USCA11 Case: 20-11675 Date Filed: 02/18/2022 Page: 1 of 14
[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-11675
____________________
CHARLES WILDES, et al.,
Plaintiffs,
ALBERT PARKS,
FARAMARZ SHEMIRANI,
CORY STRUZAN,
MARYANN MARRYSHOW,
MIJA YOO,
NELSON ARIAS,
Plaintiffs-Appellants,
PAUL LONG, et al.,
Consolidated Plaintiffs,
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2 Opinion of the Court 20-11675
versus
BITCONNECT INTERNATIONAL PLC,
a foreign corporation,
BITCONNECT LTD.,
a foreign corporation,
BITCONNECT TRADING LTC.,
a foreign corporation,
GLENN ARCARO,
an individual,
TREVON BROWN,
an individual,
a.k.a. Trevon James, et al.,
Defendants-Appellees,
NICHOLAS TROVATO, et al.,
Consolidated Defendants.
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 9:18-cv-80086-DMM
____________________
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20-11675 Opinion of the Court 3
Before BRANCH, GRANT, and ED CARNES, Circuit Judges.
GRANT, Circuit Judge:
An online promotions team posted thousands of videos, all
with a single aim: persuading people to buy BitConnect coin, a new
cryptocurrency. But BitConnect coin wasn’t a sound investment—
it was a Ponzi scheme. After that scheme collapsed, BitConnect
buyers sought to hold the promoters liable under section 12 of the
Securities Act of 1933 for soliciting the purchase of unregistered
securities.
The marketers insist that they cannot be held liable because
the Securities Act covers sales pitches to particular people, not
communications directed to the public at large. Not so—neither
the Securities Act nor our precedent imposes that kind of
limitation. Solicitation has long occurred through mass
communications, and online videos are merely a new way of doing
an old thing. Because the Securities Act provides no free pass for
online solicitations, we reverse the district court’s dismissal of the
section 12 claim.
I.
BitConnect and its promoters stoked public enthusiasm for
a new form of cryptocurrency, the BitConnect coin. But as the
plaintiffs tell it, each round of investors was simply paid back by the
one that followed—with the promoters siphoning off money each
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4 Opinion of the Court 20-11675
time. 1 The story was that investors could buy BitConnect coins
and then earn outsized returns without doing anything else. In the
“staking” program, for example, investors could earn up to 10
percent interest per month, guaranteed, just for holding their
BitConnect coin in a virtual “wallet.” And in the lending program,
investors lent their coins to BitConnect, which ostensibly traded
them for profit. BitConnect promised “lenders” extravagant
earnings—not only fixed interest each day (as well as possible daily
bonus interest) but also up to 40 percent interest at the end of each
month.
Skeptics of this “opportunity” would be proven right. The
promised interest did not reflect growth in BitConnect’s value, or
result from traders’ ability to beat the market by unthinkable
margins. BitConnect’s original investors simply received their
so-called returns from the money paid by new investors hoping for
the same.
To keep this Ponzi scheme running, each round of investors
required still more to follow. That is where BitConnect’s “multi-
level marketing” structure came in, incentivizing each set of
investors to draw in a new round of recruits. “Promoters”
encouraged others to sign up for BitConnect, and earned a
commission on the investments that followed. Some number of
those recruits became promoters themselves, bringing in more
1For purposes of this appeal, we take those allegations as true. See Statton v.
Florida Fed. Jud. Nominating Comm’n,
959 F.3d 1061, 1062 (11th Cir. 2020).
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20-11675 Opinion of the Court 5
investors. A share of each investment would then pass on to the
recruit’s promoter, her promoter’s promoter, and so on and so
forth—a classic pyramid scheme.
