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Case 2:10-cv-09292-PA -AGR Document 42 Filed 07/11/11 Page 1 of 25 Page ID #:319



Laurence M. Rosen, Esq. (SBN 219683)
THE ROSEN LAW FIRM, P.A.
333 South Grand Avenue, 25th Floor
Los Angeles, CA 90071
Tel.: (213) 785-2610
Fax: (213) 226-4684
Email: [email protected]

Lead Counsel for Lead Plaintiffs and the Class


UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION

JONAH ANSELL, Individually and
On Behalf of All Others Similarly
Situated,

Plaintiff,

vs.

DANIEL S. LAIKIN, TIMOTHY S.
DURHAM, PAUL SKJODT,
ROBERT LEVY, JAMES P.
JIMIRRO, DUNCAN MURRAY,
JAMES TOLL, LORRAINE
EVANOFF, and NATIONAL
LAMPOON, INC.,

Defendants.


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No. 10-CV-09292 PA (AGRx)

CLASS ACTION

PLAINTIFF’S OPPOSITION TO
DEFENDANT DANIEL S.
LAIKIN’S MOTION TO DISMISS
PLAINTIFF’S COMPLAINT


Hearing:
Date: August 1, 2011
Time: 1:30 p.m.
Dept.: 15
Judge: Hon. Percy Anderson

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Plaintiff’s Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiff’s Complaint

No. 10-CV-09292 PA (AGRx)

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TABLE OF CONTENTS

I.
INTRODUCTION ........................................................................................ 1
II.
STATEMENT OF FACTS ........................................................................... 1
III. ARGUMENT ................................................................................................ 5

A.

B.
C.

Laikin's Allegation That The Complaint Should Be Dismissed
Because Plaintiff Allegedly Used A "Puzzle-Style" Pleading Is
Meritless And Should Be Denied ....................................................... 5
1.
Legal Requirements ................................................................. 6
2.
The Complaint Is Not A Vague “Puzzle-Style” Pleading ....... 9
Plaintiff Adequately Alleges Loss Causation .................................. 15
Plaintiff Has Sufficiently Pled a Section 20(a) Claim ..................... 18
IV. CONCLUSION .......................................................................................... 19

















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Plaintiff’s Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiff’s Complaint

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TABLE OF AUTHORITIES

CASES

Broam v. Bogan,

320 F.3d 1023 (9th Cir. 2003) .................................................................... 3

Brodsky v. Yahoo! Inc.,

592 F. Supp. 2d 1192 (N.D. Cal. 2008) ...................................................... 3

Dura Pharm., Inc. v. Broudo,

544 U.S. 336 (2005) ................................................................................ 15

Durning v. First Boston Corp.,

815 F.2d 1265, 1267 (9th Cir. 1987) ......................................................... 3

Emergent Capital Inv. Mgmt., LLC. v. Stonepath Group, Inc.,

343 F.3d 189, 197 (2d Cir. 2003) ............................................................. 16

Gilead Sciences Sec. Litig.,

536 F.3d 1049, 1057 (2008) ..................................................................... 15

Heliotrope Gen., Inc. v. Ford Motor Co.,

189 F.3d 971, 975-76 (9th Cir. 1999) ........................................................ 17

HiEnergy Technologies, Inc.,

No. SACV04-1226DOC(JTLX), 2005 WL 3071250, (C.D. Cal.
Oct. 25, 2005) ............................................................................................. 19

Ivers v. United States,

581 F.2d 1362, 1366 - 1367 (9th cir. 1978) ............................................. 14

Jackson v. Carey,

353 F.3d 750 (9th Cir. 2003) .................................................................... 19

Janus Capital Grp., Inc. v. First Deriv. Traders,

2011 U.S. LEXIS 4380, *10 n.3 (U.S. June 13, 2011) .............................. 6

Kearns v. Ford Motor Co.,

567 F.3d 1120, 1124 (9th Cir. 2009) .......................................................... 4

LaBranche Secs. Litig.,

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Plaintiff’s Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiff’s Complaint

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405 F. Supp.2d 333, 363 (S.D.N.Y. 2005) ............................................... 18

Maxim Integrated Prods., Sec Litig.,

639 F. Supp. 2d 1038 (N.D. Cal. 2009) .................................................... 15

McCabe v. Ernst & Young, LLP,

494 F.3d 418, 427 n.4 (3rd Cir. 2007) ...................................................... 16

Meltzer Inv,. GMBH v. Corinthian Colleges, Inc.,

540 F.3d 1049, 1063-64 (9th Cir. 2008) ................................................... 18

NL Indus., Inc. v. Kaplan,

792 F.2d 896, 898 (9th Cir. 1986)). ........................................................... 3

Paracor Finance, Inc. v. Gen. Elec. Capital Corp.,

96 F.3d 1151 (9th Cir. 1996) .................................................................... 18

Patel v. Parnes,

253 F.R.D. 531 (C.D. Cal. 2008) ................................................................ 7

Sparling v. Daou (In re Daou Sys.),

411 F.3d 1006, 1026 (9th Cir. 2005) ......................................................... 15

Suez Equity Investors, L.P. v. Toronto-Dominion Bank,

250 F.3d 87 (2d Cir. 2001) ........................................................................ 18

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308, 321 (2007). .......................................................................... 5

Yash Raj Films (USA), Inc. v. Sidhu,

CV F 09 - 0233 AWI GSA, 2010 U.S. Dist. LEXIS 25988, at *12-*13
(E.D. Cal. Mar. 19, 2010) ........................................................................ 14

