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1 LATHAM & WATKINS LLP
Matthew Rawlinson (CA 231890)
2 140 Scott Drive
Menlo Park, CA 94025
3
Tel: +1.650.463.3076 / Fax: +1.650.463.2600
4 matt.rawlinson@lw.com
5 Susan E. Engel (pro hac vice)
555 Eleventh Street, NW, Suite 1000
6 Washington, D.C. 20004-1304
Tel.: +1.202.637.2200 / Fax: +1.202.637.2201
7
susan.engel@lw.com
8
Benjamin A. Naftalis (pro hac vice)
9 Gregory Mortenson (pro hac vice)
1271 Avenue of the Americas
10 New York, NY 10020
11 Tel.: +1.212.906.1200 / Fax +1.212.751.4864
benjamin.naftalis@lw.com
12 gregory.mortenson@lw.com
13 Attorneys for Defendant AH Capital Management,
L.L.C.
14
15 SUPERIOR COURT OF THE STATE OF CALIFORNIA
16 COUNTY OF SAN MATEO
17
18 DANIEL OCAMPO, Individually and on CASE NO: 21-CIV-03843
Behalf of All Others Similarly Situated,
19 Hon. Danny Y. Chou, Dept. 22
Plaintiff,
20 DEFENDANT AH CAPITAL
v. MANAGEMENT, L.L.C.’S REPLY IN
21 FURTHER SUPPORT OF ITS DEMURRER
DFINITY USA RESEARCH LLC, DFINITY TO PLAINTIFF’S CLASS ACTION
22 STIFTUNG, ANDREESSEN HOROWITZ, COMPLAINT
POLYCHAIN CAPITAL, DOMINIC
23 WILLIAMS, and JOHN DOES 1-20,
Hearing Date: April 7, 2022
24 Hearing Time: 11:00 a.m.
Defendants. Complaint Filed: July 15, 2021
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AH CAPITAL’S REPLY IN SUPPORT OF
ATTORNEYS AT LAW
LOS ANGELES
DEMURRER TO COMPLAINT
CASE NO. 21-CIV-03843
1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION ............................................................................................................. 6
4 II. ARGUMENT ..................................................................................................................... 7
5 A. Plaintiff Fails To State A Section 12 “Seller” Claim Against
Andreessen ............................................................................................................. 7
6
B. Plaintiff Fails To State A Section 15 “Control” Claim Against
7 Andreessen ........................................................................................................... 13
8 III. CONCLUSION ................................................................................................................ 15
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AH CAPITAL’S REPLY IN SUPPORT OF
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CASE NO. 21-CIV-03843
1 TABLE OF AUTHORITIES
2 Page(s)
3 CASES
4
In re Am. Bank Note Holographics Sec. Litig.,
5 93 F. Supp. 2d 424 (S.D.N.Y. 2000)........................................................................................13
6 Balestra v. ATBCOIN LLC,
380 F. Supp. 3d 340 (S.D.N.Y. 2019)......................................................................................13
7
In re Charles Schwab Corp. Sec. Litig.,
8 257 F.R.D. 534 (N.D. Cal. 2009) ...............................................................................................9
9 City of Port Hueneme v. Oxnard Harbor Dist.,
10 146 Cal. App. 4th 511 (2007) ..................................................................................................12
11 City of San Diego v. Bd. of Trus. of California State Univ.,
61 Cal. 4th 945 (2015) .............................................................................................................10
12
City of Warrren Police and Fire Ret. Sys. v. Natera, Inc.
13 46 Cal. App. 5th 946 (1st Dist. Cal. Ct. App. 2020) ................................................................13
14 In re Cloudera, Inc. Sec. Litig.,
15 No. 19CV348674, 2020 WL 3865602 (Santa Clara Cal. Super. Ct. July 1, 2020) ...................8
16 In re Diasonics Sec. Litig.,
599 F. Supp. 447 (N.D. Cal. 1984) ..........................................................................................15
17
In re Exec. Telecard, Ltd. Sec. Litig.,
18 913 F. Supp. 280 (S.D.N.Y. 1996)...........................................................................................15
19 Hellum v. Breyer,
194 Cal. App. 4th 1300 (1st Dist. Cal. Ct. App. 2011) ......................................................13, 15
20
21 Howard v. Everex Systems, Inc.,
228 F.3d 1057 (9th Cir. 2000) .................................................................................................13
22
Janus Capital Group v. First Derivative Traders,
23 564 U.S. 135 (2011) ....................................................................................................... 8, 10-11
24 Jensen v. iShares Tr.,
44 Cal. App. 5th 618 (2020), review denied (May 27, 2020) .......................................... passim
25
In re King Digital Ent. PLC S’holder Litig.,
26
No. CGC - 15-544770, 2015 WL 13345629 (Cal. Super. Oct. 07, 2015) ...............................12
27
28
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CASE NO. 21-CIV-03843
1 In re Lyft, Inc. Sec. Litig.,
No. CGC-19-575293, 2020 WL 3865600 & 2020 WL 3729573 (San. Fran. Cal. Super. Ct.
2 July 01, 2020).........................................................................................................................8, 9
3
Maine State Ret. Sys v. Countrywide Fin. Corp.,
4 No. 2:10-CV-0302 MRP, 2011 WL 4389689 (C.D. Cal. May 5, 2011)....................................8
5 In re Maxar Techs Inc.,
No. 19CV357070, 2021 WL 537333 (Santa Clara Cal. Super. Ct. Jan. 25, 2021)....................8
6
Moore v. Kayport Package Express,
7 885 F.2d 531 (9th Cir. 1989) ...................................................................................................13
8 In re Oppenheimer Rochester Funds Grp. Sec. Litig.,
9 838 F. Supp. 2d 1148 (D. Colo. 2012) .....................................................................................13
10 Owen v. Elastos,
No, 1:19-cv-5462-GHW, 2021 WL 5868171 (S.D.N.Y. Dec. 9, 2021) ..................................13
11
Paracor Fin., Inc. v. Gen. Elec. Capital Corp.,
12 96 F.3d 1151 (9th Cir. 1996) ...................................................................................................14
13 Pinter v. Dahl,
14 486 U.S. 622 (1988) .........................................................................................................6, 8, 10
15 In re Regions Morgan Keegan Sec., Derivative & Erisa Litig.,
743 F. Supp. 2d 744 (W.D. Tenn. 2010)..................................................................................15
16
S.E.C. v. Mercury Interactive, LLC,
17 No. 5:07-cv-02822-WHA, 2011 WL 5871020 (N.D. Cal. Nov. 22, 2011) .............................11
18 Sec. & Exch. Comm’n v. Killion,
No. H-16-621, 2017 WL 7052310 (S.D. Tex. Mar. 24, 2017) ...............................................11
19
20 Shaw v. Digital Equipment Corp.,
82 F.3d 1194 (1st Cir. 1996) ....................................................................................................10
21
Shermoen v. First Allied Sec., Inc.,
22 No. D067612, 2016 WL 4098701 (4th Dist. Cal. Ct. App. July 29, 2016) .............................14
23 In re Slack Techs. Inc. S’holder Litig.,
Case No. 19CIV005370, 2020 WL 4919555 (San Mateo Cal. Super. Ct.,
24 Aug. 12, 2020) ....................................................................................................................9, 10
25
In re Tezos Sec. Litig.,
26 No. 17-CV-06779-RS, 2018 WL 4293341 (N.D. Cal. Aug. 7, 2018) .....................................15
27 In re Volkswagen “Clean Diesel” Mktg., Sales Pracs., & Prod. Liab. Litig.,
258 F. Supp. 3d 1037 (N.D. Cal. 2017) ...................................................................................15
28
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CASE NO. 21-CIV-03843
1 Welgus v. TriNet Grp., Inc.,
No. 15-CV-03625-BLF, 2017 WL 167708 (N.D. Cal. Jan. 17, 2017) ....................................15
2
In re Westinghouse Sec. Litig.
