Full opinion text
LUCAS, District Judge. Opinion on Motions Directed to Complaint The occasion for this opinion is resolution of many defendants’ motions directed to the sufficiency of the pleadings in this litigation. The litigation arises out of an alleged securities fraud perpetrated through Equity Funding Corporation of America (hereinafter “EFCA”) and its subsidiaries. After more than eight years of public trading in EFCA securities, the S.E.C. suspended trading in the company’s securities on March 27, 1973. On April 2, 1973, reports describing the alleged fraud at EFCA were published in the press, and numerous investor suits were filed throughout the country. Most of the actions were transferred to the Central District of California for coordinated or consolidated pretrial proceedings before this Court, pursuant to the transfer and pretrial provisions of 28 U.S.C. § 1407. In Re Equity Funding Corporation of America Securities Litigation, 375 F.Supp. 1378 (J.P.M.L., 1974). After transfer of the actions, this Court held a first preliminary pretrial conference to organize the conduct of discovery and other pretrial matters. Subsequently, the Court issued its General Management Order No. 1, which established the structure of these pretrial proceedings, set up certain discovery schedules, and required the plaintiffs to file a Unified and Consolidated Complaint. The Court required that this pleading be served on all the defendants or their counsel authorized to accept service. The organized representatives of plaintiffs’ counsel thereupon filed the First Amended Unified and Consolidated Complaint (hereinafter the “Complaint”), the pleading to which the present motions are directed. The Complaint invokes subject matter jurisdiction of this Court pursuant to § 22 of the Securities Act of 1933, § 27 of the Securities Exchange Act of 1934 and various other jurisdictional statutes. The Complaint also purports to state claims for relief under state and common laws, and the doctrine of pendent jurisdiction is invoked with regard to these claims. Paragraph 5 of the Complaint catalogues the federal securities laws and other theories under which claims are asserted. In paragraphs 10-48, the Complaint sets out the alleged fraudulent activities related to EFCA and the acts of each defendant for which liability is claimed. The scheme described by the Complaint was carried out by certain officers and directors of EFCA, designated in the Complaint as “primary defendants.” The conduct of these defendants caused the records and financial statements of EFCA to show continued false and inflated rates of growth in the stated assets, incomes, and earnings of the company and its subsidiaries. This was done to influence the price of EFCA securities traded on the national securities exchanges, to induce purchase of those securities by others, and to influence stockholders in other companies acquired by EFCA to exchange their stock in those companies for EFCA securities. From 1964 through April 2, 1973, the price of EFCA securities was inflated on account of the fraudulent activities at EFCA. The misstatements about EFCA’s growth and financial condition were achieved, and EFCA’s true financial condition concealed through a number of fraudulent devices. These included false entries in the books, records, and financial reports of EFCA and its subsidiaries, use of foreign corporations to create fictitious and inflated assets for EFCA, and a method by which bogus life insurance policies were created for the files of Equity Funding Life Insurance Company (hereinafter “EFLIC”), a subsidiary of EFCA, then reinsured by unknowing companies or carried as assets by EFLIC. Loans were made to customers of EFCA and secured by mutual funds purchased by these same customers. These “premium funded loans” were listed as assets by EFCA, although by 1972, the amount of fictitious loans entered in the “premium funded loan” account reached a rate of $2,000,000 per month. Many filings were made with public agencies, all of which included false statements or misleading omissions necessary to conceal the scheme and inflate the value of EFCA securities. Other aspects of the scheme are also alleged in the Complaint. The fraud at EFCA was continued for eight years with the aid, complicity, and neglect of many persons or business entities outside the EFCA structure that knew or should have known about the fraud. These persons or entities are named as “aider and abettor” defendants in the Complaint. They include the accountants for EFCA and its subsidiaries, underwriters for EFCA debenture issues, a firm that did actuarial work for EFLIC from 1966 on, a group of defendants that sold EFCA securities between March 6, 1973 and March 27, 1973, the national stock exchanges on which EFCA securities were traded, certain national banks that extended credit to EFCA, a non-subsidiary insurance company with which EFCA and EFLIC did business, the states of Illinois and California, in which EFLIC was incorporated or did business, and a number of other defendants. According to the Complaint, there were certain “significant transactions” involved in the fraudulent scheme — a 1970 merger of Liberty Savings and Loan Association (hereinafter “Liberty”) with EFCA, EFCA’s 1971 merger with Bankers National Life Insurance Company (hereinafter “BNL”), and a 1969 EFCA acquisition of Ankony Angus, Inc. and Ankony Hyland Angus, Inc. (hereinafter collectively “Ankony”). The specific allegations with respect to these transactions and the conduct of each defendant will be described more fully below. The Complaint sets out the plaintiffs’ claims in fourteen separate counts. Counts I through IV and XII are identical to the extent they purport to state claims against all the primary defendants and most of the aiders and abettors. Each of these counts incorporates the allegations described above, then states, “[t]he conduct of each defendant constitutes violations of the federal securities laws.” Common law negligence claims against the “aiders and abettors” and common law fraud and breach of fiduciary duty claims against the primary defendants are asserted. Each count says the primary defendants’ conduct was intended to deceive the plaintiffs and to induce plaintiffs’ trust in the market place. Plaintiffs say they relied on the integrity of the market place in their purchases of EFCA securities. The first four counts and Count XII differ only with regard to whom the plaintiffs are in each count. Count I plaintiffs are described as “all open market purchasers of EFCA securities.” No period limitations are placed on this group except insofar as EFCA securities were traded on the open market between 1964 and 1973. No distinction is made among purchasers of different types of securities. Attached to the Complaint is a list of the named plaintiffs who purportedly fall within the open market purchaser category. Some of these plaintiffs assert claims only for themselves, others bring their claims as representatives of a class of all open-market purchasers. Count II is brought on behalf of “all original issue purchasers of EFCA 9V2% debentures, due 1990, with common stock purchase warrants, as offered in a prospectus dated December 6, 1970, or the warrants alone.” As with Count I plaintiffs, the names of the individual and class representative plaintiffs that fall within this category are listed in