or .one? o:tained :? 2raud
and .one? laundering.= Co.plaint E 197. #n order to
&u&tain a lai. under R#C$ lai.&, a plainti22 .u&t &-o;
e0idene t-at de2endant& onduted (1) an enterpri&e, (*)
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 9
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
t-roug- a pattern, (() o2 ra1eteering ati0it?. Sedi$a,
S.2.-.(. v. I$rex Co., 47( /.S. 479, 49769!, 1+" S.Ct.
(*7", (*!" (19!"). N9/ De2endant& ontend t-at t-e?
are entitled to &u..ar? @udg.ent on t-e R#C$ lai.&
:eau&e Plainti22& -a0e 2ailed to &-o; &u22iient e0idene
o2 t-e&e t-ree ele.ent&.
a. clai$ t,at 2laintiffs cannot esta)lis, t,at @MU
Defendants 0ere Apart of an Benterprise.C D
N9/ De2endant&A 2ir&t argue t-at t-e? are entitle to
&u..ar? @udg.ent on t-e R#C$ lai.& :eau&e Plainti22&
annot pro0e t-e eDi&tene o2 a R#C$ <enterpri&e.= De2A&
9otion at *". #ndeed, proo2 o2 an <enterpri&e= i& a
nee&&ar? ele.ent o2 a R#C$ 0iolation. 1! /.S.C. HH
1961(4), 196*. 1! /.S.C. H 1961(4) de2ine& a R#C$
enterpri&e a& inluding <an? union or group& o2
indi0idual& a&&oiated in 2at alt-oug- not a legal entit?.=
#n ot-er to &ueed on a R#C$ lai., a plainti22 .u&t
&-o; t-e &eparate eDi&tene o2 an <enterpri&e,= .ere proo2
o2 related <prediate at&= ;ill not &u22ie, alt-oug- t-e
e0idene &upporting ea- ele.ent ;ill o2ten oale&e.
United States v. :urkette, 4"* /.S. "76, "!(, 11+ S.Ct.
*"*4, *"*! (19!1). 4 R#C$ enterpri&e i& pro0ed :?
&-o;ing e0idene o2 (1) <an ongoing organiNation, 2or.al
or in2or.al= and (*) <e0idene t-at 0ariou& a&&oiate&
2untion a& a ontinuing unit.= Id.
N9/ De2endant& argue t-at t-ere i& no e0idene in
t-i& a&e t-at t-e? e0er 2untioned a& a <ontinuing unit.=
Rat-er, De2endant& argue, t-e? ;ere onl? a&&oiated 2or
t-e purpo&e o2 one pu:li o22ering, ;-i- ter.inated
pur&uant to t-e under;riter agree.ent (+ da?& a2ter it
:egan. 4n eDa.ination o2 t-e 2at& in t-i& a&e, -o;e0er,
re0eal& a &u22iient o..onalit? o2 intere&t and purpo&e
:et;een t-e N9/ De2endant& and Roone? Pae &u- t-at
t-e? .a? properl? :e -arateriNed a& a <R#C$=
enterpri&e.
*10 ,-e <enterpri&e= alleged :? Plainti22& on&i&t& o2
a group o2 under;riter& a&&oiated 2or t-e purpo&e o2
o..itting .ultiple &euritie& and 2raud 0iolation&. 4&
t-i& Court 2ound in it& di&.i&&al order, t-e li2e o2 t-i&
alleged enterpri&e did not on&i&t &olel? o2 a oneG&-ot
pu:li o22ering in Dee.:er, 19!6. Rat-er, it entailed an
ongoing pattern o2 0iolation&, ourring ;it- ea- tainted
&ale o2 > %e&t Seuritie&. ZZZZ Best Dis$issal +rder at
9(,+9(694 (2inding Plainti22&A allegation& to :e &u22iient
to on&titute a <pattern=). ,-e Court 2ind& t-at t-i& pattern
o2 ongoing ati0itie&, tied toget-er :?, inter alia, t-e
4gree.ent %et;een /nder;riter&, i& &u22iient to
e&ta:li&- t-e eDi&tene o2 a R#C$ enterpri&e. See United
States v. ;linder, 1+ F.(d 146!, 147467" (9t- Cir.199()
(2inding an <a&&oiated in 2at= enterpri&e ari&ing out o2
an agree.ent :et;een &euritie& :ro1erage&).
