Full opinion text
MEMORANDUM DECISION ENRIGHT, District Judge. INTRODUCTION This is a proposed class action for damages, injunctive relief, rescission, attorneys’ fees and other relief brought by investor Robert Lubin against a wide array of defendants who were involved in the restoration of the U.S. Grant Hotel (hereinafter “Hotel”) in San Diego. Lubin alleges generally that through material misstatements and omissions defendants fraudulently exaggerated the prospects for the Hotel’s success and at the same time failed to disclose the severe financial straits into which the restoration project was falling. Various defendants now move to dismiss this action and to strike portions of the First Amended Complaint. In addition, Lu-bin has moved to certify a class of plaintiffs, and a group of investors has moved to intervene as representative plaintiffs. The defendants in this case are the following individuals and entities: 1. Sybedon Corporation (“Sybedon”)— the general partner of U.S. Grant Hotel Associates, Ltd. (“Grant Associates”); co-issuer of the limited partnership interests purchased by investors such as Lubin; 2. Sybedon Equities — the broker-dealer; marketed the limited partnership interests in Grant Associates; 3. Prudential-Bache Securities — the underwriter-broker; also marketed the securities; 4. Prudential-Bache Properties (together with # 3 referred to as “Prudential-Bache”) — the property manager; purportedly the sole “Class B” limited partner of Grant Associates (although Lubin alleges it to be a general partner); 5. Chris D. Sickels — the developer and general partner of CDS-Grant Associates; 6. CDS-Grant Associates — a California general partnership, with Sickels and CDS-Grant Corporation as general partners; sold the Hotel to the Grant Associates; 7. CDS-Grant Corporation — a California corporation; general partner of CDS-Grant Associates; 8. Ulysses Management Company — a limited partnership which leased the Hotel from the Grant Associates; has been voluntarily dismissed from this suit; 9. CDS-Grant Management Company — an affiliate of Sickels; managed some commercial aspects of the Hotel; 10. CDS Lodging Properties — the general partner of Ulysses Management Company and an affiliate of Sickels (Note — defendants 5-7, 9, and 10 are referred to as “Sickels and the CDS-Grant defendants”); 11. Pannell, Kerr & Forster (“Pannell”) —the accountants who prepared projections for the Hotel; 12. Wilrock Appraisal & Consulting, Inc. (“Wilrock”) — the appraiser of the Hotel; 13. Laventhol & Horwath (“Laventhol”) —the accountants for the Grant Associates; 14. Proskauer, Rose, Goetz & Mendelsohn (“Proskauer”) — the lawyers for Sybedon and the Grant Associates; drafted the private placement memorandum; 15. Edwin Glickman — Executive vice-president and director of Sybedon; 16. Bertram Lewis — Chairman and director of Sybedon; 17. Arthur Fefferman — Senior vice-president, secretary and director of Sybedon; 18. Donald Flaks — President and director of Sybedon; 19. Mitchell Davis — Senior vice-president and director of Sybedon; 20. Evan Graf — -alleged controller of Sybedon and Sybedon Equities; 21. Dean Levitt — alleged controller of Sybedon and Sybedon Equities (Note — defendants 1, 2, and 15-21 are referred to as the “Sybedon defendants”); 22. National Union Fire Insurance (“National Union”) — the corporate surety; 23. Home Federal Savings and Loan (“Home Federal”) — a federally chartered savings and loan; alleged co-issuer of the limited partnerships; 24. Hill Financial Savings and Loan (“Hill Financial”) — a Pennsylvania savings and loan; made investor loan note to the Grant Associates; 25. Nationwide Lending (“Nationwide”) —originally named as “Doe 1”). Lubin has also added Does 2-250 as defendants. FACTUAL BACKGROUND This action arises out of the sale of approximately $43 million of “Class A” limited partnership interests, which were issued in order to raise capital for renovation of the Hotel. The interests were in the California limited partnership, U.S. Grant Hotel Associates, Ltd. (“Grant Associates”), and were offered nationally by defendant Prudential-Bache Securities from January through April, 1985. Three hundred limited partnership units were each sold for approximately $143,000, in principal and interest. The sale of the limited partnerships was part of a massive renovation effort spearheaded by defendant Sickels. In July 1979, Sickels acquired a long-term lease on the Hotel; he also acquired an option to purchase the Hotel upon the death of then-owner Joseph Drown. On April 4, 1980, Sickels closed the Hotel for refurbishing. In July 1983, Sickels acquired the Hotel for $8.5 million, $6 of which was designated as a payoff on the long-term lease which had been taken out in July 1979. Roughly $5 million of the purchase price was secured by a First Deed of Trust on the Hotel, with the Drown Foundation as beneficiary. Sometime after acquiring the lease, Sickels began to devise plans for the Hotel’s renovation — plans which, according to Lu-bin, were revised four times during the next five years and for which the estimated cost jumped from $10 million to over $80 million. After purchasing the Hotel in July 1983 (in the name of CDS-Grant Corporation), Sickels embarked on a $33.5 million renovation plan. This plan was funded by a construction loan of $27.25 million from Home Federal and an Urban Development Action Grant of $6 million. The Home Federal Loan was secured by a Second Deed of Trust on the Hotel. The loan was subsequently increased by $4.75 million, so that the total debt to Home Federal was $32 million. Of the $6 million Action Grant, $1.2 million was borrowed from the City of San Diego, and $4.8 million was borrowed from funds administered by the United States Department of Housing and Urban Development. The Action Grant was secured by a Third Deed of Trust on the Hotel. Lubin asserts that during the initial demolition phase of the redevelopment in August 1983, massive structural defects were discovered in the Hotel. These defects allegedly escalated the cost of renovation by some $17 million. At this time, says Lubin, Sickels decided to restructure his stake in the project by syndicating equity interests. The limited partnership that resulted was the Grant Associates. Sickels’s restructuring allegedly enabled him “to enjoy the economic benefits of the hotel, while moving into a liability-free zone.” Memorandum in Support of Motion for Class Certification, p. 7. On October 26, 1984, the CDS-Grant Corporation contributed the Hotel to the CDS-Grant Associates, a general partnership of Sickels and the CDS-Grant Corporation. The CDS-Grant Associates assumed the obligations under the Second Deed of Trust. In order to raise additional capital for the Hotel’s renovation, the Grant Associates limited partnership was formed on or about November 21, 1984. The single general partner of the Grant Associates was Sybedon. On December 1,1984, Sickels and the CDS-Grant defendants agreed to sell the Hotel to the Grant Associates; the price was $58.7 million. Various real estate contracts were then concluded, under which Sickels and the CDS-Grant defendants would continue to renovate the Hotel, Ulysses Management Company would lease