United States District Court, D. South Carolina, Columbia Division
For United States Securities and Exchange Commission, Plaintiff: Barbara Murcier Bowens, James C Leventis, Jr, LEAD ATTORNEYS, U.S. Attorneys Office (Cola), Columbia, SC; Daniel J Wadley, Tanya G Beard, Thomas M Melton, PRO HAC VICE, U.S. Securities and Exchange Commission (UT), Salt Lake City, UT.
For Benjamin Sydney Staples, Defendant: Michael Hart Montgomery, LEAD ATTORNEY, Montgomery Willard, Columbia, SC.
For Benjamin Oneal Staples, Brian Staples, Defendants: Elizabeth Zeck, LEAD ATTORNEY, Willoughby and Hoefer, Columbia, SC; David Davis Smyth, PRO HAC VICE, Brooks Pierce McLendon Humphrey and Leonard LLP, Raleigh, NC.
ORDER AND OPINION
J. MICHELLE CHILDS, United States District Judge.
Plaintiff United States Securities and Exchange Commission (the " SEC" ) filed this action against Defendants Benjamin Sydney Staples (" Benjamin Staples" ), Benjamin Oneal Staples (" Oneal Staples" ), and Relief Defendant Brian Staples (" Brian Staples" ) (collectively " Defendants" ) seeking injunctive relief and alleging violation of the Securities Act of 1933, 15 U.S.C. § § 77a-77mm, and the Securities Exchange Act of 1934, 15 U.S.C. § § 78a-78kk. (ECF No. 1.)
This matter is before the court on Defendants' motions to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) (" Rule 12(b)(6) motion" ) because the SEC has failed to state a claim for which relief may be granted. (ECF Nos. 28, 31.) The SEC opposes the Rule 12(b)(6) motions asserting that the complaint states appropriate claims for relief. (ECF Nos. 38, 40.) For the reasons set forth below, the court DENIES Defendants' Rule 12(b)(6) motions.
I. RELEVANT BACKGROUND TO PENDING MOTIONS
The following relevant facts from the complaint are taken as true only for the purposes of the pending motions.
From early 2008 through approximately June 2012, Benjamin Staples and his son, Oneal Staples, (together the " Staples" ) operated the Estate Assistance Program (the " Program" ), which was designed to take advantage of retail bonds that contained a " survivor's option."  (ECF No. 1 at 1 ¶ 2.) To facilitate the Program, " [t]he Staples identified terminally ill individuals and recruited them into the Program by offering to pay for their funeral expenses." (Id. at 2 ¶ 3.) " In exchange, the terminally ill participant agreed to open a joint brokerage account with Ben[jamin] Staples, Oneal Staples or both." (Id.) " After a joint account was opened, the Staples purchased discounted corporate bonds containing a 'survivor's option,' which allowed the Staples to redeem the bonds for the full principal amount prior to maturity if, among other things, a joint owner of the bond died." (Id. at ¶ 5.) " After a terminally ill participant died, the Staples wrote a letter to each brokerage firm where the Staples and that participant had a joint account." (Id. at ¶ 6.) " In that letter, the Staples asked that the bonds in the joint account be redeemed pursuant to the 'survivor's option.'" (Id.) When the Staples redeemed their bonds under the survivor's option, they falsely claimed that the decedents were owners of the bonds. (Id. at 6 ¶ 33.) In reality, the Staples had required all terminally ill participants to sign an Estate Assistance Agreement (the " Agreement" ) where the participants had expressly relinquished all ownership interest in the bonds. (Id. at 2 ¶ 8, 6 ¶ 28.)
From 2008 to 2012, the Staples purchased over $26.5 million in bonds from at least thirty-five (35) issuers, through at least fourteen (14) brokerage firms, involving at least forty-four (44) participants. (Id. at 4 ¶ 21.) All bonds were purchased at a significant discount and were redeemed resulting in gains of over $6.5 million during the four (4) years the Staples operated the Program. (Id.) From the profit obtained, Benjamin Staples deposited approximately $400,000.00 into the account of his other son, Brian Staples. (Id. at 7 ¶ 39.)
On September 20, 2013, the SEC commenced this action alleging causes of action against Defendants for employment of a device, scheme, or artifice to defraud in violation of Section 17(a)(1) of the Securities Act (15 U.S.C. § 77q(a)(1)); fraud in the offer and sale of securities in violation of Section 17(a)(2) and (3) of the Securities Act (15 U.S.C. § 77q(a)(2) & (3)); fraud in connection with the purchase and sale of securities in violation of Section 10(b) of the Exchange Act (15 U.S.C. § 78j(b)) and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5); and unjust enrichment. (ECF No. 1 at 8-10.) On November 22, 2013, Benjamin Staples filed his Rule 12(b)(6) motion and on November 25, 2013, Oneal Staples and Brian Staples jointly filed their Rule 12(b)(6) motion. (ECF Nos. 28, 31.) The SEC filed a response in opposition to the Rule 12(b)(6) motion of Benjamin Staples on December 9, 2013 and to the Rule 12(b)(6) motion of Oneal Staples and Brian Staples on December 12, 2013. (ECF Nos. 38, 40.) Benjamin Staples filed a reply in support of his Rule 12(b)(6) motion on December 19, 2013, and Oneal Staples and Brian Staples filed a reply in
support of their Rule 12(b)(6) motion on December 23, 2013. ...