Zucco Partners, LLC v. Digimarc Corp.,

552 F.3d 981, 990 (9th Cir. 2009), ............................................................. 3







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Plaintiff’s Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiff’s Complaint

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STATUTES

9(a)(2), .................................................................................................................... 11
F.R.C.P. 9(b) ............................................................................................................ 1
10(b), ...................................................................................................................... 11
Rule 12(b)(6) ............................................................................................................ 3
13(e) ....................................................................................................................... 11
13e-4 ....................................................................................................................... 11
Section 17(a) of the Securities Act ........................................................................ 11
Fed. R. Evid. 201 ..................................................................................................... 6
15 U.S.C. §§ 77q(a) ................................................................................................. 1
15 U.S.C. § 78ff ....................................................................................................... 1
15 U.S.C. § 78i(a)(2) ................................................................................................ 2
15 U.S.C. § 78j(b)) ................................................................................................... 2
15 U.S.C. § 78m(e)) ................................................................................................. 2
15 U.S.C. § 78u-4(b)(1). .......................................................................................... 3
15 U.S.C. § 78u-4(b)(2). .......................................................................................... 3
17 C.F.R. § 240.10b-5 .............................................................................................. 1
17 U.S.C. § 240.13e-4 .............................................................................................. 2
18 U.S.C. § 2 ............................................................................................................ 1
18 U.S.C. § 371 ........................................................................................................ 1
20(a) of the Exchange Act ....................................................................................... 6
253 F.R.D. at 544 ..................................................................................................... 6


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Plaintiff’s Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiff’s Complaint

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I.

INTRODUCTION
This action is brought on behalf of a class of shareholders of National
Lampoon, Inc. (“National Lampoon” or the “Company”). The Complaint seeks
redress for securities fraud arising from defendants’ scheme to illegally manipulate
the price of National Lampoon’s publicly traded stock. All but one defendant has
filed an answer. The instant motion was filed by Defendant Laikin, the former
Chief Executive Officer of National Lampoon and leader of the scheme to
manipulate the stock. Laikin argues that the Complaint should be dismissed for
failure to meet the particularity requirements of F.R.C.P. 9(b) and the PSLRA, and
failure to plead loss causation. Defendant is currently incarcerated in federal
prison for his role in the fraudulent scheme. His motion is without merit and
should be denied.
II.

STATEMENT OF FACTS
Defendant Laikin1 is currently serving a forty-five month sentence in a
California federal prison for his conduct in an illegal scheme to manipulate the
Company’s stock price. That same scheme gives rise to Plaintiff’s claims. In
pleading guilty, Defendant Laikin admitted to spearheading and participating in the
unlawful scheme which violated Federal securities laws. Defendant has also
consented to judgment in a related civil action brought by the Securities and
Exchange Commission. SEC v. National Lampoon, Inc., C.A. No. 08-5790 (PBT) (E.D.
Pa.), Doc. 34 (Ex. A); Decl. of Laurence Rosen in Support of Request for Judicial
Notice (“Rosen Decl.”), Ex. 1. Plaintiff’s complaint, which incorporates by
reference both the criminal indictment and the SEC Complaint, plainly alleges with
the requisite specificity the wrongful acts undertaken by Laikin and others that
violated the Federal securities laws. In light of the strong similarities between


1 Because Defendant Laikin is the only defendant to have moved to dismiss, this
opposition focuses on the illegal conduct of Defendant Laikin.

Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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Plaintiff’s complaint and the criminal indictment, and Defendant Laikin’s
admissions during the allocution, the instant motion is puzzling, if not downright
frivolous.

National Lampoon is a publicly traded entertainment company whose
business consists of the production and distribution of movies, as well as the
operation of a college television network and humor website. ¶7.2 During the
relevant period, Defendant Laikin served as the Chief Executive Office (“CEO”)
and as a Director of National Lampoon. ¶8. Laikin beneficially owned 35.36% of
the Company’s stock and, together with the other individual defendants, controlled
a majority of the Company’s stock. Id.

Prior to March 2008, Defendant Laikin concocted a scheme to artificially
inflate the stock price of National Lampoon by creating artificial demand and
volume for the stock. ¶18. The goal of the manipulation was to increase the price
of the Company’s stock from under $2.00 per share to at least $5.00 per share.
¶25. The illusory demand would increase the price of the stock. This would
enhance the appearance of the Company and its stock so as to induce other
unsuspecting investors to purchase the stock. ¶19. To effectuate the scheme,
Defendant Laikin paid kickbacks to other conspirators in exchange for their
purchases of National Lampoon stock as well as their promoting of the stock so
that others would purchase it. ¶¶19, 22. To enhance the effect of the illicit
purchases, as well as create profit opportunities for the participants, Laikin shared
material non-public information concerning National Lampoon with the co-
conspirators, and selectively timed the public release of Company statements.
¶¶23, 26.


2 “¶__” refers to the respective paragraph in Plaintiff’s Complaint filed December
3, 2010.

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Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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On December 15, 2008, trading in the Company’s stock was halted. ¶40.
That same day, government agencies detailed the conspiracy, stock manipulation
and securities fraud allegations against Laikin by announcing the indictments
arising out of the scheme and the filing by the SEC of a civil complaint. ¶40. On
December 16, 2008, National Lampoon issued a press release informing Plaintiff
and the class of the allegations. ¶28. Defendant Laikin’s arrest as a result of his
involvement was also reported by the media. Id. The Company’s stock was halted
until February 5, 2009. ¶41. When trading resumed, the price of the Company’s
stock dropped from $0.73 per share to close at $0.50 per share. Id. The stock
declined to $0.10 per share in the following days. Id.

