The Complaint
I know the Superior Court site copy is involved to read, so here is a complete copy of the Complaint filed October 11, 2002 in San Francisco Superior Court, Case No. 413497:
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN FRANCISCO
OLIVIER L. F. ASSER,
Plaintiff,
v.
CHRISTOPHER REA, PHILIP BERBER, TRADING PLACES, INC., CYBERTRADER, INC., MANHATTAN BEACH TRADING, LTD., CHARLES E. SCHWAB & CO., TERRA NOVA TRADING L.L.C., and DOES 1-10,
Defendants.
Case No. 413497
VERIFIED COMPLAINT FOR DAMAGES AND EQUITABLE RELIEF
JURY TRIAL DEMANDED
Plaintiff Olivier L. F. Asser, brings this Complaint against defendants Christopher Rea, Philip Berber, Trading Places, Inc., CyberTrader, Inc., Terra Nova Trading L.L.C., Manhattan Beach Trading, Ltd., and Does 1-10, upon actual knowledge with respect to himself and his own acts, and upon information and belief as to all other persons and matters, and alleges as follows:
NATURE OF THE ACTION
1. This is an action to recover substantial damages incurred by plaintiff due to the actions of defendants, to recover the commissions paid by plaintiff to defendants CyberTrader, Inc. and Manhattan Beach Trading, Ltd., to disgorge sums paid to defendant Trading Places, Inc. by CyberTrader, Terra Nova Trading L.L.C., Manhattan Beach Trading, Ltd., and other unknown parties (“Does 1-10”) (collectively, the “Brokerage Defendants”), to disgorge ill gotten gains from all defendants, including Christopher Rea and Phillip Berber (collectively with Rea, the “Individual Defendants”), to recover consequential damages incurred by plaintiff due to defendants’ actions, for an accounting, and for an injunction prohibiting further such actions.
2. Plaintiff Olivier L. F. Asser was a day-trader during the height of the dot-com bubble. To facilitate securities trades, plaintiff maintained brokerage accounts through on-line brokers, defendant CyberTrader, a subsidiary of Charles E. Schwab & Co., and MB Trading, a subsidiary of Terra Nova. As a day-trader, he subscribed to an Internet chat site, www.trading-places.net, run by defendant Trading Places, and its proprietor, Christopher Rea. Plaintiff paid large monthly membership fees to Trading Places to participate in the Internet chat rooms and obtain Rea’s advice on day trades.
3. In exchange for the membership fees he paid to Trading Places, plaintiff reasonably expected to receive unbiased and useful recommendations on trades – the service the Trading Places claimed to provide – and believed at the time that that was what he was receiving.
4. However, rather than make legitimate value-based recommendations to its customers which could lead to trading profits for plaintiff – the service that plaintiff paid for, defendants instead conspired to generate increased commissions for the Brokerage Defendants by those brokerages paying a “kickback” to Trading Places for each “roundtrip” (i.e., purchase and sale of a security) made by a Trading Places member through one of the Brokerage Defendants’ online trading facilities.
5. This kickback scheme led defendant Trading Places to recommend large numbers of securities transactions to its members, such as plaintiff.
6. These recommendations, though purportedly made to assist plaintiff to make profits from day trading activities, in fact had little chance, and no intention, of winning profits for Trading Places’ members like plaintiff.
7. Instead, unbeknownst to plaintiff, Trading Places recommended numerous transactions which, when executed by plaintiff on one of the Brokerage Defendants online services, would result in the payment of a commission to the Brokerage Defendant and a kickback payment to Trading Places; but would not necessarily give plaintiff any chance of making a profit.
8. In carrying out this scheme, defendant Trading Places was unjustly compensated for its misleading services, breached the implied duty of good faith and fair dealing it owed to plaintiff, and violated the laws of this State intended to protect consumers from such deceptive business practices.
9. CyberTrader, MB Trading, and the other Brokerage Defendants actively participated in this scheme, aided and abetted the unjust enrichment of, and breaches of the duties of good faith and fair dealing by, Trading Places, were themselves unjustly enriched, and violated the laws of this State intended to protect consumers from such deceptive business practices.
10. For these reasons, defendant Trading Places must be ordered to refund all membership fees paid to it by plaintiff, disgorge all of the kickbacks it received from the Brokerage Defendants, and compensate plaintiff for the losses he incurred from following the useless advice he received.
11. In addition, CyberTrader and MB Trading must be ordered to refund to plaintiff all commissions they received from his securities transactions placed through their Internet trading facilities, as well as compensate plaintiff for the losses he incurred from following the false advice he received.
