Iser conceded in a July court filing that some of the representations made by Ellin were false, writing “had LXL obtained the rights to stream any major music festivals, such festivals not only would have been listed on LXL’s website so its subscribers could pay LXL to view the festivals, but there would have been press releases and/or disclosures of such streaming rights in LXL’s public filings with the Securities and Exchange Commission.” In court Thursday, Iser argued that Schnaeir was an accredited investor who had worked as a licensed securities broker for over 20 years and should have done a more thorough job conducting due diligence. If Ellin’s statements about the IPO or representations about his plans to merge LiveXLive with SFX and Quello had been true, they would have been disclosed to the Securities and Exchange Commission with accompanying paperwork.
“Every material misrepresentation is disclosed in SEC filings,” Iser told Schecter during the hearing. “Whether there’s a merger [would be] disclosed in SEC filings.”
Schnaier can’t claim fraud, Iser argued, because he had done almost no due diligence beyond “talking to the employees of LiveXLive,” ignoring “numerous hints of falsity” while failing to challenge Ellin’s assertions that documentation backing up Ellin’s claims was proprietary.
“I think someone as sophisticated and savvy as Mr. Schnaier would have said, ‘Wait a minute, you just told me all of this so-called proprietary information,'” Iser argued. “But he didn’t do that. And he’s an experienced broker and never checked to see if these things were proprietary.”
Schnaier’s attorney Josh Wurtzell said that Schnaier had spoken with a few members of LiveXLive’s management team and admits he wished he had been provided with more documentation, but as someone who had done similar in the past “nothing unusual stood out to him.”
Iser’s line of argument, however, did not meet the high legal hurdle required to warrant the dismissal of fraud charges, Schecter said, and the judge suggested Iser save his defense for the jury. Noting that LiveXLive had exhausted its last legal remedies for having the case dismissed, Schecter encouraged both sides to weigh “the risks and strengths” of the case and consider meditation and settlement.
“Know that you are headed for trial. There will be expense. There will be uncertainty,” she said. “Are the parties determined to go to trial?”
Iser told the judge there were previous discussions about mediation and “now that this motion has been decided, I expect us to return to those conversations.” Wurtzel indicated he too was open to mediation.