On September 23, 2009, Defendant Laikin entered a guilty plea to Count I of
the criminal indictment for conspiracy to commit securities fraud in violation of 18
U.S.C. § 371, 15 U.S.C. §§ 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5. ¶30. See
Rosen Decl., Ex. 2 (Transcript of Change of Plea Hearing in U.S. v. Laikin, No.
2:08-cr-00733-JHS-1), Tr. 68. This indictment was incorporated by reference into
Plaintiff’s complaint and attached thereto as Exhibit 1.3 During the September
23, 2009 hearing, Laikin admitted to the following conduct that forms the basis of
Plaintiff’s claims:

(a) Laikin sought to artificially inflate the price of National Lampoon by
causing manipulative market activity in the stock that was designed to
appear to be the product of free and fair market forces; Tr. 36;


3 During the plea hearing, Laikin stated that he had read and understood the
indictment. Tr. 6-7. He further represented that he had discussed it with his
attorney and that his attorney had explained the nature of the charges. Tr. 7-8; 11;
32-33. By moving to dismiss Plaintiff’s complaint, Laikin is now, in essence,
claiming that he does not understand the indictment. This is untenable.

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Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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(b) Laikin “agree[d] to pay other people to buy National Lampoon stock to
increase volume and share price.” Tr. 45:9-11; 53:16-22; 54:17-20, and
enlisted the work of others to carry out his scheme. Tr. 48:14-17;

(c) Laikin provided non-public information regarding the Company’s
performance to co-conspirators in furtherance of the scheme’s illegal
purpose, Tr. 58:10-13, 59.

(d) The purpose of the scheme was “to artificially inflate the price of the
stock,” Tr. 51:20-23; Tr. 45:15-16; 47:11-23. The goal would be
achieved by generating the appearance of significant interest in the stock
when there was actually little or no such interest, Tr. 51:24-25, in order to
induce the investing public into generating real purchases of the stock.
This would further artificially inflate the price of the stock. Tr. 52:4-9.
Defendant sought to inflate the stock from approximately $1.80 per share
to $5.00 per share. Tr. 57:24-25; Tr.58:1-2.

(e) Laikin undertook these actions with the intent “to defraud and
manipulate the price of the stock.” Tr. 59:14-16; Tr. 61-62. Laikin knew
his conduct was wrong and illegal. Tr. 62:23-25.

(f) Laikin made untrue statements of material fact, and omitted material facts
necessary to make those statements otherwise not misleading, Tr. 35:1-
15;

(g) Laikin’s conduct acted as a fraud and deceit upon all other persons in
connection with the purchase and sale of a security in violation of 17
C.F.R. § 240.10b-5, Tr. 35: 1-15;

(h) Laikin violated the securities laws by using and employing manipulative

and deceptive devices to defraud others. Tr. 34; Tr. 64-66.

The Complaint seeks to recover losses arising out of defendants’ violations
of federal securities laws. All defendants except Laikin have answered the

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Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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Complaint. Laikin moves to dismiss the Complaint. His motion is without legal or
factual merit. Plaintiffs’ respectfully request that it be denied.



III. ARGUMENT

A. Laikin’s Allegation That The Complaint Should Be Dismissed
Because Plaintiff Allegedly Used A “Puzzle-Style” Pleading Is
Meritless And Should Be Denied


Laikin maintains the Complaint should be dismissed on the basis that
Plaintiff allegedly “fails to plead [his] liability under Rule 10b-5 for failure to
disclose material facts to investors because the allegations fail to meet the
particularity requirements of F.R.C.P. 9(b) or the heightened pleading standards of
the PSLRA.” Def. Br., at 6. Laikin’s allegation is unfounded. The Complaint and
the exhibits “incorporated by reference into, and [which] form a part of, the
complaint,” contain a series of highly particularized allegations against Laikin that
easily meet the requirements of Rule 9(b) and the PSLRA. Complaint, at 2.4 See


4 As discussed below, those exhibits are, seriatim: (1) an indictment filed by the
Acting U.S. Attorney for the Eastern District of Pennsylvania (“U.S. Attorney’s
Office”) against Laikin, Barsky, and Dougherty for conspiracy (18 U.S.C. § 371),
securities fraud (15 U.S.C. §§ 78j(b), 78ff, 17 C.F.R. § 240.10b-5), and aiding and
abetting (18 U.S.C. § 2); (2) a superseding information filed by the U.S. Attorney’s
Office charging an additional individual, Rodriguez, with the same offenses; (3) a
complaint filed by the U.S. Securities and Exchange Commission (“SEC”) in the
U.S. District Court for the Eastern District of Pennsylvania against Laikin, Barsky,
Dougherty, Rodriguez, and National Lampoon specifically alleging that Laikin
engaged in a fraudulent scheme to manipulate the market for the common stock of
National Lampoon in violation of Section 17(a) of the Securities Act of 1933 (15
U.S.C. §§ 77q(a)), Section 10(b) of the Securities Exchange Act of 1934 (15
U.S.C. § 78j(b)) and SEC Rule 10b-5 promulgated thereunder (17 C.F.R. §§
240.10b-5), Section 9(a)(2) of the Exchange Act (15 U.S.C. § 78i(a)(2)), and
Section 13(e) of the Exchange Act (15 U.S.C. § 78m(e)) and SEC Rule 13e-4
promulgated thereunder (17 U.S.C. § 240.13e-4); and (4) a plea agreement
between the U.S. Attorney’s Office and Laikin in which Laikin pled guilty to one

Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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also id., ¶ 20 n.3. Laikin’s argument for dismissal thus should be denied as
meritless.

