Carlucci v. Han (907 F. Supp. 2d 709, 2012)

AMENDED MEMORANDUM OPINION

JAMES C. CACHERIS, District Judge.

This matter is before the Court on Defendants Michael Han (“Mr. Han”) and Envión, Inc.’s (“Envión”) (collectively, “Defendants”) Motion to Strike [Dkt. 41] (the “Motion to Strike”) and Partial Motion to Dismiss [Dkt. 45] (the “Motion to Dismiss”). For the following reasons, the Court will grant Defendants’ Motion to Strike and deny Defendants’ Motion to Dismiss.

I. Background

This case arises out of allegations that Defendants engaged in securities fraud, in violation of federal and state law, as well as actual and constructive fraud. Federal jurisdiction in this case is based on federal question jurisdiction pursuant to 28 U.S.C. § 1331, diversity jurisdiction pursuant to 28 U.S.C. § 1332, and supplemental jurisdiction pursuant to 28 U.S.C. § 1367.

Defendant Envión, Inc. is a privately-held company. According to Plaintiffs Amended Complaint, Envión represents itself to the public as a technology company that holds the patent rights to a proprietary system utilizing a purportedly efficient, cost effective, and environmentally sensitive technology capable of recapturing energy by converting plastic waste into usable oil. (AC ¶ 9.) Defendant Michael S. Han is the founder, Chairman, and Chief Executive Officer (“CEO”) of Envión. Mr. Han allegedly “controls all aspects of Envion’s business endeavors, in-eluding but not limited to, all dealings with potential investors and potential business partners, financial records, and matters relating to the intellectual property ...” (AC ¶ 3.) Plaintiff Frank Carlucci III (“Mr. Carlucci” or “Plaintiff’) is an investor in Envión.

A. Factual Background

In approximately 2003, Plaintiff Frank Carlucci III met Defendant Michael Han at the Regency Sport and Health. Club, where they both regularly played tennis. (AC ¶ 12.) Thereafter, in early 2004, Mr. Han solicited an investment from Carlucci in his company, Envión, Inc. (AC ¶ 13.) Mr. Han described Envión as a “technology company” that would “bring technology [he] owned to the United States that his uncle had developed in Korea.” (Id.) Mr. Han described that technology as “a patented process involving the conversion of plastic waste into oil.” (Id.)

Through a series of telephone calls and face-to-face meetings at Mr. Carlucci’s residence and the Regency Sport and Health Club in early 2004, Mr. Han allegedly made various misrepresentations and omissions of material fact relating to Envión and its business in order to induce Mr. Carlucci to invest in the company. (AC ¶ 14.) These alleged misrepresentations included the following: (1) that Mr. Han and Envión owned the exclusive patent rights in their Envión Oil Generator technology, which formed the foundation for Envion’s business and success; (2) that Mr. Han had lined up the investment banking house, Allen & Company, to raise funds for Envión and that Allen & Company would be an equity investor in the company; (3) that Mr. Han had communicated with numerous other investors who were interested in investing in Envión, including Warren Buffet, Bill Gates, Dow Chemical, Morgan Stanley, and Goldman Sachs; (4) that, along with Mr. Han, Envión was run by a number of “seasoned and highly regarded executives with extensive track records of success in the energy, technology, and finance industries, as well as the public sector”; (5) that Mr. Han was negotiating a lucrative arrangement with Waste Management Company pursuant to which Waste Management would purchase rights to use Envion’s technology; (6) that Mr. Han was negotiating a lucrative arrangement with Allied Republic, another waste management company and a competitor of Waste Management; (7) that Envión had a backlog of orders for its Oil Generator product; and (8) that for each of these reasons, Envión would provide the best return Mr. Carlucci had received on any investment. (AC ¶¶ 14(a)-(h).) Plaintiffs Amended Complaint alleges that Mr. Carlucci would only later learn that Mr. Han’s representations were false at the time they were made. (AC ¶ 15.)

Unaware of the falsity of Mr. Han’s statements, Mr. Carlucci thereafter “reasonably and justifiably” relied on Mr. Han’s alleged misrepresentations and omissions of material fact in deciding to invest in Envión. (AC ¶ 16.) On March 4, 2004, in “direct and reasonable” reliance on the alleged misrepresentations, Mr. Carlucci made an investment in Envión in the amount of $500,000. (I'd) The investment was in the form of a convertible promissory note, which Mr. Carlucci could convert at any time into Envión common stock. (Id.)

Over the next several years, Mr., Han approached Mr. Carlucci for additional investments in Envión.- (AC ¶ 17.) On each occasion, Mr. Han allegedly misrepresented the state of Envion’s business, its specific business arrangements, its financial prospects, and the extent of its intellectual property ownership, portraying each in an exceedingly positive and favorable manner that Plaintiff alleges did not comport with the reality of Envion’s situation at the time. (Id.) For example, Mr. Han represented that Envión had exclusive patent rights in its critical technology and that Envión had many favorable business arrangements with foreign corporations that would generate substantial return on any investment that Mr. Carlucci made. (Id.) From November 2004 through April 2010, in reliance on these alleged these alleged misrepresentations, Mr. Carlucci invested an additional $11,593,000 in Envión. (AC ¶[¶ 17-18.) Each investment was evidenced by a convertible promissory note that accrued interest in the range of 8% to 10% annually and could be converted at any time into Envión common stock, i.e., equity in the company. (AC ¶ 19.)

In or around September and October 2010, Mr. Han approached Mr. Carlucci for an additional $20 million investment. (AC ¶ 20.) Through a series of face-to-face meetings at Mr. Carlucci’s residence, Mr. Han allegedly made additional misrepresentations in order to induce Mr. Carlucci’s investment, which included the following: (1) that Envión had a “done deal with Gazprom,” one of the world’s largest gas companies, pursuant to which Gazprom would invest millions in Envión in exchange for a 49% ownership interest and Mr. Han would become the CEO of Gazprom’s wholly-owned waste disposal subsidiary (which would fully utilize Envion’s technology); (2) that Envión was close to a “deal” with Petrobas, a Brazilian energy company, which consisted of two parts: (i) an off-take agreement, under which Envión would provide Envión Oil Generators to Petrobas; and (ii) a joint venture, under which Petrobas would invest “substantial sums of money” in Envión; (3) that, because a sizeable investment from Gazprom was a “done deal,” Mr. Carlucei would get his investment back “in three weeks”; (4) that Envión had a “backlog of 2,000 orders” for its Envión Oil Generators; (5) that Mr. Carlucci’s $20 million investment would be used exclusively for two purposes: (i) for Envión to buy out Han’s uncle, who was becoming anxious to realize an immediate return on his investment in Envión, and (ii) as investment capital in and exclusively for Envion’s legitimate business purposes; and (6) that Envión owned the exclusive patent rights in its Envión Oil Generator technology. (AC ¶ 20(a)-(f).) It is alleged in the Amended Complaint that Mr. Carlucei would only later learn that each of these representations was false at the time they were made. (AC ¶ 21.)