3
90 F.3d 696 (3d Cir. 1996).......................................................................................................10
4
STATUTES
5
15 U.S.C. § 77l(a) .................................................................................................................. passim
6
7 REGULATIONS
8 17 C.F.R. § 240.10b–5(b) ..............................................................................................................11
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CASE NO. 21-CIV-03843
1 I. INTRODUCTION
2 Plaintiff’s Opposition to Andreessen’s demurrer only underscores why the Court should
3 dismiss both the Section 12(a)(1) and Section 15 claims against Andreessen.1
4 Plaintiff’s Opposition does not and cannot point to any allegations in the Complaint
5 showing that Andreessen passed title of ICP tokens to Plaintiff, or that Andreessen successfully
6 solicited Plaintiff’s purchase of ICP tokens. That pleading failure is fatal to a claim brought under
7 Section 12(a)(1) of the Securities Act, which provides that one who offers or sells an unregistered
8 security can only be liable to “the person purchasing such security from him.” 15 U.S.C. § 77l(a).
9 Plaintiff argues the Complaint supports a “logical” inference that he purchased ICP tokens
10 “through the available exchanges” from “Defendants.” Opp. at 8. But an allegation against
11 “Defendants” as a group does not state a claim against Andreessen, and regardless, the Complaint
12 is silent with respect to how or from whom Plaintiff purchased his tokens. Plaintiff does not allege
13 that he bought on any particular platform or that Andreessen sold tokens on a particular platform
14 between May 10, 2021 and June 25, 2021 (the time of Plaintiff’s alleged purchases). Indeed, the
15 Complaint does not allege either that Andreessen had received ICP tokens at the time of the
16 Genesis launch or that Andreessen in particular sold any tokens to Plaintiff (or anyone). Having
17 no factual allegations to support a “passing title” claim, Plaintiff falls back on a “solicitation”
18 claim, arguing that this Court should ignore the Court of Appeal’s decision in Jensen v. iShares
19 Tr., 44 Cal. App. 5th 618, 647 (2020), review denied (May 27, 2020). But there is no escaping
20 Jensen, which is the only California appellate authority that addresses the Section 12 pleading
21 standard. Jensen sets forth a binding interpretation of both Pinter v. Dahl, 486 U.S. 622 (1988),
22 and the plain language of Section 12(a), holding that a solicitation claim requires “specific
23 allegations” demonstrating a “direct relationship” between the defendant and plaintiff purchaser.
24 44 Cal. App. 5th at 649. Plaintiff’s conclusory allegations that Andreessen was entitled to receive
25 ICP tokens and had a financial motive to sell fall far short of the Jensen standard.
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1
Andreessen’s Memorandum of Points and Authorities in Support of its Demurrer is abbreviated
28 herein as “AH Dem.”
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AH CAPITAL’S REPLY IN SUPPORT OF
ATTORNEYS AT LAW DEMURRER TO COMPLAINT
CASE NO. 21-CIV-03843
1 As for the Section 15 claim, Plaintiff has not alleged facts showing either primary liability
2 or that Andreessen had any authority to exercise control over any other Defendant in this case.
3 Plaintiff does not allege any traditional indicia of control—such as stock ownership in Dfinity or
4 a Board seat. Rather, Plaintiff hypothesizes that Andreessen’s early purchase of ICP tokens gave
5 Andreessen control over Dfinity because they helped to fund Dfinity’s operations. But writing a
6 check to invest in another company’s project does not give the check writer control over the
7 company—and, not surprisingly, Plaintiff cites not a single case supporting his rewriting of
8 corporate law. Aside from his conclusory and unalleged say-so, Plaintiff offers no facts explaining
9 how holding ICP tokens would give the holder control over Dfinity, particularly when there are no
10 allegations that Andreessen even received the tokens it purchased by the time of the Genesis
11 launch—a point which Andreessen made in its demurrer (at 11, 19 n.7) but Plaintiff ignores.
12 This Court should dismiss the claims against Andreessen with prejudice.
13 II. ARGUMENT
14 A. Plaintiff Fails To State A Section 12 “Seller” Claim Against Andreessen
15 The Complaint fails to state a Section 12 claim against Andreessen, because it contains no
16 allegations of the requisite “direct relationship” between Plaintiff and Andreessen. In fact, the
17 Complaint contains no allegations whatsoever about how or from whom Plaintiff purchased his
18 tokens, let alone that he purchased from Andreessen (or any of the Defendants or on a particular
19 platform). Plaintiff’s Opposition does not even attempt to remedy that fatal pleading failure.
20 Instead, Plaintiff argues that he need not plead that a “specific Defendant sold him his shares,” and
21 he points to boilerplate allegations that Andreessen “directed and/or authorized, directly or
22 indirectly, the sale and/or solicitation of ICP to the public.” Opp. at 6. Plaintiff is wrong on the
23 law, and his Section 12 claim should be dismissed.
24 Section 12(a)(1) provides that “[a]ny person who . . . offers or sells a security in violation
25 of [Section 5 of the Securities Act] . . . shall be liable . . . to the person purchasing such security
26 from him . . . .” 15 U.S.C. § 77l(a) (emphasis added). Both the United States Supreme Court and
27 the California Court of Appeal have held with crystalline clarity that the “purchase from” language
28 requires “a direct relationship between the purchaser and the defendant.” Jensen, 44 Cal. App. 5th
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1 at 647 (citation omitted); see also Pinter, 486 U.S. at 651 (“The ‘purchase from’ requirement of §
2 12 focuses on the defendant’s relationship with the plaintiff-purchaser.”). “[I]t is not enough that
3 the defendant was a ‘substantial factor’ in causing the transaction,” i.e., participated in a purchase-
4 sale transaction in a substantial way. Jensen, 44 Cal. App. 5th at 647 (citing Pinter, ibid.). Rather,
5 a purchaser must allege that the defendant either passed title of the security to him directly, or
6 “successfully solicit[ed]” his purchase through “direct communication” with him. Id. at 647, 649
7 (quoting Pinter, 486 U.S. at 642, 647; Maine State Ret. Sys. v. Countrywide Fin. Corp., No. 2:10-
8 CV-0302 MRP, 2011 WL 4389689, at *10 (C.D. Cal. May 5, 2011) (internal quotations omitted)).
9 Both prongs require a direct relationship between purchaser and seller; otherwise, the purchaser
10 has not “purchas[ed] such security from him” within the meaning of Section 12, 15 U.S.C. § 77l(a).
11 Plaintiff tries to escape the binds of Pinter and Jensen, arguing that the Court should decline
12 to follow Jensen, and instead read Pinter “in conjunction with” a different Supreme Court decision,
13 Janus Capital Grp v. First Der. Traders, 564 U.S. 135, 142 (2011). Plaintiff’s arguments are
14 meritless. Jensen is binding appellate authority, and Janus involved a different provision of the
15 securities laws with different language (and still would not help Plaintiff’s claim).