1.

Legal Requirements


“Rule 12(b)(6) motions are viewed with disfavor.” Broam v. Bogan, 320
F.3d 1023, 1028 (9th Cir. 2003) (citation omitted). “In considering whether the
complaint is sufficient to state a claim, the court will take all material allegations as
true and construe them in the light most favorable to the plaintiff.” Brodsky v.
Yahoo! Inc., 592 F. Supp. 2d 1192, 1196 (N.D. Cal. 2008) (citing NL Indus., Inc. v.
Kaplan, 792 F.2d 896, 898 (9th Cir. 1986)). “Although the court is generally
confined to consideration of the allegations in the pleadings, when the complaint is
accompanied by attached documents, such documents are deemed part of the
complaint and may be considered in evaluating the merits of a Rule 12(b)(6)
motion.” Id. (citing Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.
1987)) (emphasis added).
“At the pleading stage, a complaint stating claims under section 10(b) and

Rule 10b-5 must satisfy the dual pleading requirements of Federal Rule of Civil
Procedure 9(b) and the PSLRA.” Zucco Partners, LLC v. Digimarc Corp., 552
F.3d 981, 990 (9th Cir. 2009), op. amended, 2009 U.S. App. LEXIS 7025 (9th Cir.
Feb. 10, 2009). Under the former, “a party must state with particularity the
circumstances constituting fraud.” Fed. R. Civ. P. 9(b). “Rule 9(b) demands that
the circumstances constituting the alleged fraud be specific enough to give
defendants notice of the particular misconduct so that they can defend against the
charge and not just deny that they have done anything wrong.” Kearns v. Ford
Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (quotations omitted). “Averments


count of conspiracy to commit securities fraud in violation of 18 U.S.C. § 371, 15
U.S.C. §§ 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5.


Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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of fraud must be accompanied by the who, what, when, where, and how of the
misconduct charged.” Id. (quotations omitted).5

Under the PSLRA, a complaint alleging an untrue statement of material fact
or an omission of a material fact must “specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on information and belief,
the complaint shall state with particularity all facts on which that belief is formed.”
15 U.S.C. § 78u-4(b)(1). Moreover, where “the plaintiff may recover money
damages only on proof that the defendant acted with a particular state of mind, the
complaint shall, with respect to each act or omission . . . state with particularity
facts giving rise to a strong inference that the defendant acted with the required
state of mind.” Id. § 78u-4(b)(2). These are known as the “PSLRA’s heightened
pleading instructions,” and they apply to claims brought under Section 10(b) of the
Exchange Act and SEC Rule 10b-5. Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 321 (2007).

Under Section 10(b), it is “unlawful for any person, directly or indirectly . . .
[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 [SEC] may prescribe as necessary or appropriate in the public


5 In addition, a claim alleging fraud must meet the plausibility requirements in Fed.
R. Civ. P. 8(a)(2), as defined by decisions such as Ashcroft v. Iqbal, 129 S. Ct.
1937 (2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). Cafasso v.
Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011). Laikin did not
make any allegations as to the plausibility of Plaintiff’s entitlement to relief, nor
could any such allegations reasonably be made given his guilty plea to Count I of
the criminal indictment brought against him as well as his consent to the entry of a
final judgment against him resolving the SEC’s complaint. See discussion infra.
Consequently, the issue of plausibility need not be addressed here.

Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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interest or for the protection of investors.” 15 U.S.C. § 78j(b). Pursuant to SEC
Rule 10b-5, it is “unlawful for any person, directly or indirectly:
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading, or



(c) To engage in any act, practice, or course of business which operates or

would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5.
The specific components of a private action under Section 10(b) and Rule 10b-5
are:

(1) a material misrepresentation or omission by the defendant;6
(2) scienter;
(3) a connection between the misrepresentation or omission and the

purchase or sale of a security;

(4) reliance upon the misrepresentation or omission;
(5) economic loss; and
(6) loss causation.


6 Laikin suggests that “the group pleading doctrine can no longer be used in
pleading cases under the PSLRA.” Def. Br., at 6. It is a curious assertion for a
number of reasons. First, “the Ninth Circuit has yet to squarely address the issue.”
Petrie v. Elec. Game Card Inc., 2011 U.S. Dist. LEXIS 6203, *10 (C.D. Cal. Jan.
12, 2011). Second, this is not a group pleading case. “The group pleading
doctrine, in its broadest form allows unattributed corporate statements to be
charged to one or more individual defendants based solely on their corporate
titles.” Id., at *9 (quotation omitted) (emphasis added). That is not what Plaintiff
maintains occurred here. Rather, the Complaint contains specific allegations about
Laikin’s statements and conduct. See discussion infra.


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Janus Capital Grp., Inc. v. First Deriv. Traders, 2011 U.S. LEXIS 4380, *10 n.3
(U.S. June 13, 2011) (quotation omitted).

2.

