Doud v. Toy Box Dev. Co., No. 14-2588 (8th Cir. 2015)
Annotate this CaseToy Box, an LLC organized to operate storage facility sales businesses, distributed an Offering Circular that stated that investors’ funds would be held in escrow and not released unless a minimum of $500,000 in capital was deposited in 2008. If Toy Box did not raise minimum capital by the deadline, the offering would terminate and Toy Box would return investors' funds . Doud executed a subscription agreement and invested $100,000. In June 2008, Toy Box amended its offering, lowering the minimum capital requirement to $350,000. Doud agreed to the amendment. By July 11, 2008, Toy Box had raised $200,000, including Doud’s investment; a manager authorized release of the escrow funds. Days later, Toy Box represented to investors that it had "achieved its threshold funding level and exited escrow with $425,000 in place." In 2011, Toy Box suffered substantial financial losses. Doud lost his investment and sued, alleging breach of the investment agreement and violation of the Securities Exchange Act (15 U.S.C. 78j(b)); SEC Rules 10b-5 and 10b-9; and the Iowa Uniform Securities Act. The Eighth Circuit affirmed that Toy Box had breached its agreement by releasing escrow funds before reaching the minimum threshold of funding; that its conduct violated both SEC Rules and the Uniform Securities Act; that Doud had established scienter; and rejecting a claim of good faith.
Court Description: Bye,Author, with Smith, Circuit Judge and Schiltz, District Judge] Civil case - Securities law. The district court did not err in granting plaintiff summary judgment on his Rule 10b-9 claim as the evidence showed defendant broke escrow without having the necessary funds required by the offering's "all on nothing' provision and then misrepresented to investors that it had reached the minimum capital required by its offering; plaintiff's evidence also established his Rule 10b-5 claim; plaintiff proved a violation of Iowa Code Section 502.509(2); the district court did not err in granting plaintiff summary judgment on his breach of contract claim.
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