12. In addition, the Individual Defendants must be ordered to disgorge all kickback proceeds they received, and disgorge all profits or moneys obtained as a result of the conspiracy.
13. Plaintiff further requests an accounting of Trading Places and the Brokerage Defendants to, inter alia, determine the sums reaped by Trading Places as a result of the kick-back arrangement, and to determine the commissions paid by plaintiff on these transactions.
14. Plaintiff further requests injunctive and declaratory relief ordering that such schemes are unfair and deceptive, and shall be either discontinued or not reinstated.
PARTIES
15. Plaintiff Olivier L. F. Asser (“plaintiff”) resides in Montgomery County, Maryland. Plaintiff was a paying member of Trading Places from September 1998 to March 2000. Plaintiff has paid to Trading Places monthly membership fees for Trading Places’ services of approximately $7,000, including a $5,000 lifetime membership fee. In addition, during that time period, plaintiff maintained brokerage accounts with CyberTrader and MB Trading, and paid commissions to those brokerage firms for trades recommended by Trading Places in an amount exceeding $300,000. From following the advice of Trading Places, plaintiff estimates he has lost more than $10 million from equity trades undertaken on Trading Places’ useless recommendations. Plaintiff has been damaged in an amount exceeding the jurisdictional limit of this court by the deceptive business practices employed by defendants described herein, both from the payments of fees and commissions to the defendants and from losses incurred as a result of the securities transactions undertaken at Trading Places’ advice.
16. Defendant Christopher Rea (“Rea”), a/k/a “Merlin,” is a resident of Niles, Illinois. Rea conducts substantial amounts of business in this State via the Internet. Rea is the founder and owner of defendant Trading Places. Rea conducts substantial business in this State through the Internet. Rea acted as the “moderator” of Trading Place’s chatrooms, and frequently touted his ability to pick stocks. Rea entered into the kickback arrangements with the Brokerage Defendants.
17. Defendant Philip Berber (“Berber”) is a resident of Austin, Texas. Berber conducted substantial amounts of business in this State via the Internet. Berber is the founder and former majority owner of defendant CyberTrader. Berber conducts substantial business in this State through the Internet. Berber entered into the kickback arrangements with Trading Places. Berber sold CyberTrader to defendant Schwab in March 2000.
18. Defendant Trading Places, Inc. (“Trading Places”) is an Illinois corporation which operates in this State through the Internet. Trading Places operates an internet website where, for a monthly membership fee, day traders can engage in Internet chats wherein Trading Places representatives would provide recommendations on securities transactions. Trading Places charges monthly membership fees of as much as approximately $500 for access to its recommendations, and also offers lifetime memberships.
19. Defendant CyberTrader, Inc. (“CyberTrader”) is a wholly owned subsidiary of Charles E. Schwab & Co., a Delaware corporation with its principal place of business in San Francisco, California. CyberTrader conducts substantial amounts of business in this State through the Internet. CyberTrader provides securities transaction services for its customers on a per-trade commission basis through the Internet. CyberTrader participated in the kickback arrangements with Trading Places.
20. Defendant Manhattan Beach Trading, Ltd. (“MB Trading”) is a subsidiary of Terra Nova Trading, LLC., with its principal place of business in El Segundo, California. MB Trading provides securities transaction services for its customers on a per-trade commission basis through the Internet. MB Trading participated in the kickback arrangements with Trading Places.
21. Defendant Charles E. Schwab & Co. (“Schwab”) is a Delaware corporation with its principal place of business in San Francisco, California. Schwab purchased CyberTrader, Inc. from defendant Philip Berber in March 2000.
22. Defendant Terra Nova Trading L.L.C. (“Terra Nova”) is a limited liability company with its principal place of business in Chicago, Illinois. Terra Nova conducts substantial amounts of business in this State through the internet. Terra Nova provides securities transaction services for its customers on a per-trade commission basis through the internet.
23. The true names and capacities of other defendants sued herein as DOES 1-10, inclusive, are currently unknown to plaintiff, who therefore sues such defendants by such fictitious names under Code of Civil Procedure § 474. Plaintiff believes each DOE to be an additional Brokerage Defendant. Each of the defendants designated herein as a DOE is legally responsible in some manner for the unlawful acts referred to herein. Plaintiff will seek leave of Court to amend this Complaint to reflect the true names and capacities of the defendants designated herein as DOES when such identities become known.
JURISDICTION
24. This court has personal jurisdiction over the parties and subject matter jurisdiction over this action pursuant to California Code of Civil Procedure § 410.10.