The Complaint Is Not A Vague “Puzzle-Style” Pleading


Laikin maintains that the only specific reference in the Complaint itself to a
misrepresentation or omission on his part is in paragraph 24, which states “Laikin .
. . made materially misleading statements ‘regarding the fair market value and
trading range of the company's stock’ in a July 17, 2008 self-tender offer . . .
because [he] failed to disclose the illegal scheme.” Def. Br., at 6-7. “Other than
the above, the alleged misrepresentations or omissions made by Laikin are found
solely in the SEC complaint attached as Exhibit 3 to the Complaint.” Id., at 7.7
Defendant’s argument is as meritless as it is bizarre, because: (1) the Complaint


7 Laikin included a footnote at this point in his brief complaining that Plaintiff
failed to request judicial notice of the exhibits and maintaining that the Court could
not take notice of the truth of their contents, and the inferences to be drawn
therefrom, under Fed. R. Evid. 201. Patel v. Parnes, 253 F.R.D. 531 (C.D. Cal.
2008). Defendant has blatantly misconstrued Patel. That decision involved a
motion to dismiss a securities fraud class action brought under Sections 10(b) and
20(a) of the Exchange Act and SEC Rule 10b-5 for, among other things, failure to
allege fraud with sufficient particularity. The defendants asked the Court to take
judicial notice of certain exculpatory materials such as SEC filings that were
included as exhibits to their motion to dismiss. The Court stated that “[i]n
deciding a Rule 12(b)(6), the court generally looks only to the face of the
complaint and documents attached thereto,” and “[t]he court must accept all
factual allegations pleaded in the complaint as true, and construe them and draw all
reasonable inferences from them in favor of the nonmoving party.” 253 F.R.D. at
544 (emphasis added) (citations omitted). As such, the Court refused to take notice
of various contested documents proffered by defendants for the purpose of
considering the truthfulness of their contents. This has no effect whatsoever as to
whether the Court may consider the truthfulness of the contents of the documents
attached to Plaintiff’s complaint for the purpose of deciding Laikin’s Rule 12(b)(6)
motion; there is no question that it can and must do so.

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repeatedly mentions Laikin’s misrepresentations and omissions; and (2) the SEC
complaint is part of the Complaint.


The Complaint alleges, among other things, that:
• Laikin, while CEO, President, and a director of the Company,
masterminded and perpetrated an illegal scheme to manipulate the
Company’s stock price. The purpose of the scheme was to inflate
the price of the Company’s stock so that the Company a) could
avoid removal from the American Stock Exchange . . . for failure to
meet the minimum price-per-share requirement; and b) could more
easily and inexpensively acquire other companies and attract
business partners. ¶ 18;


• In furtherance of the scheme, Laikin paid kickbacks, from at least March
2008 through late June 2008, to Dennis S. Barsky . . . a Company
consultant and significant stockholder, and to other conspirators, in
exchange for their purchase of National Lampoon stock. The purpose of
the conspirators’ fraudulent purchases was to create the illusion of an
active and liquid market in the Company’s shares, which would in turn
drive up the price, make the stock appear attractive and the company
successful, and thereby induce the purchase of Company stock by
unsuspecting
inflated price, further
supporting the inflated stock price. ¶ 19;

investors at an unknowingly


• As detailed in the aforementioned criminal and civil filings, Laikin and
Barsky actively perpetrated the scheme from at least March 2008 through
June 2008. During that time they are alleged to have paid an aggregate of
at least $68,000 in kickbacks to Rodriguez, Dougherty and the confidential

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witness, who, in exchange, arranged and executed purchases of National
Lampoon stock. ¶ 22 (emphasis added);


• Additionally, Laikin is alleged to have shared confidential information
about the Company with his co-conspirators to facilitate their purchases;
the
information,
shareholder lists, and corporate information prior to being issued publicly.
¶ 23.

include non-public financial

illicitly shared data


• Aside from directly profiting from their fraud as significant shareholders,
Laikin and Barsky are alleged to have perpetrated the scheme “for the
purpose of creating the appearance of an active and liquid market” with
the intent of “inducing other investors to purchase stock, and ultimately
increasing the stock’s trading price.” According to the SEC, Laikin
disclosed to Rodriguez and the confidential witness that he and Barsky
“sought to artificially push National Lampoon’s stock price from under
$2.00 a share to at least $5.00 a share, to prevent the stock from being
delisted for failure to comply with the AMEX’s minimum listing
requirements and to enable the Company to engage in “strategic
transactions” and “acquisitions.” ¶ 25.


• To accomplish this objective, Laikin is alleged not only to have
committed the misconduct described above, but is also alleged to have
coordinated the release of news about the Company with the illegal
stock purchases so as to create the illusion of an increase in interest in
the stock and to make the purchases appear to be legitimate. Had
Laikin’s plan continued undetected, governmental authorities estimate that

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the value of his 40% ownership stake in the Company could have
increased by up to $15 million. ¶ 26 (emphasis added).