). clai$ t,at plaintiffs cannot esta)lis, t,at @MU
Defendants participated in operation or $anage$ent of
an* Aenterprise.D
N9/ De2endant& neDt ontend t-at Plainti22&A R#C$
lai.& .u&t 2ail :eau&e t-e? -a0e 2ailed to &-o; t-at
De2endant& <partiipated in t-e operation or .anage.ent
o2 t-e enterpri&e it&el2= a& reFuired :? t-e Supre.e
CourtA& dei&ion in -eeves v. .rnst 4 <oung, 4*" /.S.
17+, 6666, 11( S.Ct. 116(, 117( (199(). N9/
De2endant&A interpretation o2 -eeves, -o;e0er, i&
erroneou&. ,-e? ontend t-at &ine Roone? Pae ;a& t-e
sole .anager o2 t-e under;riting &?ndiate, t-ere i& no
;a? t-e?, a& nonG.anaging under;riter&, ould -a0e
0iolated R#C$ :eau&e t-e? ould not -a0e <.anaged=
t-e &?ndiate a& reFuired :? -eeves. 4& Plainti22& point
out, -o;e0er, -eeves doe& not &tand 2or t-e propo&ition
t-at t-ere an :e onl? one entit? partiipating in t-e
.anage.ent o2 a R#C$ &?ndiate. Rat-er, it reFuire& onl?
t-at a per&on -arged ;it- a R#C$ 0iolation -a0e &o.e
part in direting t-e .anage.ent or a22air& o2 t-e
enterpri&e it&el2. -eeves, 11( S.Ct. at 117( (<4n enterpri&e
al&o .ig-t :e KoperatedL or K.anagedL :? ot-er&
Ka&&oiated ;it-L t-e enterpri&e ;-o eDert ontrol o0er
it....=). #n t-i& a&e, Plainti22& -a0e argued and &-o;n t-at
t-e N9/ De2endant& -ad a &u22iient degree o2 in2luene
o0er t-e under;riting &?ndiate,
FN1+
and t-u&, De2endant&A
9otion 2or Su..ar? 8udg.ent on t-i& :a&i& .u&t 2ail.
c. clai$ t,at plaintiffs' cannot esta)lis, a Apattern of
racketeering activit*D sufficient to support a -IC+
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 1+
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
violation.
N9/ De2endant&A 2inal argu.ent 2or &u..ar?
@udg.ent on t-e R#C$ lai.& i& :a&ed on t-eir ontention
t-at Plainti22& annot e&ta:li&- a <pattern o2 ra1eteering
ati0it?.= De2A& 9otion at *7. 4 <pattern o2 ra1eteering
ati0it?= reFuire& at lea&t t;o prediate at& o2
ra1eteering ati0it? (i.e. &euritie& 0iolation&) ourring
;it-in a ten ?ear period. 1! /.S.C. H 1961("). #n order to
pro0e a R#C$ 0iolation, a plainti22 .u&t &-o; t-at t-e
prediate at& are related and <t-at t-e? a.ount to or po&e
a t-reat o2 ontinued ri.inal ati0it?.= 6.J., Inc. v.
@ort,0estern ;ell :elep,one Co., 49* /.S. **9, *(9, 1+9
S.Ct. *!9(, *9++ (19!9).