16 First, Plaintiff is simply wrong in telling the Court that “Jensen was not a decision about
17 the adequacy of pleading of claims[.]” Opp. at 7. Jensen involved a motion for judgment on the
18 pleadings on a Section 12 claim, as well as a judgment following a bench trial on a Section 11
19 claim. 44 Cal. App. 5th at 628. That is why the Court of Appeal set forth a pleading standard for
20 a Section 12 claim, namely, that the plaintiff must “‘include very specific allegations of
21 solicitation, including direct communication with plaintiffs.’” 44 Cal. App. 5th at 649 (citation
22 omitted). Other California trial courts have recognized that Jensen is controlling authority on “the
23 pleading standard governing solicitation” under Section 12. In re Cloudera, Inc. Sec. Litig., No.
24 19CV348674, 2020 WL 3865602, at *10 (Santa Clara Cal. Super. Ct. July 1, 2020) (emphasis
25 added) (applying Jensen and dismissing Section 12 claims on a demurrer); see also In re Maxar
26 Techs. Inc., No. 19CV357070, 2021 WL 537333, at *10-11 (Santa Clara Cal. Super. Ct. Jan. 25,
27 2021) (same); In re Lyft, Inc. Sec. Litig., No. CGC-19-575293, 2020 WL 3865600, at *8 (San.
28 Fran. Cal. Super. Ct. July 1, 2020) (same, with respect to individual defendants); In re Lyft, Inc.,
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CASE NO. 21-CIV-03843
1 Sec. Litig., No. CGC-19-575293, 2020 WL 3729573, at *4 (San. Fran. Cal. Super. Ct. July 1, 2020)
2 (same, with respect to underwriter defendants).
3 Plaintiff relies on one trial court decision that is in conflict with the above-cited decisions.
4 Opp. at 8 (citing In re Slack Techs. Inc. S’holder Litig., Case No. 19CIV005370, 2020 WL
5 4919555 (San Mateo Cal. Super. Ct. Aug. 12, 2020)). He claims the Court should follow Slack,
6 which “distinguished Jensen” and “‘left to a motion on the merits’” whether “‘each Defendant is
7 a statutory seller[.]’” Opp. at 8 (quoting Slack, 2020 WL 4919555, at *14). But as with his
8 discussion of Jensen, here too Plaintiff’s description of Slack is not the whole story. Slack
9 sustained a demurrer on a Section 12(a)(2) claim against an officer defendant who had signed the
10 registration statement but had not sold stock in a public offering and had not engaged in
11 solicitations of sales to the public; Slack also sustained a demurrer against the issuer defendant,
12 that had not sold its own shares in the public offering. Id. at *15. Slack only allowed Section
13 12(a)(2) claims to proceed against certain directors and officers, who had signed the registration
14 statement, sold stock in a public offering, and directly participated in solicitations of sales to the
15 public including plaintiff and class members. Id. That decision departs from Jensen, because it
16 did not require specific allegations that the plaintiff purchased from the defendant. But it is still
17 limited to directors and officers who both sold shares to the public and actively engaged in
18 solicitation of sales to the public. See id.; see also In re Charles Schwab Corp. Sec. Litig., 257
19 F.R.D. 534, 549 (N.D. Cal. 2009) (allowing Section 12(a)(2) claim against officers and defendants
20 who had signed offering documents selling shares in public offering and engaged in active
21 solicitation of sales to the public). Even under Slack, therefore, Plaintiff’s claim cannot proceed
22 against Andreessen, because Plaintiff does not allege any facts demonstrating that Andreessen
23 signed a registration statement, sold ICP tokens to the public, or directly solicited the sale of ICP
24 tokens to the public.
25 In any event, Slack is not the law; Jensen and Pinter are. Slack dismissed Jensen’s
26 discussion of Section 12 as “gratuitous” in light of the appellate court’s ruling on the trial
27 judgment. Slack, 2020 WL 4919555, at *12. But as discussed supra, there was no trial on the
28 Section 12 claim, which was dismissed in a motion for judgment on the pleadings. Far from being
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1 dicta, Jensen’s extensive analysis of the Section 12 pleading standard was necessary to its decision
2 affirming the trial court’s dismissal of the Section 12 claim. Jensen, 44 Cal. App. 5th at 646
3 (holding that “another consideration”—the statutory seller requirement—“causes us to agree that
4 appellants lack standing”).2
5 Jensen is also right on the law, and Slack got it wrong. In holding that Section 12 requires
6 only that a plaintiff “show that the defendants solicited purchase of the securities for their own
7 financial gain,” Slack, 2020 WL 4919555, at *12 (citation omitted), Slack failed to account for
8 Section 12’s “purchase from” language, which was the focus of both Jensen and Pinter. Pinter
9 and Jensen make clear that the “purchase from” language limits the reach of Section 12 claims to
10 a defendant who either passed title to a particular purchaser or who was directly involved in
11 soliciting the plaintiff’s immediate purchase for its own financial gain. As Jensen explained:
12 Pinter held that liability under section 12 “is not limited to persons who pass title”
but also extends to one who “successfully solicits the purchase, motivated at least
13 in part by a desire to serve his own financial interests or those of the securities
owner.” But the court limited its holding, noting that section 12 “imposes liability
14 on only the buyer’s immediate seller; remote purchasers are precluded from
bringing actions against remote sellers. Thus, a buyer cannot recover against his
15 seller’s seller.” (Pinter v. Dahl, 486 U.S. 622, 644 (1988); Shaw v. Digital
Equipment Corp., 82 F.3d 1194, 1215 (1st Cir. 1996).) The court stated that “[t]he
16 ‘purchase from’ requirement of § 12 focuses on the defendant’s relationship with
the plaintiff-purchaser” (Pinter, 486 U.S. at 651); it is not enough that the
17 defendant was a “substantial factor” in causing the transaction. (Ibid.; Shaw, 82
F.3d at 1215.) Nor is it sufficient that a defendant participated in “solicit[ing] the
18 purchase.” (Pinter, 486 U.S. at 651, n.27; Shaw, 82 F.3d at 1215.) “A defendant
must be directly involved in the actual solicitation of a securities purchase in
19 order to qualify, on that basis, as a Section 12 ‘seller.’ (Shaw, 82 F.3d at 1215
[citations omitted].) “An allegation of direct and active participation in the
20 solicitation of the immediate sale is necessary for solicitation liability . . . so as to
ensure a direct relationship between the purchaser and the defendant, without which
21 a defendant is simply not a statutory seller.” (In re Westinghouse Sec. Litig. 90
F.3d 696, 717, n.19 (3d Cir. 1996).)
22
23 Jensen, 44 Cal. App. 5th at 647 (emphasis added, footnotes omitted, citations cleaned up).
24 Second, Plaintiff has no support for his argument that the Court should apply Pinter through
25 the lens of a different Supreme Court decision, Janus. In Janus, the United States Supreme Court
26 interpreted what it means to “make” a statement for purposes of Rule 10b–5(b), which renders it
27
2
Cf. City of San Diego v. Bd. of Trs. of California State Univ., 61 Cal. 4th 945, 958 (2015)
28 (“Dictum is the ‘statement of a principle not necessary to the decision.’”) (citation omitted).
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1 unlawful to “make any untrue statement of a material fact . . . in connection with the purchase or
2 sale of securities.” Janus, 564 U.S. at 141 (interpreting 17 C.F.R. § 240.10b–5(b)). Janus has
3 nothing to say about Section 12’s seller standard. Although Plaintiff may well be the first to
4 attempt to apply Janus to Section 12 (as evidenced by his lack of case law), courts have rejected
5 efforts to apply Janus to other provisions of the same 10b–5 rule, see Sec. & Exch. Comm’n v.
