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January 22, 2013

Exchange Act, Nevada Fraud Claims Tossed for Lack of Evidence

By Mark S. Nelson, J.D.

The federal court in Nevada has dismissed all federal and state securities fraud claims and counter-claims by Anahuac Management and Keith Mazer following a bench trial because the evidence presented by both parties was conflicted (Anahuac Management v. Keith A. Mazer, et. al., January 18, 2013, Du, M.). Anahuac had alleged that Mazer violated Exchange Act Section 10(b) and Rule 10b-5 and the Nevada Uniform Securities Act. Other claims and counter-claims alleged state law fraud, negligent misrepresentation, breach of fiduciary duty, conversion, breach of contract, and unjust enrichment.

The case arose from claims that Anahuac's president, Yuriy Semenov, agreed to a deal pitched by Mazer to buy a convertible debenture in a firm that merged with CleanTech Biofuels, Inc. Anahuac alleged that Mazer failed to deliver the CleanTech stock after the debenture was converted. Anahuac also claimed that its corporate counsel and California securities attorney, Jehu Hand, arranged for Mazer to consult on the CleanTech deal in order to repay funds he owed Mazer from prior deals. Trial testimony revealed that Mazer and Hand had agreed that Anahuac would buy CleanTech stock for Mazer. Hand allegedly urged this deal structure so Mazer could buy more CleanTech stock and yet comply with SEC regulations.

The court dismissed Anahuac's federal securities and state law fraud claims against Mazer because the allegations were unsupported by a preponderance of the evidence. Specifically, Anahuac's Exchange Act Section 10(b) and Rule 10b-5 claim alleged that Mazer's material misrepresentation induced Anahuac to allow Mazer to buy CleanTech stock on its behalf and that Mazer had planned to keep the resulting stock. But the court found that Mazer had not told Anahuac that he could facilitate the sale or delivery of CleanTech stock to Anahuac.

Similarly, the court dismissed claims that Mazer violated Nevada broker-dealer laws. Here, the court found that Mazer tried to buy CleanTech stock for himself, albeit in Anahuac's name. The court noted that Mazer and Anahuac had no broker-dealer or other relationship. The court also found that Mazer did not make a fraudulent statement in connection with the sale, offer to purchase, or purchase of a security, nor did he make an untrue representation about a security to Anahuac. Other state fraud claims were dismissed because the court did not find any evidence that Mazer made a "material, false misrepresentation" to Anahuac.

The court also dismissed numerous other state law claims because it could not find by a preponderance of the evidence that the parties committed the acts alleged. As a result, the court dismissed claims for negligent misrepresentation, breach of fiduciary duty, and conversion. The court likewise dismissed breach of contract and unjust enrichment claims and counter-claims.

The case is No. 2:09-cv-01590-MMD-PAL.

Attorneys: David R Koch (Koch & Scow LLC) for Anahuac Management. Hillard M. Sterling (Lewis Brisbois Bisgaard & Smith, LLP) for Keith A. Mazer and World Capital Funding, LLC.

Companies: Anahuac Management; World Capital Funding, LLC.

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