VENUE
25. Venue is proper in this court pursuant of Code of Civil Procedure § 395 and § 1780(c) of the Civil Code of the State of California. A number of the acts and transactions complained of occurred within this county, and defendants have conducted, and continue to conduct, substantial business in this county.
FACTUAL ALLEGATIONS
26. Trading Places’ business primarily consists of providing securities trading advice to day traders through an internet website, www.trading-places.net.
27. Day traders – who generally, through Internet trading sites, attempt to make profits on numerous and often rapid securities transactions based on relatively small, intraday, price swings of stocks and other securities – pay a monthly membership fee to receive Trading Places’ recommendations on securities trades.
28. Trading Places is not a registered Investment Advisor, and does not make recommendations based on the long-term investment value of the securities it recommends.
29. Rather, Trading Places, through its Internet chatroom “moderators,” recommended numerous purchases and sales of stocks purportedly on those stocks potential to rise or fall in the extremely short term.
30. Trading Places knew its members were relying on it for useful and beneficial advice, and intended its members to follow its recommendations. Indeed, Rea would berate members who did not follow every recommendation, and published statements of support for his recommendations and testaments to his abilities on Trading Places’ website. Plaintiff has reason to believe that many of these statements, which were attributed to Trading Places’ members, were in fact written by Rea himself.
31. In addition to recommending which securities to buy and sell, Trading Places also recommended online trading (brokerage) firms for its customers to execute their transactions through.
32. Trading Places’ members were routed from Trading Places’ website to the recommended Brokerage Defendants’ websites, where the members would create trading accounts which identified them as members of Trading Places.
33. At the same time, investors were directed by the Brokerage Defendants from the Brokerage Defendants’ websites to Trading Places’ website where they would become members and receive the numerous recommendations on transactions which Trading Places gave to its members.
34. In return for Trading Places directing its members to the Brokerage Defendants’ websites, and vice versa, Trading Places and the Brokerage Defendants entered into kickback arrangements whereby Trading Places received a fixed sum for each round-trip transaction executed by one of its members through the brokerage firm’s Internet trading site. Thus, the greater the volume of trades executed by the members, the greater the kickback Trading Places would receive.
35. Similarly, these Brokerage Defendants would receive commissions from trades executed on their Internet trading sites on a per-trade basis. Thus, the greater the volume of trades executed by the members, the greater the amount of commissions the Brokerage Defendants would receive.
36. As such, Trading Places and the Brokerage Defendants had every incentive to generate as many round-trip transactions as possible by Trading Places’ members, regardless of the gains or losses those members would incur on the trades.
37. These kickback arrangements provided the majority of Trading Places’ revenues.
38. These kickback arrangements, which led to Trading Places directing its members to brokerage websites run by the Brokerage Defendants – rather than those with which Trading Places did not have kickback arrangements – aided in the creation of a strong customer base and revenue growth at the Brokerage Defendants websites, especially CyberTrader. This allowed defendant Berber to sell CyberTrader to Schwab for nearly half a billion dollars.
39. However, Defendants never disclosed these kickback arrangements to Trading Places’ members, including plaintiff. Instead, plaintiff was falsely led to believe that the numerous trading recommendations were actually intended solely to benefit his trading accounts; the service for which he paid fees of as much as approximately $500 monthly.
40. This deceptive business practice led plaintiff to continue to pay monthly membership fees to Trading Places; execute thousands of transactions recommended by Trading Places through CyberTrader’s and MB Trading’s websites, pay hundreds of thousands of dollars in commissions in the process; and suffer losses to his trading account due to the trading recommendations which had no relation to the potential to make profits, the foregoing of legitimate investments, and the payment of commissions on those trades.
41. Plaintiff estimates that he traded several hundreds of millions of dollars worth of securities based on Trading Places’ recommendations, and sustained a loss on those trades of more than $10 million.
42. Meanwhile, defendants reaped numerous benefits at plaintiff’s expense, including the membership fees he paid to Trading Places, the increased commissions paid to CyberTrader, and the kickbacks received by Trading Places from the Brokerage Defendants.
43. Therefore, plaintiff brings the following Counts to recover the substantial damages Defendants have caused him, and to disgorge the ill-gotten gains they have received at his expense.
COUNT I
UNJUST ENRICHMENT
AGAINST TRADING PLACES
44. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
45. Plaintiff paid monthly access fees to Trading Places.
46. In exchange for those fees, plaintiff reasonably expected to receive trading advice calculated to return to him profits from day trading activities.
47. Rather than provide the services which plaintiff purchased, Trading Places instead gave worthless advice which was not intended to benefit plaintiff.