6 Killion, No. H-16-621, 2017 WL 7052310, at *8 n.69 (S.D. Tex. Mar. 24, 2017) (Rule 10b–5(a)
7 and (c), regarding “scheme liability”), as well as to other securities provisions “lacking the very
8 language that Janus construed,” S.E.C. v. Mercury Interactive, LLC, No. 5:07-cv-02822-WHA,
9 2011 WL 5871020, at *3 (N.D. Cal. Nov. 22, 2011) (Sections 17(a) of the Securities Act and 14(a)
10 of the Exchange Act).3
11 Ultimately, none of the allegations on which Plaintiff relies (Opp. at 8-10) shows either
12 that Andreessen had the requisite “direct communication” with Plaintiff to show “solicitation” of
13 his purchase, or that Andreessen passed title to Plaintiff. Jensen, 44 Cal. App. 5th at 649. Plaintiff
14 argues that Andreessen and Polychain were motivated to sell because they “owned and controlled”
15 “upwards of 35%” of ICP tokens (Opp. at 8, 9-10 (citing Compl. ¶¶ 56 and 57))—but motivation
16 to sell is not sufficient under Jensen. Those paragraphs also say nothing about how many tokens
17 Andreessen (or Polychain) received; rather, they say seed participants as a group were allegedly
18 entitled to “upwards of 35%” of ICP tokens (see AH Dem. at 11 (discussing large number of seed
19 participants)). Indeed, Plaintiff later admits that he has not the slightest clue about the percentage
20 of ICP tokens Andreessen was actually entitled to receive. Opp. at 12. Plaintiff also argues that
21 Andreessen purportedly “saw a staggering return on investment,” but the only facts alleged are the
22
23 3
It is also entirely unclear how Plaintiff believes Janus actually helps him. Janus limited those
who could be liable for making a statement to those who had “ultimate authority over the
24 statement, including its content and whether and how to communicate it.” 564 U.S. at 142. As
Janus explained, a speechwriter who drafts a speech cannot be liable as its maker because he is
25 not the one who ultimately controls its content and delivers it. See id. In a ten-line sentence
without any supporting citation to the Complaint, Plaintiff argues that Andreessen had “ultimate
26 authority” over unspecified “solicitations for the Genesis listing.” Opp. at 9. There are no facts
alleged in the Complaint to support that, but regardless, nothing in those lines says anything about
27 Andreessen having authority over the unnamed person or entity who offered or sold ICP tokens to
Plaintiff. At most, Plaintiff describes steps along the way to the offer and sale of ICP tokens, steps
28 which are far closer to a person writing, rather than delivering, a speech.
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1 peak price of ICP tokens and “selling pressure.” Opp. at 10 (citing ¶¶ 71-72). Missing is any
2 allegation that Andreessen had any communications with Plaintiff, or any purchaser at all. Taken
3 together, Plaintiff comes nowhere close to alleging a “solicitation” claim under Jensen and Pinter.
4 Nor is it a “close call” (Opp. at 9) whether the Complaint alleges that Andreessen “passed
5 title” to Plaintiff. As explained in Andreessen’s demurrer, the Complaint does not allege either
6 that Andreessen had received ICP tokens at the time of the Genesis launch or that Andreessen in
7 particular sold any tokens to Plaintiff (or anyone). AH Dem. at 13-15. Plaintiff has no response
8 and instead attempts to salvage a “passing title” claim by pointing to conclusory allegations that
9 “Defendants” sold “ICP to the public,” Opp. at 8 (citing ¶ 90), and the Arkham Report’s reporting
10 that unidentified “project insiders” “very likely” sold ICP tokens on cryptocurrency platforms at
11 the time of the Genesis launch. Opp. at 9 (citing ¶ 120). Generic allegations about “Defendants”
12 or unidentified “project insiders” selling are not enough under any standard. See In re King Digital
13 Ent. PLC S’holder Litig., No. CGC - 15-544770, 2015 WL 13345629, at *7 (San Fran. Cal. Super.
14 Oct. 7, 2015) (sustaining demurrer on Section 12 claim where complaint did not describe, as
15 required, each Section 12 defendant’s role vis-à-vis Plaintiff). Moreover, Plaintiff’s citation of
16 the Arkham Report is misleading. The Report, which Plaintiff refers and links to in his Complaint
17 and thus may be considered as “material documents referred to in the allegations of the complaint,”
18 City of Port Hueneme v. Oxnard Harbor Dist., 146 Cal. App. 4th 511, 514 (2007), explicitly
19 distinguishes “project insiders” from “seed supporters,” and says that “seed supporters” (which
20 includes Andreessen) were “severely limited in their ability to sell their ICP” tokens during the
21 Genesis launch so that “project insiders” could profit instead. Compl. ¶ 119, n.57 (citing
22 https://arkhamintelligence.com/icp/report.pdf) (herein, the “Arkham Report”) at 12.4 Indeed, the
23
4
24 The Arkham Report states that “Seed supporters seem to have remained in the dark about token
unlocking and access until the day of listing, when Dfinity published an article .. . say[ing] in
25 rather unclear fashion that seed investors will be effectively subject to a 4-year unlocking
schedule.” Arkham Report at 9. Moreover, the Arkham Report details how the instructions to
26 access the tokens were “complicated” and “difficult,” and how Dfinity did not “provide [seed
supporters] with support” in accessing the tokens. Arkham Report at 9-10, 12. Indeed, the Arkham
27 Report concludes as follows: “It appears that Dfinity insiders made billions of dollars dumping
ICP on the market while making it difficult for their biggest potential rival sellers [seed supporters]
28 to dump theirs.” Id. at 13.
12
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1 Arkham Report is consistent with the Federal Complaint, which alleges the restrictions prevented
2 Seed purchasers from selling during the Genesis launch. AH Dem. at 12 (discussing Federal
3 Complaint). The Arkham Report is another nail in Plaintiff’s claim.5
4 B. Plaintiff Fails To State A Section 15 “Control” Claim Against Andreessen
5 Because Plaintiff does not allege a primary violation of the Securities Act, his Section 15
6 claim fails. See AH Dem. at 16. It also fails because Plaintiff does not allege that Andreessen was
7 a control person over Dfinity. Id. at 16-20. Plaintiff admits that he is required to allege, at least,
8 “that the defendant possessed or had the authority to exercise” “power, control or influence over”