an exhibit to the Complaint. The Complaint does not allege any particular date of purchase by any particular plaintiff, except as the date falls within the broad time period covered by the definition of “original issue purchaser.” Count III plaintiffs are “original issue purchasers of EFCA 5V2% Subordinated Debentures, Due 1991, issued December 1971.” The name of each individual and class representative plaintiff is given, but no specific dates of purchase are alleged. Count IV plaintiffs are those who exchanged their Liberty Savings & Loan stock for EFCA common stock pursuant to a merger agreement between EFCA and Liberty, approved by Liberty stockholders on September 14, 1970. The names of these individual and class representative “Liberty exchange of stock purchasers” are again provided by exhibit. Count XII is brought by eight named individuals who acquired EFCA • securities in June, 1969 under an agreement with EFCA and pursuant to a plan of reorganization that pertained to the Ankony companies. These plaintiff’s stock in the Ankony companies was conveyed to EFCA in exchange for EFCA securities and cash, pursuant to the agreement and plan of reorganization. Count V of the Complaint is similar to Counts I through IV and XII, except another defendant, Fidelity Corporation (hereinafter “Fidelity” is added to the count, and it is brought only on behalf of those plaintiffs who exchanged their stock in BNL for EFCA securities, pursuant to a May 26, 1971 merger agreement, amended August 23, 1971. The merger agreement provided for the acquisition of BNL by EFCA. Again, the named representatives of the class of BNL exchange of stock purchasers are listed in an exhibit to the Complaint. Count VI of the Complaint is brought on behalf of the same plaintiffs and class as Count V, the BNL exchange of stock purchasers, against four national banks not named in the first five counts or Count XII. Defendant First National City Bank of New York (hereinafter “FNCB”) acted as agent for the other defendant banks and as lender and loan manager in connection with a loan to EFCA by the banks. This $50,-000,000 loan was collateralized in part, by the BNL stock acquired by EFCA in the BNL-EFCA merger. FNCB now holds the stock and asserts a lien thereon. FNCB knew EFCA could not enter into any transactions that involved, among other things, the pledge of BNL shares as collateral for loans or the hypothecation of BNL securities, unless the New York Superintendent of Insurance was notified and did not object to the transaction. These conditions were not met prior to the loan. The claims in this count are made against the four lending banks. The claims are based on the “federal. securities laws and the insurance laws of the States of New York and New Jersey, and the due process clause of the 14th amendment of the United States Constitution.” The plaintiffs, who are asking for, among other things, rescission of the BNL-EFCA merger, seek a declaration that the lien imposed on the BNL stock is void and of no effect on account of the alleged breaches of these laws by the defendant banks in connection with the loan transaction. Counts VII and VIII pertain to trading of EFCA securities within a relatively short period of time just preceding the suspension of trading by the S.E.C. On or about March 6 or 7, 1973, Ronald Secrist, a former officer of EFCA, EFLIC, and BNL, met with Raymond Dirks, an insurance analyst and Senior Vice-President of the Dirks Brothers Division of Delafield Childs, Inc., a member firm of the New York Stock Exchange, and told Dirks about many of the fraudulent practices at EFCA. Between March 6, 1973, and March 27, 1973, Dirks investigated and confirmed this information with other officers and directors of EFCA and EFLIC, then “privately advised, directly or indirectly, certain selected persons, including all of the Selling Defendants, of the information he had received about the fraud involving EFCA and EFLIC.” Among the persons so informed are the Count VII and VIII trading defendants. Between March 6 and 27, 1973, these defendants sold EFCA securities on the New York Stock Exchange or other national exchanges, for themselves or on behalf of their clients, without disclosing the information they had received from Dirks. These sellers knew disclosure of the information withheld would “drastically adversely affect the market value of EFCA common stock and other EFCA securities.” These defendants benefitted from their trading without disclosure, because the sales were made at a higher price than would have been possible had the material information about EFCA been disclosed to the public prior to sale. Plaintiffs would not have purchased their EFCA securities if they had known of the information available to the trading defendants. The Count VII and Count VIII claims are based on § 17(a) of the 1933 Act, § 10(b) of the 1934 Act and Rule 10b-5 thereunder. Count VII differs from Count VIII only in the plaintiffs described by the count. Count VII is brought only on behalf of those who purchased their EFCA securities between March 6 and 27, 1973, and Count VIII is brought on behalf of all those who held their securities through March 27, 1973, regardless of the purchase date, or those who sold their securities between March 6 and 27,1973, without knowledge of the fraudulent scheme. An exhibit to the Complaint lists the individual and class-representative plaintiffs for each count, but gives no information concerning the type of security purchased or date of purchase or sale. Count IX plaintiffs, described as “all holders of 5V2% debentures,” make claims in this count against the same banks named as defendants in Count VI. Count IX is based on the loan transaction set out in Count VI. The claims against FNCB are based on its dual role as indenture trustee for the EFCA 5V2% debenture issue and as loan manager on the loan to EFCA. The other banks are named defendants as partners and joint venturers in the loan to EFCA. Count IX says these defendants “violated the federal securities laws, including the Trust Indenture Act and the banking and securities laws of the State of New York,” and asserts defendants’ conduct constitutes a common law breach of fiduciary duty to Count IX plaintiffs. The relief sought against the banks by these plaintiffs is a declaration that the sums owed by EFCA to the banks are junior and subordinate obligations to the sums owed these plaintiffs by EFCA. Count X is brought by holders of EFCA 9V2% debentures against Chemical Bank, the indenture trustee for that debenture issue. This claim is based on Chemical Bank’s alleged breaches of the federal securities laws, including the Trust Indenture Act. This wrongful conduct includes sales of EFCA securities by Chemical Bank after it obtained confidential inside information about the EFCA fraud some time after March 6,1973. The Complaint asserts these sales were made without disclosure of that information to the debenture holders or the investing public. Count XI was originally included in the Complaint as an interpleader count. It involved certain aborted sales of EFCA securities on March 26, 1973. Prior to submission of defendants’ motions directed to the sufficiency of the Complaint, the Court dismissed this count, without prejudice, pursuant to Fed.R.Civ.Pro. 41(a)(2). Counts XIII and XIV of the Complaint are both set out as claims by single plaintiffs