the Hotel from the Grant Associates, and two more deeds of trust (the Fourth and Fifth Deeds of Trust) would secure the purchase money notes which were issued in favor of the CDS-Grant Associates as part payment for the Hotel. (The Fourth Deed of Trust wrapped around the First, and the Fifth Deed of Trust wrapped around the Second.) These real estate agreements closed on December 28, 1984. In January 1985, Sybedon and Prudential-Bache Securities commenced an offering of $30 million worth of limited partnership interests in the Grant Associates. Offerings continued through April 1985. The purchase price of each Class A unit was $100,000; with interest, the cost to investors would be $143,000. According to Lu-bin, neither the Hotel’s renovation history nor its later cost overruns were disclosed in the documents which were drafted to solicit investors for the limited partnership. It is these omissions (and corresponding misstatements) which lie at the heart of Lu-bin’s complaint. Three offering documents were circulated to investors: (1) the Confidential Private Placement Memorandum (prepared by Proskauer), (2) a U.S. Grant Hotel Associates Limited Partnership Agreement, and (3) the Prudential-Bache Securities U.S. Grant Hotel Brochure. According to Lubin, virtually all of the instant defendants bore some responsibility for these documents. Accordingly, they all must bear some responsibility for the damages which have been occasioned by the documents. Lubin contends that, in the years since its purchase by the Grant Associates, the Hotel has been a financial near-disaster. Lubin alleges that the financial capacity of the Hotel has been “overwhelmed,” in part because the Hotel was grossly overvalued. Lubin further alleges that certain defendants represented the value of the Hotel to be approximately $94 million, when in fact the Hotel is worth only about $33 million. In addition, the failure to maintain sufficient cash and other liquid assets has precluded the refurbished Hotel from meeting its high startup costs. The Hotel has failed to make payments on its Home Federal loans since January 1,1987, and Home Federal has filed a judicial foreclosure action. Furthermore, the Grant Associates ceased paying property taxes in early 1987. Some trade competitors have not been repaid. Finally, on February 22, 1988, the Grant Associates formally sought the protection of the Chapter 11 bankruptcy laws (Case No. 88-01348-M11). Lubin filed his original complaint in this action on December 23, 1988. He then filed an amended complaint on January 4, 1988. The First Amended Complaint sets out sixteen causes of action: I. violations of sections 12(2) and 15 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. §§ 111(2), 11 o — against all defendants except Laventhol; II. primary and secondary liability for violations of sections 10(b) and 20 of the 1934 Securities Exchange Act (“1934 Act”), 15 U.S. C. §§ 78j(b), 78t, and Rule 10b-5, 17 C.F.R. 240.10b-5 — against all defendants; III. violations of section 12(1) of the 1933 Act, 15 U.S.C. § 77Z(1) and California Corporations Code sections 25501, 25504, 25504.1, 25504.2 — against all defendants except Laventhol; IV. violations of California Corporations Code sections 25503, 25504, 25504.1 — against all defendants except Laventhol; V. fraud and deceit, in violation of California Civil Code sections 1710(1) and 1710(3) — against all defendants; VI. negligence, misrepresentations and omissions, in violation of California Civil Code section 1710(3) —against all defendants; VII. breach of fiduciary duty and aiding and abetting the breach— against all defendants; VIII. legal malpractice — against Proskauer; IX. professional malpractice (accounting) — against Pannell; X. professional malpractice (accounting) — against Laventhol; XI. professional negligence (appraising) — against Wilrock; XII. breach of contract — against all general partners or agents of limited partnership; XIII. accounting; XIV. unfair business practices; XV. declaratory relief and cancellation of documents; XVI. declaratory relief — against Home Federal only. Further factual background will be presented as it relates to the discussion of the motions, below. DISCUSSION I. MOTIONS TO DISMISS A. First Cause of Action: Violation of Sections 12(2) and 15 of the 1933 Securities Act 1. Statute of Limitations Defendant Proskauer, joined by the Sybedon defendants, Home Federal and Sickels and the CDS-Grant defendants, moves the court to dismiss Lubin’s first cause of action on grounds that it is barred by the statute of limitations. As mentioned above, Lubin’s first cause of action is for violations of sections 12(2) and 15 of the 1933 Act, 15 U.S.C. §§ 111 (2) and lio. Lubin alleges generally that the limited partnership offering materials contained material misrepresentations and omitted to state material facts. The statute of limitations for section 12(2) claims is set out in section 13 of the 1933 Act, which provides in part that an action must be brought “within one year after the discovery of the untrue statement or after such discovery should have been made by the exercise of reasonable diligence.” 15 U.S.C. § 77m. Thus, the statute does not begin to run until the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the facts constituting the section 12(2) violation. As the Ninth Circuit recognized in Kramas v. Security Gas & Oil Co., Inc., 672 F.2d 766, 770 (9th Cir.1982), fact questions are usually involved in the determination of when and whether a plaintiff discovered the violation. See Toombs v. Leone, 111 F.2d 465, 468 n. 4 (9th Cir.1985) (finding that unresolved fact questions precluded disposition of the section 12(2) claim on statute of limitations grounds). At the same time, however, “reasonable diligence is tested by an objective standard, and where uncontroverted evidence irrefutably demonstrates plaintiff discovered or should have discovered the fraudulent conduct, the issue may be resolved by summary judgment.” Kramas, 672 F.2d at 770. Some courts have applied the “inquiry notice” standard to determine that a plaintiff should have known of the fraudulent conduct. See Erickson v. Kiddie, Fed.Sec.L.Rep. ¶ 92,889, 94,312 (N.D.Cal.1986) [available on WESTLAW, 1986 WL 544]. Lubin bears the burden of proving compliance with the statute of limitations, and he must show with particularity the affirmative facts which demonstrate diligence. See Toombs, 111 F.2d at 468; In re National Mortgage Equity Corporation Mortgage Pool Certificates Securities Litigation, 636 F.Supp. 1138, 1169 (C.D.Cal.1986). That is, he “must plead facts demonstrating why, despite the exercise of due diligence, [he] did not discovery [sic] the misrepresentations or omissions sooner.” In re Rexplore, Inc. Securities Litigation, 671 F.Supp. 679, 688 (N.D.Cal.1987). The Rexplore court continued: “In most circumstances only affirmative conduct of concealment by the cupable [sic] defendant which would lead a reasonable person to believe he had no claim, tolls the statute.” Id. A passive partner in concealment may be subject to section 13’s discovery rule, however, if a special relationship with the plaintiff imposes a duty to disclose or if a conspiracy exists through which the affirmative conduct of fraudulent concealment on the part of one defendant may be attributed to the others. Id. The Rexplore court cautioned that “[t]he facts demonstrating plaintiffs [sic] excusable failure to discover the claim must be pled with ‘at least some particularity.’” Lubin has chosen to invoke the “fraudulent concealment” doctrine for equitable tolling of the section 13 statute. Long ago, the Supreme Court recognized that a federal statute of limitations is equitably tolled when a plaintiff remains in ignorance of a cause of action because defendants fraudulently concealed facts material to the plaintiff’s claim. Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1946); Rexplore, 671 F.Supp. at 687. In order to call upon the doctrine of fraudulent concealment, a plaintiff must show “affirmative conduct” by defendants which would, in the circumstances given, lead a reasonable person to believe that he did not have a claim for relief. Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1415 (9th Cir.1987). The Ninth Circuit has explained: “To invoke the doctrine in the complaint, [plaintiffs] must plead with particularity the facts giving rise to the fraudulent concealment claim and must establish that they used due diligence in trying to uncover the facts.” Id. at 1415-16. Silence or passive conduct on the part of the defendants would not constitute fraudulent concealment, and a plaintiff’s ignorance of the cause of action, without more, does not toll the statute. Id. at 1416. Lubin purchased his interest in the limited partnership on or about January 17, 1985, and he did not file this suit until December 1987. The timeliness of the first cause of action thus turns upon whether Lubin has properly pleaded fraudulent concealment. Lubin asserts that it was not until Home Federal filed its foreclosure action against the Hotel in December of 1987 that he became aware of the facts constituting the alleged section 12(2) violations. Defendants, on the other hand, propose that various quarterly reports from the partnership “frankly and candidly disclosed that operational and financial results for the Hotel were falling well below the projections which plaintiff now contends were fraudulent.” Memorandum in Support of Motion to Dismiss on Statute of Limitations Grounds, p. 9. These reports, dated June 2, 1986, August 29, 1986, and December 1, 1986, should have disclosed to Lubin and others that the partnership was having troubles as early as 1986. Before analyzing this issue, the court must first acknowledge that on this motion to dismiss the content of the quarterly reports is beside the point. The sole question before the court is whether plaintiffs have pleaded fraudulent concealment, not whether the reports adequately revealed the Hotel’s troubles. The content and presumed effect of these reports is a matter to be taken up on a motion for summary judgment, at which time the parties may prove what Lubin and the other limited partners should, or should not, have known about the Hotel. Upon examination of the First Amended Complaint, the court finds that Lubin has sufficiently pleaded fraudulent concealment so as to shield his first cause of action from defendants’ statute of limitations attack. Although perhaps Lubin might have been more focused in his pleading of fraudulent concealment, the court finds that in the Complaint Lubin consistently alleges that defendants perpetrated a complex and ongoing scheme to cover-up the Hotel’s financial difficulties. Indeed, it might not be overstating the point to say that the essence of Lubin’s Complaint is precisely the same fraud which allegedly concealed defendants’ primary wrongs from the limited partners. The motion to dismiss the first cause of action on statute of limitations grounds must be denied. 2. Failure to State a Claim Lubin has brought his cause of action under sections 12(2) and 15 of the 1933 Act against all defendants except Laventhol. The cause of action rests upon two independent theories of liability: primary “seller” liability under section 12(2) and secondary “controlling person” liability under section 15. Defendants Sickels and the CDS-Grant defendants, Pannell, Proskauer, National Union, Home Federal and Hill Financial now move to dismiss the cause of action on grounds that it fails to state a claim upon which relief can be granted. In ruling upon a motion to dismiss for failure to state a claim, a court must accept all material allegations in the complaint as true and must construe the implications which arise from those allegations in the light most favorable to the plaintiff. NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). Dismissal is warranted only if it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts that could be proved. Id.; Halet v. Wend Investment Co., 672 F.2d 1305, 1309 (9th Cir.1982). Section 12(2) of the 1933 Act, as codified at 15 U.S.C. § 77l (2), provides in part that any person who: (2) offers or sells a security ... by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. Although this statute appears to apply strictly to “offerors” and “sellers” of securities, the Ninth Circuit recognizes a subsidiary doctrine of “participant” liability, under which a person may be liable as a seller even if he or she did not in fact pass title. Jett v. Sunderman, 840 F.2d 1487, 1491 (9th Cir.1988). A participant is liable as a seller only if his or her actions “were both necessary to and a ‘substantial factor’ in bringing about the sale transaction.” Id., quoting S.E.C. v. Murphy, 626 F.2d 633, 649-50 (9th Cir.1980). The Jett court continued: “The test is whether the injury to the plaintiff flowed directly and proximately from the actions of the defendant.” Id., quoting S.E.C. v. Seaboard Corp., 677 F.2d 1289, 1294 (9th Cir.1982). Acts which have been considered to be relevant to the issue of participant liability include: “(1) devising the issuer’s corporate financing scheme, (2) preparing or reviewing offering memoranda, (3) meeting personally with broker-dealers or investors, and (4) participating in promotional seminars or sales meetings.” Id. Section 15 of the 1933 Act, as codified at 15 U.S.C. § 77o, provides: Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency or otherwise, controls any person liable under sections 77k or 771 of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist. The Ninth Circuit recently clarified the standard for controlling person liability in Buhler v. Audio Leasing Corp., 807 F.2d 833, 835 (9th Cir.1987), where the court stated: “To establish that a defendant is a controlling person, a plaintiff must show that: (1) the defendant had actual power or influence over the alleged controlled person, and (2) the defendant was a culpable participant in the alleged illegal activity.” The court did not provide further guidance on how to apply the “power or influence” aspect of this test, however, and the circuit still lacks a workable standard for this aspect. See Kersh v. General Council of Assemblies of God, 804 F.2d 546, 548 (9th Cir.1986). The court in Buhler added that “[w]hether a defendant has power or influence over an allegedly controlled person is a question of fact.” Id. Lubin has asserted primary (“seller”/“participant”) and