(CN) - The personalities behind Teach Me to Trade infomercials cannot be held personally liable on claims that they lied about their expertise as securities traders to dupe millions out of inexperienced and elderly investors, a federal judge ruled.
A 2008 complaint from the Securities and Exchange Commission says Linda Woolf and David Gengler misrepresented their background and expertise in Teach Me to Trade seminars and infomercials about trading securities. Hands On Capital and Lashaico are also named in the complaint as Woolf and Gengler's respective alter egos.
A federal judge acquitted the pair after a jury convicted them of fraud in 2009.
The civil complaint alleges that Gengler and Woolf both claimed to be "expert securities traders who had purchased TMTT packages and made extraordinary profits by trading securities using TMTT trading strategies."
Woolf allegedly represented that she "had known nothing about stocks before attending a TMTT workshop." In her sales pitches, she claimed to have "made more money trading for 30 minutes a day than she had made in any of her prior careers," the SEC claims.
Gengler allegedly told audiences that he had "been in substantial debt before contacting TMTT but was now a successful trader who was able to spend most of his day with his family after a brief time trading each day."
After lying about their background and the success of TMTT strategies, the "infomercial personalities" advised clients about specific securities and trading devices, urging investors to engage in actual securities transactions.
"Personal mentoring," software and classes bilked $11,000 to $40,000 from consumers, according to the complaint states. Woolf and Gengler allegedly targeted the elderly in their TV spots, with Gengler urging them to borrow against their retirement accounts. They falsely attributed a "96.5 percent success rate" to their plans, according to the complaiont.
The SEC says that Woolf and Gengler are failed traders, that Woolf never declared a profit on trades in her federal tax returns, and that Gengler typically declared losses, or no profits. Yet Woolf allegedly made $4 million selling Teach Me to Trade packages, while Gengler earned $2.25 million.
On Dec. 13, U.S. District Judge Gerald Lee refused to dismiss securities fraud claims against the two corporate defendants. He did, however, refuse to let the SEC pierce corporate veil and sue Woolf and Gengler individually.
Though the defendants claimed that SEC had failed to state a securities fraud claim, Lee disagreed. "These factual allegations are sufficient to support the inference that Woolf and Gengler expected their workshop students to trade securities based on their misrepresented background and false expertise," the 21-page decision states.
"A false statement may constitute a violation if it is made 'in connection with the purchase or sale of any security' not any particular security," he added (italics in original).
The allegations fail, however, to implicate Woolf and Gengler personally for securities fraud.
"The court holds that the SEC's complaint does not contain sufficient pleading to support its alter ego theory for piercing the corporate veil and holding defendants Woolf and Gengler personally liable for the alleged fraud because it does not include allegations that these individual defendants and their respective corporate entities were united by interest and ownership or that the individual defendants controlled and used the corporate entities to perpetuate the alleged fraud," Lee wrote.
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