9 Dfinity. Opp. at 11-12. Cf. Hellum v. Breyer, 194 Cal. App. 4th 1300, 1317 (1st Dist. Cal. Ct.
10 App. 2011) (requiring sufficient facts to show that defendant had the power not only “to control
11 the general affairs” of the primary violator but also “to directly or indirectly control or influence
12 the specific corporate policy which resulted in the primary liability”) (citations omitted).6 But
13
5
14 None of Plaintiff’s cases (see Opp. at 10-11) applies Jensen’s pleading standard. They also are
readily distinguishable. In re Am. Bank Note Holographics Sec. Litig., 93 F. Supp. 2d 424, 439
15 (S.D.N.Y. 2000), involved a spun-off subsidiary alleged to have “participat[ed] in preparation of
the registration statement and prospectus and in road shows” and where “accounting irregularities”
16 were discovered shortly after the IPO. Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 357-58
(S.D.N.Y. 2019), has been criticized for applying the rejected “substantial factor” test, see Owen
17 v. Elastos, No. 1:19-cv-5462-GHW, 2021 WL 5868171, at *15 n.6 (S.D.N.Y. Dec. 9, 2021), and
it only allowed a claim against the issuer’s “sole members and officers,” both of whom had issued
18 press releases, staged press c
Preview
1 LATHAM & WATKINS LLP Matthew Rawlinson (CA 231890) 2 140 Scott Drive Menlo Park, CA 94025 3 Tel: +1.650.463.3076 / Fax: +1.650.463.2600 4 matt.rawlinson@lw.com 5 Susan E. Engel (pro hac vice) 555 Eleventh Street, NW, Suite 1000 6 Washington, D.C. 20004-1304 Tel.: +1.202.637.2200 / Fax: +1.202.637.2201 7 susan.engel@lw.com 8 Benjamin A. Naftalis (pro hac vice) 9 Gregory Mortenson (pro hac vice) 1271 Avenue of the Americas 10 New York, NY 10020 11 Tel.: +1.212.906.1200 / Fax +1.212.751.4864 benjamin.naftalis@lw.com 12 gregory.mortenson@lw.com 13 Attorneys for Defendant AH Capital Management, L.L.C. 14 15 SUPERIOR COURT OF THE STATE OF CALIFORNIA 16 COUNTY OF SAN MATEO 17 18 DANIEL OCAMPO, Individually and on CASE NO: 21-CIV-03843 Behalf of All Others Similarly Situated, 19 Hon. Danny Y. Chou, Dept. 22 Plaintiff, 20 DEFENDANT AH CAPITAL v. MANAGEMENT, L.L.C.’S REPLY IN 21 FURTHER SUPPORT OF ITS DEMURRER DFINITY USA RESEARCH LLC, DFINITY TO PLAINTIFF’S CLASS ACTION 22 STIFTUNG, ANDREESSEN HOROWITZ, COMPLAINT POLYCHAIN CAPITAL, DOMINIC 23 WILLIAMS, and JOHN DOES 1-20, Hearing Date: April 7, 2022 24 Hearing Time: 11:00 a.m. Defendants. Complaint Filed: July 15, 2021 25 26 27 28 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW LOS ANGELES DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION ............................................................................................................. 6 4 II. ARGUMENT ..................................................................................................................... 7 5 A. Plaintiff Fails To State A Section 12 “Seller” Claim Against Andreessen ............................................................................................................. 7 6 B. Plaintiff Fails To State A Section 15 “Control” Claim Against 7 Andreessen ........................................................................................................... 13 8 III. CONCLUSION ................................................................................................................ 15 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 TABLE OF AUTHORITIES 2 Page(s) 3 CASES 4 In re Am. Bank Note Holographics Sec. Litig., 5 93 F. Supp. 2d 424 (S.D.N.Y. 2000)........................................................................................13 6 Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340 (S.D.N.Y. 2019)......................................................................................13 7 In re Charles Schwab Corp. Sec. Litig., 8 257 F.R.D. 534 (N.D. Cal. 2009) ...............................................................................................9 9 City of Port Hueneme v. Oxnard Harbor Dist., 10 146 Cal. App. 4th 511 (2007) ..................................................................................................12 11 City of San Diego v. Bd. of Trus. of California State Univ., 61 Cal. 4th 945 (2015) .............................................................................................................10 12 City of Warrren Police and Fire Ret. Sys. v. Natera, Inc. 13 46 Cal. App. 5th 946 (1st Dist. Cal. Ct. App. 2020) ................................................................13 14 In re Cloudera, Inc. Sec. Litig., 15 No. 19CV348674, 2020 WL 3865602 (Santa Clara Cal. Super. Ct. July 1, 2020) ...................8 16 In re Diasonics Sec. Litig., 599 F. Supp. 447 (N.D. Cal. 1984) ..........................................................................................15 17 In re Exec. Telecard, Ltd. Sec. Litig., 18 913 F. Supp. 280 (S.D.N.Y. 1996)...........................................................................................15 19 Hellum v. Breyer, 194 Cal. App. 4th 1300 (1st Dist. Cal. Ct. App. 2011) ......................................................13, 15 20 21 Howard v. Everex Systems, Inc., 228 F.3d 1057 (9th Cir. 2000) .................................................................................................13 22 Janus Capital Group v. First Derivative Traders, 23 564 U.S. 135 (2011) ....................................................................................................... 8, 10-11 24 Jensen v. iShares Tr., 44 Cal. App. 5th 618 (2020), review denied (May 27, 2020) .......................................... passim 25 In re King Digital Ent. PLC S’holder Litig., 26 No. CGC - 15-544770, 2015 WL 13345629 (Cal. Super. Oct. 07, 2015) ...............................12 27 28 3 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 In re Lyft, Inc. Sec. Litig., No. CGC-19-575293, 2020 WL 3865600 & 2020 WL 3729573 (San. Fran. Cal. Super. Ct. 2 July 01, 2020).........................................................................................................................8, 9 3 Maine State Ret. Sys v. Countrywide Fin. Corp., 4 No. 2:10-CV-0302 MRP, 2011 WL 4389689 (C.D. Cal. May 5, 2011)....................................8 5 In re Maxar Techs Inc., No. 19CV357070, 2021 WL 537333 (Santa Clara Cal. Super. Ct. Jan. 25, 2021)....................8 6 Moore v. Kayport Package Express, 7 885 F.2d 531 (9th Cir. 1989) ...................................................................................................13 8 In re Oppenheimer Rochester Funds Grp. Sec. Litig., 9 838 F. Supp. 2d 1148 (D. Colo. 2012) .....................................................................................13 10 Owen v. Elastos, No, 1:19-cv-5462-GHW, 2021 WL 5868171 (S.D.N.Y. Dec. 9, 2021) ..................................13 11 Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 12 96 F.3d 1151 (9th Cir. 1996) ...................................................................................................14 13 Pinter v. Dahl, 14 486 U.S. 622 (1988) .........................................................................................................6, 8, 10 15 In re Regions Morgan Keegan Sec., Derivative & Erisa Litig., 743 F. Supp. 2d 744 (W.D. Tenn. 2010)..................................................................................15 16 S.E.C. v. Mercury Interactive, LLC, 17 No. 5:07-cv-02822-WHA, 2011 WL 5871020 (N.D. Cal. Nov. 22, 2011) .............................11 18 Sec. & Exch. Comm’n v. Killion, No. H-16-621, 2017 WL 7052310 (S.D. Tex. Mar. 24, 2017) ...............................................11 19 20 Shaw v. Digital Equipment Corp., 82 F.3d 1194 (1st Cir. 1996) ....................................................................................................10 21 Shermoen v. First Allied Sec., Inc., 22 No. D067612, 2016 WL 4098701 (4th Dist. Cal. Ct. App. July 29, 2016) .............................14 23 In re Slack Techs. Inc. S’holder Litig., Case No. 19CIV005370, 2020 WL 4919555 (San Mateo Cal. Super. Ct., 24 Aug. 12, 2020) ....................................................................................................................9, 10 25 In re Tezos Sec. Litig., 26 No. 17-CV-06779-RS, 2018 WL 4293341 (N.D. Cal. Aug. 7, 2018) .....................................15 27 In re Volkswagen “Clean Diesel” Mktg., Sales Pracs., & Prod. Liab. Litig., 258 F. Supp. 3d 1037 (N.D. Cal. 2017) ...................................................................................15 28 4 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 Welgus v. TriNet Grp., Inc., No. 15-CV-03625-BLF, 2017 WL 167708 (N.D. Cal. Jan. 17, 2017) ....................................15 2 In re Westinghouse Sec. Litig. 