secondary (“controlling person”) theories of liability against each of the defendants which has been named in this first cause of action. Both theories will be discussed for each defendant. a.The Sybedon Defendants The Sybedon defendants have not formally moved to dismiss the first cause of action for failure to state a claim. And it appears that such a motion would have been unavailing in any event, given that a corporate general partner (together with its officers and directors) typically may be held liable on either a primary or secondary theory of liability. See, e.g., Koehler v. Pulvers, 614 F.Supp. 829, 843 (S.D.Cal.1985). b.Prudential-Bache The two Prudential-Bache defendants, Prudential-Bache Securities and Prudential-Bache Properties, have moved to dismiss Lubin’s section 12(2) claim primarily upon grounds that the claim has not been pleaded with particularity, as required by Federal Rule of Civil Procedure 9(b) (see discussion below). The court now finds that Lubin has properly alleged a section 12(2) cause of action against PrudentialBache Securities, but has not alleged a proper cause of action against PrudentialBache Properties. Paragraphs 14 and 15 of the Amended Complaint set out the identities of the Prudential-Bache defendants, and specific allegations are mounted in paragraphs 60-63. Prudential-Bache Securities is alleged to have been the underwriter and broker/dealer for the offering of the Grant Associates limited partnerships. Through its Direct Investment Group, PrudentialBache Securities allegedly marketed the limited partnerships throughout the United States. Because Lubin has alleged that Prudential-Bache Securities was the direct, hands-on seller of the limited partnerships, his allegations suffice to state a claim against Prudential-Bache Securities for seller liability. Prudential-Bache Properties, on the other hand, is alleged to have been a property manager and de facto controller of the partnership. See First Amended Complaint, ¶ 61. Lubin further contends that Prudential-Bache Properties, while in fact acting as a general partner, was designated a “Class B” limited partner in order to avoid liability. Id. Without more, these allegations do not make out a cause of action for either seller liability or controlling person liability. Lubin’s first cause of action against Prudential-Bache Properties must be dismissed for failure to state a claim upon which relief may be granted. c.Sickels and the CDS-Grant Defendants Sickels and the CDS-Grant defendants also move to dismiss the first cause of action on grounds that Lubin has failed to state a claim. In paragraphs 43-56 of the First Amended Complaint, Lubin sets out both the “Development History” of the Hotel and the “Primary Wrong” underlying this lawsuit. It is in these paragraphs that Lubin advances his allegation that Sickels improperly maneuvered into a position in which he would enjoy the financial benefits of the Hotel’s redevelopment while at the same time evading its risks. The court now finds that Lubin’s somewhat unfocused allegations, when viewed in their most favorable light, do satisfy the pleading requirement for a cause of action under the “participant” liability aspect of section 12(2)’s “seller” prong. The court finds that Lubin has alleged that Sickels and the CDS-Grant defendants were both necessary to, and a substantial factor in bringing about, the sale of the limited partnership interests. Therefore, notwithstanding their transfer of the Hotel’s ownership in December 1984, Sickels and the CDS-Grant defendants were alleged to be participants in the sale of the limited partnerships. Lubin alleges — unmistakably, although perhaps not transparently — that his injuries followed directly and proximately from the restructuring maneuverings of Sickels and the CDS-Grant defendants. Therefore, even if Sickels neither met with potential investors nor spoke at sales seminars, he did (allegedly) devise the sales scheme and he did assist in the preparation of the offering materials. The court is well aware that Sickels has challenged the truth of these allegations. But, as mentioned above, the court may not now inquire into the merit of these allegations; the sufficiency of their pleading is the court’s single concern. And the court now finds that Lubin’s allegations of participant liability are sufficient to sustain his first cause of action against Sickels and the CDS-Grant defendants. d. Pannell Pannell is mentioned only sparingly in the First Amended Complaint. Paragraph 21 simply identifies the defendant as a partnership of accountants. Paragraph 48 alleges that Pannell advised Sickels on his decision to syndicate equity interests in order to raise funds for the Hotel’s renovation, and paragraph 49 groups Pannell with multiple other defendants as having “worked on and prepared” the offering documents. Paragraph 54 alleges that Pannell prepared market and income forecasts which unduly suggested that the Hotel would be able to cover its debt. The court finds that the First Amended Complaint does not state a claim against Pannell for a violation of section 12(2). Lu-bin has not made out a claim for “seller” or “participant” liability because he has not alleged that Pannell was both necessary to, and a substantial factor in bringing about, the sale of limited partnerships. Moreover, in no sense has Lubin alleged that his injury flowed directly and proximately from any wrongdoing by Pannell. In fact, apart from making indiscriminate statements about the concerted actions of “defendants and each of them,” Lubin has alleged no more than that Pannell prepared accounting forecasts that were later used by Sybedon and others in demonstrating the bright prospects for the Hotel. This is certainly not “seller” activity under section 12(2). Neither is it “participant” activity. Furthermore, the court finds that Lubin has not alleged “controlling person” liability on the part of Pannell. Indeed, nowhere does Lubin even suggest that Pannell wielded actual power or influence over Sybedon, Sickels or any other defendants. Similarly tenuous is Lubin’s assertion that he alleged culpable participation. The First Amended Complaint is almost entirely devoid of indications of controlling person liability on the part of Pannell. Lubin’s first cause of action against Pannell must be dismissed. e. Wilrock Wilrock, the appraiser retained by Sybedon, has joined in all of the motions of its codefendants. And even though Wilrock thus has never articulated its own argument for dismissal of Lubin’s section 12(2) claim, the court finds that the claim must be dismissed. The references to Wilrock in the First Amended Complaint are even less substantial than the references to Pannell. And given that these two defendants appear to have been similarly situated in the alleged fraud scheme, dismissal of the claim against Wilrock is appropriate for the same reasons that dismissal of the claim against Pannell is appropriate. f. Proskauer The first Amended Complaint alleges that Proskauer provided legal services to the Grant Associates and also drafted the Confidential Private Placement Memorandum which was used by defendants in their fraud. ¶¶ 26, 27, 49. The First Amended Complaint