48. Without making any disclosures to plaintiff, Trading Places entered into arrangements with the Brokerage Defendants firms, whereby Trading Places received a flat-rate payment for each round-trip securities transaction entered by a Trading Places member through the Brokerage Defendants’ websites.
49. By recommending far more transactions than were necessary or advisable, Trading Places generated substantial sums from these kickbacks, while plaintiff received no valuable service in return for his membership fees.
50. As a result, Trading Places was unjustly enriched by its receipt of the monthly membership fees which were tendered by plaintiff in expectation of good and valuable trading recommendations.
51. Furthermore, Trading Places was unjustly enriched by its receipt of kickback payments from the Brokerage Defendants at plaintiff’s expense, as those kickback payments comprised a portion of the commission payments paid by plaintiff to the Brokerage Defendants.
52. Trading Places must therefore be compelled to refund the membership fees paid by plaintiff as well as disgorge its kickback proceeds.
COUNT II
AIDING AND ABETTING UNJUST ENRICHMENT
AGAINST THE BROKERAGE DEFENDANTS AND INDIVIDUAL DEFENDANTS
53. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
54. The Brokerage Defendants and the Individual Defendants entered into the arrangements whereby Trading Places would receive kickbacks from each transaction entered through the Brokerage Defendants’ websites.
55. These kickback payments were received by Trading Places from the Brokerage Defendants.
56. As a result of this kickback arrangement, Trading Places gave trading advice to its members which was calculated to increase these kickback payments to Trading Places, as well as increase the commissions received by the Brokerage Defendants.
57. These kickback payments comprised an unjust enrichment of Trading Places at plaintiff’s expense.
58. The Brokerage Defendants and Individual Defendants aided and abetted this unjust enrichment, and the Brokerage Defendants directly contributed to it by providing the kickback sums.
59. The Brokerage Defendants and Individual Defendants should therefore be found jointly and severally liable for plaintiff’s damages.
COUNT III
UNJUST ENRICHMENT
AGAINST THE BROKERAGE DEFENDANTS
60. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
61. Trading Places’ members executed their securities transactions through the Brokerage Defendants’ websites.
62. As consideration for executing these transactions, plaintiff paid per-trade commissions to the Brokerage Defendants.
63. As a result of the kickback scheme, Trading Places gave its members excessive trading recommendations which were executed through the Brokerage Defendants’ websites.
64. These excessive trading recommendations led the Brokerage Defendants to receive excessive commissions from plaintiff’s elevated trading activities.
65. The receipt of these excess fees was solely a result of the kickback scheme orchestrated by defendants, and would not have been paid to the Brokerage Defendants absent the kickback arrangement.
66. The Brokerage Defendants were thus unjustly enriched by their receipt of these undeserved commissions.
COUNT IV
BREACH OF THE DUTIES OF GOOD FAITH AND FAIR DEALING
AGAINST ALL DEFENDANTS
67. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
68. Trading Places presented itself to its members as an organization dedicated to benefiting its members through providing them with valuable, legitimate trading advice solely in return for the payment of membership fees. As a result of the way Trading Places was dealing with its members, Trading Places was in a fiduciary relationship with its members, including plaintiff, who relied on Trading Places for its honest advice.
69. Similarly, the Brokerage Defendants portended to offer plaintiff securities trading services in exchange for commissions, which were to be paid solely to the executing brokerage. As a result of their dealings with plaintiff and Trading Places’ members, these brokerage firms owed similar fiduciary duties to its customers.
70. However, Defendants entered into kickback arrangements whereby Trading Places received a financial benefit each time plaintiff executed a transaction through one of the Brokerage Defendants’ websites, as a portion of the commissions ordinarily paid to the Brokerage Defendants.
71. Trading Places was therefore greatly benefited by increasing the volume of transaction entered by its members, as were the Brokerage Defendants.
72. By entering into these kickback arrangements, Trading Places and the Brokerage Defendants created for themselves a conflict of interest whereby Trading Places’ obligation to provide meaningful and useful trading advice to its members was supplanted by its desire to increase the trading volume both for its receipt of the kickback payments as well as the increased commission payments to the Brokerage Defendants.
73. As a consequence of this undisclosed conflict, Trading Places provided trading advice to its members which was not in their best interests. These actions constitute a breach of Trading Places’ obligation to act in good faith and to deal fairly with its members. As a result, Trading Places must refund the membership fees paid by plaintiff. Similarly, the Brokerage Defendants received excessive commissions which must be refunded to plaintiff.
