World Surveillance Group Inc (fka WSGI)

[coastiretired]

La Jolla Update

La Jolla has filed another motion to dismiss.

On a funny note, WSGI was previously asked to amend their complaint to add places, dates and times where the alleged promises were made to induce WSGI into the agreements. The dates and times added to their complaint occurred months after the signing of the agreements.

"TO PLAINTIFFS AND THEIR ATTORNEYS OF RECORD:
PLEASE TAKE NOTICE that on August 13, 2014 at 9:30 a.m., or as soon thereafter as the matter may be heard, in Courtroom 11 of the above-titled Court, located at 450 Golden Gate Avenue, San Francisco, CA 94102, Defendant La Jolla Cove Investors, Inc. will bring its Motion to Dismiss the claims for (3) Breach of Fiduciary Duties, (6) Intentional Misrepresentation, (7) Fraud in the Inducement and (8) Manipulation and Fraud – Exchange Action Section 10(B), and 17 CFR 240.10B-5 in Plaintiff World Surveillance Group Inc.’s First Amended Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) (the “Motion”)."

"This dispute concerns La Jolla Cove Investors, Inc.’s (“La Jolla”) loan to, and investment in, Plaintiff, World Surveillance Group (“WSG” or “Plaintiff”). WSG’s original complaint alleged that La Jolla breached its contracts with WSG. In addition to a claim for basic breach of contract (which this case at most concerns), WSG also asserted claims for breach of fiduciary duty, intentional misrepresentation, fraud in the inducement and, surprisingly, securities fraud. Because each of these claims either failed to allege facts under a cognizable legal theory, or was not a cognizable legal theory to begin with, La Jolla moved to dismiss these claims. On April 11, 2014, the Honorable William H. Orrick granted La Jolla’s motion to dismiss these claims, but granted WSG leave to amend. Because WSG’s First Amended Complaint does not cure any of the deficiencies, La Jolla moves to dismiss again."

"Most importantly, Plaintiff’s misrepresentation claim is that La Jolla made “certain assurances and promises to WSGI in order to convince WSGI to enter into the Agreements.” FAC, ¶¶ 210 and 211. However, the above misrepresentations occurred “[o]n the evening of June 28, 2012,” over five months after the parties entered into the Agreements. See FAC, ¶ 39 (noting that the conversations occurred “[o]n the evening of June 28, 2012” and ¶ 18 (alleging the Agreements were signed on “January 25, 2012”). As a result, Plaintiff simply could not have relied on La Jolla’s alleged statements in entering into the agreements. For this fundamental reason, and for the reasons set forth above with respect to Set 1, these allegations do not support a claim."

"Plaintiff appears to misunderstand what a “short sale” is. Specifically, short selling does not involve buying shares at all, as Plaintiff alleges La Jolla did, but rather borrowing shares, selling them, repurchasing them and then returning them to the borrower. See, e.g., U.S. v. Deeb, 175 F.3d 1163, fn.4 (9th Cir. 1999) (emphasis added) (“In a “short sale,” an investor contacts his broker and borrows a particular stock from the broker and sells it on the open market. The investor receives the proceeds from the sale and then has a certain amount of time within which to return the borrowed stock to the broker. The investor expects to be able to repurchase the same stock for less than he sold it and keep the difference as his profit.”) See also S.E.C. v. Truong, 98 F. Supp. 2d 1086, fn.4 (N.D. Cal. 2000) and In re Diamond Foods, Inc., Securities Litigation, 295 F.R.D. 240, 258 (N.D. Cal. 2013) Thus, a short sale is impossible in the situation Plaintiff alleges (one in which La Jolla bought, not borrowed shares). Moreover, even if a short sale did somehow occur (which it did not, and which Plaintiff does not correctly allege), there is no authority for the proposition that it is “conduct that had the principal purpose and effect of creating a false appearance of fact in furtherance of the scheme.” Simpson, 452 F.3d at 1048 and fn.5. As a result, these impossible allegations do nothing to save Plaintiff’s claim."