Glenn Arcaro played a significant role in BitConnect’s
pyramid-on-Ponzi scheme. He was the national promoter for the
United States, which meant that he managed a team of regional
promoters. Together, the team created an extensive U.S.
marketing scheme for BitConnect, which included multiple
websites where Arcaro encouraged viewers to buy BitConnect
coins. At glennarcaro.com, for example, he told potential investors
that passive income was merely “a click away”—all they needed to
do was take “a few minutes” to join BitConnect. At BitFunnel, he
instructed investors to fill out a form to access a video about “how
to make huge profits with BitConnect.” And at Futuremoney.io,
Arcaro hosted a course called Cryptocurrency 101, which
culminated in lessons on how to create a BitConnect account and
how to transfer bitcoin there. Arcaro also shaped his team’s
recruitment efforts, directing regional promoters to create videos
about investing that always ended with a pitch for BitConnect.
Together, Arcaro and his team posted thousands of YouTube
videos extolling BitConnect, and those videos were viewed
millions of times.
Millions of views led to millions of dollars. Just short of a
year after the coin’s introduction, BitConnect was bringing in
around $7 million per week in investments from the United States.
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And that was not the limit; the next month, BitConnect’s weekly
haul was more than $10 million.
All that money still could not sustain BitConnect’s Ponzi
scheme. So as the year ended, BitConnect came up with another
plan to reel in millions—and announced that it would offer another
cryptocurrency, BitConnectx. State regulators, however, had
other ideas. At the start of the new year, Texas issued an
emergency cease and desist order, and North Carolina soon
followed suit. Within days, the scheme unraveled. BitConnect
closed its trading platform, and the value of its cryptocurrency
plummeted; within “moments” its value fell by almost 90%.
Months later, the coin was worth only 40 cents—a 99.9% drop in
value from the start of the year.
Two victims of the BitConnect collapse tried to recoup their
losses, suing on behalf of themselves and a putative class of all
persons who had lost money in BitConnect investments. They
alleged (among other things) that the promoters were liable under
section 12 of the Securities Act for selling unregistered securities
through their BitConnect videos. 15 U.S.C. § 77l(a)(1); see id.
§ 77e(a)(1). Some of the promoters moved to dismiss, arguing that
they were liable under the Securities Act only if they had offered or
sold the plaintiffs a security. 2 They had not done so, they asserted,
2The plaintiffs sued Arcaro and five regional promoters he managed: Trevon
Brown, Craig Grant, Ryan Hildreth, Ryan Maasen, and Tanner Fox. The
district court dismissed Grant from the suit because the plaintiffs failed to
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20-11675 Opinion of the Court 7
because their videos did not “directly communicate” with the
plaintiffs.
The district court agreed. It said that the plaintiffs needed to
allege that the promoters had urged or persuaded them—
“individually”—to purchase BitConnect coins. Because the
plaintiffs based their case on interactions with the promoters’
“publicly available content,” the district court concluded that their
complaint failed to state a section 12 claim. It also dismissed the
remaining state-law claims against the promoters because
jurisdiction for those claims was premised on a Securities Act
violation.
The plaintiffs were given a chance to amend their complaint
and did so, adding claimants who—unlike the original plaintiffs—
had signed up for BitConnect directly through the promoters’
referral links. The district court dismissed the amended complaint
(and a similar one that followed) because the new plaintiffs, just
like the old ones, had never received a “personal solicitation” from
the promoters. This appeal followed. 3
timely serve him. The plaintiffs managed to serve the other promoters, but
for reasons that are not clear from the record, only Arcaro and Maasen moved
to dismiss the case.
3 The plaintiffs appeal rulings contained in orders that also dismiss other claims
against the promoters and YouTube, as well as unserved defendants. In their
briefs, however, the plaintiffs challenge only the dismissal of their section 12
and state-law claims against the promoters. The plaintiffs therefore do not
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8 Opinion of the Court 20-11675
II.
We review de novo a dismissal for failure to state a claim.
Godelia v. Doe 1,
881 F.3d 1309, 1316 (11th Cir. 2018). In doing so,
we accept the complaint’s factual allegations as true and construe
them in the light most favorable to the plaintiffs.
Id.
III.
The only question here is whether a person can solicit a
purchase, within the meaning of the Securities Act, by promoting
a security in a mass communication. Arcaro insists that liability
follows only when a seller directs a solicitation to a particular
prospective buyer. 4 Mass communications, in his view, are never
enough. That rule would certainly go a long way toward
eliminating liability for the promoters here, and for others who
champion dicey investments through modern communication
channels. The problem for these promoters is that nothing in the
Securities Act makes a distinction between individually targeted
sales efforts and broadly disseminated pitches.