At the same time that Mr. Han solicited Mr. Carlucci’s investment, Mr. Han also assured Mr. Carlucei that “Envión would be the best return [he] would receive on any investment,” possibly up to “50 times” the amount he had invested. (AC ¶ 22.) To support this representation, Mr. Han had previously presented Mr. Carlucei with a projection of the return he would receive. (Id.) In connection with Mr. Han’s solicitation of the $20 million investment, Mr. Carlucei asked if the projection was still valid. In response, Mr. Han allegedly stated “Yes, it is.” (Id.) According to Mr. Carlucei, no cautionary language, qualifications, or conditions accompanied the projection. (Id.) Mr. Carlucei alleges that he invested $20 million in Envión in direct and reasonable reliance on these alleged misrepresentations, as evidenced by a convertible promissory note dated October 10, 2010 (the “October 2010 Note”). (AC ¶ 23.) The note accrued interest at an annual rate of 8% and could be converted at any time into Envión common stock, i.e., equity in the company. (Id.)

Around the same time Mr. Carlucei made the $20 million investment, Mr. Han allegedly moved Envión from Washington, D.C. to Florida and purchased a home in Florida valued at $3.5 million. (AC ¶ 24(a)-(c).) Mr. Han also allegedly provided himself with “very substantial” annual salary for his employment as Envión. This salary was not disclosed to Mr. Carlucci. Plaintiff states that, on information and belief, from information gained from the former Chief Financial Officer of Envión, who allegedly “worked closely with Mr. Han and was aware of the status of Envion’s business dealings from 2009 through early 2011,” the amount of that annual salary is $5 million and that it was unilaterally awarded by Mr. Han to himself at a time when Envión was either insolvent or on the verge of insolvency. (AC ¶ 24(c).)

In August of 2011, Mr. Carlucci’s prior investments were “rolled into” one convertible promissory note in the amount of $32,393,000 (hereinafter, the “August 2011 Note”). (AC ¶ 25.) Dated August 4, 2011, this convertible note accrues interest at 5% annually and could be converted at any time into common stock of Envión, i.e., equity in the company. (Id.)

Immediately prior to and in connection with the purchase and issuance of the August 2011 Note, Mr. Han and Mr. Carlucei had several face-to-face meetings at Mr. Carlucci’s residence, the Regency Sport and Health Club, and at' Mr. Carlucci’s office in Washington, D.C. (AC ¶ 26.) It is asserted Mr. Han reasserted his prior false representations during these meetings, allegedly motivated by his desire to induce Mr. Carlucci to consummate his purchase of the August 2011 Note. (Id.) Specifically, Mr. Han repeated that (1) Envión owned the exclusive patent rights in its Envión Oil Generator technology; (2) all of the funds invested by Mr. Carlucci had been used exclusively for the benefit of Envión and its direct business, including the “buy out” of Mr. Han’s uncle; (3) that Mr. Carlucci would receive a return on his investment of “possibly 50. times the amount invested,” due to the “done deal” with Gazprom, and other specific projects and commitment Mr. Han had obtained or was in the process of closing for the benefit of Envión, including a deal with Petrobas. (AC ¶ 26(a)-(c).) Mr. Han also allegedly represented that former President Bill Clinton had agreed to affiliate himself with Envión, possibly as a member of its board of directors, and that former President George W. Bush was interested in investing in Envión. (AC ¶ 27.)

Mr. Carlucci alleges that he only later came to find out that each of the representations Mr. Han made was false, and that Mr. Han had actual knowledge of their falsity or should have known that they were false at the time he made them. (AC ¶¶ 15, 17, 21, 28.) Plaintiff alleges that Mr. Han, “as the founder, Chairman, and CEO of Envión, and person who controlled the use of the sum Mr. Carlucci invested, handled all discussions with Gazprom and Petrobas (if any), and knew the true facts about Envion’s alleged intellectual property rights”, “... unquestionably knew these representations to be false when made.” (AC ¶ 28.) Plaintiff further alleges that he reasonably and justifiably relied on each of Han’s misrepresentations and omissions of material fact in deciding to invest in purchasing the August 2011 Note. (AC ¶ 29.)

Plaintiff alleges that, around this time period, Mr. Han began leading an “increasingly lavish lifestyle.” (AC ¶ 30.) According to the former Chief Financial Officer of Envión, who allegedly “observed Mr. Han’s spending on a first-hand basis,” Mr. Han regularly traveled abroad, allegedly claiming to be meeting with potential investors or pursuing new deals. Plaintiff also alleges that Mr. Han “took luxury vacations, including personal trips to St. Bart’s” and that “[w]hen he took these trips, Mr. Han traveled first-class or on private jets,” an instance of which includes Mr. Han’s charter of a plane in the summer of 2010 for the purpose of flying guests to the Turks and Caicos Islands for his wedding. (Id.) Plaintiff also alleges that Mr. Han drove “top of the line luxury cars” during this time period, which he sold or exchanged “several times a year” for newer models. (Id.) Plaintiff states that “Mr. Han’s purchase of a $3.5 million house in Palm Beach was part and parcel of [this] grand lifestyle.” (Id.)

Plaintiff alleges that “Mr. Han had (and has) no profitable or financially successful employment, no known source of funds, other than the investment funds provided by Mr. Carlucci, and no profitable or financially successful deals or joint ventures with companies other than Envión.” (AC ¶ 30.) Plaintiff further alleges that the “only source of funds from which Mr. Han was able to afford this lavish lifestyle was the unauthorized use of the millions of dollars invested by Mr. Carlucci in Envión (and exclusively for Envion’s legitimate business purposes).” (Id.)

