Opinion
Case No. 01-8437-CIV-MIDDLEBROOKS
March 27, 2002
ORDER ON MOTION TO DISMISS
THIS CAUSE comes before the Court upon defendant Lee B. Griffith's ("Griffith") Motion to Dismiss, filed July 26, 2001 (DE#49). On August 23, 2001, the plaintiff United States Securities and Exchange Commission ("SEC") filed its response, to which Griffith replied on September 26, 2001. Accordingly, the motion is ripe for disposition. The Court has reviewed the record, the relevant statutory and case law, the submissions of counsel, and is otherwise fully advised in the premises.
Due to the analytic lens through which this Court must view the operative complaint at the motion to dismiss stage, it is most appropriate to set forth the applicable legal standard at the outset, before diving into the heart of the allegations and the defendant's attacks thereupon. The standard is familiar. For the purpose of a 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, the complaint must be construed in the light most favorable to the plaintiff, and all facts as alleged by the plaintiff must be accepted as true. See Hishon v. King Spaulding, 467 U.S. 69, 73 (1984); Brooks v. Blue Cross Blue Shield of Florida, 116 F.3d 1364, 1369 (11th Cir. 1997) (per curiam). The potential obstacle to the plaintiff's ability to proceed further with the prosecution of his or her case is not an extremely onerous one, for it is a well-settled principle that the complaint "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief" Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Further, the complaint should not be dismissed because the plaintiff's claims do not support the specific legal theory upon which he or she relies; the court must itself determine whether the allegations provide a basis for relief on any possible theory of recovery. See, e.g., Brooks, 116 F.3d at 1369 (citing Robertson v. Johnston, 376 F.2d 43 (5th Cir. 1967)). In sum and in short, motions to dismiss are "viewed with disfavor and rarely granted." Id.; see also Future Tech Int'l, Inc. v. TAE IL Media, Ltd., 944 F. Supp. 1538, 1561 (S.D. Fla. 1996).
It must be kept in mind, however, that in considering a motion to dismiss, a court "will not accept, without more, conclusory allegations or legal conclusions masquerading as factual conclusions." Robinson v. Jewish Ctr. Towers, 993 F. Supp. 1475, 1476 (M.D. Fla. 1998); see also Cummings v. Palm Beach County, 642 F. Supp. 248, 249 (S.D. Fla. 1986) (noting that although "[t]he federal rules of pleading are liberal, . . . something more than conclusory allegations . . . are required."). This seems especially applicable in this securities fraud action, as scienter is eminently important and rather simple to baldly allege.
"In determining whether to grant a Rule 12(b)(6) motion, the Court primarily considers the allegations in the complaint, although matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint, also may be taken into account." Watson v. Bally Mfg. Corp., 844 F. Supp. 1533, 1535 n. 1 (S.D. Fla. 1993), aff'd, 84 F.3d 438 (11th Cir. 1996), quoting 5A Charles A. Wright Arthur R. Miller, Federal Practice and Procedure § 1357, at 299 (1990). Further, "where the plaintiff refers to certain documents in the complaint and these documents are central to the plaintiff's claim, . . . the Court may consider the documents part of the pleadings for purposes of Rule 12(b)(6) dismissal, and the defendant's attaching such documents to the motion to dismiss will not require conversion of the motion into a motion for summary judgment." Brooks, 116 F.3d at 1369.
Further, and also germane to the analysis of the instant motion, it is well established that fraud is subject to a heightened pleading requirement. In light of the severity of an allegation of fraud, Rule 9 (b) of the Federal Rules of Civil Procedure provides in pertinent part:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.