*11 ,-e alleged prediate at& in t-i& a&e are
identi2ied a& N9/ De2endant&A 2raudulent repre&entation&
andQor o.i&&ion& gi0ing ri&e to t-e &ale o2 > %e&t
&euritie&. 4t .o&t, Plainti22&A onede, t-e&e at& ourred
2ro. t-e Dee.:er 6, 19!6 initial pu:li o22er date until
t-e lo&ing o2 t-e la&& period on 8ul? 7, 19!7. See $ppAn
at *6. De2endant& argue, -o;e0er, t-at t-eir partiipation
in t-e > %e&t o22ering ;a& ontained ;it-in a (+6da?
period &pelled out in t-e 4gree.ent %et;een
/nder;riter& and t-u&, annot :e -arateriNed a& a
<pattern o2 ra1eteering= on&tituting a <t-reat o2
ontinued ri.inal ati0it?.=
De2endant& argu.ent, -o;e0er, i& :a&ed on a
.i&on&trution o2 t-e prediate at& upon ;-i-
Plainti22&A R#C$ lai.& are :a&ed. W-ile t-e N9/
De2endant&A <partiipation= .a? -a0e :een li.ited to a
(+6da? duration, t-e prediate at& alleged, i.e. t-e
ongoing pur-a&e o2 > %e&t &euritie&, ontinued ;ell
:e?ond t-i& ti.e period. ,-e&e ongoing prediate at&
&u22iientl? e&ta:li&- a t-reat o2 ontinued ri.inal
ati0it? &o a& to allo; Plainti22& to &ur0i0e a .otion 2or
&u..ar? @udg.ent. See 6.J., Inc., 49* /.S. at *4*64(,
1+9 S.Ct. at *9+* (<W-et-er t-e prediate& pro0ed
e&ta:li&- a t-reat o2 ontinued ra1eteering ati0it?
depend& on t-e &pei2i 2at& o2 ea- a&e.=). ,-ere2ore,
t-i& CourtA& pre0iou& po&ition t-at Plainti22&A <allegation&
are &u22iient to on&titute a KpatternL,= ZZZZ Best
Dis$issal +rder at 9+,+9(, &-all :e &u&tained under t-e
pre&ent .otion 2or &u..ar? @udg.ent. ,-ere2ore, N9/
De2endant&A 9otion 2or Su..ar? 8udg.ent on t-e R#C$
lai.& &-all :e D3N#3D.
E. State Co$$on (a0 Clai$s
Plainti22& -a0e al&o :roug-t lai.& again&t N9/
De2endant& alleging negligent .i&repre&entation and
2raud under Cali2ornia la;. Co.plaint, Count& 5, 7##,
7###. #n partiular, Plainti22& a&&ert t-at N9/ De2endant&
.ade negligent .i&repre&entation& :? partiipating in and
.a1ing repre&entation& o2 2at or .aterial o.i&&ion& o2
2at in <0ariou& dou.ent&= ;-i- <t-e? -ad no
rea&ona:le ground 2or :elie0ing ... to :e true.= Co.plaint
E *+". Plainti22& 2urt-er ontend t-at t-e N9/ De2endant&
engaged in o..on la; 2raud :? partiipating in a our&e
o2 ondut or on&pira? to oneal ad0er&e .aterial
in2or.ation regarding > %e&t in order to .aintain an
arti2iiall? -ig- .ar1et prie 2or > %e&t &euritie&.
a. argu$ent
N9/ De2endant& argue t-at Plainti22&A &tate la;
lai.& o2 2raud and negligent .i&repre&entation .u&t :e
di&.i&&ed :eau&e t-ere i& no proo2 t-at t-e N9/&
partiipated in .a1ing an? 2al&e &tate.ent&, nor i& t-ere
e0idene t-at an? Plainti22& atuall? and @u&ti2ia:l? relied
on t-e allegedl? o22ending dou.ent&.
FN11
4& di&u&&ed
under Setion 1+(:)QRule 1+:6" a:o0e, t-e inlu&ion o2
N9/ De2endant&A na.e& on t-e > %e&t pro&petu&,
;-et-er or not t-e? atuall? partiipated in t-e reation o2
t-at dou.ent, i& &u22iient to attri:ute t-e .i&&tate.ent&
and o.i&&ion& (inluding t-e 2ailure to orret) to t-e
N9/ De2endant&. ,-ere2ore, De2endant& argu.ent 2or
&u..ar? @udg.ent on t-i& :a&i& .u&t 2ail.
