United States District Court, E.D. Michigan, Southern Division
A. NISAR AKBAR, et al., Plaintiffs,
SHAUKAT BANGASH, et al., Defendants.
OPINION & ORDER GRANTING IN PART AND DENYING IN
PART DEFENDANT SHAFQAT BANGASH'S MOTION TO DISMISS (DKT.
11) AND GRANTING IN PART AND DENYING IN PART DEFENDANTS
SHAHID BANGASH AND MEHBOOB CHAUDHRY'S MOTION TO DISMISS
A. GOLDSMITH United States District Judge.
matter is before the Court on Defendant Shafqat Bangash's
motion to dismiss (Dkt. 11), as well as Defendants Shahid
Bangash and Mehboob Chaudhry's motion to dismiss (Dkt.
The issues were fully briefed, and a hearing was held on
March 23, 2016. For the reasons discussed below, the Court
grants in part and denies in part Shafqat's motion, and
grants in part and denies in part Shahid and Chaudhry's
Plaintiffs brought suit on July 31, 2015, claiming that they
were offered and sold fake securities in the form of
investment contracts and shares in Defendant Quaid-e-Azam
International Hospital (“QIH”), which is located
in Islamabad, Pakistan, through GHS, a limited company
headquartered in Pakistan. Am. Compl. ¶¶ 1, 70.
a dual citizen of the United States and Pakistan, holds
himself out as an investment advisor specializing in certain
overseas investments in Pakistan. Id. ¶¶
31, 41. Shahid is the second-highest ranking board member of
GHS and “acted as the collector of funds in the United
States, including the Eastern District of Michigan[, ] and
transferred the money back to Pakistan.” Id.
¶¶ 34, 43-44. Shafqat, who is domiciled in Battle
Creek, Michigan, serves on the board of directors of GHS and,
based on filings with the Securities and Exchange Commission
of Pakistan, is GHS's Chief Accountant. Id.
¶¶ 32, 46. Chaudhry, a resident of Pennsylvania, is
the Vice Chairman on QIH's board of directors, as well as
the “official spokesman and right-hand-man” of
Shaukat, the Chief Executive Officer of GHS, and one of the
principal actors in the alleged scheme. Id.
¶¶ 36, 58-59. Chaudhry solicited several investors
and appeared “on live television broadcasted in the
U.S. and Pakistan, ” where he “gave investors a
500% guarantee in return on investments.” Id.
to Plaintiffs, Shahid, Shafqat, Shaukat, and GHS
“directed numerous promotional communications,
including telephone calls, written correspondence and others
to Plaintiff [Amin] Khan, ” id. ¶ 83, the
purpose of which was to solicit Khan's investment in the
building of QIH, see id. ¶¶ 40, 85-87.
More specifically, on June 14, 2007, Shaukat called
Khan's home and left a message for Khan to call Shaukat
back. Id. ¶ 84. Three days later, on June 17,
2007, Shaukat visited Khan's home in Troy, Michigan, to
solicit Khan's investment. Id. ¶ 85. After
conducting meetings in Michigan, during which
“Defendants represented to Plaintiff Khan that his
investment in GHS would be used to build hospital facilities
for QIH and finance operations, ” Khan “sent a
check to Defendant Shaukat to invest in shares in GHS.”
Id. ¶¶ 86-87, 89.
now claims that he, along with other Plaintiffs, received
shares in GHS, but those shares were “worthless.”
Id. ¶ 90. In an attempt to cover up
Shaukat's fraudulent scheme in the unregistered offer and
sale of securities, Shafqat sent an email on April 28, 2013
to over 70 investors to convince them that their money was
safe and the securities were real. Id. ¶¶
1, 52-53, 83. According to Plaintiffs, this email prevented
many investors from mitigating their damages. Id.
STANDARD OF DECISION
evaluating a motion to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6), “[c]ourts must construe the
complaint in the light most favorable to plaintiff, accept
all well-pled factual allegations as true, and determine
whether the complaint states a plausible claim for
relief.” Albrecht v. Treon, 617 F.3d 890, 893
(6th Cir. 2010). To survive a motion to dismiss, a complaint
must plead specific factual allegations, and not just legal
conclusions, in support of each claim. Ashcroft v.
Iqbal, 556 U.S. 662, 678-679 (2009).
raise three main arguments in their motions: (i)
Plaintiffs' federal claims are barred by the applicable
statutes of limitations; (ii) the action should be dismissed
on forum non conveniens grounds; and (iii) the Court lacks
personal jurisdiction over Shahid and Chaudhry. The Court
considers each argument in turn.
Statute of Limitations
allege in count one of their amended complaint that
Defendants violated §§ 5(a) and 5(c) of the
Securities Act, see 15 U.S.C. §§ 77e(a),
(c), because they did not file or have in effect a valid
registration statement in connection with the offer and sale
of shares in GHS. See Am. Compl. ¶¶
221-223. Plaintiffs further allege in count two that
Defendants violated § 10(b) of the Securities Exchange
Act (“Exchange Act”), see 15 U.S.C.