"This Rule `serves an important purpose in fraud actions by alerting defendants to the "precise misconduct with which they are charged" and protecting defendants against "spurious charges of immoral and fraudulent behavior."'" Brooks, 116 F.3d at 1370-71 (quoting City of Durham v. Business Mgmt. Assocs., 847 F.2d 1505, 1511 (11th Cir. 1988)). Of course, the Court is mindful that the strict application of Rule 9(b) must not be allowed to vitiate the overall concept of notice pleading. See, e.g., Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001). This Rule is satisfied if the complaint sets forth (1) the exact statements or omissions made, (2) the time and place of each such statement and who made the statement or omission, (3) the substance of the statement and how it misled the plaintiff, and (4) the defendants' gain due to the alleged fraud. See Brooks, 116 F.3d at 1371; Rentclub, Inc. v. Transamerica Rental Fin. Corp., 775 F. Supp. 1460, 1462 (M.D. Fla. 1991). With this standard in mind, the Court turns to the analysis of the case at hand.
The facts of the complaint, in brief and as they pertain to Griffith are as follows. Because the motion to dismiss tightly focuses on the allegations of the complaint as it is now constituted, the Court shall quote heavily from that document. This case as a whole concerns the SEC's allegations that "[f]rom the last quarter of 1996 until June of 1998, senior management of Sunbeam Corporation . . . orchestrated a fraudulent scheme to create the illusion of a successful restructuring of Sunbeam and facilitate a sale of the Company at an inflated price." Compl. ¶ 1. Top Sunbeam officials assured investors that as a result of certain restructuring, "Sunbeam would meet very aggressive revenue and earnings targets." Id. These figures were the goal; Lee B. Griffith was enlisted to help attain this goal. Griffith was Vice President for Sales for the Sunbeam Corporation from August of 1996 until April of 1998. After this, Griffith assumed the position of President of the Household Division, a vacancy that came up when Al Dunlap, Sunbeam's relatively new Chief Executive Officer, dismissed Donald Uzzi from that position. Griffith resigned from this position just three months later. Together with other top Sunbeam officials, Griffith participated in a scheme in which "improper accounting and misleading disclosures" duped investors into believing that the projected goals had been or were being met. This false information caused Sunbeam share prices to rise, which was designed to obtain an artificially inflated price for the sale of the company.
Due to the standard this Court is to apply in reviewing a motion to dismiss, the terms "allegedly," "according to the SEC," and the like are deemed unnecessary. The Court also takes this opportunity to comment on the relatively entertaining histrionics with which the instant motion has been briefed. Compare Mot. to Dismiss at 1-2 (comparing the SEC's suit against Griffith to "the armies of the First Crusade," who "put to the sword combatants, surrendered combatants, and noncombatants alike in a great spasm of indiscriminate violence.") with Mem. of Law in Opp. to Mot. to Dismiss at 2-3 (describing Griffith as a "gang member who supplies explosives to a gang that explodes bombs in public places.").
The allegations include creation of improper accounting reserves "into which management could and did dip its hand to artificially and improperly inflate income in 1997, further contributing to the picture of a rapid turnaround." Id. ¶ 2. In furtherance of the plan to give a booster shot to Sunbeam's 1997 revenue, the defendants, including Griffith, engaged in improper accounting procedures which "caused Sunbeam to recognize revenue from sales that did not meet applicable accounting rules." Id. Some of this revenue gain was accomplished through "channel stuffing," which the complaint describes as "overloading channels of distribution by offering discounts and other inducements in order to sell product now that would otherwise be sold in the future." Id. "Since many customers could not burden their warehouses with seasonal merchandise before the season began, Griffith proposed that the Company combine its discount offers with the option to have Sunbeam hold this merchandise until the normal time for delivery." Id. ¶ 52. This directly implicates the sales practices at Sunbeam, of which Griffith was Vice President. The complaint also references an internal memorandum penned by Griffith, wherein Griffith informed the other defendants that Sunbeam sales were poor in April "primarily due to mortgaging April to achieve Q1." Id. ¶ 45.