against certain of the defendants who traded EFCA securities in the March 6 to 27, 1973 period. These claims are based on block transactions involving EFCA securities. These sales took place in March, 1973. Count XIII’s sole plaintiff, Lawton Corporation, asserts that on March 21, 1973, March 23, 1973, and March 26, 1973, it purchased substantial blocks of EFCA common stock from certain defendants or their agents. The defendant sellers of this stock had received the Dirks information about the fraud at EFCA, knew about the fraud at EFCA, and failed to disclose that information to Lawton when the March 21, 23, and 26 sales were made. Claims for damages or rescission are made by Lawton under various provisions of the federal securities laws and under theories of fraud and deceit. Count XIV’s plaintiff, Salomon Brothers, a registered broker-dealer in securities, makes claims against certain of the trading defendants based on three transactions involving large blocks of EFCA bonds and common stock. Salomon claims it purchased approximately 3,000 bonds, principal amount $1,000, on March 16, 1973. This purchase was for Salomon’s own account, and the Complaint says the defendant sellers of these bonds knew of and failed to disclose the EFCA fraud at the time of the sale. Salomon was contacted by other institutional investment companies on March 26, 1973, concerning the possibility of purchases by Salomon of EFCA common stock. In this transaction, Salomon acted as a middleman or principal purchaser in the transfer of hundreds of thousands of shares of EFCA common stock from the defendant sellers to either itself, other brokers, or open-market purchasers of the stock. In the third transaction described by Count XIV, Salomon acted as the selling agent for defendant Savings & Profit Sharing Pension Fund of Sears Roebuck and Co. Employees, and as purchasing agent for certain of its own customers. This was a sale of a large block of EFCA common stock by the Sears Fund on March 26, 1973. The Sears Fund and the defendants involved in the second transaction knew about the EFCA fraud and did not disclose this information at the time of the transactions described in Count XIV. Salomon asserts it had no knowledge of the fraud or the rumors about the fraud at the time the transactions for which liability is claimed took place. Salomon asks for damages, rescission, and declaratory relief based on various provisions of the federal securities laws. As an appendix to the Complaint, the plaintiffs have provided a list of sixteen “actions not integrated with unified and consolidated actions,” with a brief description of the nature of those non-integrated actions. They include actions presenting individual factual or legal issues that do not fit the pattern cut by the Complaint. Since the filing of the Complaint, a number of other actions have been transferred to this Court by the Judicial Panel or filed in the Central District of California and transferred to this Court pursuant to Local Rules. This opinion is not addressed to the non-integrated or “tag-along” actions, except insofar as any ruling with regard to the Complaint will be followed if similar issues are raised by the “tag-along” or non-integrated complaints. The Court now turns to the motions directed to the sufficiency of the Complaint and other issues properly raised at this stage of the proceedings. Propriety of the First Amended Unified and Consolidated Complaint Many defendants in this litigation object to the filing of the First Amended Unified and Consolidated Complaint. Although this objection appears tied to the objections to jurisdiction, venue, and the substantive claims made, there is also offered the distinct argument that consolidation of the many actions arising out of the EFCA fraud into one amended complaint is not within the power of this Court. Fed.R.Civ.Pro. 42(a) provides: “When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” Similarly, 28 U.S.C. § 1407(a) provides in part: “When civil actions involving one or more common questions of fact áre pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. In accordance with these provisions, the Court ordered the filing of the First Amended Unified and Consolidated Complaint in this litigation. The actions from which the Complaint was fashioned involve common questions of law and fact concerning the nature, scope, and legal consequences of the fraud at EFCA. This core issue is central to all the proceedings before this Court in M.D.L. Docket No. 142. Consolidation of all pretrial proceedings in this litigation is, therefore, permitted by Fed.R. Civ.Pro. 42(a) in conjunction with § 1407(a). Certain defendants claim, however, that an order of consolidation cannot include an order requiring the consolidation of pleadings as accomplished by the Complaint. In support of this contention, defendants rely on Johnson v. Manhattan Railway, 289 U.S. 479, 53 S.Ct. 721, 77 L.Ed. 1331 (1933); Garber v. Randell, All F.2d 711 (2 Cir. 1973); MacAlister v. Guterma, 263 F.2d 65 (2 Cir. 1958); and National Nut Co. of California v. Susu Nut Co., 61 F.Supp. 86 (N.D.Ill.1945). The courts in each of these cases recognized the discretionary power of the district court to fashion consolidated pretrial procedures to further the administration of justice. Johnson v. Manhattan Railway, supra, 289 U.S. at 496, 53 S.Ct. at 727-28, 77 L.Ed. at 1344; Garber v. Randell, supra, at 714; MacAlister v. Guterma, supra, at 68-69; and National Nut v. Susu Nut, supra, at 86. In Garber, for example, the court stated: “We have recognized that consolidation of stockholders’ suits during pretrial stages pursuant to Rule 42 F.R.Civ.P. may benefit both the court and the parties by expediting pretrial proceedings, avoiding duplication and harassment of parties and witnesses, and minimizing expenditure of time and money by all persons concerned, [citing MacAlisterat 714. Although the effect of such pretrial consolidation is not and cannot be to “merge the suits into a single cause, or change the rights of the parties, or make those who are parties in one suit parties in another,” Johnson v. Manhattan Railway, supra, 289 U.S. at 496-97, 53 S.Ct. at 727-28, 77 L.Ed. at 1344 — 45. See also, Garber v. Randell, supra, at 715; In Re Massachusetts Helicopter Airlines, Inc., 469 F.2d 439, 441-42 (1 Cir. 1972); and MacAlister v. Guterma, supra, at 69, the consolidation of pleadings for pretrial purposes is within the discretionary power of the district court, particularly in the context of complex pretrial proceedings pursuant to 28 U.S.C. § 1407(a). Katz v. Realty Equities Corporation, 521 F.2d 1354 (2 Cir. 1975). Fed.R.Civ.Pro. 42(a) limits the court’s power to order consolidation of pleadings to instances where such an order “may tend to avoid unnecessary costs or delay.” It is beyond question the consolidated complaint serves this purpose in this litigation. With regard to the present motions, for example, the court has been able to receive memoranda and hear argument directed to one coherent pleading. Likewise, argument and consideration of class action issues has been made considerably easier by the consolidated complaint, because the court has not had to go through varying and conflicting class allegations that may have been stated in each separate complaint. The burdens of discovery management are lessened by the existence of this consolidated