further alleges that Proskauer advised Sickels to syndicate equity interests in the Hotel. ¶ 48. Paragraph 54 alleges that Proskauer “organized, designed and structured the prospectus delivered to plaintiffs with omissions and misstatements of material facts.” Paragraphs 91 through 95 describe the alleged omissions and misstatements (without apportioning fault for their inaccuracy). On the basis of these allegations, Lubin argues that Proskauer should be held liable for a violation of section 12(2). The court disagrees. First, the court finds that Lubin has not alleged that Proskauer was a “seller” or “participant” in the sale. Again, the court must emphasize that clear and current Ninth Circuit law requires a plaintiff to show participation that was both “necessary” to, and a “substantial factor” in, bringing about the wrongdoing. It is insufficient to simply posit participant status, without showing that injuries flowed directly and proximately from the alleged participation. Lubin has not met these pleading requirements. Lubin has pointed to several cases in which courts upheld theories of participant liability on the part of attorneys. See Seaboard Corp., supra; Koehler, supra; National Mortgage Equity, supra. Indeed, however, the court does not quarrel with the proposition that, in some circumstances, attorneys may be held liable as “sellers” under section 12(2). What is lacking in the instant case is a showing by Lubin that these circumstances might warrant a finding of Proskauer’s liability. This case thus appears to be readily distinguishable from those in which attorneys were held liable as participants. In Seaboard Corp., for example, the attorney had participated actively throughout all stages of negotiating the sale of securities. In National Mortgage Equity, the attorney defendant was an officer and part owner of the issuer, and was involved in its operations “from the very beginning.” 636 F.Supp. at 1168. And in Koehler, the attorney had actively promoted the sales of securities, and was the “principal architect” of a dummy brokerage agreement. The recent decision of the Oregon District Court in Parquitex Partners v. Registered Financial Planning Services, Inc., [1987] Fed.Sec.L.Rep. ¶ 93,255 at 96,226 (D.Ore.1987) [available on WESTLAW, 1987 WL 15459], reaffirms that attorney liability under section 12(2) may be found only upon an examination of all relevant circumstances. In Parquitex, the plaintiffs had sued two attorneys, both of whom were on the advisory board of the defendant financial planning corporation. The court carefully distinguished the attorneys’ roles, and found that the plaintiffs had stated a section 12(2) claim against the attorney who played a “direct role” in the sales to plaintiffs, but had not stated a claim against the attorney who was alleged merely to have investigated the investment. The court stated: “The fact that he prepared the investment documents, while necessary to the completion of the transaction, did not falsely induce plaintiffs to invest.” Id. Similarly, here Lubin has not stated a claim for seller liability. For like reasons, the court finds that Lubin has not stated a claim for “controlling person” liability. Although Lubin might have alleged “culpable participation” (if one allows that term a great breadth), Lubin has not alleged that Proskauer exercised power or influence over the other defendants in this action. Therefore, Lu-bin has not stated a claim for controlling person liability against Proskauer. g. National Union There appears to be only one substantive and particularized allegation against National Union in the First Amended Complaint: Defendant NATIONAL UNION prepared a surety bond purporting to guarantee 7-year promissory notes executed by plaintiffs, and the notes were discounted and purportedly sold to Defendant HILL FINANCIAL which in turn advanced “short term loan” funds to SICKELS, HOME FEDERAL, and other of the defendants. Defendants used the surety device and assignment of the promissory notes to induce investors to make a substantial financial commitment in addition to their initial cash investment. ¶[ 54. The First Amended Complaint does not otherwise allege that National Union took any part in the preparation or sale of the limited partnerships. This allegation is clearly insufficient to support a claim under section 12(2). Lubin has not shown that National Union was either necessary to, or a substantial factor in, the sale. Participant liability is therefore precluded. And controlling person liability has not been alleged because Lubin has made no showing of culpable participation in the alleged illegal acts, h. Home Federal The allegations of wrongful conduct on the part of Home Federal are significantly more substantial and direct than the allegations against the other lending and securing defendants, and accordingly the court must deny Home Federal’s motion to dismiss Lubin’s section 12(2) claim. Paragraph 46 of the First Amended Complaint mentions that Home Federal lent the first $27 million of credit to Sickels at the outset of the renovation plan. Paragraph 52 alleges that through its status as primary lender, “[f]rom July 1983 forward, HOME FEDERAL controlled the U.S. Grant Hotel and Christopher Sickels.” Paragraph 53 further contends that Home Federal entered into an “agreement” with Sickels to “raise funds from investors to enhance the value of their respective positions in the U.S. Grant Hotel.” This agreement led to the syndication scheme that eventually produced the limited partnerships purchased by Lubin and others. Paragraph 54 alleges that Home Federal knew of the contents of the offering circular and of the misstatements and omissions which it contained. Paragraph 55 indirectly alleges that Home Federal attempted to avoid liability for its complicity by wrongly holding itself out as a construction lender only. According to Lubin, Home Federal was much more than this from the outset. Home Federal proposes that these allegations are insufficient to make out a section 12(2) claim. Home Federal first argues that Lubin has not alleged facts showing participant liability as a seller. The First Amended Complaint does not allege that Home Federal was involved in the actual sales of the securities. Neither does the Complaint allege that Home Federal prepared the offering memorandum, met with any of the investors, met with any representatives of the general partner, or participated in promotional seminars. Upon due consideration, however, the court finds that Lubin has at least set out the outlines of a valid claim for participant liability. And, taking the Ninth Circuit’s standard at face value, this is sufficient to sustain the cause of action. That is, because Lubin has alleged that Home Federal was “necessary” to and a “substantial factor” in bringing about the syndication and sale of the limited partnerships, his claim must survive this motion. Home Federal, according to the First Amended Complaint, was much more than a disinterested lender. It was one of the driving forces behind the syndication. As such it may be liable as a participant, even if it did not directly assist the marketing and sale of the securities. See Rexplore, 671 F.Supp. at 686 (in