In March of 2012, Mr. Carlucci began to suspect that Mr. Han’s representations were materially false and/or that he had omitted material facts in his representations to Mr. Carlucci that allegedly induced his investment. (AC ¶ 31.) Specifically, in or around March and early April of 2012, Mr. Carlucci met with Laurent Lavigne du Cadet, a third-party energy consultant directly involved in assisting Envión in its business, who allegedly learned first-hand the true status of Envion’s business. (AC ¶ 32.)

In March of 2012, Mr. Lavigne du Cadet allegedly met with Mr. Han on several occasions and, without limiting the breadth of their discussions, discussed the status of Envion’s business and respective operations in detail, including the status of Envion’s joint venture with Petrobas, which Mr. Han allegedly stated was “imminent.” (AC ¶ 33.) The Amended Complaint alleges that regarding the “critical aspects of Envion’s alleged business, ..., Mr. Han specifically affirmed and represented to Mr. Lavigne du Cadet the same representations Mr. Han made to Mr. Carlucci about Petrobas ...” (Id.)

Thereafter, Mr. Lavigne du Cadet traveled with Mr. Han to Brazil in late March of 2012 and participated in meeting with Mr. Han and representatives of Petrobas. (AC ¶35.) During these meetings and through subsequent -conversations, “Mr. Lavigne du Cadet learned that Envión had no joint venture with Petrobas or any reasonable basis for concluding that a joint venture would materialize.” (AC ¶35.) Allegedly, the only possibility of an agreement between Envión -and Petrobas was an off-take agreement under which Petrobas would eventually buy synthetic crude oil from Envión, contingent upon that crude oil meeting certain specifications. (Id.) However, this off-take agreement itself has not yet materialized. (AC ¶ 36.) Furthermore, Plaintiff notes that this off-take agreement is not a joint venture, and states that this agreement does not add any material value to Envión, as the agreement does not entail any investment or cost-bearing whatsoever on the part of Petrobas, and all of the cost and risk is squarely placed upon Envión. (Id.) Mr. Lavigne du Cadet also allegedly learned that Envión did not have any joint ventures with any other companies, contradicting Mr. Han’s assertion that a joint venture with Gazprom was a “done deal.” (AC ¶ 37.) Mr. Lavigne du Cadet is also alleged to have been specifically informed by Mr. Han that Envión only had enough funding to keep the company going for three more months. (AC ¶ 38.)

This foregoing information was subsequently reported to Mr. Carlucci, causing him to engage in further investigation of Mr. Han and Envión. (AC ¶ 39.) This investigation “involved discussions by Mr. Carlucci with Mr. Lavigne du Cadet; discussions with Envion’s former Chief Financial Officer, who was employed by the company from 2009 through early 2011; and the work product investigations engaged in by Mr. Carlucci’s counsel.” (Id.) As a result of that investigation, Mr. Carlucci came to understand, allegedly for the first time in late-March to mid-April of 2012, that several of the representations that Mr. Han had previously made were either misleading or outright false. (Id.)

Specifically, Mr. Carlucci found that Defendants did not own the exclusive patent rights in the Envión Oil Generator technology, either as inventor or owner via assignee, at the time Mr. Han represented Envion’s affirmative ownership to Mr. Carlucci. (AC ¶ 39(a).) It is also alleged that Mr. Han later corroborated this fact via internal Envión documentation that was disclosed to Mr. Carlucci in response to the possibility of litigation., (AC ¶ 39(b).) Mr. Carlucci also learned that Defendants’ right to use the technology, as based on Defendants’ alleged Korean patent rights to the subject technology, are subject to dispute. (AC ¶ 39(d).) It is further alleged that Mr. Carlucci learned that Mr. Han did not use Mr. Carlucci’s $20 million investment to buy out Mr. Han’s uncle or for any legitimate business purposes. Rather, it is alleged that Mr. Han used the funds to move the company to Florida, a move that was made for reasons personal to Mr. Han. (AC ¶ 39(g).) Mr. Carlucci’s investigation further revealed that Envión had not reached any “deal” with Gazprom or Petrobas and that, on information and belief, not only did Envión not have a backlog of 2,000 orders for its Oil Generator product, it had no deals in place through which a company could actually order (or had ordered) its Oil Generators. (AC ¶¶ 39(h)-(i).) Mr. Carlucci also learned none of the high-profile investors had invested in Envión, former President Bill Clinton had no affiliation with Envión nor had former President George W. Bush expressed an interest in investing in Envión. (AC ¶¶ 39(j)-(k).) Mr. Carlucci further discovered that Envión was on the brink of insolvency. (AC ¶ 39(?).)

It was at this point that Mr. Carlucci realized that Mr. Han had concealed material information from him when he solicited each of the October 2010 Note and the August 2011 Note. (AC ¶ 39(f).) Upon learning this information, Mr. Carlucci requested that Mr. Han allow an accountant to audit Envion’s books, records, and intellectual property. (AC ¶40.) Mr. Han allegedly refused, and instead responded that he was too busy. Plaintiff alleges that, to date, Mr. Han has not given Mr. Carlucci access to Envion’s books, records, or intellectual property. (Id.)

Plaintiff alleges that under the August 2011 Note, Envión was obligated to repay Mr. Carlucci’s entire $32,393,000 investment, plus 5% interest, on August 4, 2012. (AC ¶ 41.) Plaintiff states that Envión failed to make the requisite payment and is in default of its obligations under the August 2011 Note. (Id.) Plaintiff further alleges that to date, Defendants have failed to repay any of Mr. Carlucci’s $32,393,000 investment, or any of the interest on that investment required under the Note. (AC ¶ 42.) Mr. Carlucci alleges that as a direct and proximate result of Defendants’ conduct, he has been damaged in an amount no less than $32,393,000. (AC ¶ 43.)

B. Procedural Background

Plaintiff originally filed suit in this Court on April 24, 2012. [Dkt. 1.] Plaintiffs original Complaint asserted four causes of action: (1) securities fraud in violation of Section 10(b) of the Securities and Exchange Act of 1934 (the “'34 Act”), 15 U.S.C. § 783(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (Count I); (2) securities fraud in violation of the Virginia Securities Act, Va.Code § 13.1-501 et seq. (Count II); (3) actual fraud (Count III); and (4) constructive fraud/negligent misrepresentation (Count IV).

On June 8, 2012, Defendants filed a Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(b). [Dkt. 10.] Plaintiff filed his opposition on July 9, 2012, [Dkt. 32], to which Defendants replied on July 17, 2012, [Dkt. 34]. On August 7, 2012, 886 F.Supp.2d 497, 2012 WL 3242618 (E.D.Va.2012), this Court granted Defendants’ Motion to Dismiss. [Dkt. 37.]