The Securities Act prohibits a person from using “any means
or instruments of transportation or communication in interstate
commerce” to sell an unregistered security. 15 U.S.C. § 77e(a)(1).
And to enforce the prohibition, section 12 of the Act authorizes
appeal the dismissal of their other claims—including their claim against
YouTube and their claim against Arcaro under section 15 of the Securities Act.
4 Arcaro was the only promoter to file a brief in this appeal.
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20-11675 Opinion of the Court 9
buyers of an unregistered security to sue a person who “offers or
sells” it. Id. § 77l(a)(1).
So what does it mean under the Act to offer or sell a security?
In reverse order, a person sells a security when he makes a
“contract of sale” for or disposes of a security for value. Id.
§ 77b(a)(3). And a person offers a security “every” time he makes
an “offer to dispose of”—or a “solicitation of an offer to buy”—a
security for value. Id.
Nowhere in those definitions does Congress limit
solicitations to “personal” or individualized ones as the district
court did here. In fact, the Act suggests the opposite. It makes a
person who solicits the purchase of an unregistered security liable
for using “any means” of “communication in interstate
commerce.” Id. § 77e(a)(1) (emphasis added); see id. § 77l(a)(1).
Among those methods is “any prospectus”—which the Act defines
to include communications as impersonal as radio and television
advertisements. Id. §§ 77e(a)(1), 77b(a)(10).
Nor is the proposed limitation somehow baked into the
word “solicitation.” When Congress provided in 1933 that an offer
included a “solicitation,” that word meant something broader than
Arcaro now contends. See Securities Act of 1933, Pub. L. No.
73-22, § 2(3),
48 Stat. 74, 74. Solicitation unsurprisingly entailed the
“pursuit, practice, act, or an instance, of soliciting,” and “solicit”
meant “to approach with a request or plea, as in selling.” Webster’s
New International Dictionary of the English Language 2393–94 (2d
ed. 1938). And cases from that era show that a sales “approach” did
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10 Opinion of the Court 20-11675
not need to be personal to amount to a solicitation. Rather, people
understood solicitation to include communications made through
diffuse, publicly available means—at the time, newspaper and
radio advertisements. See, e.g., Cochran v. United States,
41 F.2d
193, 196–97 (8th Cir. 1930) (“solicitation” of securities purchases
occurred “by means of divers newspaper advertisements”);
Horwitz v. United States,
63 F.2d 706, 709 (5th Cir. 1933) (Sibley,
J., concurring) (“radio communications” were “clearly
solicitations”); People ex rel. Chi. Bar Ass’n v. Goodman,
366 Ill.
346, 348 (1937) (a “widespread plan of solicitation” included
“advertisement in the telephone directory” and “radio
announcements”); In re Tracy,
197 Minn. 35, 37 (1936) (attorney
“solicited” clients “by advertisements in newspapers”); Dvorine v.
Castelberg Jewelry Corp.,
170 Md. 661, 666 (1936) (defendant
“continuously solicited” the public “by extensive advertisements
inserted in the daily newspapers published in Baltimore City”).
Under the text, then, a solicitation need not be “personal” to trigger
liability. Broadly disseminated communications also can convey a
solicitation—indeed, they are consistent with the longstanding
interpretation of the term.
Moreover, and contrary to Arcaro’s suggestion, Securities
Act precedents do not restrict solicitations under the Act to
targeted ones. The leading case interpreting section 12, Pinter v.
Dahl, says nothing about what solicitation entails.
486 U.S. 622
(1988). It instead focuses on the result and intent necessary for
section 12 liability: the solicitation must succeed, and it must be
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20-11675 Opinion of the Court 11
motivated by a desire to serve the solicitor’s or the security owner’s
financial interests. See
id. at 647. Three years later, this Court
touched on the meaning of solicitation. But we held only that, for
solicitation to occur, a person must “urge or persuade” another to
buy a particular security. Ryder Int’l Corp v. First Am. Nat’l Bank,
943 F.2d 1521, 1531, 1534 (11th Cir. 1991) (quotation omitted). We
never added that those efforts at persuasion must be personal or
individualized.