3 90 F.3d 696 (3d Cir. 1996).......................................................................................................10 4 STATUTES 5 15 U.S.C. § 77l(a) .................................................................................................................. passim 6 7 REGULATIONS 8 17 C.F.R. § 240.10b–5(b) ..............................................................................................................11 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 I. INTRODUCTION 2 Plaintiff’s Opposition to Andreessen’s demurrer only underscores why the Court should 3 dismiss both the Section 12(a)(1) and Section 15 claims against Andreessen.1 4 Plaintiff’s Opposition does not and cannot point to any allegations in the Complaint 5 showing that Andreessen passed title of ICP tokens to Plaintiff, or that Andreessen successfully 6 solicited Plaintiff’s purchase of ICP tokens. That pleading failure is fatal to a claim brought under 7 Section 12(a)(1) of the Securities Act, which provides that one who offers or sells an unregistered 8 security can only be liable to “the person purchasing such security from him.” 15 U.S.C. § 77l(a). 9 Plaintiff argues the Complaint supports a “logical” inference that he purchased ICP tokens 10 “through the available exchanges” from “Defendants.” Opp. at 8. But an allegation against 11 “Defendants” as a group does not state a claim against Andreessen, and regardless, the Complaint 12 is silent with respect to how or from whom Plaintiff purchased his tokens. Plaintiff does not allege 13 that he bought on any particular platform or that Andreessen sold tokens on a particular platform 14 between May 10, 2021 and June 25, 2021 (the time of Plaintiff’s alleged purchases). Indeed, the 15 Complaint does not allege either that Andreessen had received ICP tokens at the time of the 16 Genesis launch or that Andreessen in particular sold any tokens to Plaintiff (or anyone). Having 17 no factual allegations to support a “passing title” claim, Plaintiff falls back on a “solicitation” 18 claim, arguing that this Court should ignore the Court of Appeal’s decision in Jensen v. iShares 19 Tr., 44 Cal. App. 5th 618, 647 (2020), review denied (May 27, 2020). But there is no escaping 20 Jensen, which is the only California appellate authority that addresses the Section 12 pleading 21 standard. Jensen sets forth a binding interpretation of both Pinter v. Dahl, 486 U.S. 622 (1988), 22 and the plain language of Section 12(a), holding that a solicitation claim requires “specific 23 allegations” demonstrating a “direct relationship” between the defendant and plaintiff purchaser. 24 44 Cal. App. 5th at 649. Plaintiff’s conclusory allegations that Andreessen was entitled to receive 25 ICP tokens and had a financial motive to sell fall far short of the Jensen standard. 26 27 1 Andreessen’s Memorandum of Points and Authorities in Support of its Demurrer is abbreviated 28 herein as “AH Dem.” 6 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 As for the Section 15 claim, Plaintiff has not alleged facts showing either primary liability 2 or that Andreessen had any authority to exercise control over any other Defendant in this case. 3 Plaintiff does not allege any traditional indicia of control—such as stock ownership in Dfinity or 4 a Board seat. Rather, Plaintiff hypothesizes that Andreessen’s early purchase of ICP tokens gave 5 Andreessen control over Dfinity because they helped to fund Dfinity’s operations. But writing a 6 check to invest in another company’s project does not give the check writer control over the 7 company—and, not surprisingly, Plaintiff cites not a single case supporting his rewriting of 8 corporate law. Aside from his conclusory and unalleged say-so, Plaintiff offers no facts explaining 9 how holding ICP tokens would give the holder control over Dfinity, particularly when there are no 10 allegations that Andreessen even received the tokens it purchased by the time of the Genesis 11 launch—a point which Andreessen made in its demurrer (at 11, 19 n.7) but Plaintiff ignores. 12 This Court should dismiss the claims against Andreessen with prejudice. 13 II. ARGUMENT 14 A. Plaintiff Fails To State A Section 12 “Seller” Claim Against Andreessen 15 The Complaint fails to state a Section 12 claim against Andreessen, because it contains no 16 allegations of the requisite “direct relationship” between Plaintiff and Andreessen. In fact, the 17 Complaint contains no allegations whatsoever about how or from whom Plaintiff purchased his 18 tokens, let alone that he purchased from Andreessen (or any of the Defendants or on a particular 19 platform). Plaintiff’s Opposition does not even attempt to remedy that fatal pleading failure. 20 Instead, Plaintiff argues that he need not plead that a “specific Defendant sold him his shares,” and 21 he points to boilerplate allegations that Andreessen “directed and/or authorized, directly or 22 indirectly, the sale and/or solicitation of ICP to the public.” Opp. at 6. Plaintiff is wrong on the 23 law, and his Section 12 claim should be dismissed. 24 Section 12(a)(1) provides that “[a]ny person who . . . offers or sells a security in violation 25 of [Section 5 of the Securities Act] . . . shall be liable . . . to the person purchasing such security 26 from him . . . .” 15 U.S.C. § 77l(a) (emphasis added). Both the United States Supreme Court and 27 the California Court of Appeal have held with crystalline clarity that the “purchase from” language 28 requires “a direct relationship between the purchaser and the defendant.” Jensen, 44 Cal. App. 5th 7 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 at 647 (citation omitted); see also Pinter, 486 U.S. at 651 (“The ‘purchase from’ requirement of § 2 12 focuses on the defendant’s relationship with the plaintiff-purchaser.”). “[I]t is not enough that 3 the defendant was a ‘substantial factor’ in causing the transaction,” i.e., participated in a purchase- 4 sale transaction in a substantial way. Jensen, 44 Cal. App. 5th at 647 (citing Pinter, ibid.). Rather, 5 a purchaser must allege that the defendant either passed title of the security to him directly, or 6 “successfully solicit[ed]” his purchase through “direct communication” with him. Id. at 647, 649 7 (quoting Pinter, 486 U.S. at 642, 647; Maine State Ret. Sys. v. Countrywide Fin. Corp., No. 2:10- 8 CV-0302 MRP, 2011 WL 4389689, at *10 (C.D. Cal. May 5, 2011) (internal quotations omitted)). 9 Both prongs require a direct relationship between purchaser and seller; otherwise, the purchaser 10 has not “purchas[ed] such security from him” within the meaning of Section 12, 15 U.S.C. § 77l(a). 11 Plaintiff tries to escape the binds of Pinter and Jensen, arguing that the Court should decline 12 to follow Jensen, and instead read Pinter “in conjunction with” a different Supreme Court decision, 13 Janus Capital Grp v. First Der. Traders, 564 U.S. 135, 142 (2011). Plaintiff’s arguments are 14 meritless. Jensen is binding appellate authority, and Janus involved a different provision of the 15 securities laws with different language (and still would not help Plaintiff’s claim). 