On August 17, 2012, Plaintiff filed an Amended Complaint [Dkt. 39], asserting five cause of action: (1) securities fraud in violation of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b5, 17 C.F.R. § 240.10b-5 (Count I); (2) securities fraud in violation of the Virginia Securities Act, Va.Code § 13.1-501 et seq. (Count II); (3) actual fraud (Count III); (4) constructive fraud/negligent misrepresentation (Count IV); and (5) breach of contract. Defendants filed the instant Motion to Strike and Partial Motion to Dismiss on August 28, 2012. [Dkt. 45.] Plaintiff filed their Opposition on September 10, 2012. [Dkt. 47.] Defendants filed a Reply to Plaintiffs Opposition on September 17, 2012. [Dkt. 50.]

Defendants’ Motions are now before the Court.

II. Standard of Review

A. Rule 12(b)(6)

Rule 12(b)(6) allows a court to dismiss those allegations which fail “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A Rule 12(b)(6) motion tests the legal sufficiency of the complaint. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.2008). A court reviewing a complaint on a Rule 12(b)(6) motion must accept well-pleaded allegations as true and must construe factual allegations in favor of the plaintiff. See Randall v. United States, 30 F.3d 518, 522 (4th Cir.1994). In addition to the complaint, the Court may consider documents integral to and explicitly relied on in the complaint if the plaintiff does not challenge their authenticity. Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir.2004). The Court may also take judicial notice of matters of public record. Philips v. Pitt Cnty. Mem’l Hosp., 572 F.3d 176, 180 (4th Cir.2009).

To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. To meet this standard, a plaintiff must provide “more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. “Factual allegations must be enough to raise a right to relief above the speculative level .... ” Id. Moreover, a court “is not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

B. Rule 9(b)

Rule 9(b) imposes a heightened pleading standard for fraud claims. “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed.R.Civ.P. 9(b). To satisfy the heightened pleading standard of Rule 9(b), a plaintiff must state with particularity “the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.” In re Mut. Funds Inv. Litig., 566 F.3d 111, 120 (4th Cir.2009) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.1999)), rev’d sub nom. on other grounds Janus Capital Grp., Inc. v. First Derivative Traders, — U.S. -, 131 S.Ct. 2296, 180 L.Ed.2d 166 (2011).

C. PSLRA

A plaintiff asserting a securities fraud claim pursuant to Section 10(b) must meet the pleading requirements of Rule 9(b) as well as those imposed by the PSLRA. Iron Workers Local 16 Pension Fund v. Hilb Rogal & Hobbs, 432 F.Supp.2d 571, 578 (E.D.Va.2006). In order to survive a dismissal motion, a securities fraud complaint must do more than state a facially “plausible” claim under Iqbal and Twombly. Where a defendant seeks dismissal of a securities fraud complaint, the sufficiency of the complaint’s allegations must be scrutinized under the heightened pleading requirements set forth in the PSLRA. Notably, the PSLRA requires a plaintiff to “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omissions is made on information and belief, ... state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l). The PSLRA also requires that a plaintiff “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” i.e., scienter. Id. § 78u-4(b)(2). Specifically, the plaintiff must “plead facts rendering an inference of scienter at least as likely as any plausible opposing inference.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 328, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (emphasis in original).

III. Analysis

Regarding Defendants’ Motion to Strike, Defendants assert that the Court should strike certain allegations made by Plaintiff in their Amended Complaint. Defendants allege that those allegations are subject to this Court’s finding in its Memorandum Opinion relating to the dismissal of Plaintiffs original Complaint that they are “non-actionable.” As the Amended Complaint reincorporates those allegations, Defendants believe that material should be stricken from the Plaintiffs Amended Complaint.

Regarding Defendants’ Motion to Dismiss, Defendants allege that Plaintiff has failed to plead key components of certain claims brought in the Amended Complaint. First, Defendants allege that Plaintiff has failed to plead loss causation as to Counts I, II, III, and IV of the Amended Complaint. Second, Defendant asserts that Plaintiff has failed to plead reasonable reliance as to Counts I, III, and IV of the Amended Complaint. Third, Defendants assert that Plaintiff has failed to adequately plead falsity. Fourth, Defendants assert that Plaintiff has failed to plead scienter with particularity. The Court will address each argument in turn.

A. Defendants’ Motion to Strike

Defendants assert that the Court should strike certain allegations made by Plaintiff in their Amended Complaint as subject to this Court’s finding in its Memorandum Opinion relating to the dismissal of Plaintiffs original Complaint that they are “non-actionable.” [Dkt. 36.] Defendants list the following alleged misrepresentations as subject to the Court’s finding:

(a) that Mr. Han had communicated with numerous investors who were interested in investing with Envión, including Warren Buffet, Bill Gates, Dow Chemical, Morgan Stanley, and Goldman Sachs;

(b) that former President Bill Clinton had agreed to become affiliated with Envión, possibly as a member of its board of directors, and that former President George W. Bush was interest in investing in Envión;

(e) that along with Han, Envión was run by a number of seasoned and highly regarded executives with extensive track records of success in the energy, technology, and finance industries, as well as the public sector; and

(d) that Envión would be the best return Mr. Carlucci had received on any investment, that Mr. Carlucci would get his investment back in three weeks, and that Mr. Carlucci would receive possibly up to 50 times the amount invested.

(Def. Mot. 7)(internal quotations omitted).

Under Federal Rule of Civil Procedure 12(f), a court may, on its own motion or by motion of a party, “strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” The purpose of a motion to strike is “to clean up the pleadings, streamline litigation, and avoid unnecessary forays into immaterial matters.” McInerney v. Moyer Lumber & Hardware, Inc., 244 F.Supp.2d 393, 402 (E.D.Pa.2002).

Having already determined that the aforementioned statements are not actionable, this Court believes that the statements in the submitted Amended Complaint are immaterial to substantive matters pending before this Court. Consequently, Defendants’ Motion to Strike is granted.

B. Whether Plaintiffs Claims are Adequately Pled

Defendants allege a number of pleading deficiencies. First, Defendants allege that Plaintiff has failed to plead loss causation as to Counts I, II, III, and IV of the Amended Complaint. Second, Defendants assert that Plaintiff has failed to plead reasonable reliance as to Counts I, III, and IV of the Amended Complaint. Third, Defendants assert that Plaintiff has failed to plead falsity adequately as to Counts I, II, III, and IV of the Amended Complaint. Fourth, Defendants assert that Plaintiff has failed to plead scienter adequately as to Counts I, II, III, and TV of the Amended Complaint.