What the complaint then describes can best be termed the "snowball effect" of this fraudulent scheme. In order to effectuate the scheme, and obtain an inflated price for the sale of Sunbeam, the defendants had wrongfully pumped up the revenue and sales figures for 1997. "Among other things, the Defendants . . . engaged in deceptive and improper sales practices. As a result of these practices, more than 50% of Sunbeam's reported second-quarter 1997 income of $40.5 million did not comply with GAAP requirements." Id. ¶ 50. Further, by mid-November of 1997, these inflated revenue levels were extremely difficult to sustain. Therefore, "Dunlap, Kersh, Griffith, and Uzzi approved plans specifically intended to pull 1998 sales into 1997. These included plans to pull $52 million in 1998 barbecue-grill sales into 1997 by offering discounts, extended terms and additional local advertising support for retailers willing to purchase grills in December." Id. ¶ 79. Additionally, in December of 1997, Griffith assisted in creating a "distributor program," whereby "Sunbeam accelerated recognition of sales revenue by placing merchandise, including merchandise specifically slated for some of its retail customers, with certain distributors in advance of actual retail demand." Id. ¶ 81. In order to accomplish this, Sunbeam offered favorable terms and, "consistently, the right to return unsold product." Id.
Griffith discussed with some other Sunbeam officials a transaction involving $9.9 million of revenue that had been accelerated into the second quarter of 1997 that normally would have been recognized in a later period. See Compl. ¶ 56.
However, because of the actions undertaken in 1997, the company was faced with "the prospect of poor 1998 results." Id. ¶ 6. Therefore, "[i]n early 1998, the Sunbeam Defendants [of which Griffith is one] took increasingly desperate measures to conceal the Company's mounting financial problems . . .," including "again engag[ing] in, and recogniz[ing] revenue for, sales that did not meet the applicable accounting rules," accelerating future sales revenue into present recognition periods, eliminating return authorizations "to conceal pending returns of merchandise," and "misrepresent[ing] the Company's performance and future prospects in its financial statements . . . and its communications with analysts." Id. Each of the named defendants, top Sunbeam officials during the relevant time period, "knew or recklessly disregarded facts indicating that their activities, together with the activities of other Sunbeam Defendants, would cause Sunbeam's books and records and period filings to be materially false and misleading." Id. ¶ 22. "Griffith's primary role was to develop and implement the specific sales programs that were the vehicle for the Company's improper accounting and misleading disclosure." Id.
Additionally, during the first quarter of 1998, Sunbeam was faced with the consequences of its right-of-return sales policy and the "parking arrangements" into which it had entered. Therefore, defendant Kersh, "in the presence of Uzzi and Gluck, ordered the deletion of all return authorizations from the Company's computer system. Griffith learned about Kersh's instruction immediately." Id. ¶ 119. The deletion of these return authorizations caused these pending returns to be delayed, obviously resulting in an artificial inflation in the net sales figures.
These "parking arrangements" involved wholesalers holding merchandise over a financial quarter's end, without the wholesaler "accepting any of the risks or rewards of ownership." Id. ¶ 44. This was a direct violation of GAAP revenue-recognition requirements.
On May 11, 1998, a press conference was held, following the release that same day of Sunbeam's first-quarter 1998 earnings release. That release reflected a loss of 52¢ per share. At the press conference, attended by Sunbeam officials Dunlap, Kersh, and Griffith, these three men addressed that shortfall. See id. ¶ 139-40. Dunlap stated without caveat that he "categorically reject[ed] all accusations that [Sunbeam officials] tried to stuff the channel and artificially pump up the fourth quarter." Id. ¶ 140. Following Kersh's comments, Griffith addressed the conference attendees, remarking that he and his colleagues "were not overloading the channel. We were pursuing a sound marketing idea . . . ." Id. As a pensive Hamlet might say, "Aye, there's the rub." William Shakespeare, Hamlet, act III, sc. I, line 64.