pleading as a reference point. More mundane clerical and administrative details, matters of significant consequence in litigation of this size, have also been made much less burdensome to counsel and the court by the use of the consolidated complaint. Had the court not required the consolidation of pleadings in this litigation, the result could only have been considerable confusion and delay of all pretrial matters caused by an unmanageable hodge-podge of more than one hundred separate actions, each of which would inevitably present its own peculiar problems not related to a just resolution of merits of the claims and defenses present in this litigation. This Court is of the opinion that without resort to the device of the consolidated complaint remand of actions for trial as provided for by § 1407(a) and resolution of any of the actions for which trial will be had in this district could not take place for a number of years. Simply stated, completed pretrial of the actions included in M.D.L. Docket No. 142 would have been impractical without the consolidated complaint. The cases also limit the power of the court to order consolidated pleadings where such consolidation causes serious prejudice to the right of a party to litigate its claims or defenses. Katz v. Realty Equities Corp., supra, at 1360-62; Garber v. Randell, supra, at 717. Defendants attacking the propriety of the Complaint in this litigation have not shown that any such prejudice has accrued by reason of the consolidation of pleadings in this litigation. The filing of the Complaint in this litigation was proper and in accordance with the provisions of Fed.R.Civ.Pro. 42(a) and 28 U.S.C. § 1407. The Complaint as an Amendment By leave of this Court, the Complaint added new claims and joined new parties to this litigation that had not previously been included in any of the underlying complaints. It also disposed of certain claims that had been made in those complaints. The Court does not find anything in the nature or timing of the amendments accomplished by the Complaint that would require this Court to rule them inappropriate under Fed.R.Civ.Pro. 15(a) and 21. The claims in both the underlying and consolidated complaints arise out of the alleged fraud at EFCA and the purchase of EFCA securities by the plaintiffs, allegedly induced by the conduct of the defendants named in the Complaint, including those defendants added to this litigation for the first time by the Complaint. Each defendant has been and will be afforded full opportunity to present its defenses in this litigation. The addition of new claims and parties affected by the Complaint is proper pursuant to Fed.R.Civ.Pro. 15(a) and 21. Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); Holiday Publishing Co. v. Gregg, 330 F.Supp. 1326 (S.D.N.Y.1971). Certain defendants argue this Court has no power to allow amendments to the transferred pleadings, because 28 U.S.C. § 1407 allows transfer only of “pending” actions, and defendants would read this to bar addition of claims or parties to those actions after transfer. Fed.R.Civ.Pro. 15 and 21 apply to pretrial procedure, and thus allow amendment of complaints transferred pursuant to 28 U.S.C. § 1407. Only pending actions can be transferred pursuant to § 1407, but this does not mean the transferred actions are no longer subject to the same procedures as any other action at the pretrial stages. The “pending” clause of § 1407 describes a limitation on the power to transfer actions under the statute. It does not affect the power of the transferee court to fashion pretrial procedures in accordance with the Federal Rules of Civil Procedure once transfer is complete. Personal Jurisdiction Certain named partners of the accounting firm of Wolfson, Weiner, Ratoff, & Lapin object to this Court’s exercise of personal jurisdiction over them in these proceedings. These defendants were not named or served in any of the actions now included in M.D.L. Docket No. 142, prior to the filing of the First Amended Unified and Consolidated Complaint. They have filed affidavits that state they reside and do business only outside the state of California, although they do not dispute the allegations in the Complaint that they were partners in Wolf-son at some time during the period encompassed by the allegations against Wolfson in the Complaint. These defendants argue they are not amenable to suit in this district because they do not have the “minimum contacts” necessary under the Due Process Clause of the 5th Amendment. This court finds the alleged partnership interest of these defendants in the Wolf son firm is sufficient to support jurisdiction over these defendants. This is true even under the 14th Amendment “minimum contacts” analysis of International Shoe v. State of Washington, 326 U.S. 310, 65 S.Ct. 154, 90 L.Ed. 95 (1945), which has been construed as a stricter test than is required under the 5th Amendment Due Process Clause, Oxford First Corp. v. PNC Liquidating Corp., 372 F.Supp. 191 (E.D.Pa.1974). The Wolf son firm plainly did a great deal of work in this district, including its audits and service for EFCA. A partnership interest in a firm that does substantial business in a particular jurisdiction over a long period of time evidences a continuing business relationship with the jurisdiction that satisfies the “minimum contacts” test, particularly where, as here, the claims made against the defendant arise out of the partnership’s business in the forum state. These defendants’ motions to dismiss for lack of personal jurisdiction are, therefore, denied. The Boston Company, Inc. and Boston Safe Deposit & Trust Co. challenge the in personam jurisdiction on different grounds. By affidavit from executives of each company, these defendants assert they did not commit any acts that would make them liable under either the Securities Act of 1933 or the Securities Exchange Act of 1934. They also say they do not transact business in any of the jurisdictions in which they have been named or served with complaints in any of the underlying actions transferred to this court and are not inhabitants of or “found” in such districts. Thus, these defendants argue, personal jurisdiction does not lie in this court or in any of the transferor districts in which actions were originally brought against them. If the factual assertions made by these defendants are true, this court would be without jurisdiction over these defendants. On the other hand, considering the pleadings and the affidavits and exhibits on file in this litigation in the light most favorable to the plaintiffs, as this court must, where the jurisdictional facts are “so inextricably intertwined with the facts necessary to prove ultimate liability that it would be unfair to dismiss for lack of personal jurisdiction at this preliminary stage,” Oxford First Corp. v. PNC Liquidating Corp., supra, at p. 193, ftnt. 2, this court concludes The Boston Company, Inc. and Boston Safe Deposit & Trust Co. have sufficient contact with the transferor forums to require denial of their motions for dismissal for lack of personal jurisdiction. The motions of these defendants to dismiss on this ground are, therefore, denied. Finally, Fidelity Corporation, not a defendant at the time of transfer in any of the actions transferred here by the order of the Judicial Panel, has moved to dismiss the claims made against it in the Complaint for lack