*12 4& to N9/ De2endant&A lai. t-at t-ere i& no
proo2 o2 atual and rea&ona:le reliane on t-e pro&petu&,
again, t-i& argu.ent .u&t 2ail. W-ile t-ere i& e0idene in
t-e reord indiating t-at so$e Plainti22& did not rel? on
t-e pro&petu&, Plainti22& ite additional e0idene &-o;ing
t-at &o.e de2endant& did a rel?. Ro&en&tein Dep. at 1+!,
Willen& Del.3D. 461*M Coro;itN Dep. at 1*16**,
Willen& Del. 3D. 4614. ,-ere2ore, N9/ De2endant&A
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 11
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
9otion 2or Su..ar? 8udg.ent on Plainti22&A &tate la;
lai.& o2 2raud and negligent .i&repre&entation &-all :e
D3N#3D.
!. California Corporations Code Clai$s
Plainti22& 2inal lai.& again&t t-e N9/ De2endant&
allege 0iolation& o2 Cali2ornia Corporation& Code
Setion& *"4++, *"4+1, *""+4, *""+4.1 and 1"+7.
Co.plaint, EE *146*17, ***6*(1.
a. corporations code clai$s under sections 1!E99 and
1!E91.
,-e Co.plaint allege& t-at N9/ De2endant& are
lia:le 2or 0iolation& o2 Cali2ornia Corporation& Code H
*"4++ and H *"4+1. Setion *"4++ pro0ide& t-at it i&
<unla;2ul ... to .a1e, 2or t-e purpose of inducing t-e
pur-a&e or &ale o2 IaJ &eurit? .. an? &tate.ent= ;-i-
inlude& an untrue &tate.ent o2 .aterial 2at or o.it& to
&tate a .aterial 2at. Li1e;i&e, Setion *"4+1 pro0ide&
t-at it i& <unla;2ul 2or an? per&on to offer or sell a
&eurit? ... :? .ean& o2 an? ;ritten or oral
o..uniation ;-i- inlude& an untrue &tate.ent o2 a
.aterial 2at or o.it& to &tate a .aterial 2at.= N9/
De2endant&A 9otion 2or Su..ar? 8udg.ent under :ot-
&etion& i& :a&ed on t-eir a&&ertion t-at &trit pri0it?
:et;een a plainti22 and de2endant <&eller&= i& reFuired
under :ot- &etion&, and t-at Cla&& Plainti22& -a0e 2ailed
to pro0e t-at t-e N9/ De2endant& <&old= t-e. > %e&t
&euritie&.
#n t-i& CourtA& 9a? 19, 19!9 di&.i&&al order, it -eld
t-at <&trit pri0it?= i& reFuired under &etion *"4+1, and
t-at under t-at Setion, <onl? atual &eller&, i.e. t-at
tran&2eror& o2 title, an :e -eld lia:le.= ZZZZ Best
Dis$issal +rder at 9(,+9+. Plainti22& onede a& .u-
and do not onte&t t-e 2at t-at t-ere i& no e0idene
&-o;ing t-at an? Plainti22 Cla&& repre&entati0e& pur-a&ed
> %e&t &euritie& diretl? 2ro. an? N9/ De2endant.
,-ere2ore, de&pite Plainti22&A ontention t-at t-e? &-ould
nonet-ele&& :e allo;ed to repre&ent t-o&e la&& .e.:er&
;-o allegedl? ;ere in pri0it? ;it- N9/ De2endant&, t-e
9otion 2or Su..ar? 8udg.ent a& to t-e Setion *"4+1
lai.& &-all :e 'R4N,3D.
Contrar? to N9/ De2endant&A a&&ertion, -o;e0er,
Setion *"4++ doe& not -a0e a reFuire.ent o2 &trit
pri0it?. See Mirkin v. 5asser$an, " Cal.4t- 1+!*, 11+4,
*( Cal.Rptr.*d 1+1, 114 (199() (<Nor i& it orret ... t-at
lia:ilit? under &etion& *"4++ and *""++ reFuired pri0it?