16 First, Plaintiff is simply wrong in telling the Court that “Jensen was not a decision about 17 the adequacy of pleading of claims[.]” Opp. at 7. Jensen involved a motion for judgment on the 18 pleadings on a Section 12 claim, as well as a judgment following a bench trial on a Section 11 19 claim. 44 Cal. App. 5th at 628. That is why the Court of Appeal set forth a pleading standard for 20 a Section 12 claim, namely, that the plaintiff must “‘include very specific allegations of 21 solicitation, including direct communication with plaintiffs.’” 44 Cal. App. 5th at 649 (citation 22 omitted). Other California trial courts have recognized that Jensen is controlling authority on “the 23 pleading standard governing solicitation” under Section 12. In re Cloudera, Inc. Sec. Litig., No. 24 19CV348674, 2020 WL 3865602, at *10 (Santa Clara Cal. Super. Ct. July 1, 2020) (emphasis 25 added) (applying Jensen and dismissing Section 12 claims on a demurrer); see also In re Maxar 26 Techs. Inc., No. 19CV357070, 2021 WL 537333, at *10-11 (Santa Clara Cal. Super. Ct. Jan. 25, 27 2021) (same); In re Lyft, Inc. Sec. Litig., No. CGC-19-575293, 2020 WL 3865600, at *8 (San. 28 Fran. Cal. Super. Ct. July 1, 2020) (same, with respect to individual defendants); In re Lyft, Inc., 8 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 Sec. Litig., No. CGC-19-575293, 2020 WL 3729573, at *4 (San. Fran. Cal. Super. Ct. July 1, 2020) 2 (same, with respect to underwriter defendants). 3 Plaintiff relies on one trial court decision that is in conflict with the above-cited decisions. 4 Opp. at 8 (citing In re Slack Techs. Inc. S’holder Litig., Case No. 19CIV005370, 2020 WL 5 4919555 (San Mateo Cal. Super. Ct. Aug. 12, 2020)). He claims the Court should follow Slack, 6 which “distinguished Jensen” and “‘left to a motion on the merits’” whether “‘each Defendant is 7 a statutory seller[.]’” Opp. at 8 (quoting Slack, 2020 WL 4919555, at *14). But as with his 8 discussion of Jensen, here too Plaintiff’s description of Slack is not the whole story. Slack 9 sustained a demurrer on a Section 12(a)(2) claim against an officer defendant who had signed the 10 registration statement but had not sold stock in a public offering and had not engaged in 11 solicitations of sales to the public; Slack also sustained a demurrer against the issuer defendant, 12 that had not sold its own shares in the public offering. Id. at *15. Slack only allowed Section 13 12(a)(2) claims to proceed against certain directors and officers, who had signed the registration 14 statement, sold stock in a public offering, and directly participated in solicitations of sales to the 15 public including plaintiff and class members. Id. That decision departs from Jensen, because it 16 did not require specific allegations that the plaintiff purchased from the defendant. But it is still 17 limited to directors and officers who both sold shares to the public and actively engaged in 18 solicitation of sales to the public. See id.; see also In re Charles Schwab Corp. Sec. Litig., 257 19 F.R.D. 534, 549 (N.D. Cal. 2009) (allowing Section 12(a)(2) claim against officers and defendants 20 who had signed offering documents selling shares in public offering and engaged in active 21 solicitation of sales to the public). Even under Slack, therefore, Plaintiff’s claim cannot proceed 22 against Andreessen, because Plaintiff does not allege any facts demonstrating that Andreessen 23 signed a registration statement, sold ICP tokens to the public, or directly solicited the sale of ICP 24 tokens to the public. 25 In any event, Slack is not the law; Jensen and Pinter are. Slack dismissed Jensen’s 26 discussion of Section 12 as “gratuitous” in light of the appellate court’s ruling on the trial 27 judgment. Slack, 2020 WL 4919555, at *12. But as discussed supra, there was no trial on the 28 Section 12 claim, which was dismissed in a motion for judgment on the pleadings. Far from being 9 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 dicta, Jensen’s extensive analysis of the Section 12 pleading standard was necessary to its decision 2 affirming the trial court’s dismissal of the Section 12 claim. Jensen, 44 Cal. App. 5th at 646 3 (holding that “another consideration”—the statutory seller requirement—“causes us to agree that 4 appellants lack standing”).2 5 Jensen is also right on the law, and Slack got it wrong. In holding that Section 12 requires 6 only that a plaintiff “show that the defendants solicited purchase of the securities for their own 7 financial gain,” Slack, 2020 WL 4919555, at *12 (citation omitted), Slack failed to account for 8 Section 12’s “purchase from” language, which was the focus of both Jensen and Pinter. Pinter 9 and Jensen make clear that the “purchase from” language limits the reach of Section 12 claims to 10 a defendant who either passed title to a particular purchaser or who was directly involved in 11 soliciting the plaintiff’s immediate purchase for its own financial gain. As Jensen explained: 12 Pinter held that liability under section 12 “is not limited to persons who pass title” but also extends to one who “successfully solicits the purchase, motivated at least 13 in part by a desire to serve his own financial interests or those of the securities owner.” But the court limited its holding, noting that section 12 “imposes liability 14 on only the buyer’s immediate seller; remote purchasers are precluded from bringing actions against remote sellers. Thus, a buyer cannot recover against his 15 seller’s seller.” (Pinter v. Dahl, 486 U.S. 622, 644 (1988); Shaw v. Digital Equipment Corp., 82 F.3d 1194, 1215 (1st Cir. 1996).) The court stated that “[t]he 16 ‘purchase from’ requirement of § 12 focuses on the defendant’s relationship with the plaintiff-purchaser” (Pinter, 486 U.S. at 651); it is not enough that the 17 defendant was a “substantial factor” in causing the transaction. (Ibid.; Shaw, 82 F.3d at 1215.) Nor is it sufficient that a defendant participated in “solicit[ing] the 18 purchase.” (Pinter, 486 U.S. at 651, n.27; Shaw, 82 F.3d at 1215.) “A defendant must be directly involved in the actual solicitation of a securities purchase in 19 order to qualify, on that basis, as a Section 12 ‘seller.’ (Shaw, 82 F.3d at 1215 [citations omitted].) “An allegation of direct and active participation in the 20 solicitation of the immediate sale is necessary for solicitation liability . . . so as to ensure a direct relationship between the purchaser and the defendant, without which 21 a defendant is simply not a statutory seller.” (In re Westinghouse Sec. Litig. 90 F.3d 696, 717, n.19 (3d Cir. 1996).) 22 23 Jensen, 44 Cal. App. 5th at 647 (emphasis added, footnotes omitted, citations cleaned up). 24 Second, Plaintiff has no support for his argument that the Court should apply Pinter through 25 the lens of a different Supreme Court decision, Janus. In Janus, the United States Supreme Court 26 interpreted what it means to “make” a statement for purposes of Rule 10b–5(b), which renders it 27 2 Cf. City of San Diego v. Bd. of Trs. of California State Univ., 61 Cal. 4th 945, 958 (2015) 28 (“Dictum is the ‘statement of a principle not necessary to the decision.’”) (citation omitted). 