of personal jurisdiction. Aside from its participation as a plaintiff in these proceedings, the record shows this defendant would not be amenable to suit in this district. Fidelity’s appearance in these proceedings, however, constitutes a waiver of objections it may have had to this Court’s exercise of jurisdiction over it as a defendant party to the claims made against it in Count V of the Complaint. Fidelity’s motion to dismiss the claims made against it for lack of personal jurisdiction are, therefore, denied. Venue Certain defendants raise what they term as objections to venue in the Central District of California. Assuming this Court would find venue improper as to any claims or parties in this litigation, dismissal of those claims is not warranted at this time. A statutory alternative to dismissal of claims filed in a district where venue is improper is an order pursuant to 28 U.S.C. § 1406(a) that transfers the action to a district where “the action could have been brought.” This Court does not begrudge any defendant its right to such a transfer in these proceedings where it can be demonstrated venue does not lie in the Central District of California. On the other hand, as a practical matter, were such claims to be transferred at the present time in accordance with § 1406(a), the final outcome presumably would be application to the Judicial Panel for transfer to this court for pretrial proceedings pursuant to 28 U.S.C. § 1407 and grant of that application, followed by eventual remand of such claims, if appropriate, when the time comes for trial. Rather than engage in this futile and wasteful exercise, the court will retain such claims for pretrial purposes until such time as the pretrial proceedings in this litigation have reached the stage where remand or transfer of such actions becomes appropriate.. Defendants have interposed their objections to venue and they will, therefore, be able to raise those objections again when venue considerations become meaningful as a practical matter. Defendants argue, however, that Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964), requires resolution of the venue issues at this time in order to allow application of the substantive law of various transferor forums to the issues raised by defendants on these motions and throughout the litigation. This court is confident that able counsel for the parties in this litigation are capable of directing this court to those splits in authority among the Circuits that are material in this litigation, and where applicable, the Van Dusen rule will be followed. This result can be accomplished without going through the burdensome and unnecessary § 1406(a) transfer followed by another § 1407 re-transfer to this district. The national banks named in Counts VI and IX of the Complaint point out the special venue provisions of the National Banking Act, 12 U.S.C. § 94, provide that “actions and proceedings” against any bank “may be had” where the national bank “may be established.” For the purpose of the present motions, this court will assume the bank defendants are correct in stating that venue with regard to the claims stated against them in the Complaint lies only in those districts where they have been established. These defendants concede, however, § 94 of the National Banking Act does not preclude § 1407 transfer of actions against them without reference to the venue requirements of § 94, In re Great Western Ranches Litigation, 369 F.Supp. 1406 (J.P.M.L.1974). They ask for dismissal of claims stated against them by plaintiffs who did not bring original actions in those districts where venue would be proper under § 94. Even under § 94, however, an alternative to dismissal of claims brought in an improper district is transfer of the action to the correct forum. Again, this court finds such a transfer would be appropriate in these circumstances on those claims for which venue might be improper under § 94. For the reasons discussed with regard to the other defendants above, this court will postpone transfer of these claims until the pretrial work of this court, pursuant to § 1407, is complete. Defendants’ motions also attack many of the substantive claims made by the Complaint. This opinion will take up the arguments of each defendant below, but there are a few issues that recur in most of the motions, and are applicable to all. The court will attempt to make some preliminary judgments about these issues. Aider and Abettor Liability The nature of the liability, if any, that accrues to each defendant in this litigation for the acts of other defendants connected with the EFCA fraud is an issue central to the motion of almost every defendant. The plaintiffs would have this court hold the “aider and abettor” defendants liable for all the wrongful conduct of all the primary defendants, regardless of how or when the particular “aider and abettor” defendant became aware of or involved in the fraud. Thus, for example, Count I of the Complaint asserts a federal securities law claim on behalf of all who ever purchased an EFCA security on the open market against all the defendants, except the national banks and Fidelity. This count makes no distinction between those who engineered the scheme from the beginning and those who somehow became involved in the fraud at a later date. The applicable law, however, makes such a distinction. Plaintiffs’ concept of aiding and abetting liability in this litigation requires proof of three elements — (1) wrongful conduct by a primary actor; (2) assistance to or participation in that wrongful conduct by the aider and abettor; and (3) the aider and abettor’s knowledge of the wrong, or a breach of some duty of care by the aider and abettor that prevents discovery of the wrong. Once these elements are established, argue the plaintiffs, the aider and abettor’s liability is “equal to that of the perpetrators themselves.” Kerbs v. Fall River Industries, Inc., 502 F.2d 731, 740 (10 Cir. 1974). This list of elements needed to establish aider and abettor liability in securities fraud actions is incorrect, however, because it is incomplete. In addition to harm done by the principals, assistance or participation by the aider and abettor, and knowledge or breach of duty by the aider and abettor, the plaintiffs must also show some causal connection between the conduct of the aider and abettor and the harm done plaintiffs by the principals before liability can attach to the conduct of the aider and abettor. Apart from the omission of the causation requirement, the court does not disagree with the general elements plaintiffs contend will establish aider and abettor liability under certain of the federal securities laws. Where a person or business entity knowingly gives aid and assistance to a securities fraud perpetrated by another, the regulatory or deterrent purposes of the securities laws will best be served by allowing persons injured by the wrongs to get relief from those aiders and abettors, as well as the principal wrongdoers. Hochfelder v. Ernst & Ernst, 503 F.2d 1100 (7 Cir. 1974), cert. granted, 421 U.S. 909, 95 S.Ct. 1557, 43 L.Ed.2d 773 (1975); Hochfelder v. Midwest Stock Exchange, 503 F.2d 364 (7 Cir. 1974), cert. den., 419 U.S. 875, 95 S.Ct. 137, 42 L.Ed.2d 114 (1975); Kerbs v. Fall River Industries, supra; Strong v. France, 474 F.2d 747 (9 Cir. 1973); See, Ruder, Multiple Defendants in Securities Fraud Cases; Aiding and Abetting, Conspiracy, in Pari Delicto, Indemnification, and Contribution, 120 Pa.L.Rev. 597 (1972). Furthermore, the kind of assistance required to establish liability under this theory can, in some instances, take the form of inaction or failure to disclose or investigate an on-going fraud. See, Hochfelder v. Ernst & Ernst, 503 F.2d at 1104; Hochfelder v. Midwest Stock Exchange, 503 F.2d at 374; Kerbs v. Fall River Industries, supra, at 739-740. Those with a special duty.to a class of investors do not escape liability merely because they did not find out about a securities fraud they would have discovered and should have disclosed in the proper exercise of the duties imposed on them by law. Hochfelder v. Ernst & Ernst, supra; Hochfelder v. Midwest Stock Exchange, supra. Accordingly, this court will sustain plaintiffs’ claims against defendants that assisted another’s wrongful conduct that harmed the plaintiffs, where the aider and abettor defendant knew or would have known, but for the breach of some legal duty owed the plaintiffs, of the wrongfulness of the principal’s conduct. The general rule formulated here does not, however, support the broadest of plaintiffs’ aiding and abetting claims. Plaintiffs would hold defendants that may have knowingly or negligently assisted certain wrongful acts of other principal defendants liable for all the wrongful conduct of the principal defendants. If this contention were accepted, a defendant not involved with the scheme until 1971, for example, would be held liable for the conduct of the principal defendants that took place as far back as 1965. The plaintiffs have presented no argument or authority in support of this result. Without resort to conspiracy theories, none of which are present in this case, plaintiffs’ contention does not make sense. As stated above, there must be some causal connection between the culpable conduct of the aider and abettor and the harm to the particular plaintiff. In actions based on § 10(b) of the 1934 Act or Rule 10b-5 thereunder, moreover, there must be a causal connection between the conduct of the defendant and the purchase or sale of a security by the plaintiff. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). In the circumstances described by the Complaint, it will be impossible for plaintiffs to prove any causal connection between the federal securities law harm done a purchaser of EFCA securities and the assistance a defendant may have given the fraud at a date subsequent to that purchase. Thus, no defendant will be held liable for the conduct of any primary defendant that occurred prior to the time at which it is proved the secondary defendant became an aider and abettor as that term is defined above. There are other limitations on the plaintiffs’ aider and abettor claims. Most of the statutes on which plaintiffs base these claims specifically limit the categories of persons that can be held liable under those statutes. § 11 of the 1933 Act, for example, imposes potential liability only on signators to the registration statement, directors or partners of the issuer or those so named, accountants or other professionals that certify or prepare work appearing in the statement, and underwriters. § 12 of the 1933 Act limits liability to those who are sellers of the security purchased by the plaintiff, although the term “seller” as used in § 12(2) may include others than the person who actually passes title. In re Caesars Palace Securities Litigation, 360 F.Supp. 366 (S.D.N.Y.1973). The only statutes relied on by plaintiffs that do not include similar limitations are § 17 of the 1933 Act and §§ 10(b) and 14 of the 1934 Act. This court is of the opinion that where a statute specifically limits those who may be held liable for the conduct described by the statute, the courts cannot extend liability, under a theory of aiding and abetting, to those who do not fall within the categories of potential defendants described by the statute. To impose such liability would circumvent thé express intent of Congress in enacting these statutes that proscribe narrowly defined conduct and allow relief from precisely defined parties. Failure to Plead Fraud with Particularity Defendants’ motions also contend the Complaint does not plead fraud with the particularity required by Fed.R.Civ.Pro. 9(b), or is so vague as to require amendment in order to allow defendants a reasonable opportunity to frame a responsive pleading. For the most part, these objections are not well-taken. The Complaint is necessarily general in some respects since it encompasses events, transactions, and conduct that span an eight-year period. On the other hand, the Complaint describes the conduct of most of the defendants with particularity sufficient to satisfy the requirements of Fed.R.Civ.Pro. 9(b). The course of conduct that is the underlying fraud is set out with a description of the allegedly fraudulent mechanisms employed by its perpetrators. It could hardly be necessary for plaintiffs to enumerate the date of each false entry on the books at EFCA, for example, in order to meet the requirements of Rule 9(b). Such a requirement would defeat the purpose of the “short, plain and concise” requirements of Rule 8. Nor is it necessary for the complaint, once it has adequately identified a particular defendant with a category of defendants allegedly responsible for some continuing course of conduct, to plead more than the group conduct of the defendants. Except as indicated in the notes to this opinion, the Complaint adequately pleads the specific conduct of each defendant to satisfy the requirements of Fed.R.Civ.Pro. 9(b). The court turns now to the specific objections raised by each defendant or group of defendants by their motions. In these sections of the opinion, the court will describe the claims made against the defendant or defendants and discuss and rule on the motions of each as those motions raise issues not previously discussed or as they raise particular nuances of the issues covered above. Equity Funding Corporation of America The Complaint names EFCA as a “primary defendant” and asserts claims against it in Counts I through V and XII. EFCA is currently undergoing reorganization pursuant to Chapter X of the Bankruptcy Act. The district court judge presiding over the reorganization of EFCA has enjoined and stayed, until final decree of the Reorganization Court, the commencement or continuation of “any action at law or suit or proceeding in equity . . by various categories of persons and entities that include all the plaintiffs in this litigation, pursuant to 11 U.S.C. § 516(4). Plaintiffs do not dispute that Judge Pregerson’s order is within his power as the district judge presiding over EFCA’s reorganization. The order would, at the very least, require these plaintiffs to wait until the final decree is entered in those proceedings before they amend or consolidate their claims against EFCA as they attempt to do in the Complaint. This alone would be sufficient ground to dismiss EFCA from the Complaint, although such dismissal would be without prejudice to future amendment of the pleadings in this litigation to include claims against EFCA that are not resolved by the Reorganization Court, if the plaintiffs showed such amendment was timely and not so prejudicial as to be precluded. EFCA also argues, however, that pursuant to 11 U.S.C. § 11, read