These allegations in the Complaint are connected directly to the facts and
allegations set forth in the exhibits to the Complaint. These allegations provide highly
detailed information as to Laikin’s misrepresentations and omissions in a concise and
easy to comprehend format. The SEC’s complaint against Laikin, Exhibit 3 to the
Complaint, is particularly direct and specific as to Laikin’s misrepresentations and
omissions. It stated, among other things, that “Laikin sought to artificially inflate the price
of National Lampoon stock” by “orchestrat[ing] a scheme to manipulate the market for
National Lampoon stock . . . in various ways, including: a) entering into illegal
agreements to orchestrate trading activity to create the false impression of increased market
activity and demand for National Lampoon stock; b) engaging in, directing, or causing
manipulative and deceptive securities transactions through the payment of illicit kickbacks
to artificially increase National Lampoon’s stock price and trading volume; and c) causing
National Lampoon to issue press releases coordinated with the fraudulent trading activity to
provide a false pretext for the increased trading volume and to induce public investors to also
make purchases of National Lampoon stock.” Id., ¶¶ 28-29. The SEC complaint added
that “[t]hrough these activities, Defendants created artificial trading activity in National
Lampoon stock, injected artificial information into the marketplace, and created a false
impression of supply and demand for National Lampoon stock.” Id., ¶ 30.

The SEC complaint then provided the details of the scheme, describing specifically
how Laikin engaged a co-conspirator, Rodriguez, to facilitate purchases of National
Lampoon stock in hopes of driving its price higher. Id., ¶¶ 31-32. It described an
arrangement through which Laikin agreed to an advance $60,000 cash kickback payment
that would generate future purchases of National Lampoon stock through bribery of third
persons, with Rodriguez taking a cut of the payment as his fee. Id., ¶ 33. The SEC
complaint set out in detail when Laikin paid Rodriguez the $60,000 kickback, when the
funds were transferred, how Laikin confirmed that Rodriguez was generating the agreed

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upon amounts of National Lampoon stock purchases, Rodriguez’s bribery of co-
conspirator Dougherty, the details of the resulting transactions in National Lampoon
stock, and Laikin’s dissatisfaction with Rodriguez’s results. Id., ¶¶ 34-46. It also related
a subsequent effort by Rodriguez to recruit a person who turned out to be a government
informant whom Rodriguez believed had corrupt registered representatives to join in the
manipulative buying campaign, Laikin’s discussions and arrangement with Rodriguez
and the informant regarding a new kickback arrangement as well as his motivation for
manipulating the price of National Lampoon stock, Laikin’s sharing of confidential
information with the informant about National Lampoon’s yet undisclosed revenues and
recent business developments for the Company’s fiscal quarter ended April 30, 2008, and
how they could coordinate upcoming positive press announcements with generated
purchases in order to induce trading momentum in the stock,8 Laikin’s coordination of
bogus stock purchases with a positive press release announcing the premier of the
company’s online show “Lemmings,” Laikin’s methodology for confirming the stock
purchases, and the details of the actual purchases and ensuing kickbacks. Id., ¶¶ 47-66.9

The SEC complaint concluded that Laikin never “publicly disclosed any of [his] above
stated efforts . . . to manipulate the market for National Lampoon by paying kickbacks in
exchange for generating purchases of National Lampoon stock, and coordinating National
Lampoon press releases with the requested purchases to further generate trading momentum.
These efforts by the CEO [i.e., Laikin], and his use of company press releases to assist the
scheme, would have been clearly material to a reasonable investor.” Id., ¶ 67. Laikin
neglected to mention in his motion that on June 3, 2011, a final consent judgment was entered


8 Laikin told the informant that on June 15, 2008, the Company was going to report
a “big jump” in revenue for the recent quarter on sales of movies released on video
along with the announcement that it had reached an agreement with Warner
Brothers’ studios on movie royalty payments. SEC complaint, ¶ 54.

9 The criminal indictment and the superseding information, Complaint Exs. 1-2,
contain substantially similar facts.

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against him with respect to the SEC complaint. SEC v. National Lampoon, Inc., C.A. No. 08-
5790 (PBT) (E.D. Pa.), Doc. 34 (Ex. A); Rosen Decl., Ex. 1. Under the judgment, Laikin
is permanently barred from committing future violations of Section 17(a) of the
Securities Act, Sections 9(a)(2), 10(b), and 13(e) of the Exchange Act of 1934 and
SEC Rules 10b-5 and 13e-4. He is also permanently prohibited from acting as an
officer or director of any public company.
It is impossible to distinguish the instant Complaint from the SEC complaint in terms

of clarity of the respective pleadings. The present Complaint incorporates the SEC complaint
by reference and specifically makes it part of the Complaint. Indeed, the present Complaint
provides Laikin with more information than was contained in the SEC complaint. If Laikin
understood the SEC complaint to the point where he was able to consent to a final judgment
against him, then there is no reason why he should be unable to discern Plaintiff’s
particularized allegations of fraud against him; they are practically one and the same. This is
also true for Count I of the criminal indictment to which Laikin pled guilty. Complaint, Ex. 4;
Rosen Decl. Ex. 2.

The Complaint provides Laikin with “the who, what, when, where, and how of
the misconduct charged” that is required for pleading fraud under Rule 9(b), as
well as the specificity required under the PSLRA. If there is any doubt as to the
sufficiency of the Complaint, one merely needs to consider the fact that defendant
National Lampoon managed to file its Answer to the Complaint without resorting
to the histrionics of Laikin’s “puzzle pleading” allegations. Case No. 2:10-cv-
09292-PA-AGR, Doc. 29. Laikin’s puzzle pleading contentions are merely an
attempt to delay the proceedings, add to Plaintiff’s costs, and leverage his liability.
His request to dismiss the Complaint on this basis pursuant to Rule 12(b)(6) should
be denied.




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Plaintiffs Adequately Allege Loss Causation

B.

