Cornielsen v. Infinium Capital Management, LLC

Dist. Ct. did not err in dismissing with prejudice plaintiffs’ claim, alleging securities fraud based on contention that defendants made series of oral misrepresentations regarding defendant-company’s financial stability, so as to induce plaintiffs, who were employees of said company, to convert into equity shares in said company approximately $5 million in unpaid loans that plaintiffs had made to said company, where: (1) defendants subsequently revoked plaintiff’s right to redeem any monies converted from debt to equity or otherwise; and (2) after company experienced series of losses, defendants told plaintiff that their equity investments were worthless. Written representations made in Subscription Agreements that were signed by plaintiffs confirmed with plaintiffs that they were not relying upon any information other than information contained in LLC agreement and their own investigations when making instant conversions to equity shares. As such plaintiffs were precluded from reasonably relying on any oral statements made by defendants as basis for their securities fraud claim. Ct. of Appeals further agreed with Dist. Ct. that dismissal of instant complaint was required where: (1) plaintiffs failed to identify speakers of alleged misrepresentations with adequate particularity since plaintiffs merely asserted that all defendants made all misrepresentations; and (2) plaintiffs failed to adequately plead scienter, where plaintiffs failed to describe what each individual defendant knew about company’s true financial circumstances.