o2 ontrat :et;een t-e plainti22 and t-e de2endant&.=). 4&
t-i& Court eDplained in t-e 9a?, 19!9 di&.i&&al order, t-e
<&eller= reFuire.ent under Setion *"4++ i& eFui0alent to
t-e de2inition under Setion 1* o2 t-e Seuritie& 4t o2
19((. ZZZZ Best Dis$issal +rder at 9(,+9+M see also In
re Activision Securities (itigation, 6*1 F.Supp. 41", 4*7
(N.D.Cal.19!") (<ILJia:ilit? under ISetion *"4++J i&
li.ited to t-o&e K&eller&A 2ound lia:le under H 1*(*)). 4&
di&u&&ed supra, lia:ilit? under Setion 1* an :e
i.po&ed :ot- on diret &eller& and on t-o&e ;-o <&oliit=
&ale& o2 a &eurit?. See 2inter v. Da,l, 4!6 /.S. 6**, 647,
1+! S.Ct. *+6(, *+7! (19!!). ,-u&, &ine &trit pri0it? i&
not reFuired under Setion *"4++ and t-i& Court -a&
&u&tained Plainti22&A lai.& under Setion 1*(*), N9/
De2endant&A 9otion 2or Su..ar? 8udg.ent on t-e
Setion *"4++ lai.& &-all li1e;i&e :e D3N#3D.
). corporations code clai$s under Sections 1!!9E and
1!!9E.1
*13 N9/ De2endant&A 9otion 2or Su..ar?
8udg.ent on t-e lai.& again&t t-e. under Setion *""+4
and *""+4.1 i& li1e;i&e :a&ed on an argu.ent t-at t-e&e
&etion& reFuire &trit pri0it? and t-at none eDi&t& in t-i&
a&e. Setion *""+4 i.po&e& lia:ilit? on t-o&e ;-o
<ontrol= pri.ar? 0iolator& o2 Setion *"4+1 (lia:ilit? 2or
t-o&e ;-o o22er to &ell &euritie& u&ing untrue &tate.ent or
o.i&&ion o2 2at). Li1e Setion *"4+1 it&el2, lia:ilit?
under Setion *""+4 reFuire& a &-o;ing o2 strict privit*
:et;een t-e :u?erQplainti22 and t-e ontrolled &eller.
ZZZZ Best Dis$issal +rder at 9(,+9+M In -e Diasonics
Securities (itigation, "99 F.Supp. 447, 4"9
(N.D.Cal.19!4). 4& ;a& true under t-e Setion 1" lai.&
di&u&&ed a:o0e, &u- a relation&-ip -a& not :een &-o;n
in t-i& a&e. ,-ere2ore, &u..ar? @udg.ent in 2a0or o2 t-e
N9/ De2endant& on t-e Setion *""+4 lai.& &-all :e
'R4N,3D.
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 1*
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
Setion *""+4.1 i.po&e& lia:ilit? on t-o&e ;-o aid
and a:et a pri.ar? Setion *"4+1 0iolation (lia:ilit? 2or
t-o&e ;-o o22er to &ell u&ing untrue &tate.ent& or
o.i&&ion& o2 2at). Plainti22& ontend t-at N9/
De2endant&A under;riting ati0itie& (i.e., pa?ing 2or
pro.otion o2 t-e &ale, plaing t-eir na.e on t-e
pro&petu&, et.) <;ere in&tru.ental in au&ing &ale& o2
t-e > %e&t &euritie&= and <.ateriall? a&&i&ted > %e&tA&
9in1o;A& and Roone? IPaeA&J 0iolation& o2 H *"4+1.=
,-e Court 2ind& t-at e0idene o2 N9/ De2endant&A
ati0itie& in a&&i&ting Roone? Pae in t-e > %e&t pu:li
o22ering i& &u22iient to allo; t-e aiding and a:etting
lai.& under &tate la; to proeed. 4& t-i& Court -a&
pre0iou&l? -eld, t-ere i& no &trit pri0it? reFuire.ent 2or
lia:ilit? under H *""+4.1. In re ZZZZ Best Sec. (itig.,
I199+ ,ran&2er %inderJ Fed.Se.L.Rep. (CCC) E 9",416 at
97,+!* (C.D.Cal.199+). ,-u&, N9/ De2endant& argu.ent
t-at Plainti22& annot <lin1 an? o2 t-e IN9/&J ;it- an? o2
t-eir &ale&,= i& una0ailing. ,-ere2ore, N9/ De2endant&A
9otion 2or Su..ar? 8udg.ent on t-e aider and a:ettor
lia:ilit? lai.& under Setion *""+4.1 &-all :e D3N#3D.
c. corporations code section 1!9#.