which the court permitted amendment of a section 12(2) claim against a bank, where that bank was the sole lender to limited partnerships and where the bank “had a pervasive presence in the overall plan of [the] limited partnerships”). i. Hill Financial and Nationwide Lending Hill Financial and Nationwide Lending have together moved to dismiss Lubin’s section 12(2) cause of action. The First Amended Complaint alleges only that Hill Financial “joined in [the syndication] scheme,” “advanced ‘short term loan’ funds,” and had “knowledge of the contents of the offering circular.” If 54. The first and third of these allegations are made against all of the defendants as a group, so that the only particularized allegation against Hill Financial is that it was a short-term lender. Lubin’s allegations against Hill Financial are patently inadequate to state a cause of action for either seller or controlling person liability. In no sense has Lubin alleged that Hill Financial was necessary to, or a substantial factor in bringing about, the sale of limited partnerships. Even less has Lubin alleged that his injuries flowed directly and proximately from any wrongdoing on the part of Hill Financial. Similarly, Lubin has not alleged either that Hill Financial had actual power or influence over any of the instant defendants, or that it was somehow culpable in the alleged fraud. Lubin’s pleading here was of a most superficial variety, and it emphatically does not support a cause of action under section 12(2). B. Second Cause of Action: Violation of Section 10(b) and Rule 10b-5 Section 10(b) of the 1934 Act makes it unlawful “for any person ... [t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe....” 15 U.S.C. § 78j(b). Rule 10b-5, promulgated in accordance with section 10(b), provides that it is unlawful for any person: (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 ...; or (c)To engage in any act, practice or course of business which operates 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 (1981). The exist ence of a private civil remedy under Rule 10b-5 is beyond dispute. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730, 95 S.Ct. 1917, 1923, 44 L.Ed.2d 539 (1975). Lubin is proceeding in his second cause of action against each of the defendants, and he premises his claim upon three theories of Rule 10b-5 liability: 1) primary liability, 2) aiding and abetting liability, and 3) controlling person liability. (The second and third theories are commonly referred to as theories of “secondary liability.”) Defendants move to dismiss on grounds of untimeliness, failure to plead with particularity and failure to state a claim. 1. Statute of Limitations Defendant Proskauer, joined by Home Federal, the Sybedon defendants, Sickels and the CDS-Grant defendants, moves for dismissal of Lubin’s Rule 10b-5 cause of action on grounds that the claim is time-barred. Proskauer advances the novel argument that in light of the Supreme Court’s recent decision in Agency Holding Corp. v. Malley-Duff & Associates, Inc., — U.S. —, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), the court should adopt a uniform statute of limitations for Rule 10b-5 claims. In Malley-Duff, the Court found that the Clayton Act’s four-year statute should apply to civil claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Proskauer now argues by analogy that a uniform “double-barreled” statute of limitations (i.e., three years from the making of the statements; one year from when they should have been discovered) should be settled upon in Rule 10b-5 cases, for the same reasons that a uniform RICO statute was adopted in Malley-Duff. Proskauer finds support for its argument in the recent concurring opinion of Senior Judge Aldisert (of the Third Circuit, sitting on a Ninth Circuit panel) in Davis v. Birr, Wilson & Co., Inc., 839 F.2d 1369, 1370 (9th Cir.1988) (Aldisert, J., concurring). Judge Aldisert concluded that a uniform statute should be adopted, although he did acknowledge that the Supreme Court has yet to take this position with respect to Rule 10b-5 actions as such. Absent further and authoritative guidance from the Supreme Court or the Ninth Circuit, however, the court declines Proskauer’s invitation to adopt a uniform statute of limitations for Rule 10b-5 claims. The court must therefore determine the timeliness of Lubin’s claim according to the traditional statute of limitations analysis. Generally, because there is no federal statute of limitations, the court must borrow the limitations period for the state claim which most resembles the federal cause of action. It is well settled in the Ninth Circuit that “[t]he forum state’s statute of limitations for general fraud claims determines the limitations period applicable to federal securities claims under § 10(b) of the Securities Exchange Act of 1934....” Volk, supra, at 1412; Semegen v. Weidner, 780 F.2d 727, 733 (9th Cir.1985). California’s statute of limitations for fraud is three years. Cal.Civ.Proc.Code § 338(4) (West 1988); Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873, 876 (9th Cir.1984), cert. denied, 469 U.S. 932, 105 S.Ct. 329, 83 L.Ed.2d 265 (1984). Although state law governs the length of the limitations period, however, a court must look to federal law to determine the time at which the statute begins to run. Volk, 816 F.2d at 1412. As the court in Volk explained: Normally, a statute of limitations period begins to run when an injury occurs, which is usually equivalent to when the cause of action accrues. In the context of fraud, however, the injury and accrual of the cause of action may occur at a time distinct and separate from the commencement of the statute of limitations period. Id. The court then pointed out that fraud causes of action are usually said to accrue when a defendant commits the last overt injurious act. And in securities fraud cases, “the cognizable injury occurs at the time an investor enters, or if he currently owns stock, decides to forego entering a transaction as a result of material misrepresentations.” Id. The court added that “the statute of limitations is not triggered until the defrauded individual has actual or inquiry notice that a fraudulent misrepresentation has been made.” Id., citing S.E.C. v. Seaboard Corp., 677 F.2d at 1309. The statute of limitations for a section 10(b) claim may be tolled by fraudulent concealment in the same way that the statute for a section 12(2) claim may be tolled. The tolling standard for fraud actions in California was summarized in Salveson v. Western States Bankcard Association, 525 F.Supp. 566, 584 (N.D.Cal.1981), aff'd in part and rev’d in part, 731 F.2d 1423 (9th Cir.1984): California law has long been settled that plaintiffs suing for fraud or mistake more than three years after the relevant events must plead and prove (1) their lack of knowledge of the operative facts, (2) the absence of means of obtaining that knowledge (i.e., exercising reasonable diligence, plaintiffs still could not have discovered the facts within three years), and (3) the time and manner of their actual discovery of the facts. In Mosesian, the court noted that the question of when a fraud was discovered — or should have been discovered — is a question of fact. Mosesian, 727 F.2d at 877, citing Seaboard Corp., 677 F.2d at 1309. The court went on to state that the question of discovery “may be decided as a matter of law only when ‘uncontroverted evidence irrefutably demonstrates plaintiffs discovered or should have discovered the fraudulent conduct.’ ” Id., quoting Kramas, 672 F.2d at 770. Here, Lubin has urged the court to find that defendants did fraudulently conceal their misconduct, so that the statute did not begin to run until the foreclosure by Home Federal surfaced in December 1987. Although the court is presently unwilling to make such a finding of fraudulent concealment, the court does find that Lubin has pleaded fraudulent concealment in a manner sufficient to meet Proskauer’s untimeliness allegation. That is, the court now defers ruling on whether Lubin’s claims are time-barred. The presence of issues of material fact precludes the court from determining precisely when Lubin knew, or should have known, about the alleged Rule 10b-5 violations. As additional facts become evident, the court may entertain renewed argument on this issue. 2. Failure to Plead with Particularity Rule 9(b) of the Federal Rules of Civil Procedure provides, in part: “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity....” Fed.R.Civ.P. 9(b). In Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir.1987), the Ninth Circuit stated that “pleading is sufficient under Rule 9(b) if it identifies ‘the circumstances constituting fraud so that the defendants can prepare an adequate answer from the allegations.’ ” Quoting Semegen, 780 F.2d at 735, quoting Gottreich v. San Francisco Investment Corp., 552 F.2d 866, 866 (9th Cir.1977). The Wool court went on to point out: “While mere conclusory allegations of fraud are insufficient, statements of the time, place and nature of the alleged fraudulent conduct are sufficient.” 818 F.2d at 1439; see also Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th Cir.1986). Where a fraud consists of omissions, and not affirmative misrepresentations, courts are more lenient with their enforcement of Rule 9(b), and will allow a plaintiff to “find alternative ways to plead the particular circumstances of the fraud,” Washington v. Baenziger, 673 F.Supp. 1478, 1482 (N.D.Cal.1987). The purpose of Rule 9(b) is to prevent the filing of a complaint as a pretext for the discovery of unknown wrongs. Semegen, 780 F.2d at 731. In large and complicated securities fraud actions such as this, courts must be especially attentive to a plaintiff’s “dragnet” tactic of indiscriminately grouping all of the individual defendants into one wrongdoing monolith. Such a tactic often fails to take account of the law’s separate treatment of primary wrongdoers and secondary wrongdoers. As the court in Erickson noted, it is insufficient under Rule 9(b) to “group ... the defendants together without differentiating who might be primarily liable and who might be secondarily liable." 1986-87 Fed.Sec.L.Rep. at ¶ 92,889. Fraud allegations may not rely on blanket references to conduct of “defendants and each of them,” but must instead inform each defendant of the conduct which constitutes the alleged violation. See Hokama v. E.F. Hutton & Co., Inc., 566 F.Supp. 636, 645 (C.D.Cal.1983). In Bruns v. Ledbetter, 583 F.Supp. 1050 (S.D.Cal.1984), the court addressed a situation similar to that presented by Lubin’s First Amended Complaint and dismissed a securities fraud action on Rule 9(b) grounds. The court first noted that the 14 defendants in the case, despite their diverse functions, were treated in the complaint “as a monolithic enterprise whose sole purpose was to separate plaintiffs from their money.” 583 F.Supp. at 1051. The court went on to say: One does not plead fraud by simply invoking the language of the relevant statutes. A complaint should be long on facts and short on invective. It must set forth: (1) the nature of each individual defendant’s participation in the fraud, including facts constituting scienter and an explanation of the defendant’s duty toward the plaintiff; (2) whether the defendant is being sued as a primary defendant or as an aider and abettor; and (3) as to allegations on information and belief, a statement of the source of the information and the reasons upon which the belief is founded. 583 F.Supp. at 1052, quoting Goldberg v. Meridor, 81 F.R.D. 105, 111 (S.D.N.Y.1979). Upon due consideration, the court finds that Lubin has not pleaded his Rule 10b-5 cause of action with the particularity-required by Rule 9(b). Although in paragraphs 91 through 95 of the First Amended Complaint Lubin painstakingly lists the offering documents’ alleged misstatements and omissions, he neither attributes these statements to the stating defendant nor differentiates among the defendants’ disparate responsibilities for the statements. Every reference in paragraphs 91 through 95, as well as every reference in paragraphs 105 through 113 (the section entitled “SECOND CLAIM FOR RELIEF”), is phrased as “defendants” or “defendants and each of them.” The First Amended Complaint thus presents a classic instance of pleading a “monolithic enterprise.” As such, it cannot survive this Rule 9(b) challenge. From the blanket allegations of Rule 10b-5 fraud, even when understood in the context of the First Amended Complaint as a whole, it would be impossible for most of the instant defendants to prepare adequate, specific answers. Furthermore, even though the First Amended Complaint is rich in factual detail in other regards, the factual foundations for its Rule 10b-5 claim are sparse and unsteady. Most of the Rule 10b-5 allegations are phrased in conclusory terms which do little more than track the statute or regulation. Lubin has not explained how the facts which he has alleged give rise to a Rule 10b-5 claim. This is especially evident in his almost complete failure to differentiate the defendant’s primary and secondary liabilities. Lubin has alleged a grave and far-reaching fraud scheme. This is a matter which cannot be taken lightly; neither may Lubin take his pleading responsibilities lightly. 3. Failure to State a Claim for Primary Liability In order to establish primary liability in a Rule 10b-5 action a plaintiff must show: (1) conduct proscribed by the Rule, (2) in connection with, (3) the purchase or sale of a security, (4) which results in harm. As the court explained in In re American Principals Holdings, Inc. Securities Litigation, — F.Supp. —, M.D.L. 653 (S.D.Cal., July 2, 1987), p. 14, the first of these elements subsumes three factors: First, the actor must have the requisite mental state. Intentional, knowing or reckless conduct will suffice. Admiralty Fund v. Tabor, 677 F.2d 1297, 1299 n. 1 (9th Cir.1982). Second, the actor must commit a fraudulent act or course of acts. The scope of Rule 10b-5 would encompass the assertion of untrue statements, the omission of necessary facts, or the operation of a comprehensive scheme to defraud. Kafton v. Baptist Park Nursing Center, Inc., 617 F.Supp. 349, 350 (D.Ariz.1985); Hudson v. Capital Management International, Inc., [1982-83 Transfer Binder] Fed.Sec.L. Rep. (CCH) ¶ 99,222 (August 24, 1982), at 95,902 [available on WESTLAW, 1982 WL 1385]. And third, any assertion