On February 15, 2019, the Securities and Exchange Commission (SEC) filed a complaint against various defendants including Pallas Holdings, LLC, Kautilya (a/k/a Tony) Sharma, and Perian Salviola. In the complaint, the SEC alleged claims that the defendants were engaged in fraudulent and illegal transactions of unregistered securities related to the sale of certain assets to Newlead Holdings, Ltd (“Newlead”). The SEC asserted claims for primary and secondary violations of the antifraud provisions in Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and the corresponding Rule 10b-5, and violations of the registration provisions in Section 5 of the Securities Act. On May 6, 2019, the Pallas Defendants moved to dismiss the complaint under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedures.
On January 14, 2020, Honorable Loretta A. Preska, Senior United States District Judge partially agreed with the motion and dismissed all fraud claims against the Pallas Defendants. As it relates to the dismissal of the antifraud claims, the order states that “The SEC simply alleges in conclusory fashion that the Newlead II transactions were a sham designed to facilitate a public offering of Newlead stock. By themselves, those vague and factually understated allegations fall short of establishing fraud under Rule 9(b).” “The Complaint also falls short in pleading a strong inference of fraudulent intent.” The Judge permitted the SEC to proceed on the Section 5 registration claim.
The full decision by Honorable Loretta A. Preska can be viewed at: