## Facts

- Dodd Hyer invested approximately $2,200,000 in three condominium-development investments after being solicited by Matthew Malouf.
- Malouf solicited Hyer through oral communications and written materials described as project-offering documents that presented the merits of the investments.
- Hyer alleged he paid the funds to purchase ownership interests described in the project-offering documents.
- Hyer alleged Malouf never conveyed the promised ownership interests.
- Hyer alleged the condominium projects were never built.
- Hyer alleged Malouf distributed Hyer’s investment money to other investors.
- Hyer sued, including a claim under § 12(a)(2) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2).
- Malouf moved to dismiss the § 12(a)(2) claim, arguing Hyer failed to state a claim because the complaint did not allege a public offering.

## Issues

1. Whether Hyer stated a claim under Securities Act § 12(a)(2) where he alleged sales through written project-offering documents and oral solicitations, but did not expressly allege that the transactions were part of a “public offering.”
2. Whether the court could dismiss the § 12(a)(2) claim at the pleading stage based solely on the argument that the alleged sales were private rather than public.

## Decision

- The court denied dismissal of the § 12(a)(2) claim to the extent it rested only on Hyer’s failure to use the words “public offering” in the complaint.
- The court treated the public-versus-private character of the alleged offering as a fact-dependent question not resolved against Hyer merely from the absence of that label at the motion-to-dismiss stage.
- The allegations that Malouf used written project-offering documents and oral solicitations in connection with Hyer’s purchase were sufficient at the pleading stage to allow Hyer to proceed on a § 12(a)(2) theory.

## Legal Principles

- On a Rule 12(b)(6) motion, the court accepts well-pleaded factual allegations as true and evaluates whether they plausibly state a claim for relief.
- Section 12(a)(2) provides a purchaser a remedy for material misstatements or omissions made “by means of a prospectus or oral communication” in the offer or sale of a security.
- After *Gustafson v. Alloyd Co.*, § 12(a)(2) is generally understood to apply to public offerings; whether an alleged sale is public or private turns on the pleaded facts about how the security was offered and sold.
- A complaint is not subject to dismissal solely because it fails to include a particular label (such as “public offering”) where the factual allegations plausibly support the statute’s application.

## Conclusion

Hyer alleged that Malouf solicited about $2.2 million for three condominium-development investments using written project-offering documents and oral statements, then failed to convey the promised ownership interests, failed to build the projects, and diverted the money to other investors; the court declined to dismiss Hyer’s § 12(a)(2) claim solely because the complaint did not explicitly allege a “public offering,” allowing the claim to proceed past the pleading stage.


Hyer v. Malouf, Fed. Sec. L. Rep. (CCH) ¶94,857 (2008)