1. Section 10(b) Claim

Section 10(b) forbids the “use or employ, in connection with the purchase or sale of any security [¶]... ] [of] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). SEC Rule 10b-5 implements Section 10(b) by making it unlawful:

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. Section 10(b) affords, by implication, a right of action to securities purchasers or sellers injured by its violation. Tellabs, 551 U.S. at 318, 127 S.Ct. 2499.

A plaintiff bringing a Section 10(b) claim “must typically prove: ‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation’ (that is, the economic loss must be proximately caused by the misrepresentation or omission).” Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 181 (4th Cir.2009) (quoting Stoneridge Inv. Partners, LLC, v. Scientific-Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008)).

i. Loss Causation

Loss causation “is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff.” Emergent Capital Inv. Mgmt., LLC v. Stonepath Group., Inc., 343 F.3d 189, 197 (2nd Cir.2003); see also Miller v. Asensio & Co., 364 F.3d 223, 232 (4th Cir.2004). To show loss causation, a securities-fraud plaintiff must demonstrate that the “defendant’s misrepresentation was a substantial cause of the loss by showing a direct or proximate relationship between the loss and the misrepresentation.” In re PEC Solutions, Inc. Sec. Litig., 418 F.3d 379, 387 (4th Cir.2005) The statute does not require a plaintiff to prove that the defendant’s fraud was the sole cause of the plaintiffs loss. “The facts alleged in the complaint ... need not conclusively show that the securities’ decline in value is attributable solely to the alleged fraud rather than to other intervening factors.” In re Mut. Funds Inv. Litig., 566 F.3d at 128. Rather, a plaintiff need only prove that defendant’s misrepresentation was a substantial cause of the loss by showing “[a] direct or proximate relationship between the loss and the misrepresentation.” Miller, 364 F.3d at 232 (quoting Gasner v. Bd. of Supervisors, 103 F.3d 351, 360 (4th Cir.1996)).

Loss causation must be pled with “ ‘sufficient specificity,’ a standard largely consonant with [Rule] 9(b)’s requirement that averments of fraud be pled with particularity.” Katyle v. Penn Nat’l Gaming, Inc., 637 F.3d 462, 471 (4th Cir.2011). The degree of specificity required is that which will “enable the court to evaluate whether the necessary causal link exists.” Id. (quoting Teachers’ Ret. Sys. Of LA. v. Hunter, 477 F.3d 162, 186 (4th Cir.2007)).

As a general matter, “[t]he loss causation requirement must be applied on a case-by-case basis.” Robbins v. Roger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir.1997). Whether the plaintiff has proven causation is usually reserved for the trier of fact. See, e.g., Huddleston v. Herman & MacLean, 640 F.2d 534, 549-50 (5th Cir.1981). It must also be noted that “[l]oss causation becomes most critical at the proof stage.” McCabe v. Ernst & Young, LLP, 494 F.3d 418, 427 n. 4 (3rd Cir.2007) (internal quotation marks omitted); see also In re Mut. Funds Inv. Litig., 566 F.3d at 128 (“it is during the damages inquiry, not the earlier proximate cause inquiry, that the exact amount of damages solely caused by the defendant’s conduct must be calculated”)(emphasis in original)(internal quotation marks omitted). “So long as the plaintiff alleges facts to support a theory that is not facially implausible, the court’s skepticism is best reserved for later stages of the proceedings when the plaintiffs case can be rejected on evidentiary grounds.” In re Gilead Sciences Secs. Litig., 536 F.3d 1049, 1057 (9th Cir.2008).

In essence, Plaintiff alleges that Mr. Carlucci relied upon and was fraudulently induced by Mr. Han’s allegedly false or misleading misrepresentations in initially investing and continuing to invest in Envión, a company with which he would not have otherwise endowed his investment had he been aware of the true state of their business, at a price fraudulently and artificially inflated by those misrepresentations, and has thereby suffered economic damages in the loss of his investments. Indeed, the Amended Complaint expressly alleges that “Plaintiffs reliance upon Defendants’ misrepresentation was the proximate cause of injury ...” and that “Plaintiff suffered substantial damages and pecuniary loss as a direct and proximate result of the fraudulent conduct of Defendants....” (AC ¶¶ 54-55.) The Amended Complaint further alleges that “[a]s a direct and proximate result of the ... conduct of Envión and Mr. Han, Mr. Carlucci has been damaged in an amount of no less than $32,393,000.” (AC ¶ 43.)

Regarding the value of Mr. Carlucci’s investments, the Amended Complaint alleges that “[b]ecause Mr. Han’s representations about the patent and business deals were false, Mr. Carlucci’s investment was worth far less than the $32,393,000 he invested” and that the investments are now likely worthless. (AC ¶ 44.) As for Envion’s current investment value, Plaintiff has noted that his investigation of Envion’s finances, allegedly performed in “late March and mid-April 2012” and without Defendants’ cooperation, revealed Envion’s financial situation to be dire and the company was on the brink of insolvency. Indeed, the Amended Complaint states that Plaintiffs investigation revealed “Envión had at most a few months of available resources before it would before it would be completely insolvent and unable to pay any of its obligations.” (AC ¶ 39(i).) This information was allegedly stated by Mr. Lavigne du Cadet, who then relayed to Mr. Carlucci that Mr. Han had told him that Envión at that time only had enough funding to keep the company going for three more months. (Id.) Similar information is also attributed to the former Chief Financial Officer of Envión. (AC ¶ 24(c).) Plaintiff further cites the nonpayment of the August 2011 Note, under which Envión was obligated to repay Mr. Carlucci’s entire $32,393,000 investment (plus 5% interest) on August 4, 2012 as evincing economic loss. (AC ¶ 42.)

There is considerable disagreement among the parties as to what precisely Plaintiff is required to allege in their Amended Complaint in order to plead loss causation. Defendants argue that Supreme Court’s holding in Dura Pharmaceuticals, Inc. v. Broudo is applicable to the instant case and that, as a consequence, Plaintiff has failed to establish loss causation.