Plainti22&A 2inal lai. under t-e Cali2ornia
Corporation& Code allege& a 0iolation o2 Setion 1"+7.
,-i& &tatute reate& lia:ilit? 2orR
4n? o22ier&, diretor&, e.plo?ee& or agents o2 a
orporation ;-o ... (a) I.Ja1e, i&&ue, deli0er or pu:li&-
an? pro&petu&, report, irular, Iet.J ... re&peting t-e
orporation or it& &-are&, a&&et&, lia:ilitie&, Iet.J ...
;-i- i& 2al&e in an? .aterial re&pet, 1no;ing it to :e
2al&e, or partiipate in t-e .a1ing, i&&uane Iet.J ...
;it- 1no;ledge t-at t-e &a.e i& 2al&e in a .aterial
re&pet.
#n den?ing N9/ De2endant&A .otion to di&.i&& t-e
Setion 1"+7 lai.&, t-i& Court ited allegation& in t-e
o.plaint t-at t-e N9/ De2endant& ;ere <agent&= o2 >
%e&t 2or purpo&e& o2 t-e pu:li $22ering. ZZZZ Best
Dis$issal +rder at 9(,+94. Furt-er, t-e Court 2ound t-at
allegation& o2 &u- agen? <rai&e Fue&tion& o2 2at.= Id. 4t
t-e &u..ar? @udg.ent &tage, t-e di&po&ition o2 t-e&e
lai.& i& no di22erent. N9/ De2endant&A a&&ertion t-at
t-e? annot :e on&idered agent& o2 > %e&t, ;it-out
&-o;ing an a:&ene o2 .aterial 2at on t-i& i&&ue, ;it- not
&u22ie to &upport t-eir .otion 2or &u..ar? @udg.ent.
Celotex v. Catrett, 477 /.S. (17, (*", 1+6 S.Ct. *"4!,
*""4 (19!6). ,-ere2ore, &ine a Fue&tion o2 2at eDi&t& a&
to t-e agen? relation&-ip :et;een N9/ De2endant&, >
%e&t and Roone? Pae, N9/ De2endant&A 9otion 2or
Su..ar? 8udg.ent on t-e Setion 1"+7 lai.& &-all :e
D3N#3D.
#5. R4ND$LPC B. P4C3AS N$,#C3 $F 8$#ND3R.
*14 #ndi0idual De2endant, Randolp- B. Pae -a&
2iled a Notie o2 8oinder in t-e .otion :? nonG.anaging
under;riter& 2or &u..ar? @udg.ent. Pae ;a& t-e
2ounder and ontrolling &-are-older o2 t-e .anaging
under;riter in t-e > %e&t pu:li o22ering, Roone? Pae.
,-e @oinder o2 Pae in t-e N9/ De2endant&A .otion
i& .i&plaed. N9/ De2endant&A .otion 2or &u..ar?
@udg.ent i&, in large part, :a&ed on t-e N9/ De2endant&A
lai. t-at t-eir role in t-e > %e&t pu:li o22ering ;a&
.ini.al, -a0ing relied on t-e .anaging role o2 Roone?
Pae. ,-e 9otion goe& to &o.e lengt- to di&tane t-e
N9/ De2endant& 2ro. Roone? Pae, an entit? ;-i-
t-e? e22eti0el? onede ;a& diretl? in0ol0ed in t-e >
%e&t &euritie& 2raud. ,-ere2ore, t-e 9otion 2or Su..ar?
8udg.ent a& to De2endant, Randolp- B. Pae &-all :e
D3N#3D in it& entiret?.
5. C$NCL/S#$N
N9/ De2endant&A 9otion 2or Su..ar? 8udg.ent i&
:e 'R4N,3D #N P4R, 4ND D3N#3D #N P4R,.
