By Ben Suter
*Summary judgment was proper because Plaintiff failed to demonstrate that Defendant investment firm was the seller of her securities. **Defendant CEO of the investment company could not be held secondarily liable as a control person, because Plaintiff failed to demonstrate that the CEO could have discovered the fraud even if he had exercised reasonable care.
Hong vs. Yoo, No. 77164-7-I, 2019 Wash. App. LEXIS 63 (Wash. App., 1/14/19).
On appeal from the trial court’s decision granting summary judgment to the Defendant and dismissing Plaintiff’s claims, the Court affirms. The Court holds that Plaintiff had failed to satisfy her burden of proving that the wealth advisory firm in question had been the seller of her securities, and that, accordingly, the Defendant former CEO of that firm could not be held secondarily liable.
Plaintiff Hyun Hong (“Hong”) was a victim of a Ponzi scheme allegedly perpetuated by Chris Yoo (“Yoo”). Hong sued Yoo, as well as several other individuals and three investment companies Yoo had founded, alleging they were liable to Hong under the Securities Act of Washington, chapter 21.20 RCW (WSSA), for selling fraudulent securities. One of the named companies was Summit Asset Strategies Wealth Management, LLC (“SASWM”). Defendant Michael Greiner (“Greiner”) was hired as director of SASWM’s Wealth Management Department in 2007 and was subsequently promoted to CEO in 2009. Hong alleged that Greiner was liable for securities fraud, based on his role as a control person and, eventually, CEO of SASWM.
Greiner moved for summary judgment, arguing that SASWM was not the seller of the securities in question and that, even if it had been, Greiner could not be secondarily liable because he did not know of Yoo’s fraud and could not have learned of it through the exercise of reasonable care due to the fact that Yoo deliberately hid the fraud. The trial court granted Greiner’s motion for summary judgment and denied Hong’s cross-motion for summary judgment. Hong appealed.
The Court first holds that there was insufficient evidence to demonstrate either that SASWM was the seller of the securities in question, or that Hong was ever a customer of SASWM. The Court explains that there was no evidence that either Greiner or SASWM had heard of Hong prior to this litigation and that there was no evidence that Hong had signed any of the forms that SASWM customers were required to sign. Likewise, Hong never sent any checks to SASWM, nor did she receive documents from SASWM. In response to Hong’s argument that the monthly statements she received were printed on SASWM letterhead, the Court holds that the statements were insufficient as a matter of law to show that SASWM was the seller of Hong’s securities or that SASWM had been a substantive contributing factor in the sale of her securities.
The Court further explains that Hong failed to respond to Greiner’s argument that Yoo had fraudulently created the statements, unbeknownst to Greiner, and that Hong offered only conclusory arguments that it was undisputed that SASWM was the seller. The Court concludes that, because Hong failed to satisfy her burden of proving that SASWM was either the seller of her securities or a substantive contributive factor in the sale of her securities, Greiner could not be held secondarily liable as a control person, officer, or director of SASWM.
(SOLA Ref. No. 2019-07-09)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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