Laikin is collaterally estopped from denying that he committed any of the
acts underlying the indictment count to which he pleaded guilty. See Yash Raj
Films (USA), Inc. v. Sidhu, CV F 09 - 0233 AWI GSA, 2010 U.S. Dist. LEXIS
25988, at *12-*13 (E.D. Cal. Mar. 19, 2010) (defendant collaterally estopped from
challenging acts underlying criminal conviction for copyright infringement in civil
copyright infringement action) (citing Ivers v. United States, 581 F.2d 1362, 1366 -
1367 (9th cir. 1978) (applying collateral estoppel to prevent defendant in prior
criminal case from denying willful violation of a reporting statute)).

Laikin, therefore, has no basis to challenge his liability here, except to argue
that Plaintiff has failed to adequately allege loss causation.10 Unfortunately for
Laikin, his ill-conceived motion is so lacking in merit as to border on frivolous.
To adequately allege loss causation, a plaintiff need only “provide a

defendant with some indication of the loss and the causal connection that the
plaintiff has in mind.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347 (2005).
Sparling v. Daou (In re Daou Sys.), 411 F.3d 1006, 1026 (9th Cir. 2005) (same). “A
plaintiff's allegations of economic loss are sufficient if the facts alleged, when
assumed to be true, raise ‘a reasonable expectation that discovery will reveal
evidence of loss causation.’” Maxim Integrated Prods., Sec Litig., 639 F. Supp. 2d
1038 (N.D. Cal. 2009) (quoting In re Gilead Sciences Sec. Litig., 536 F.3d 1049,
1057 (2008)). Moreover, at the pleading stage “[s]o long as the complaint alleges
facts that, if taken as true, plausibly establish loss causation, a Rule 12(b)(6)
dismissal is inappropriate.” In re Gilead Scis. Sec. Litig., 536 F.3d at 1057 (citing
McCabe v. Ernst & Young, LLP, 494 F.3d 418, 427 n.4 (3rd Cir. 2007); Emergent


10 The Indictment does not allege facts concerning loss causation. See Complaint,
Ex. 1.

Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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Capital Inv. Mgmt., LLC. v. Stonepath Group, Inc., 343 F.3d 189, 197 (2d Cir.
2003)).

Here, the allegations of the Complaint, as well as the Indictment and the
SEC Complaint incorporated by reference therein, plainly allege the specific
wrongful acts undertaken by Laikin and others to artificially inflate the price of the
Company’s common stock, and drive the price from $2.00 per share to $5.00 per
share, in order to avoid delisting by AMEX, and to enable National Lampoon to
engage in strategic transactions and acquisitions. ¶ 18-19, 25, 26; Complaint, Ex.
1, ¶¶ 7-8; Complaint, Ex. 3, ¶¶ 3, 53-54.11

The Complaint also alleges that both the U.S. Attorney’s and SEC’s
December 15, 2008 announcements concerning the Indictment of, and the SEC
enforcement proceedings against, Laikin detailed
the conspiracy, stock
manipulation, and securities fraud allegations against him (¶ 27), and that on the
first day of trading after the announcement of the Indictment and SEC proceedings,
the price of National Lampoon stock lost almost one-third of its value, falling from
$0.73 per share to $0.50 per share.12 ¶¶ 27, 41. Plaintiff further alleged that the
price of National Lampoon common stock continued to fall, reaching $0.10 per
share a few days later.13 ¶ 41. These allegations comport precisely with Dura’s
description of textbook pleading of loss causation. Adverse news concerning the


11 Their efforts were successful as the price of National Lampoon common stock
went from a close of $1.89 per share at the start of the Class Period to a closing
high of $2.12 per share on April 2, 2008.
12 The SEC suspended trading in National Lampoon on December 15, 2008, the
same day the Indictment and SEC enforcement action were announced. ¶ 27, 40.
Trading resumed on February 5, 2009. ¶ 41.
13 The price of the Company’s stock fell to $0.25 per share on February 6, 2009, to
$0.12 per share on February 13, 2009, and to $0.10 on February 17, 2009.

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fraud is revealed publicly and the market price of the stock drops. Dura Pharm.,
Inc. v. Broudo, 544 U.S. at 345.

Laikin’s assertion that that the disclosure of negative financial news about
the Company that was disclosed prior to December 15, 2008 was responsible for
the price drop after trading resumed on February 5, 2009 (Laikin Br. at 11 (citing ¶
33)), simply makes no sense. Because trading in National Lampoon’s stock was
not suspended until December 15, 2008 (¶¶ 27, 40), any adverse information about
the Company that was disclosed prior to that date was already reflected in the price
of the stock when trading was suspended. See, e.g., Heliotrope Gen., Inc. v. Ford
Motor Co., 189 F.3d 971, 975-76 (9th Cir. 1999) (“If the market has become aware
of the allegedly concealed information, the facts allegedly omitted by the defendant
would already be reflected in the stock’s prices and the market will not be
misled.”) (internal quotations and citations omitted). Thus, the drop in the price of
the stock upon the resumption of trading cannot be attributed such information. 14

Moreover, Plaintiff alleges as soon as trading in National Lampoon resumed
following the SEC trading suspension, the stock lost almost 25% of its value. ¶¶
27, 41. These allegations are sufficient “provide a [Laikin] with some indication of
the loss and the causal connection that the plaintiff has in mind.” Dura Pharm.,
Inc. v. Broudo, 544 U.S. 336, 347 (2005). Therefore, Laikin’s arguments
concerning loss causation should be rejected in their entirety.