in conjunction with 11 U.S.C. §§ 502, 506(1), 596, all the claims made by plaintiffs in this litigation are “unliquidated contingent claims” within the ambit of § 506(1), and thus are within the exclusive jurisdiction of the Reorganization Court. The plaintiffs have not attempted to refute this argument or conclusion, but ask that the claims against EFCA not be dismissed at this time because such dismissal might be prejudicial. Any claims plaintiffs in this litigation might have against EFCA based on the activities of EFCA or the purchases of EFCA stock by plaintiffs are within the exclusive jurisdiction of the Reorganization Court, and are dismissed because this court lacks jurisdiction over the subject matter of such claims. Marvin A. Lichtig, William Mercado These defendants are named as “primary defendants” in the Complaint. Lichtig was an “EFCA Executive Vice President, Director,” and Mercado was an “EFCA Vice President.” No specific acts are attributed to either of these defendants by the Complaint, except insofar as they fall within the category of “primary defendants” to which the course of fraudulent conduct at EFCA is ascribed. These defendants are named in Counts I through V and XII. They move to dismiss the common law fraud claims asserted against them in these counts on the grounds that the counts fail to allege their conduct was the proximate cause of any loss suffered by the plaintiffs, fail to allege reliance by the plaintiffs on any false statement or misleading omissions made by these defendants, and fail to state the “actual or approximate extent of any loss or damage.” Their arguments are based on California substantive law. Under California law, in order to recover for fraud, plaintiffs must show that they relied to their detriment on the material misrepresentation(s) of the defendants. Vasquez v. Superior Court of San Joaquin County, 4 Cal.3d 800, 94 Cal.Rptr. 796, 484 P.2d 964 (1971); Ach v. Finklestein, 264 Cal.App.2d 667, 40 Cal.Rptr. 472 (1968). The plaintiffs have alleged the reliance element necessary to sustain a fraud claim under California law against these defendants. In Paragraph 22(d)(1) of the Complaint, for example, it is alleged these defendants and others disseminated EFCA and EFLIC financial statements “for the purpose and with the effect of influencing and manipulating the price of Equity Funding securities and for the purpose and with the effect of influencing open market purchasers of EFCA securities to purchase such securities.” In Paragraphs 22(d)(2) and (3) the “purpose and effect” allegation is repeated as it pertains to the debenture purchasing plaintiffs and the Ankony, Liberty, and BNL exchange of stock purchasers. This allegation of “purpose and effect,” coupled with the clear materiality of the misrepresentations alleged, satisfies the reliance and causation requirements imposed on pleadings that assert fraud claims in California. It is also true actual damage caused by defendants’ conduct must be pleaded in order to sustain a claim for fraud under California law. See Vasquez v. Superior Court, supra; Ach v. Finklestein, supra. The plaintiffs have stated in their pleading that the EFCA shares they purchased were worthless. This is an adequate pleading of damages caused by the defendants’ conduct to sustain a claim for fraud against these defendants under California law. The motions of Marvin Lichtig, joined by William Mercado and others, are, therefore, denied in their entirety. The Trading Defendants The “trading defendants” consist of a group of individual and institutional investors and their investment representatives that sold EFCA securities between March 6 and March 27, 1973, after finding out about the fraud at EFCA through Raymond Dirks sometime between those dates. These defendants are all named in Counts I through V, and VII and VIII and some are named in Counts XIII and XIV. Plaintiffs now state these claims are based on § 17(a) of the 1933 Act, § 10(b) of the 1934 Act and Rule 10b-5 thereunder, and the common law. As previously stated, no defendant can be held liable as an aider and abettor for acts of EFCA officers and directors or others that took place prior to the time at which the Complaint alleges culpable conduct by the aider and abettor itself. It is, therefore, readily apparent these defendants cannot be held liable under the federal securities laws for any harm suffered by reason of transactions that occurred prior to March 6, 1973, the earliest possible date these defendants became aware of the fraud. Furthermore, these defendants can only be held liable to those plaintiffs who purchased or sold their securities subsequent to the time within the March trading period at which the particular defendant breached some duty of disclosure or inquiry owed the plaintiffs. Applying these principles to the present Complaint, the claims against the trading defendants in Counts IV and V must be, and are, dismissed for failure to state a claim. These counts pertain to the BNL and Liberty exchange of stock transactions completed long before March 6,1973. Likewise Count II and III claims against these defendants are dismissed because they are based on purchases of debentures made pri- or to March 6, 1973. The Count I claims against these defendants are dismissed on the same basis. To the extent that Count I plaintiffs might include whose who purchased or sold EFCA securities within the March trading period, they are merely repeating claims they make in Counts VII and VIII. Certain aspects of the Count VII and VIII claims present more difficult problems than the first five counts. Count VIII makes claims against the March 6-27 sellers on behalf of those plaintiffs and the class of persons they represent who retained their securities through the March trading period, although they do not allege purchase within the March period. These plaintiffs contend they were induced to retain their securities by the failure of these defendants to disclose what they knew about EFCA. These claims are analogous to those of plaintiffs in Blue Chip Stamps v. Manor Drug Stores, supra, who alleged misrepresentations and omissions made in a prospectus induced them to refrain from purchase. As such, these claims are barred from recognition under § 10(b), Rule 10b-5, and § 17(a). It is true most of these plaintiffs purchased securities, but purchase is not the basis for their claims against these defendants, and, therefore, the Count VIII claims of these plaintiffs are dismissed. In Blue Chip Stamps, the Supreme Court specifically rejected these types of claims under § 10(b) and Rule 10b-5. Saying “Birnbaum was rightly decided,” 421 U.S. at 731, 95 S.Ct. at 1923, 44 L.Ed.2d at 547. The Court held, “. . . the plaintiff class for purposes of § 10(b) and Rule 10b-5 private damage action is limited to purchasers and sellers of securities.” 421 U.S. at 730, 95 S.Ct. at 1923, 44 L.Ed.2d at 547. Later in the opinion, the Court stated: “Three principal classes of potential plaintiffs are presently barred by the Birnbaum rule. . . . Second are actual shareholders in the issuer who allege that they decided not to sell their shares because of an unduly rosy representation or a failure to disclose unfavorable material. ...” 