§ 78j(b), and Rule 10b-5 promulgated thereunder,
see 17 C.F.R. § 240.10b-5, because Defendants
made material misrepresentations and omissions concerning the
sale of securities with the intent to defraud. See
Am. Compl. ¶¶ 225-232. In count three, Plaintiffs
allege that, because Defendants violated § 10(b) and
Rule 10b-5, Defendants are also liable under § 20(a) of
the Exchange Act. See Am. Compl. ¶¶
argues that Plaintiffs' claims in count one are
time-barred under the one-year statute of limitations under
the Securities Act, see 15 U.S.C. § 77m, and
their claims in counts two and three are barred under the
two-year statute of limitations under the Exchange Act,
see 28 U.S.C. § 1658(b)(1). Def. Shafqat Mot.
to Dismiss at 20-22. The Court agrees with Shafqat regarding
his first argument but disagrees with his second argument.
Statute of Limitations for Violations of § 5 of the
13 of the Securities Act provides that an action under §
12(a)(1) of the Act must be brought “within one year
after the violation upon which it is based.” 15 U.S.C.
§ 77m. A violation of § 12(a)(1) occurs, in turn,
when a person “offers or sells a security in violation
of [§ 5 of the Securities Act].” 15 U.S.C. §
77l(a)(1). Sections 5(a) and 5(c) of the Securities
Act “together require that securities be registered
before they can be sold or offered for sale.” SEC
v. Sierra Brokerage Servs., Inc., 712 F.3d 321, 328 (6th
Cir. 2013) (citing 15 U.S.C. §§ 77e(a), (c)). The
registration requirement of § 5 exists “to protect
investors by requiring they receive sufficient information to
make informed investment decisions.” Id.
(citing SEC v. Ralston Purina Co., 346 U.S. 119, 124
(1953)). A violation of § 5 occurs when: (i) there was
no registration statement in effect for the securities, (ii)
a person directly or indirectly sold or offered to sell the
securities, and (iii) means of interstate transportation or
communication were used in connection with the offer or sale.
SEC v. Bravata, 3 F.Supp.3d 638, 659 (E.D. Mich.
one-year period for violations brought under § 12(a)(1)
focuses “on the last conduct constituting the alleged
violation, ” Cummings v. Paramount Partners,
LP, 715 F.Supp.2d 880, 894 (D. Minn. 2010), rather than
when the plaintiff actually discovered the non-registration
violations, Nolfi v. Ohio Ky. Oil Corp., 675 F.3d
538, 553 (6th Cir. 2012) (collecting cases and holding that
the discovery rule for § 12(a)(2) claims does not apply
to § 12(a)(1) claims, and, therefore, the one-year
statute of limitations “runs from the date of the
violation irrespective of whether the plaintiff knew of the
violation”); In re Biozoom, Inc. Sec. Litig.,
No. 1:14-CV-01087, 2015 WL 1954553, at *3 (N.D. Ohio Apr. 29,
2015) (“[T]he statute of limitations runs from the last
unlawful action that directly relates to a particular
transaction that violates the Securities Act.”).
first argues that the one-year period is “triggered by
inquiry notice, ” which is “when ‘storm
warnings' were on the radar sufficient to alert the
claimant that things were amiss.” Def. Shafqat Mot. to
Dismiss at 20. According to Shafqat, storm warnings were
present after Plaintiff Nasir Akbar accused Shaukat of
running a Ponzi scheme in an April 2013 email. Id.
at 21. Shafqat also contends that the last investment
activity alleged by any of the Plaintiffs is when Plaintiff
Mubashir Shah received his purported shares in GHS on
September 4, 2012. Def. Shafqat Mot. to Dismiss at 6, 21
(citing Am. Compl. ¶ 137).
response, Plaintiffs argue that, under the discovery rule,
the “earliest any Plaintiff began to suspect that their
investment had been usurped by Defendants by way of fake
securities was in August of 2014” after “most of
the Plaintiffs in this case attended a convention for the
Association of Pakistani Physicians of North America”
held between August 13 and 17, 2014. Pls. Resp. to Def.
Shafqat at 22 (Dkt. 19). Plaintiffs did not refute the
assertion that the last investment activity occurred on
September 4, 2012.
noted above, Plaintiffs' amended complaint alleges
violations of §§ 5(a) and 5(c) of the Securities
Act. Thus, under §§ 12(a)(1) and 13, Plaintiffs had
one year from the last unlawful action constituting an
alleged non-registration violation to bring these claims -
meaning that, at most, Plaintiffs had until September 4, 2013
to file their complaint. Plaintiffs' discovery-based
argument is without merit in this case. See Nolfi,
675 F.3d at 553.
Plaintiffs did not initiate this action until July 31, 2015,
well beyond the one-year limitations period, the Court
concludes that Plaintiffs' claims under § 5 of the
Securities Act are ...