Technology has opened new avenues for both investment
and solicitation. Sellers can now reach a global audience through
podcasts, social media posts, or, as here, online videos and web
links. But under the district court’s cramped reading of the
Securities Act, a seller who would be liable for recommending a
security in a personal letter could not be held accountable for
making the exact same pitch in an internet video—or through
other forms of communication listed as exemplars in the Act, like
circulars, radio advertisements, and television commercials. See 15
U.S.C. §§ 77e(a)(1), 77b(a)(10). That makes little sense. A seller
cannot dodge liability through his choice of communications—
especially when the Act covers “any means” of “communication.”
Id. § 77e(a)(1). We decline to adopt an interpretation that both
contradicts the text and allows easy end-runs around the Act.
A new means of solicitation is not any less of a solicitation.
So when the promoters urged people to buy BitConnect coins in
online videos, they still solicited the purchases that followed. The
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12 Opinion of the Court 20-11675
plaintiffs therefore have stated a section 12 claim against Arcaro
and the other promoters. 5
IV.
Arcaro argues that the plaintiffs should nonetheless lose
because they abandoned any challenge to an independent ground
for dismissing their claim—namely, they did not allege that they
had purchased the coins “as a result of” Arcaro’s solicitations.
Arcaro divines this alternative holding from a single sentence in the
district court’s order, which said that “the additional allegations” in
the amended complaint “fail to allege that Plaintiffs purchased
securities as a result of Arcaro’s and/or Maasen’s personal
solicitation.”
Though we do not see Arcaro’s interpretation as the most
obvious, that sentence, standing alone, might imply that the district
court thought the plaintiffs did not allege that the promoters’
videos had convinced them to invest. But the district court did not
end there. It continued by explaining that the claim failed because
the plaintiffs had not alleged that the promoters “engaged in active
efforts to urge or persuade any of the Plaintiffs to invest in
BitConnect.” And the court focused at length on the plaintiffs’
5 The district court also gave an alternative reason for dismissing any claims
against Brown, Hildreth, and Fox—that the plaintiffs had failed to prosecute
those claims. On appeal the plaintiffs have failed to raise, and thus abandoned,
any challenge to that ground for dismissal. See Sapuppo v. Allstate Floridian
Ins. Co.,
739 F.3d 678, 680 (11th Cir. 2014). We therefore affirm the dismissal
of the claims against those three defendants.
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20-11675 Opinion of the Court 13
failure to allege that any promoter had “personally solicited” an
investment. So the court dismissed the case because the
solicitations weren’t “personal,” not because the solicitations didn’t
lead to the plaintiffs’ purchases. Indeed, the district court
recognized that the plaintiffs alleged that they had bought
BitConnect coins “because of” the promoters’ “recruitment
efforts.” We see no reason to read the district court’s opinion as
coming to a conclusion that is in tension with its own
characterization of the complaint.
V.
The plaintiffs also ask us to reinstate their state-law claims
against the promoters. The district court dismissed those claims
for lack of personal jurisdiction; the plaintiffs had premised
jurisdiction on the Securities Act but (according to the district
court) had not stated a claim under the Act. As explained above,
though, the court incorrectly dismissed the section 12 claim. Its
reason for holding that it lacked jurisdiction thus cannot stand.
* * *
When a person solicits the purchase of securities to serve his
(or the security owner’s) financial interests, he is liable to a buyer
who purchases those securities—whether that solicitation was
made to one known person or to a million unknown ones. Using
publicly available videos, the promoters here—with Arcaro in the
lead—convinced the plaintiffs to buy BitConnect through their
referral programs and earned a commission on those investments.
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We therefore REVERSE the district court’s dismissal of the section
12 claim against Arcaro and Maasen; VACATE its dismissal of the
state-law claims against them; AFFIRM its dismissal of any other
claims and defendants in the orders appealed; and REMAND this
case for further proceedings consistent with this opinion.