of untrue statement or omission must be of “material” facts. In general, a fact is material if there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision. Harris v. Union Electric Co., 787 F.2d 355, 366 (8th Cir.1986) (citation omitted). The second element of a claim for primary liability requires “transaction causation” between the defendants’ fraudulent acts and the plaintiff’s harm. This is a “but for” causation, which implicates both objective and subjective considerations. Id. at 15. Objective reliance is established when the plaintiff shows the materiality of the misstatements or omissions, and subjective reliance is established if the plaintiff would not have purchased or sold the security but for the fraud. Id. The third and fourth elements ensure that the plaintiff is someone who in fact sustained economic losses through his or her purchase or sale of a security. Various defendants contend that Lubin has failed to state a claim for a primary violation of Rule 10b-5. Their contentions appertain to two related issues: lack of reliance and absence of a duty. a. The Reliance Requirement’ Fraud on the Market The necessity of pleading reliance in a Rule 10b-5 cause of action cannot be questioned. See Basic, Inc. v. Levinson, — U.S. —, 108 S.Ct. 978, 989, 99 L.Ed.2d 194 (1988). As the Supreme Court observed in Basic, “Reliance provides the requisite causal connection between a defendant’s misrepresentation and a plaintiff’s injury.” Id. Because Rule 10b-5 actions often involve an impersonal and indirect relationship between investors and sellers, courts have devised methods of demonstrating reliance which do not require a showing that each individual investor relied upon the alleged misstatements or omissions. Thus in Basic, the Supreme Court reaffirmed that where plaintiffs are proceeding under a “fraud-on-the-market” theory of wrongdoing, then reliance may be presumed. See also Blackie v. Barrack, 524 F.2d 891, 906 (9th Cir.1975). This presumption of reliance makes it difficult to dismiss a market fraud Rule 10b-5 claim for failure to plead reliance. But a strict fraud-on-the-market reliance presumption does not apply where, as here, securities have not been purchased on an impersonal market. That is, the limited partnership interests purchased by Lubin and the other putative class members were not traded on a free, efficient and national securities exchange. Rather, they appear to have been offered in more or less private dealings to a select group of wealthy investors. Because the securities were traded on an inefficient market, any misstatements or omissions by defendants would not have affected the price at which the securities were sold. Therefore, the presumption applied in Basic appears to be unavailable in this case. Acknowledging that his situation is distinguishable from that which typically gives rise to a fraud-on-the-market theory, Lubin proposes that in fact courts recognize several varieties of the theory. Lubin further contends that the variety first articulated in Shores v. Sklar, 647 F.2d 462 (5th Cir.1981) (en banc), cert. denied, 459 U.S. 1102, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983), does allow a presumption of reliance in this case. In Shores, the court addressed allegations of fraud in connection with the original issuance of revenue bonds by a municipal industrial development board. The plaintiff in Shores had argued that the defendant’s involvement in the fraud was “so pervasive that without it the issuer would not have issued, the dealer could not have dealt in, and the buyer would not have bought these Bonds, because they would not have been offered on the market at any price.” Id. at 464 n. 2. In light of this allegedly pervasive involvement, the Fifth Circuit held that the plaintiff could state a claim under Rule 10b-5(1) or 10b-5(3) (but not Rule 10b-5(2)). Reliance was established through a showing that the scheme “was intended to and did bring the Bonds onto the market fraudulently and ... [plaintiff] relied on the integrity of the offerings of the securities market.” Id. The court set out three elements of its reliance presumption: (1) the defendants knowingly conspired to bring securities onto the market which were not entitled to be marketed, intending to defraud purchasers, (2) [plaintiff] reasonably relied on the Bonds’ availability on the market as an indication of their apparent genuineness, and (3) as a result of the scheme to defraud, he suffered a loss. Id. at 469-70; see also Anderson v. Bank of the South, N.A., 118 F.R.D. 136, 144 (M.D.Fla.1987). Although the Ninth Circuit has never formally adopted the Shores analysis, it has implicitly endorsed a similar variation on the strict Blackie fraud-on-the-market theory. In Arthur Young & Co. v. United States District Court, 549 F.2d 686, 695 (9th Cir.), cert. denied, 434 U.S. 829, 98 S.Ct. 109, 54 L.Ed.2d 88 (1977), the court stated: Just as the open market purchaser relies on the integrity of the market and the price of the security traded on the open market to reflect the true value of securities in which he invests, so the purchaser of an original issue security relies, at least indirectly, on the integrity of the regulatory process and the truth of any representations made to the appropriate agencies and the investors at the time of the original issue. In Arthur Young, the partnership interests had been sold pursuant to registration statements and prospectuses filed with the Securities and Exchange Commission. In addition, the standardized statements had been sent or shown to every investor. Even assuming that either Shores or Arthur Young is valid law in this circuit, however, the court finds that Lubin has not pleaded facts sufficient to warrant a departure from the strict fraud-on-the-market theory of Blackie and Basic. The Shores reliance presumption appears to be unavailable because Lubin has not pleaded that the limited partnerships were “not entitled to be marketed.” Nor, more importantly, has he pleaded reliance “on the [limited partnerships’] availability on the market as an indication of their apparent genuineness.” Even under Shores an investor must show that he relied to some extent upon either the pricing mechanisms of a securities exchange or the registration procedures of the Securities Exchange Commission. Here, Lubin has not alleged circumstances which show such reliance. The limited partnership which he purchased was not traded on an exchange. In fact, according to Prudential-Bache, the Confidential Private Placement Memorandum prominently declared that the offering price was determined solely by the General Partner, and did not necessarily reflect the value of the property. Nor has Lubin alleged that any exchange commission certified the limited partnerships. Indeed, Prudential-Bache has declared that the offering materials unmistakably revealed that the limited partnerships had not been registered with or approved by the Securities Exchange Commission or the Internal Revenue Service. See Exhibit 3 to Reply Memorandum of Prudential-Bache. Because Lubin has not shown how he relied upon the “regulatory process,” he cannot invoke the Arthur Young reliance presumption. Lubin has thus failed to plead sufficie