Judge Leonard B. Sand
Global Capital Networks LLC (GCL) hired Jimenez to advise on acquisitions of Asian and South American energy-related companies. GCL and a former Brazilian commerce minister incorporated Brazil Ethanol Inc. (BEI) to acquire Brazilian ethanol and sugar producers so as to sell those commodities in the Untied States. Jimenez was made a BEI director and an executive. He allegedly bought 20 percent of GCL’s shares in reliance on a prospectus concealing an alleged fraud scheme under which BEI, GCL’s president, the Brazilian minister and others paid millions of dollars in unearned commissions to Brazil’s JP2 Technologia & Finanças Ltda in exchange for kickbacks. In addition to noting that Jimenez’s fraud claim did not satisfy the heightened pleading standards of Federal Rule of Civil Procedure 9(b), district court dismissed his claim that defendants’ acts violated SEC Rule 10b-5. Jimenez admitted that he bought his shares four days prior to circulation of the prosectus on which he relied. The court observed that if, hypothetically, Jimenez were a defendant, as an insider involved in BEI’s daily business he would be presumed—albeit for pleading purposes only—to have knowledge of the alleged fraud in the prospectus.