Indeed, there exists little consistent, definitive guidance capable of ready application to the current factual scenario. The facts of this case do not represent a typical securities fraud scenario such as one involving publically traded securities and/or “fraud on the market.” Here, the subject company is privately held and its securities are not publically traded. To be sure, there exists some uncertainty amongst the courts of the United States regarding the applicability of the Supreme Court’s holding as to loss causation in Dura to privately offered corporate securities that are not publically traded. In contrast to the factual posture of the instant case, the securities of the subject company in Dura were publically traded. Courts have recognized the significance of this difference and measured the practical economic characteristics of privately held securities that differentiate them from those that are, traded on the market. See, e.g., WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1053 (9th Cir.2011) (“[w]ith a privately held company, a comparison of market stock price to establish loss causation has less relevance because market forces will less directly affect the sales prices of the shares of a privately held company.”); Brown v. Earthboard Sports USA, 481 F.3d 901, 920 (6th Cir.2007) (“a small private offering is far more subject than shares trading on large public markets to initial purchase prices that are inflated fraudulently.”)

This Court believes that the instant case is factually distinguishable from Dura. In Dura, with respect to economic loss attributable to misstatement, the complaint alleged nothing more than that “ ‘[i]n reliance on the integrity of the market, [the plaintiffs] ... paid artificially inflated prices for Dura securities’ and that the plaintiffs suffered “damagefs]” thereby.” Dura, 544 U.S. at 340-41, 125 S.Ct. 1627. Plaintiffs Amended Complaint in this case, however, cannot be said to be analogously deficient as the complaint in Dura. Here, Plaintiff has not merely asserted in their Amended Complaint that their purchase of the subject securities at an artificially inflated price establishes requisite loss causation, but has pleaded that the Defendants’ misrepresentations directly and proximately caused the losses that they sustained. This exceeds the pleadings of the complaint in the Dura case. ■ Furthermore, Dura expressly stated that the Court neither considered nor intended to consider “other proximate cause or loss-related questions.” Id. at 346. Consequently, this Court does not find Dura to be controlling the factual circumstances of the instant case.

This Court finds that Plaintiff has sufficiently pleaded loss causation. Plaintiff has sufficiently alleged that Mr. Han’s repeated misrepresentations induced Mr. Carlucci’s continued investment in Envión, and that Mr. Carlucci’s reliance upon those misrepresentations was the proximate cause of his injury. The Court finds this theory to be plausible. Having noted the near-insolvency of Envión, and the nonpayment of the October 2010 Note and the August 2011 Note, Plaintiff has further identified economic loss substantially attributable to the misrepresentations of Mr. Han. Having found that the requisite causal link exists at this stage, this Court will not belabor its analysis of the allegations of the Amended Complaint as they relate to loss causation. As this Court has previously noted, its “skepticism is best reserved for later stages of the proceedings when the plaintiffs case can be rejected on evidentiary grounds.” Gilead Sciences, 536 F.3d at 1057. Consequently, this Court finds that Plaintiff has adequately pleaded loss causation.

ii. Falsity and Scienter

Section 10(b) requires that a defendant act deceptively in order to fall within the purview of the statute. U.S. S.E.C. v. Pirate Investor LLC, 580 F.3d 233, 239-40 (4th Cir.2009) (quoting Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 473, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977) (“The language of § 10(b) gives no indication that Congress meant to prohibit any conduct not involving manipulation or deception.”)). Deceptive acts include misstatements, omissions by those with a duty to disclose, manipulative trading practices, and deceptive courses of conduct. Id. (quoting Stoneridge Inv. Partners, 552 U.S. at 158, 128 S.Ct. 761).

The PSLRA provides that in pleading a material misrepresentation or omission, in violation of Section 10(b) of the Exchange Act and Rule 10b-5, and the scienter necessary to such a misrepresentation or omission, the plaintiff must plead facts. Teachers’, 477 F.3d at 172. While the Federal Rules of Civil Procedure generally allow a court, in ruling on a motion to dismiss under Rule 12(b)(6), to take into account any set of facts that could be proved consistent with the allegations of the complaint, even though such facts have not been alleged in the complaint, the PSLRA modifies this scheme (1) by requiring a plaintiff to plead facts to state a claim and (2) by authorizing the court to assume that the plaintiff has indeed stated all of the facts upon which he bases his allegation of a misrepresentation or omission. Id. (citing 15 U.S.C. § 78u-4(b)(l)). However, if “the plaintiff fails to allege all facts but does allege sufficient facts to support a reasonable belief in the allegation that the defendant’s statement was misleading, the court should deny the Rule 12(b)(6) motion as to this ‘misrepresentation’ element.” Teachers’, 477 F.3d at 174 (emphasis in original). Thus, a plaintiff must allege: (1) each misleading statement; (2) the reasons each statement was misleading; and (3) when an allegation regarding such a statement is based on information and belief, “with particularity all facts on which that belief is formed.” Id. at 173.

As a general matter, determining whether the Amended Complaint satisfies this standard necessarily entails a case-by-case assessment of the Amended Complaint as a whole. This Court will consider the number and level of detail of the facts; the plausibility and coherence of the facts; whether sources of the facts are disclosed and the apparent reliability of those sources; and any other criteria that inform how well the facts support the plaintiffs allegation that defendant’s statements or omissions were misleading. Id. at 174. When a complaint chooses to rely on facts supported by confidential sources, it must describe the sources “with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged ...” Id.

Although it is generally accepted that stating a cause of action for securities fraud under Section 10(b) entails a rigorous pleading standard, it is not necessary for Plaintiff to prove absolute, incontrovertible falsity at the motion to dismiss stage, contrary to the seeming contention of the Defendants. The construction of § 78u-4(b)(l) requires a plaintiff to allege sufficient facts to support a reasonable belief in the allegation that a defendant’s statement was misleading. This tests only the legal sufficiency of the complaint and logically follows from the inquiry required by Rule 12(b)(6). Consequently, the appropriate inquiry under the PSLRA becomes, if those facts alleged in a complaint are true, whether relief could be granted on the plaintiffs claim. Id. at 173.