74. Moreover, these breaches of the duties of good faith and fair dealing led plaintiff to engage in securities transactions with dubious, if any, merit. These excessive trading recommendations led plaintiff to incur losses on these trades, where the recommendations were made without regard to the possible losses plaintiff would incur.
75. As a result, all defendants should be ordered to compensate plaintiff for the losses he incurred from his purchases of securities recommended to him by Trading Places.
COUNT V
CIVIL CONSPIRACY
AGAINST ALL DEFENDANTS
76. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
77. In committing the wrongful acts alleged, Defendants have conspired with known and unknown persons and/or entities (unnamed) who have or had a financial interest in the aforesaid entities and have pursued a uniform and common plan, design, and course of conduct, acted in concert with, aided and abetted, and otherwise conspired with one another, in furtherance of their common design or scheme.
78. The intended common purpose of this conspiracy was to deceive the plaintiff as to the true nature of Defendants’ uniform illegal practices.
79. The effect of this ongoing conspiracy was to violate State law.
80. As a direct and proximate result of Defendants’ conspiracy, plaintiff has been damaged in an amount to be determined at trial.
COUNT VI
VIOLATION OF CIVIL CODE § 1750 ET SEQ.
CONSUMERS LEGAL REMEDIES ACT
AGAINST TRADING PLACES AND THE BROKERAGE DEFENDANTS
81. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
82. Trading Places is a “person” who provides “services” to “consumers” within the meaning of Civil Code §§ 1761(b), (c), (d) and 1770.
83. Plaintiff’s payment of membership fees to Trading Places constitutes a “transaction” within the meaning of Civil Code §§ 1761(e) and 1770.
84. Plaintiff’s payment of commissions to the Brokerage Defendants constitutes a “transaction” within the meaning of Civil Code §§ 1761(e) and 1770.
85. The policies, acts and practices of Trading Places, as described above, were intended to result in the payment for services by Plaintiff to Trading Places and the Brokerage Defendants. These actions violated the Consumers Legal Remedies Act because, as alleged in detail herein, Trading Places, inter alia, represented its service to be of a quality other than that delivered § 1770(a)(7).
COUNT VII
VIOLATION OF BUSINESS AND PROFESSIONS CODE § 17200 ET SEQ.
UNLAWFUL AND UNFAIR BUSINESS ACTS AND PRACTICES
AGAINST ALL DEFENDANTS
86. Plaintiff incorporates by reference and realleges all paragraphs previously alleged herein.
87. Defendants’ acts and practices as described herein constitute unlawful and unfair business acts and practices, in that (1) Defendants’ practices, as described herein, violate the statutes and Civil Code set forth above, and/or (2) the justification for defendants’ conduct is outweighed by the gravity of the consequences to plaintiff and the General Public, and/or (3) Defendants’ conduct is immoral, unethical, oppressive, unscrupulous or substantially injurious to plaintiff and the General Public, and/or (4) the uniform conduct of Defendants, as well as their advertising and written and oral promotional materials and all other written and oral promotional statements, advertising materials, and efforts undertaken and disseminated by Defendants constitute untrue or misleading advertising in that such conduct or advertising has a tendency to deceive plaintiff and the General Public. Such conduct violates Business and Professions Code § 17200 et seq., and other similar state unfair competition and unlawful business practices statutes.
88. Pursuant to Business and Professions Code §§ 17200 and 17203, plaintiff, on behalf of himself and on behalf of the General Public, seeks relief as prayed for below.
REQUEST FOR RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
A. Declaring that the defendants are liable under the laws of the State of California by reason of their conduct alleged herein;
B. Awarding money damages on each count alleged above except Count VI against the defendants, in favor of plaintiff, for all losses incurred by plaintiff as a result of defendant’s wrongful conduct, including pre- and post- judgment interest as permitted by law;
C. Ordering an accounting of all Defendants;
D. Declaring that the moneys received by Trading Places as a result of the kickback scheme are ill-gotten gains which shall be disgorged;
E. Declaring that the moneys received by the Brokerage Defendants as commission payments or otherwise as a result of the kickback scheme are ill-gotten gains which shall be disgorged;
F. Declaring that the moneys received by the Individual Defendants as a result of the kickback scheme are ill-gotten gains which shall be disgorged;
G. Ordering the disgorgement of all ill-gotten gains;
H. Awarding punitive damages;
I. Entering an injunction prohibiting further conduct of the type complained of above;
J. Awarding plaintiff his costs and expenses incurred in this action, including reasonable attorneys’, accountants’, and experts’ fees; and
K. Awarding such other relief as the Court may deem just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: October 11, 2002 Respectfully submitted, |