14 Laikin’s reliance upon Meltzer Inv,. GMBH v. Corinthian Colleges, Inc., 540
F.3d 1049, 1063-64 (9th Cir. 2008) (Laikin Br. at 11), is entirely misplaced. In
Meltzer, the Court held that the plaintiff failed to adequately allege loss causation
because the materials cited as the curative disclosures did not reveal the fraudulent
act – widespread financial aid manipulation – alleged in the complaint. Id. at 1063.
Likewise in In re Maxim Integrated Prods., 639 F. Supp. 2d at 1048 (cited at
Laikin Br. at 11), the court held that the first series of disclosures cited by the
plaintiffs were insufficient to demonstrate loss causation because they contained
only speculative information about wrongful conduct at issue – options backdating.
Id. at 1047.

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Plaintiffs Have Sufficiently Pled a Section 20(a) Claim

C.
Under § 20(a) of the Exchange Act, any person who controls a person liable
for violating § 10(b) is jointly and severally liable for the violation. See 15 U.S.C.
§ 78t(a). “To establish ‘controlling person’ liability, the plaintiff must show that a
primary violation was committed and that the defendant ‘directly or indirectly’
controlled the violator.” Paracor Finance, Inc. v. Gen. Elec. Capital Corp., 96
F.3d 1151, 1161 (9th Cir. 1996).

Defendant does not assert that he was not a control person of National
Lampoon within the meaning of Section 20(a). Notwithstanding, the Complaint
Defendant Laikin had control over National Lampoon as the Chief Executive
Officer of the Company and through his control of the overwhelming majority of
the Company’s shares. As CEO, both he and National Lampoon had responsibility
for National Lampoon’s statements in its public filings with the SEC. These
allegations are sufficient to establish that Laikin was a controlling person under
Section 20(a). See, e.g., In re LaBranche Secs. Litig., 405 F. Supp.2d 333, 363-64
(S.D.N.Y. 2005)(individual defendants were control persons where it was alleged
that they had control of day-to-day operations and the company was alleged to be
responsible for its public filings) (citing Suez Equity Investors, L.P. v. Toronto-
Dominion Bank, 250 F.3d 87 (2d Cir. 2001)).

Defendant’s sole basis to dismiss the 20(a) claim is that a primary violation
has not been sufficiently alleged. This assertion rests entirely upon the arguments
addressed above. Those arguments are without merit. This is further reflected by
National Lampoon’s answering of the Complaint rather than challenging the
sufficiency of Plaintiff’s allegations. Accordingly, a primary violation has been
alleged in the Complaint. Because a primary violation has been alleged and it is
uncontested that defendant is a “controlling person,” Plaintiff has sufficiently pled
a Section 20(a) claim. Defendant’s motion to dismiss the Section 20(a) claim
should be denied.

Plaintiffs’ Opposition to Defendant Daniel S. Laikin’s Motion to Dismiss Plaintiffs’ Complaint

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IV. CONCLUSION

For the foregoing reasons, the Court should deny Laikin’s motion. If the
Court finds the pleadings in the Complaint insufficient or disagrees for any reason
with Plaintiff’s arguments in this memorandum, Plaintiff respectfully seeks leave
to amend. Leave to amend a Complaint should be freely given, unless the Court is
convinced that it could not be saved by any amendment. See Jackson v. Carey, 353
F.3d 750, 758 (9th Cir. 2003).15
Dated: July 11, 2011












Respectfully submitted,

/s/ Laurence Rosen, Esq.
Laurence M. Rosen, Esq. (SBN 219683)

THE ROSEN LAW FIRM, P.A.
333 South Grand Avenue, 25th Floor
Los Angeles, CA 90071
Tel.: (213) 785-2610
Fax: (213) 226-4684
Email: [email protected]
Lead Counsel for Lead Plaintiffs and the Class





















































15 Circumstances for granting leave to amend are even stronger when, as here,
Plaintiff has not had the chance to have the complaint assessed by the Court under
Rule 9(b) and the PSLRA and to cure any deficiencies in the pleadings the Court
might identify. See
In re HiEnergy Technologies, Inc., No. SACV04-
1226DOC(JTLX), 2005 WL 3071250, *7 (C.D. Cal. Oct. 25, 2005) (“Defendant
admits that the Second Amended Complaint is the first complaint that has been
assessed by the Court with regard to its sufficiency under Rule 9 and the PSLRA
scienter requirements... As such, the Court cannot be certain that Plaintiffs will be
unable to amend their complaint... to cure the above defects. [Thus the Rule 10b-5
claim]... is therefore dismissed without prejudice”).

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CERTIFICATE OF SERVICE

I, Laurence M. Rosen, hereby declare under penalty of perjury as follows:
I am the managing attorney of the Rosen Law Firm, P.A., with offices at 333
South Grand Avenue, 25th Floor, Los Angeles, CA 90071. I am over the age of
eighteen.

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On July 11, 2011, I electronically filed the following PLAINTIFFS’
OPPOSITION TO DEFENDANT DANIEL S. LAIKIN’S MOTION TO
DISMISS PLAINTIFFS’ COMPLAINT with the Clerk of the Court using the
CM/ECF system which sent notification of such filing to counsel of record.
Executed on July 11, 2011





/s/ Laurence Rosen
Laurence M. Rosen





















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