De2endant&A 9otion 2or Su..ar? 8udg.ent on Plainti22&A
lai.& under Setion 11 and Setion 1*(*) &-all :e
D3N#3D. De2endant&A 9otion 2or Su..ar? 8udg.ent on
Plainti22&A lai.& o2 ontrolling per&on lia:ilit? under
Setion 1" and Setion *+(a) &-all :e 'R4N,3D.
De2endant&A 9otion 2or Su..ar? 8udg.ent on
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 1(
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
Plainti22& lai.& under Setion 1+(:)QRule 1+:6" &-all :e
al&o D3N#3D. Li1e;i&e, N9/ De2endant&A 9otion 2or
Su..ar? 8udg.ent on t-e lai.& 2or Rio 0iolation&
&-all :e D3N#3D a& &-all t-e 9otion ;it- re&pet to
Plainti22&A &tate la; lai.& o2 2raud and negligent
.i&repre&entation.
$n De2endant&A 9otion 2or Su..ar? 8udg.ent
under Plainti22&A Cali2ornia Corporation& Code Clai.&, t-e
9otion &-all :e 'R4N,3D 2or t-e lai.& ari&ing under
Setion& *"4+1, and *""+4 and D3N#3D ;it- re&pet to
Plainti22&A lai.& under Setion& *"4++, *""+4.1 and
1"+7.
4& to t-e atte.pted @oinder :? indi0idual De2endant
Randolp- Pae, t-e 9otion 2or Su..ar? 8udg.ent &-all
:e D3N#3D in it& entiret?, t-e ourt 2inding &u- @oinder
to :e i.proper. De2endant&A State.ent o2 /nontro0erted
Fat& and Conlu&ion& o2 La;, a& a.ended, i& -ere:?
inorporated into t-i& $rder.
#, #S S$ $RD3R3D
FN1. ,-e nonG.anaging under;riter de2endant&
inludeR (1) %ear S Co.pan?, #n.M (*) Cantor,
FitNgerald, S Co., #n.M (() 30an& S Co., #n.M
(4) Rau&-er, Piere, Re2&ne&, #n.M (")
Ro&en1rantN L?on S Ro&&, #n.M (6) Stein:erg S
L?.anM (7) /N Finanial Corp.M and (!) W-ale
Seuritie& Corp. #n t-i& CourtA& order o2 9a? 19,
19!9, addre&&ing 0ariou& De2endant&A .otion& to
di&.i&&, it &tated t-at t-e ter. <nonG.anaging
under;riter&= ;a& :eing u&ed a& a ter. o2
re2erene onl? <2or &a1e o2 lari2iation and not
to i.pute an? ot-er .eaning to it.= In re ZZZZ
Best Securities (itigation, I19!9 ,ran&2er
%inderJ Fed.Se.L.Rep. (CCC) E 94,4!", at
9(,+91 n. 9 (C.D.Cal.19!9) I-ereina2ter ZZZZ
Best Dis$issal +rder J.
FN*. 4t t-e ti.e o2 t-e > %e&t pu:li o22ering,
Roone? Pae ;a& perei0ed a& a trou:led
&euritie& dealer and ;a& under in0e&tigation :?
t-e Seuritie& and 3D-ange Co..i&&ion. $n
No0e.:er 7, 19!7, approDi.atel? one ?ear a2ter
t-e > %e&t o22ering, Roone? Pae ;a& 2ored into
:an1rupt?.
FN(. ,-e Fi2t- 4.ended Con&olidated
Co.plaint ;a& 2iled on Septe.:er *!, 199+ and
no; ontrol& t-i& litigation.
FN4. Count # and t-e 2ir&t lai. o2 Count& 7##
and 7### o2 t-e Fi2t- 4.ended Co.plaint allege
0iolation& o2 &etion& 11 and 1" o2 t-e Seuritie&
4t, 1" /.S.C. HH 771, 77o, ;-ile Count ## and
t-e &eond lai. o2 Count& 7## and 7### allege
0iolation& o2 &etion& 1* and 1" o2 t-e Seuritie&
4t. 1" /.S.C. HH 77B, 77 l.
