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Securities & Exchange Commission v. Berbel

United States District Court, S.D. Florida, Miami Division

February 26, 2018




         The United States Securities and Exchange Commission filed this action alleging that Fort Marketing Group, LLC and Pedro Fort Berbel violated anti-fraud and registration provisions of the federal securities laws. Defendants subsequently moved to dismiss the Complaint for lack of subject matter jurisdiction and failure to state a valid claim for relief. For the reasons discussed below, Defendants' motion to dismiss is denied.

         I. Statement of Facts

         Fort Marketing Group is a defunct Florida limited liability company that maintained its principal place of business in Sunrise, Florida. Pedro Fort Berbel-a citizen of Spain-was the sole member of Fort Marketing Group. He maintained residences in Florida and Spain during the relevant time period.

         The Complaint states that Fort Marketing Group and Berbel operated at least three separate online businesses-MLM Shop[1], The Business Shop[2], and Fort Ad Pays[3]-purporting to provide legitimate advertising services. Defendants used these businesses and their corresponding websites to sell certain investment products collectively referred to as "Ad Packs." Defendants solicited investors to purchase Ad Packs through promotional materials and videos on the businesses' websites, and touted the businesses as successful online advertising and marketing companies.

         Defendants marketed the Ad Packs as profit-sharing investment vehicles designed to "share real advertising profits [with] everyday folk." To purchase an Ad Pack, an individual had to first become a member and pay the membership fee. The website materials stated that purchasers of each of these Ad Packs would share in the purported advertising businesses' profits and would begin accruing promised returns almost immediately.

         Websites and promotional videos for two of the businesses-The Business Shop and MLM Shop-referred to Ad Packs as "guaranteed plans" and listed them at various prices from $100 to $50, 000. For example, The Business Shop and MLM Shop offered "Bronze" plans for $1, 000 and "Gold" plans for $4, 000. Defendants promised purchasers of either plan a 25% return in 30 days. The websites instructed Ad Pack purchasers to email for wire instructions, which directed purchasers to wire funds to a specific bank account held in the name of The Business Shop LLC. The Business Shop LLC had only one managing member: Berbel.

         The third business-Fort Ad Pays-offered a similar Ad Packs for as little as $1 with stated returns as high as 120%. Unlike the Ad Packs sold by The Business Shop and MLM Shop, the Ad Packs on Fort Ad Pays' website lacked a specified maturity date; rather, Fort Ad Pays claimed that its Ad Pack maturities depended on the business's daily profits.

         Fort Ad Pays claimed to have "a traditional business model" and stated that Ad Pack purchasers "get paid from profits and not from money that will be received from future payments." The website materials noted that the company was "set up to share real advertising profits [with] everyday folk and businesses" and they informed purchasers that greater daily profits for the company resulted in a larger proportional share for investors. According to the website, "[t]h more sales for ad services the more everyone can receive." Finally, the website provided tutorial videos showing investors how to purchase Ad Packs using bank transfers and third-party payment processors.

         The Commission alleges that between July 2014 and February 2016, Defendants raised approximately $38 million from Ad Pack purchasers located in the United States and elsewhere. Each of the almost 12, 000 individual deposits and wire transfers received during that period routed funds into one of seven bank accounts held at five domestic banks. All seven bank accounts were held in the name of, or controlled by, Fort Marketing Group or Berbel.

         Contrary to Defendants' representations, not one of the three businesses had a viable source of revenue. It received income solely from investor membership fees and the sale of Ad Packs. Defendants diverted approximately $4.3 million of these investor funds into personal bank accounts held in the name of Berbel and members of his family. Berbel used at least $1.25 million to purchase his Florida home and $22, 000 more to pay taxes on that property. Defendants also used investor funds for the following expenses: (i) $737, 000 for private jet charters; (ii) $401, 000 for jewelry (recorded as a "business investment"); (iii) $78, 000 for automobile expenses; (iv) $10, 000 for personal care and cosmetic surgery; (v) $300, 000 for residential construction in Colombia; and (vi) $177, 000 for online gambling. Berbel liquidated all seven bank accounts associated with the allegedly fraudulent advertising businesses by March 2016 and sold his Florida home by March 2017.

         II. Motion to Dismiss Standard

         "To survive a motion to dismiss, plaintiffs must do more than merely state legal conclusions, " instead plaintiffs must "allege some specific factual basis for those conclusions or face dismissal of their claims." Jackson v. BellSouth Telecomm., 372 F.3d 1250, 1263 (11th Cir. 2004). When ruling on a motion to dismiss, a court must view the complaint in the light most favorable to the plaintiff and accept the plaintiffs well-pleaded facts as true. See St. Joseph's Hosp., Inc. v. Hosp. Corp. of Am., 795 F.2d 948, 953 (11th Cir. 1986). This tenet, however, does not apply to legal conclusions. See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Moreover, "[w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. at 1950. Those "[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true." Bell Art. Corp. v. Twombly, 550 U.S. 544, 545 (2007). In short, the complaint must not merely allege misconduct, but must demonstrate that the pleader is entitled to relief. See Iqbal, 129S.Q. at 1950.

         Under Federal Rule of Civil Procedure 9(b), a plaintiff must plead the circumstances constituting fraud with particularity. In considering a motion to dismiss for failure to plead fraud with particularity, however, courts must also keep in mind the notice pleading standard set forth in Rule 8(a). Courts "must be careful to harmonize the directives of Fed.R.Civ.P. 9(b) with the broader policy of notice pleading." SEC v. Physicians Guardian Unit Inv. Trust ex rel. Physicians Guardian, Inc., 72 F.Supp.2d 1342, 1352 (M.D. Fla. 1999) (citing Friedlander v. Nims,755 F.2d 810, 810 (11th Cir. 1985)). According to the Eleventh Circuit, "Rule 9(b) is satisfied if the complaint sets forth '(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud."' Ziemba v. Cascade Int'l, Inc.,256 F.3d 1194, 1202 ...

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