The SEC's July 11, 2001 Amended Civil Complaint contains five counts alleged against Griffith. Count I alleges violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), id. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Count II alleges that Griffith violated Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), as well as Rules 12b-20, 13a-1, and 13a-13, 17 C.F.R. § 240.12b-20, .13a-1, .13a-13. Count III is for violations of Sections 13(b)(2)(A) and (B) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A) and (B), and Rule 13b2-1, 17 C.F.R. § 240.13b2-1. Counts IV and V allege, respectively, that Griffith violated Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5), and Rule 13b2-2 of the Exchange Act, 17 C.F.R. § 240.13b2.2. Griffith attacks each count as failing to state a claim upon which relief may be granted, as well as the SEC's alleged failure to meet the fraud-pleading requirement of Rule 9(b) of the Federal Rules of Civil Procedure.
I. Section 10(b) and Rule 10b-5
Section 10(b) of the Securities Act states as follows:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange —
. . .
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.15 U.S.C. § 78j. One of the rules the SEC "prescribe[d] as necessary or appropriate" is Rule 10b-5, which provides in full:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17 C.F.R. § 240.10b-5. "In order to state a claim under § 10(b) and Rule 10b-5, a plaintiff must show the following: `(1) a misstatement or omission, (2) of a material fact, (3) made with scienter . . . .'" Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (citing Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1281 (11th Cir. 1999)); see also Ross v. Bank South, N.A., 885 F.2d 723, 728 (11th Cir. 1989) (en banc). The scienter requirement is met by a showing of severe recklessness, see Ziemba, 256 F.3d at 1202 (citing McDonald v. Alan Bush Brokerage Co., 863 F.2d 809, 814 (11th Cir. 1989)), which "is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even excusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it." McDonald, 863 F.2d at 814 (quoting Broad v. Rockwell Int'l Corp., 642 F.2d 929, 961-62 (5th Cir. 1981) (en banc)).
The caselaw in the private-action context requires a plaintiff also to set forth reliance and causation, although Griffith indicates that these elements "have no application in an SEC enforcement action." Mot. to Dismiss at 7 n. 6.
In his motion to dismiss, Griffith sets forth the differing positions at which federal courts have arrived concerning post- Central Bank primary liability in § 10(b) and Rule 10b-5 securities fraud actions. In Central Bank, the Supreme Court held as follows:
Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994).
Because the text of § 10(b) does not prohibit aiding and abetting, we hold that a private plaintiff may not maintain an aiding and abetting suit under § 10(b). The absence of § 10(b) aiding and abetting liability does not mean that secondary actors in the securities markets are always free from liability under the securities Acts. Any person or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under 10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are met. In any complex securities fraud, moreover, there are likely to be multiple violators . . .511 U.S. at 191 (citations omitted). Griffith characterizes the Ninth Circuit's decision in Howard v. Everex Systems, Inc., 228 F.3d 1057 (9th Cir. 2000), as representing "[t]he most liberal approach" to the scope of primary liability in that the appellate court therein noted that "substantial participation or intricate involvement in the preparation of fraudulent statements is grounds for primary liability even though that participation might not lead to the actor's actual making of the statements." Id. at 1061 n. 5 (citing In re Software Toolworks Inc. Secs. Litig., 50 F.3d 615, 628-29 n. 3 (9th Cir. 1994)). Griffith contends that the Second Circuit has taken "a very different view" in Shapiro v. Cantor, 123 F.3d 717 (2d Cir. 1997), concluding that "[a] claim under § 10(b) must allege a defendant has made a material misstatement or omission indicating an intent to deceive or defraud in connection with the purchase or sale of a security," and that "[a]llegations of `assisting,' `participating in,' `complicity in' and similar synonyms . . . all fall within the prohibitive bar of Central Bank." Id. at 720-21. It appears that the Eleventh Circuit has not yet definitively ruled on what constitutes primary liability under these provisions. One district court from this Circuit, assisted by an SEC brief that is also attached to Griffith's motion to dismiss, has held that "a secondary actor can be primarily liable when it, acting alone or with others, creates a misrepresentation even if the misrepresentation is not publicly attributed to it." Carley Capital Group v. Deloitte Touche, L.L.P., 27 F. Supp.2d 1324, 1334 (N.D. Ga. 1998).