FN". ,-e Dee.:er 9, 19!6 o22ering on&i&ted,
initiall?, o2 1,1++,+++ <unit&= o2 &euritie&. ,-e&e
unit& on&i&ted o2 t-ree &-are& o2 o..on &to1
(o2 ;-i- t-ere ;ere alread? li1e &-are& :eing
traded pu:lil?) and one ;arrant to pur-a&e one
&-are o2 o..on &to1. ,-e&e ;arrant& ;ere a
ne; i&&ue on t-e pu:li .ar1et.
FN6. Finding t-at t-e ati0itie& Plainti22& allege
are &u22iient to &ur0i0e a .otion 2or &u..ar?
@udg.ent on t-e Setion 1*(*) lai.&, t-e Court
need not addre&& Plainti22&A additional argu.ent
t-at t-e N9/ De2endant&A Setion 1*(*) lia:ilit?
an :e grounded on po&tGdi&tri:ution trading.
FN7. Setion *+ parallel& Setion 1", i.po&ing
<ontrolling per&on= lia:ilit? 2or pri.ar?
0iolation& o2 Setion 1+(:)QRule 1+:6". In re
Atlantic /inancial Manage$ent, Inc., 7!4 F.*d
*9, (( (1&t Cir.19!6), cert. denied, 4!1 /.S.
1+7* (19!7).
FN!. ,o t-e eDtend t-e Co.plaint rai&e& lai.&
or aider and a:ettor lia:ilit? under Setion
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.

Page 14
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.), Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
(Cite as: 1994 WL 746649 (C.D.Cal.))
1+(:)QRule 1+:6", t-e&e lai.& are preluded :?
t-e Supre.e CourtA& dei&ion in Central ;ank of
Denver, @.A. v. /irst Interstate ;ank of Denver,
et al., "11 /.S. 164, 114 S.Ct. 14(9, 14""
(1994). See $rder o2 4ugu&t 1*, 1994 at 11.
FN9. #n 6ollinger v. :itan Capital, 914 F.*d
1"64 (9t- Cir.199+), cert. denied, 499 /.S. 976
(1991), t-e Nint- Ciruit adopted t-e 2ollo;ing
de2inition o2 re1le&&ne&&R < KIRe1le&& ondut
.a? :e de2ined a& a -ig-l? unrea&ona:le
o.i&&ion, in0ol0ing not .erel? &i.ple, or e0en
ineDu&a:le negligene, :ut an eDtre.e departure
2ro. t-e &tandard& o2 ordinar? are, and ;-i-
pre&ent& a danger o2 .i&leading :u?er& or &eller&
t-at i& eit-er 1no;n to t-e de2endant or i& &o
o:0iou& t-at t-e ator .u&t -a0e :een a;are o2
it.L = Id. at 1"69 (Fuoting Sunstrand Corp. v. Sun
C,e$. Corp., ""( F.*d 1+((, 1+4464" (7t- Cir.)
cert. denied, 4(4 /.S. !7" (1977)).
FN1+. ,-i& in2luene inlude& 2inaning t-e
under;riting e22ort, ontratual delegation o2
aut-orit? to Roone? Pae, and :eing in a po&ition
to <ontrol t-e 2lo; o2 in2or.ation= to potential
> %e&t &euritie& pur-a&er&. See $ppAn at *( n.
(4 and 2atual &oure& ited t-erein.
FN11. 4 lai. or negligent .i&repre&entation
lai. inlude& a reFuire.ent o2 atual and
rea&ona:le reliane. ?arcia v. Superior Court,
*6! Cal.Rptr. 779 (199+).
C.D.Cal.,1994.
#n re >>>> %e&t Seuritie& Litigation
Not Reported in F.Supp., 1994 WL 746649 (C.D.Cal.),
Fed. Se. L. Rep. P 9!,4!", R#C$ %u&.Di&p.'uide !7("
3ND $F D$C/93N,
) *+14 ,-o.&on Reuter&. No Clai. to $rig. /S 'o0. Wor1&.