10 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 unlawful to “make any untrue statement of a material fact . . . in connection with the purchase or 2 sale of securities.” Janus, 564 U.S. at 141 (interpreting 17 C.F.R. § 240.10b–5(b)). Janus has 3 nothing to say about Section 12’s seller standard. Although Plaintiff may well be the first to 4 attempt to apply Janus to Section 12 (as evidenced by his lack of case law), courts have rejected 5 efforts to apply Janus to other provisions of the same 10b–5 rule, see Sec. & Exch. Comm’n v. 6 Killion, No. H-16-621, 2017 WL 7052310, at *8 n.69 (S.D. Tex. Mar. 24, 2017) (Rule 10b–5(a) 7 and (c), regarding “scheme liability”), as well as to other securities provisions “lacking the very 8 language that Janus construed,” S.E.C. v. Mercury Interactive, LLC, No. 5:07-cv-02822-WHA, 9 2011 WL 5871020, at *3 (N.D. Cal. Nov. 22, 2011) (Sections 17(a) of the Securities Act and 14(a) 10 of the Exchange Act).3 11 Ultimately, none of the allegations on which Plaintiff relies (Opp. at 8-10) shows either 12 that Andreessen had the requisite “direct communication” with Plaintiff to show “solicitation” of 13 his purchase, or that Andreessen passed title to Plaintiff. Jensen, 44 Cal. App. 5th at 649. Plaintiff 14 argues that Andreessen and Polychain were motivated to sell because they “owned and controlled” 15 “upwards of 35%” of ICP tokens (Opp. at 8, 9-10 (citing Compl. ¶¶ 56 and 57))—but motivation 16 to sell is not sufficient under Jensen. Those paragraphs also say nothing about how many tokens 17 Andreessen (or Polychain) received; rather, they say seed participants as a group were allegedly 18 entitled to “upwards of 35%” of ICP tokens (see AH Dem. at 11 (discussing large number of seed 19 participants)). Indeed, Plaintiff later admits that he has not the slightest clue about the percentage 20 of ICP tokens Andreessen was actually entitled to receive. Opp. at 12. Plaintiff also argues that 21 Andreessen purportedly “saw a staggering return on investment,” but the only facts alleged are the 22 23 3 It is also entirely unclear how Plaintiff believes Janus actually helps him. Janus limited those who could be liable for making a statement to those who had “ultimate authority over the 24 statement, including its content and whether and how to communicate it.” 564 U.S. at 142. As Janus explained, a speechwriter who drafts a speech cannot be liable as its maker because he is 25 not the one who ultimately controls its content and delivers it. See id. In a ten-line sentence without any supporting citation to the Complaint, Plaintiff argues that Andreessen had “ultimate 26 authority” over unspecified “solicitations for the Genesis listing.” Opp. at 9. There are no facts alleged in the Complaint to support that, but regardless, nothing in those lines says anything about 27 Andreessen having authority over the unnamed person or entity who offered or sold ICP tokens to Plaintiff. At most, Plaintiff describes steps along the way to the offer and sale of ICP tokens, steps 28 which are far closer to a person writing, rather than delivering, a speech. 11 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 peak price of ICP tokens and “selling pressure.” Opp. at 10 (citing ¶¶ 71-72). Missing is any 2 allegation that Andreessen had any communications with Plaintiff, or any purchaser at all. Taken 3 together, Plaintiff comes nowhere close to alleging a “solicitation” claim under Jensen and Pinter. 4 Nor is it a “close call” (Opp. at 9) whether the Complaint alleges that Andreessen “passed 5 title” to Plaintiff. As explained in Andreessen’s demurrer, the Complaint does not allege either 6 that Andreessen had received ICP tokens at the time of the Genesis launch or that Andreessen in 7 particular sold any tokens to Plaintiff (or anyone). AH Dem. at 13-15. Plaintiff has no response 8 and instead attempts to salvage a “passing title” claim by pointing to conclusory allegations that 9 “Defendants” sold “ICP to the public,” Opp. at 8 (citing ¶ 90), and the Arkham Report’s reporting 10 that unidentified “project insiders” “very likely” sold ICP tokens on cryptocurrency platforms at 11 the time of the Genesis launch. Opp. at 9 (citing ¶ 120). Generic allegations about “Defendants” 12 or unidentified “project insiders” selling are not enough under any standard. See In re King Digital 13 Ent. PLC S’holder Litig., No. CGC - 15-544770, 2015 WL 13345629, at *7 (San Fran. Cal. Super. 14 Oct. 7, 2015) (sustaining demurrer on Section 12 claim where complaint did not describe, as 15 required, each Section 12 defendant’s role vis-à-vis Plaintiff). Moreover, Plaintiff’s citation of 16 the Arkham Report is misleading. The Report, which Plaintiff refers and links to in his Complaint 17 and thus may be considered as “material documents referred to in the allegations of the complaint,” 18 City of Port Hueneme v. Oxnard Harbor Dist., 146 Cal. App. 4th 511, 514 (2007), explicitly 19 distinguishes “project insiders” from “seed supporters,” and says that “seed supporters” (which 20 includes Andreessen) were “severely limited in their ability to sell their ICP” tokens during the 21 Genesis launch so that “project insiders” could profit instead. Compl. ¶ 119, n.57 (citing 22 https://arkhamintelligence.com/icp/report.pdf) (herein, the “Arkham Report”) at 12.4 Indeed, the 23 4 24 The Arkham Report states that “Seed supporters seem to have remained in the dark about token unlocking and access until the day of listing, when Dfinity published an article .. . say[ing] in 25 rather unclear fashion that seed investors will be effectively subject to a 4-year unlocking schedule.” Arkham Report at 9. Moreover, the Arkham Report details how the instructions to 26 access the tokens were “complicated” and “difficult,” and how Dfinity did not “provide [seed supporters] with support” in accessing the tokens. Arkham Report at 9-10, 12. Indeed, the Arkham 27 Report concludes as follows: “It appears that Dfinity insiders made billions of dollars dumping ICP on the market while making it difficult for their biggest potential rival sellers [seed supporters] 28 to dump theirs.” Id. at 13. 12 AH CAPITAL’S REPLY IN SUPPORT OF ATTORNEYS AT LAW DEMURRER TO COMPLAINT CASE NO. 21-CIV-03843 1 Arkham Report is consistent with the Federal Complaint, which alleges the restrictions prevented 2 Seed purchasers from selling during the Genesis launch. AH Dem. at 12 (discussing Federal 3 Complaint). The Arkham Report is another nail in Plaintiff’s claim.5 4 B. Plaintiff Fails To State A Section 15 “Control” Claim Against Andreessen 5 Because Plaintiff does not allege a primary violation of the Securities Act, his Section 15 6 claim fails. See AH Dem. at 16. It also fails because Plaintiff does not allege that Andreessen was 7 a control person over Dfinity. Id. at 16-20. Plaintiff admits that he is required to allege, at least, 8 “that the defendant possessed or had the authority to exercise” “power, control or influence over” 9 Dfinity. Opp. at 11-12. Cf. Hellum v. Breyer, 194 Cal. App. 4th 1300, 1317 (1st Dist. Cal. Ct. 10 App. 2011) (requiring sufficient facts to show that defendant had the power not only “to control 11 the general affairs” of the primary violator but also “to directly or indirectly control or influence 12 the specific corporate policy which resulted in the primary liability”) (citations omitted).6 But 13 5 14 None of Plaintiff’s cases (see Opp. at 10-11) applies Jensen’s pleading standard. They also are readily distinguishable. In re Am. Bank Note Holographics Sec. Litig., 93 F. Supp. 2d 424, 439 15 (S.D.N.Y. 2000), involved a spun-off subsidiary alleged to have “participat[ed] in preparation of the registration statement and prospectus and in road shows” and where “accounting irregularities” 16 were discovered shortly after the IPO. Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 357-58 (S.D.N.Y. 2019), has been criticized for applying the rejected “substantial factor” test, see Owen 17 v. Elastos, No. 1:19-cv-5462-GHW, 2021 WL 5868171, at *15 n.6 (S.D.N.Y. Dec. 9, 2021), and it only allowed a claim against the issuer’s “sole members and officers,” both of whom had issued 18 press releases, staged press c