"Supreme Court in Central Bank never intended to restrict § 10(b) liability to supervisors or directors of securities fraud schemes while excluding from liability subordinates who also violated the securities laws." SEC v. U.S. Envtl., Inc., 155 F.3d 107, 112 (2d Cir. 1998).
Shortly after the instant motion was filed, the Eleventh Circuit handed down its decision in Ziemba v. Cascade International, Inc., 256 F.3d 1194 (11th Cir. 2001), which undermines the court's decision in Carley Capital insofar as the Carley Capital court concluded that a defendant may be primarily liable "even if the misrepresentation is not publicly attributed to it." In Ziemba, the court followed the Second Circuit's decision in Wright v. Ernst Young LLP, 152 F.3d 169, 175 (2d Cir. 1998), and held that "in order for the defendant to be primarily liable under § 10(b) and Rule 10b-5, the alleged misstatement or omission upon which a plaintiff relied must have been publicly attributable to the defendant at the time that the plaintiff's investment decision was made." 256 F.3d at 1205. This holding focuses on the reliance element of a private securities fraud action, and therefore has only tangential value to the instant decision.
After a thorough review of the issue, the Court concludes that as applied to this case, the issue is mostly academic, for Griffith's statements categorically denying the allegations of channel stuffing, made at a public press conference on the heels of similar statements from Al Dunlap, meets the standard of primary liability under any formulation thereof: "substantial participation or intricate involvement," Howard, 228 F.3d at 1061 n. 5, the actual making of the material misstatement or omission, see Shapiro, 123 F.3d at 720-21, or "creat[ing] a misrepresentation," Carley Capital, 27 F. Supp.2d at 1334. Further, the statement was not as a matter of law an "immaterial gloss," as Griffith's motion characterizes it. The Supreme Court has delineated the contours of "material" by explaining that "[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important . . . ." Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) (explicitly adopting materiality standard set forth in TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976), in context of § 10(b) and Rule 10b-5 actions). This definition is met. The statement denying all allegations of channel stuffing and painting the scene as nothing more than a "sound marketing idea," especially in light of Griffith's elevated position in Sunbeam such that investors reasonably rely on his statements concerning the company's sales policies, is sufficient at the motion to dismiss stage to keep Griffith as a defendant in this action. Griffith's argument that the statement was immaterial as a matter of law based on Sunbeam's same-day releases concerning its financial status does not carry the day for him; the flat denial was not made immaterial by these releases where the investing public heard the denial from the mouth of the President of Sunbeam's Household Division.
The SEC's complaint also satisfies the scienter requirement. See Ernst Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12 (describing scienter as "refer[ring] to a mental state embracing intent to deceive, manipulate, or defraud."). The scienter requirement may be met by a showing of severe recklessness, see Ziemba, 256 F.3d at 1202 (citing McDonald, 863 F.2d at 814), and circumstantial evidence (especially at the motion to dismiss stage) may be probative of a defendant's scienter. See, e.g., Greebel v. FTP Software, Inc., 194 F.3d 185, 194-97 (1st Cir. 1999) (PSLRA context); In re Silicon Graphics Inc. Secs. Litig., 183 F.3d 970, 977 (9th Cir. 1999) (same). The allegations here, taken as true for the present purposes, include (but are not limited to) that Griffith proposed some of the non-GAAP sales practices, that he drafted an internal memorandum acknowledging the reasons in part for the company's revenue shortfalls, affirmatively participated in accelerating sales revenue recognition, and made a material misstatement concerning the channel stuffing allegations. "Courts have held that allegations of omissions and misrepresentations regarding channel stuffing . . . are actionable." Harvey M. Jasper Retirement Trust v. IVAX Corp., 920 F. Supp. 1260, 1266 (S.D. Fla. 1995). Further, while the Court clearly recognizes that "[t]he mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more, does not establish scienter," In re Software Toolworks Inc. Secs. Litig., 50 F.3d at 627, the situation here is not "without more." "The more serious the error, the less believable are defendants [sic] protests that they were completely unaware of [the corporation's] true financial status and the stronger is the inference that defendants [several executive officers] must have known about the discrepancy." Rehm v. Eagle Fin. Corp., 954 F. Supp. 1246, 1256 (N.D. Ill. 1997). The Court concludes that the SEC's complaint sufficiently sets forth a strong inference that Griffith acted with the requisite state of mind.
