Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Utah: Commercial investment properties were securities under Howey, (Aug 5, 2026)

By Kristin J. Angelino, J.D.

A complaint sufficiently alleged securities fraud involving commercial investment properties.

A Utah district court held that plaintiff’s complaint adequately pleaded fraud under Exchange Act Section 10(b), as well as common law fraud and negligent representation, unjust enrichment and civil conspiracy under Utah law against all but one of the defendants moving to dismiss in a case involving an investment in commercial real estate. A Utah district court granted the motion to dismiss filed by defendant Smith for all claims, except for civil conspiracy (Goldsmith v. Long, No. 2:24-cv-00499 (D. Utah Jul. 28, 2026)).

The motion to dismiss was filed by defendants Millrock Blytheville LLC, Millrock Investment Fund 1 LLC and Brent Smith (collectively, the Millrock Defendants); and Green Ivy Realty, Inc. and Mark Machlis (collectively, the Green Ivy Defendants). Defendants are in the business of marketing and selling commercial real estate with long-term third-party leases. Plaintiff Douglas Goldsmith is an individual who invested approximately $1.8 million in early 2021 in one of defendants’ investment properties (the Blytheville Property).

Goldsmith was allegedly told that his investment would be structured as a tenant-in-common investment and that additional investors would be brought in to develop the Blytheville Property. Defendants also told Goldsmith that they would spend approximately eight to nine million dollars on property improvements, including the development of a surgical center for a third-party lessee, and that during the construction period Goldsmith would receive rent of approximately $14,500 per month.

In reality, the third-party lessee allegedly stopped making payments in December 2021 and filed for bankruptcy less than a year later. Also, the defendants did not develop the Blytheville Property. Although Goldsmith received rent for two years, it came out of his own invested money.

Section 10(b) claims. The Green Ivy Defendants argued that these claims should be dismissed as they did not involve the purchase or sale of a security. The court disagreed, holding that the scheme satisfied the three-prong test for an investment contract, as described in SEC v. W.J. Howey Company, 328 U.S. 293 (1946). The Green Ivy Defendants disputed the second and third prongs of the Howey test: a scheme involving a “common enterprise,” with “profits derived solely from the efforts of others.” The Green Ivy Defendants argued that plaintiff's fortunes were not dependent upon the efforts of defendants because he was only entitled to the fixed rent payments under the lease.

The court disagreed, holding that, in purchasing the Blytheville Property at an inflated price, Goldsmith was not simply engaged in a purely commercial transaction for that property. Instead, he invested in defendants’ purported development of a surgical center as a means to generate wealth, and the success of the investment depended on the promises made both in the promotion and sale of the property: the promised renovations and leaseback agreement.

The court held that the third prong also was satisfied because the success of Goldsmith's investment depended on the promised renovations and the leaseback agreement. Additionally, the defendants represented to Goldsmith that his investment would be completely passive.

The Millbrook Defendants argued that the complaint failed to meet the applicable heightened pleading standards regarding their involvement in the alleged fraud. Specifically, they argued that the complaint failed to sufficiently plead the existence of untrue statements or omissions made by defendants Smith, Millrock, or Millrock Blytheville.

Turning to Millrock and Millrock Blytheville, the court held that the complaint plausibly set forth that one of the persons acting on behalf of Millrock and Millrock Blytheville made multiple misrepresentations to Goldsmith from December 2020 to March 2021 which went to the quality and safety of the investment and would influence any reasonable investor’s decision and were therefore material. The complaint also sufficiently pleaded that these material representations were false and misleading.

As for scienter, the court held that the complaint supported an inference of scienter that was at least as compelling as any nonculpable inference because it alleged that a person acting on behalf of defendants made multiple misrepresentations to Goldsmith, including that thorough due diligence had been done on the development partner and on the tenant. The complaint further alleged that no real plans for development were made and that the tenant was in fact a shell company without any substantive operations or assets.

Regarding defendant Smith, the court held that the complaint did not specify any statements made by Smith to Goldsmith as required under the PSLRA. Although the complaint alleged that Smith created and disseminated marketing materials to Goldsmith, it failed to articulate with sufficient particularity the “when” with respect to those materials.

Fraud and negligent misrepresentation. Defendants Millrock and Smith also moved for dismissal of plaintiff’s common law fraud and negligent misrepresentation claims. The court held that since plaintiff's claims for common law fraud and negligent misrepresentation against Millrock were based on the same misrepresentations as the federal securities claim, and because the court already concluded that the plaintiffs had sufficiently alleged securities fraud under the PSLRA, the common law fraud and negligent misrepresentation claims against Millrock were pleaded with sufficient particularity under Rule 9(b).

Similarly, since plaintiff failed to meet the requirements of Rule 9(b) with respect to Smith, the court held that it would dismiss plaintiff's claims for common law fraud and negligent misrepresentation against Smith.

Unjust enrichment. The Millrock Defendants argued that plaintiff’s unjust enrichment claim should be dismissed because plaintiff failed to plausibly allege that Goldsmith conferred a benefit upon them. With respect to defendants Millrock and Millrock Blytheville, the court disagreed, noting that the complaint alleged that Goldsmith purchased the property from Millbrook Blytheville at an inflated price, that Millrock Blytheville had no assets other than Goldsmith's invested money, and that the funds between Millrock Blytheville and Millrock were intermingled.

Additionally, the complaint alleged that the two defendants used Goldsmith's invested money to pay rent on the property, therefore a reasonable inference can be drawn that they received a benefit from Goldsmith in the form of his investment payment.

With respect to Smith, however, the court agreed that the complaint failed to provide sufficient factual detail to plausibly allege that Smith received a benefit from plaintiff. The court noted that there were no allegations that Smith received a commission from the sale of the property or that he personally used Goldsmith's investment money and plaintiffs didn't argue that there was any basis for piercing the corporate veil as to Smith.

Civil conspiracy. The Millrock Defendants argued that plaintiff’s civil conspiracy claim must be dismissed because plaintiffs failed to adequately plead underlying torts against them. The court disagreed, stating that, although the claim of civil conspiracy requires an underlying tort, it is not necessary that each member of the conspiracy commit an unlawful act in furtherance of the conspiracy to be liable. Since the complaint asserted claims for common law fraud and negligent misrepresentation against several defendants and the court did not dismiss these claims against Millrock, the claims remain viable against other defendants and are thus eligible to serve as underlying torts for the civil conspiracy claim.

The case is No. 2:24-cv-00499.

Judge: Allen, A.

Attorneys: Wesley D. Felix (Nelson Christensen Hollingworth & Williams) for Douglas Goldsmith and Goldsmith Properties. Bentley J. Tolk (Parr Brown Gee & Loveless) for Kevin Long. Brian N. Platt (Workman Nydegger) for Millrock Blytheville LLC and Millrock Investment Fund 1 LLC.

Companies: Goldsmith Properties; Millcreek Commercial Properties LLC; Millrock Blytheville LLC; Millrock Investment Fund 1 LLC

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