421 U.S. at 737-38, 95 S.Ct. at 1926, 44 L.Ed.2d at 550. The Count VIII plaintiffs basing their claims against the trading defendants on retention of EFCA securities fall precisely within this group of potential plaintiffs barred by Blue Chip Stamps. Count VIII also asserts claims against trading defendants on behalf of those who sold their EFCA securities during the March trading period without knowledge of the fraud at EFCA. Because the Complaint alleges these sales took place subsequent to March 6, 1973, these plaintiffs are within the class of plaintiffs who might state claims against the trading defendants under the purchaser-seller rule articulated in Blue Chip Stamps. These plaintiffs, however, have not alleged any causal connection between the loss, if any, they suffered on their March sales and the unlawful conduct of the trading defendants. The Count VIII claims made by plaintiffs who sold their EFCA securities within the March trading period without knowledge of the EFCA fraud, are, therefore, dismissed for failure to state a claim. Count VII is brought on behalf of those who purchased EFCA securities on the open market between March 6 and 27, 1973. Each trading defendant argues it cannot be held liable to any plaintiff who bases its Count VII claims on purchases that took place prior to actual sale of EFCA securities by the defendant without disclosure of the information it possessed about EFCA. These defendants argue that under such cases as S. E. C. v. Texas Gulf Sulphur Co., 401 F.2d 833 (2 Cir. 1968) and Shapiro v. Merrill Lynch, 495 F.2d 228 (2 Cir. 1974), the only possible conduct for which they can be held liable is a combination of sale and nondisclosure of inside information. Aside from plaintiffs’ aiding and abetting theory of recovery, this is the law, and these defendants will not be held liable to prior purchasers within the March trading period simply because they sold shares of EFCA securities without disclosure of the Dirks information at a later date. On the other hand, the Complaint adequately asserts sales without disclosure by these defendants beginning on March 6, 1973. The Complaint, therefore, states claims against these defendants on behalf of those who purchased their EFCA securities after that date. The Complaint also states these defendants aided and abetted violations of the federal securities laws by their course of conduct from March 6 through March 27, 1973, regardless of the date they actually sold EFCA securities. If it is proven, as the Complaint would allow, that a trading defendant possessed of the Dirks information as of March 6, 1973, failed to disclose that information, although the defendant knew others were selling EFCA securities without disclosing that information the other sellers also possessed, these defendants could be held liable as aiders and abettors of those sales. Informed of the fraud by Dirks, these defendants were under an obligation not only to refrain from selling their EFCA securities, but also to refrain from giving assistance to federal securities law breaches by Dirks or others with that information. Although the extent of this duty may not sustain the claims of prior purchasers once the factual basis for these claims is developed through discovery and trial, the Complaint pleads sufficient relation of all the trading defendants to Dirks and the other trading defendants to support these aiding and abetting claims. The plaintiffs have pleaded knowledge as of March 6, 1973, and some sales without disclosure as of that date, all of which have as their nexus the dissemination and unfair use of the Dirks information. Thus, Count VII claims against any one of the defendants named therein will not be dismissed at this time simply because a plaintiff purchased his securities during the March trading period but prior to any sale by the particular defendant. The trading defendants also argue they cannot be liable to those plaintiffs who do not plead or show they actually purchased their securities from these defendants. They concede, however, the case law is to the contrary. Shapiro v. Merrill Lynch, supra; Sargent v. Genesco, 492 F.2d 750 (5 Cir. 1974); Texas Continental Life Ins. v. Bankers Bond Co., 307 F.2d 242 (6 Cir. 1962). This court adopts the rationale of those decisions, and of the Shapiro court in particular: “We hold that defendants owed a duty— for the breach of which they may be held liable in this private action for damages — not only to the purchasers of the actual shares sold by defendants (in the unlikely event they can be identified) but to all persons who during the same period purchased Douglas stock in the open market without knowledge of the material inside information which was in the possession of defendants.” at page 237. In the present litigation, some of the actual purchasers of defendants’ securities may be identifiable, and plaintiffs Lawton and Salomon Brothers both allege they were the actual purchasers of certain blocks of EFCA securities sold by particular defendants. Even if these transactions turn out to be the only sales by these defendants, however, they can also be liable for breach of the duty they owed “to all persons who during the same period purchased [EFCA securities] on the open market without knowledge of the material information which was in the possession of defendants.” Identification of purchasers might well go to limit the remedies or damages available against these defendants, but the present motions do not require this court to make any determination about the issues at the present time. Shapiro v. Merrill Lynch, supra, at 241. Given the purpose of the federal securities laws as expressed in the opinions of various courts, that is, “to insure the integrity and efficiency of the securities markets,” Shapiro, at 237; and See Chris-Craft Industries v. Piper Aircraft Corp., 480 F.2d 341 (2 Cir. 1973), cert. den. 414 U.S. 910, 924, 94 S.Ct. 231, 234, 38 L.Ed.2d 148, 158 (1973), where massive trading without disclosure of material inside information on the national securities markets is alleged, the privity arguments made by the defendants must be rejected. The discussion above applies only to those claims made in Counts VII and VIII that are based on § 10(b) and Rule 10b-5. The trading defendants have also directed their motions to other provisions of the federal securities laws that plaintiffs now admit do not apply. These aspects of the trading defendants’ motions are granted in their entirety. This court likewise dismisses all common law or state law claims asserted against these defendants in Counts I through V and VIII on the ground that the federal claims stated in those counts are too insubstantial to warrant the exercise of federal jurisdiction over the pendent claims. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218, 228 (1966). This court is also unable to ascertain from the pleading the legal basis for the common law claims made in Count VII, and those claims are dismissed for failure to state a claim. In summary, all claims asserted against the trading defendants in Counts I through V and Count VIII are dismissed for failure to state a claim. All Count VII claims asserted against these defendants are dismissed except those based on § 10(b) and Rule 10b-5. New York Securities Co., Inc., and Bache & Co., Inc., The Underwriters The Complaint describes defendants New York Securities, Co., Inc., and Bache & Co., Inc. as underwriters for two EFCA debenture issues. New York Securities acted as underwriter for an EFCA offering of 9V2% debentur