Although Griffith is not an accountant, his position at Sunbeam was such that it was at least "severely reckless" for him to propose and participate in such egregious GAAP violations, even if he did not definitively know that such accelerated sales and revenue recognition practices, for example, were problematic.
The Court is careful to note that it is the amalgamation of these allegations that leads to the conclusion that the SEC's complaint survives Griffith's motion to dismiss, for "[u]nlike altering company documents, there may be any number of legitimate reasons for attempting to achieve sales earlier." Greebel, 194 F.3d at 203. Thus, channel stuffing is just one factor upon which the Court bases its decision.
Therefore, in conclusion, the Court finds that Griffith's motion to dismiss should be denied with respect to Count I of the SEC's complaint.
II. The Remainder of the Counts
The Court has already listed the remainder of the violations the SEC alleges against Griffith. Unfortunately, neither side presents a great deal of argument on these issues. On the whole, this cuts against Griffith, as he bears a substantial burden as the party seeking to dismiss the complaint against him. See, e.g., Gould Elecs. Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000) ("In a Rule 12(b)(6) motion . . . [t]he defendant bears the burden of showing no claim has been stated." (citations omitted)); Lebron v. Ashford Presbyterian Cmty. Hosp., 995 F. Supp. 241, 243 (D.P.R. 1998) ("It is the moving party which has the burden of proving that no claim exists."); Nabors v. Transouth Fin. Corp., 928 F. Supp. 1085, 1086 (M.D. Ala. 1996) ("On a motion to dismiss for failure to state a claim upon which relief may be granted, the movant `sustains a very high burden.'" (quoting Jackam v. Hospital Corp. of Am. Mideast Ltd., 800 F.2d 1577, 1579 (11th Cir. 1986)); Clapp v. LeBoeuf Lamb, Leiby MacRae, 862 F. Supp. 1050, 1057 (S.D.N.Y. 1994) (characterizing the defendant's 12(b)(6) burden as a "heavy burden"). Counts II-V encompass certain reporting and book- and recordkeeping requirements for securities issuers. The statutory provision alleged in Count II to have been violated requires certain issuers of securities to file particular records and information with the Commission. See 15 U.S.C. § 78m(a)(1)-(2). Count III alleges violations of the requirement of accurate bookkeeping and maintenance of "internal accounting controls." Id. § 78m(b)(2)(A), (B). The provision at issue in Count IV provides that "[n]o person shall . . . knowingly falsify any book, record, or account . . . ." Id. § 78m(b)(5). Griffith's argument boils down to his claims that he had no responsibility for Sunbeam's reporting process, that the allegations are not that he affirmatively participated in violations of the books and records provisions of the securities laws, and that he did not lie to Sunbeam's auditors. The SEC responds that Griffith's actions at a minimum substantially contributed to the violations of these provisions in that those who were in charge of Sunbeam's books relied on his sales actions and statements in their preparations and analyses, which later turned out to be erroneous. Based on the paucity of analysis of these issues, the allegations involving Griffith's substantial participation in the entire alleged scheme, and the overall fraudulent scheme described in the complaint, the Court shall deny the motion to dismiss these counts.
Accordingly, it is hereby
ORDERED AND ADJUDGED that Griffith's Motion to Dismiss (DE#49) is DENIED.
DONE AND ORDERED.