Scienter constitutes the second element of a securities fraud claim under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In a securities fraud action, “the term ‘scienter’ refers to a mental state embracing intent to deceive, manipulate, or defraud.” Ottmann v. Hanger Orthopedic Group, Inc., 353 F.3d 338, 343 (4th Cir.2003) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)). The Fourth Circuit has held that a plaintiff may allege the required state of mind, or scienter, for securities fraud liability by pleading intentional misconduct or recklessness. “Scienter exists if the defendant knew the statement was misleading or knew of the existence of facts which, if disclosed, would have shown it to be misleading.” Banca Cremi, S.A. v. Alex Brown & Sons, Inc., 132 F.3d 1017, 1037 n. 26 (4th Cir.1997); see also Ottmann, 353 F.3d at 344; Phillips v. LCI International, Inc., 190 F.3d 609, 620 (4th Cir.1999); Teachers’, 477 F.3d at 184 (“a plaintiff must allege that the defendant made the misleading statement or omission intentionally or with ‘severe recklessness’ regarding the danger of deceiving the plaintiff.”) Negligent speakers avoid liability under this regime. See Pirate Investor, 580 F.3d at 241. For purposes of Section 10(b), a reckless act is one “so highly unreasonable and such an extreme departure from the standard of ordinary care as to present a danger of misleading the plaintiff to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” Matrix Capital, 576 F.3d at 181 (quoting Pub. Emps.’ Ret. Ass’n of Colo. v. Deloitte & Touche LLP, 551 F.3d 305, 313 (4th Cir.2009)).

With respect to forward-looking statements and opinions, however, the standard is higher. In those cases, the plaintiff must allege facts demonstrating that the statement was made with actual knowledge of its falsity. See 15 U.S.C. § 78u-5(c)(1)(B)® (for forward-looking statements, a plaintiff must prove that the statement “was made with actual knowledge by that person that the statement was false or misleading”); Nolte v. Capital One Fin. Corp., 390 F.3d 311, 315 (4th Cir.2004) (in order to plead that an opinion is a false statement in a securities fraud case, “the complaint must allege that the opinion expressed was different from the opinion actually held by the speaker”)(citing Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1093, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991)).

The PSLRA significantly strengthened the requirements for pleading scienter. Teachers’, 477 F.3d at 184. While under Rule 9(b) a person’s state of mind “may be alleged generally,” Fed. R.Civ.P. 9(b), the PSLRA requires a plaintiff to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” 15 U.S.C. § 78u-4(b)(2). Congress enacted this more stringent pleading standard “to curtail the filing of meritless lawsuits” and to create a uniform pleading standard among the circuits. See H.R. Conf. Rep. No. 104-369, at 41 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 740. The PSLRA thus “seek[s] to heighten the standard for pleading scienter, and so changes what a plaintiff must plead in his complaint in order to survive a motion to dismiss.” Ottmann, 353 F.3d at 344. A plaintiff cannot merely plead facts from which a reasonable person could infer that the defendant acted with scienter; rather, the plaintiff must “plead with particularity facts that give rise to a ‘strong’ — i.e., a powerful or cogent — inference.” Tellabs, 551 U.S. at 323, 127 S.Ct. 2499; see also In re PEC Solutions Sec. Litig., 2004 WL 1854202, at *14 (E.D.Va. May 25, 2004) (“Plaintiffs’ allegations of scienter fail because the Court cannot simply infer or imply knowledge of material facts based upon conclusory allegations.”), aff'd 418 F.3d 379 (4th Cir.2005).

In delineating the sort of particular facts that give rise to a “strong inference” of the requisite scienter, .the Second Circuit has stated:

A “strong inference” that defendants acted with scienter arises, for example, where a plaintiff sufficiently alleges that a defendant benefited in a concrete and personal way from the fraud, engaged in deliberately illegal behavior, knew facts or had access to information suggesting his public statements were not accurate, or failed to check information that he had a duty to monitor. Furthermore, opinions or predictions can be the basis for scienter “if they are worded as guarantees ... or if the speaker does not genuinely or reasonably believe them.”

In re IBM Corporate Sec. Litig., 163 F.3d 102, 107 (2d Cir.1998) (citations omitted). As the Supreme Court explained in Tel-labs, in determining whether the alleged facts give rise to a ‘strong’ inference of scienter, courts must take into account plausible opposing inferences. Id. at 323-24, 127 S.Ct. 2499. . “A complaint will survive ... only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Id. at 324, 127 S.Ct. 2499. If the inference that a defendant “acted innocently, or even negligently, [is] more compelling than the inference that they acted with the requisite scienter,” then the complaint must be dismissed. Pub. Employees’ Ret. Ass’n of Colo., 551 F.3d at 313.

This determination entails an evaluation as to “whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets [the “strong inference”] standard.” Tellabs, 551 U.S. at 322-24, 127 S.Ct. 2499. The scienter inquiry entails a “holistic” assessment of the Complaint that ascribes to the allegations with “the inferential weight warranted by context and common sense.” Matrix Capital, 576 F.3d at 183. Proof of scienter therefore need not invariably be direct, but may be inferred from circumstantial evidence. Malone v. Microdyne Corp., 26 F.3d 471, 479 (4th Cir.1994).

a. Alleged representation that “Envión had the exclusive patent for the Envión Oil Generator”

Plaintiff alleges that Mr. Han’s representation that “Envión had the exclusive patent for the Envión Oil Generator” is false. This Court will consider the factual allegations of the Amended Complaint in making its determination as to falsity for the purposes of pleading.

Addressing a threshold issue of considerable importance, there does not exist at-this point in the proceedings any substantive record of Envión owning a patent fdr the Envión Oil Generator in any location worldwide, exclusive or otherwise. Within' the United States, Plaintiff alleges that a patent search has not shown that Mr. Han or Envión owns or has ever owned an exclusive patent to the Envión Oil Generator technology. A provisional patent application was filed with the United States Patent and Trademark Office in March 2012, well after the representations of Mr: Han are alleged to have been made. Furthermore, a provisional patent application constitutes a filing from which a patent does not actually issue. Plaintiff has submitted a document, allegedly produced by Mr. Han, entitled “Envión Projects, October 2011-March 2012”. It seemingly shows that Envión was only then filing or contemplating filing patent applications in the United States, Brazil, and an unspecified “35 European countries.” Mr. Han’s alleged production of such a document weighs in favor of the determination that his representation relating to Envion’s patent ownership was false or misleading.

As to the possibility that there exists either a Korean patent for the Envión Oil Generator technology, an argument raised by Defendants within the context of their Motion to Dismiss the original Complaint, Plaintiff alleges that the document identifies neither Envión nor Mr. Han as inventors or owners of the Korean patent rights for the Envión Oil Generator technology. Instead, the patent identifies the inventor as “Myung Duck Ma.” It is alleged that Defendants have “produced no assignment of these limited patent rights (which apply, if at all, only within Korea) to Mr. Han or Envión.” Plaintiff alleges that, in contrast to Mr. Han’s characterization of Mr. Ma as merely an investor in Envión, Mr. Ma and Mr. Han were actually parties to a purchase agreement whereby Mr. Ma would sell his ownership stake to certain technological rights to the Envión Oil Generator technology to Envión. Plaintiff alleges that any rights that could even potentially inure to Envión or Mr. Han from this alleged Korean patent are subject to dispute, as the purchase agreement was never consummated.

As to the possibility that a patent exists with the World Intellectual Property Office, Plaintiff alleges that there is no evidence that a patent has ever issued based on the international application. To be sure, patent applications are public records subject to judicial notice, and this Court has previously taken judicial notice in this case of the patent application filed with the World Intellectual Property Office. As this Court wrote in its Memorandum Opinion on Defendants’ first Motion to Dismiss, while the document lists Envión as the applicant, it does not demonstrate that a patent ever actually issued based on the application.

Viewing the alleged facts in the light most favorable to Plaintiff, the Court finds that Plaintiff has pleaded sufficient facts to permit a reasonable belief that Mr. Han’s representation of exclusive patent ownership was false or misleading. Accepting the allegations of the Amended Complaint as true for the purposes of this Motion, Envión does not actually own an exclusive patent to the technology underlying the Envión Oil Generator. While the Plaintiff has been tasked with alleging facts to support the nonexistence of a patent, an onerous task in the context of a proceeding requiring allegations of substantive facts, the Court believes absence of an exclusive patent has been adequately alleged by Plaintiff.

Addressing the second element necessary to state Section 10(b) claim for securities fraud, the Court believes that the Plaintiff has alleged facts that give rise to a strong inference of the requisite scienter. Having considered the foregoing facts collectively, this Court believes that they demonstrate that Mr. Han was, at best, severely reckless in representing to Mr. Carlucci that “Envión had the exclusive patent for the Envión Oil Generator” when there exists no record of such a patent whatsoever. In the Amended Complaint, Plaintiff expressly alleges that “Mr. Han unquestionably knew [the representations] to be false when made as the founder, Chairman, and CEO of Envión, and person who controlled all information at the company about such matters.” (AC ¶ 15.) This is not, as Defendants seem to characterize, simply an assertion that Mr. Han knew by virtue of his position. Although a defendant’s position, standing alone is not sufficient to permit a strong inference of scienter, Plaintiff alleges that Mr. Han actually possesses and controls the correct information, yet nevertheless falsely or misleadingly represented contradictory impressions to Mr. Cariucci. Consequently, the Amended Complaint does not merely rely upon Mr. Haris position in Envión as imputing scienter to Mr. Han; rather, the Complaint expressly alleges that Mr. Han possessed the “true” information as to the state of Envioris business, and intentionally and knowingly made false or misleading representations that contravene that true information in his possession.

Furthermore, the document issued to Mr. Cariucci on behalf of Mr. Han and Envión in late March or April of 2012 seemingly demonstrates that the patent application process was only then commencing in those listed locales, warranting a strong inference that Mr. Han knowingly and intentionally misrepresented Envioris intellectual property ownership to Mr. Cariucci throughout the course of their discussions.

Plaintiff also alleges that Mr. Han was motivated by a desire to deceive Mr. Cariucci and by this means induce him into investing in his company, thereby acquiring funds with which to continue to live a “lavish lifestyle.” As this Court has mentioned in the foregoing statement of applicable law, motive is a relevant consideration to scienter analysis. Mr. Haris representation of positive patent ownership resounds with Mr. Haris alleged motivation for deceiving Mr. Cariucci in the sense that patent ownership would no doubt increase the attractiveness of Envión as an investment.

Viewing the factual allegations in a light favorable to the Plaintiff, and considering in tato the factual allegations of the Amended Complaint, this Court believes that that there exists a strong inference that Plaintiff acted with the requisite scienter. It is certainly conceivable from the facts that Mr. Han could have acted intentionally in misrepresenting the state of Envioris patent ownership. At the very least, this Court believes that the alleged facts give rise to a strong inference Mr. Han acted recklessly in representing to Mr. Cariucci that Envión possessed an “exclusive patent to the Envión Oil Generator technology.”

b. Alleged representation that “Envión had a ‘done deal with Gazprom’ ”

Representations about business dealings may be actionable when properly supported by facts demonstrating their falsity. For example, in Dunn v. Borta, 369 F.3d 421, 431 (4th Cir.2004), the Fourth Circuit held that representations that the defendant was in negotiations with certain distributors — all major companies — were material. As this Court found in its prior Memorandum Opinion, representations regarding the defendant’s “business dealings and prospects are not simply sales pitches but rather can be proven true or false-and, if properly supported, could be found material by a reasonable jury.” Id,.; see also Cooke v. Manufactured, Homes, Inc., 998 F.2d 1256, 1259 (4th Cir.1993) (representations about specific business projects, including negotiation of a profitable contract with an insurer, deemed actionable).

Plaintiff has pleaded sufficient facts that permit a reasonable belief that Mr. Han’s statement that Envión had a “done deal” with Gazprom was false or misleading. Plaintiff has based his allegations upon, in part, information acquired from Mr. Lavigne du Cadet through his third-party consultation of Envión, which entailed extensive discussions with Mr. Han and participation in the negotiation of energy agreements with a foreign energy conglomerate, from as well as Envion’s former Chief Financial Officer, who is alleged to have had personal knowledge of Envion’s business dealings at the time. This Court believes that it is probable that these individuals would possess the information alleged. Indeed, Plaintiff has expressly alleged that Mr. Lavigne du Cadet informed him of the nonexistence of any such deal with Gazprom. Plaintiff has further supplemented their allegations by stating that their own investigation has demonstrated that no such agreement exists. Defendants have not offered anything to contradict this notion, and do not contend that any such agreement exists. Rather, Defendants assert that the present nonexistence of such an agreement does not necessarily mean that it never existed. However, Defendants have no offered any substantive facts or information that demonstrate their inference that any agreement such as the one represented existed at any point in the past.

Plaintiff has been tasked with the difficult burden of alleging facts that demonstrate the nonexistence of an agreement, an endeavor that does not necessarily lend itself to the production of substantive facts or evidence to support their conten