IN THE CIRCUIT COURT OF THE CITY OF SAINT LOUIS, MISSOURI. PETITION Plaintiffs Blue Ocean Portfolios, LLC, 23 Glen Abbey Partners, LLC, James A.

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1 IN THE CIRCUIT COURT OF THE CITY OF SAINT LOUIS, MISSOURI BLUE OCEAN PORTFOLIOS, LLC, 23 GLEN ABBEY PARTNERS, LLC, JAMES A. WINKELMANN, SR. PATRICIA L. WINKELMANN, v. Plaintiffs, GREENSFELDER, HEMKER & GALE, P.C., Serve: Erwin O. Switzer, Registered Agent 10 S. Broadway, Ste Saint Louis, Missouri GILES M. WALSH, Serve: 5410 Aberdeen Road Fairway, Kansas DEMAND FOR JURY TRIAL Cause No. Division 1822-CC10646 WENDY MENGHINI, Serve: Rambling Oaks Drive Saint Louis, Missouri Defendants. PETITION Plaintiffs Blue Ocean Portfolios, LLC, 23 Glen Abbey Partners, LLC, James A. Winkelmann, Sr., and Patricia L. Winkelmann (collectively, Plaintiffs ), for their Complaint against Greensfelder, Hemker & Gale, P.C. ( Greensfelder ), Giles M. Walsh, and Wendy Menghini (collectively, Defendants ), state and allege as follows:

2 NATURE OF THE CASE 1. In 2011, Jim Winkelmann retained Greensfelder, Hemker & Gale to advise his investment firm, Blue Ocean Portfolios. Winkelmann, a thirty-year veteran of the securities industry, had never been the subject of a regulatory action. He founded Blue Ocean two years earlier to provide honest investment advice without hefty fees or conflicts of interest. When Winkelmann contacted Greensfelder, he had recently been diagnosed with cancer and wanted to find a way to fund Blue Ocean s growth to the point that it could provide income for his family without his active involvement. Greensfelder helped him develop a plan under which Blue Ocean would raise capital by selling royalty units that gave the holder a right to receive a fixed percentage of Blue Ocean s cash receipts up to a certain amount. Greensfelder told Winkelmann the plan aligned with Blue Ocean s conflict-free philosophy because Blue Ocean s interests were aligned with the royalty unit owners in seeking increased revenue. With Greensfelder s advice and supervision, Blue Ocean issued $1.4 million in royalty units over a period of two years. 2. Winkelmann s reliance on Greensfelder was a huge mistake. In May 2016, the SEC Enforcement Division brought an action against Winkelmann and Blue Ocean alleging the royalty unit offerings were fraudulent and deceitful in violation of federal law. Winkelmann maintained throughout the SEC action that everything he did with respect to the royalty unit offerings was done under Greensfelder s advice. Nevertheless, the administrative law judge found Winkelmann and Blue Ocean responsible for the violations. Winkelmann was banned from the securities industry for the rest of his life. Blue Ocean s custodian of funds terminated its relationship, and no other custodian was willing to serve the firm. Consequently, Blue Ocean was unable to continue in the investment advisory business. 2

3 3. Winkelmann went to Greensfelder for advice that would allow him to leave a legacy for his family; he received advice that ended his career. Greensfelder should now be held to account for its gross malpractice. PARTIES 4. Plaintiff James A. Winkelmann, Sr. ( Winkelmann ), is a citizen of Missouri who resides in St. Louis County, Missouri. 5. Plaintiff Patricia L. Winkelmann ( Patricia Winkelmann ) is a citizen of Missouri who resides in St. Louis County, Missouri. Patricia Winkelmann is the wife of Winkelmann. 6. Plaintiff Blue Ocean Portfolios, LLC ( Blue Ocean ), is a Missouri limited liability company with its principal place of business at 23 Glen Abbey Drive, Frontenac, Missouri Before the events described in this lawsuit forced Blue Ocean to suspend its operations as a registered investment advisor, Blue Ocean maintained its principal place of business at 1588 S. Lindbergh, Ste. 205, Saint Louis, Missouri The sole member of Blue Ocean is 23 Glen Abbey Partners, LLC. 7. Plaintiff 23 Glen Abbey Partners, LLC ( Glen Abbey Partners ), is a Missouri limited liability company with its principal place of business at 23 Glen Abbey Drive, Frontenac, Missouri Winkelmann is the manager of Glen Abbey Partners; its members are Patricia Winkelmann and the three children of Winkelmann and Patricia Winkelmann. 8. Defendant Greensfelder, Hemker & Gale, P.C., is a Missouri professional corporation with its principal place of business at 10 S. Broadway, Ste. 2000, Saint Louis, Missouri Defendant Giles M. Walsh is a citizen of Kansas who resides in Johnson County, Kansas, at 5410 Aberdeen Road, Fairway, Kansas Upon information and belief, Walsh 3

4 was an associate attorney at Greensfelder and worked out of Greensfelder s office at 10 S. Broadway, Ste. 2000, Saint Louis, Missouri 63102, at all relevant times during the events described in this Petition. 10. Defendant Wendy Menghini is a citizen of Missouri who resides in Saint Louis County, Missouri, at Rambling Oaks Drive, Saint Louis, Missouri Upon information and belief, Menghini was an associate attorney at Greensfelder and worked out of Greensfelder s office at 10 S. Broadway, Ste. 2000, Saint Louis, Missouri 63102, at all relevant times during the events described in this Petition. JURISDICTION AND VENUE 11. This Court has personal jurisdiction over Defendants because Greensfelder and Menghini are citizens of Missouri, and because Defendants conducted business in Missouri and committed tortious acts in Missouri that injured Plaintiffs, as described throughout this Petition. 12. Venue is proper in this Court because Plaintiffs were first injured by Defendants wrongful acts and negligent conduct occurring within this judicial district. FACTS COMMON TO ALL COUNTS Winkelmann Founds Blue Ocean to Provide Conflict-Free Investment Advice 13. Winkelmann began his career in the securities industry in Over the next three decades, he owned a brokerage firm and an investment advisory firm, operated an insurance agency, and passed five licensing exams administered by the Financial Industry Regulatory Authority (FINRA). Winkelmann has served as the chairman of the Missouri Securities Industry Association, the treasurer of a publicly traded mutual fund, and an expert consultant on securities disputes involving sales practices and disclosures. 4

5 14. In August 2009, Winkelmann formed Blue Ocean as an SEC Registered Investment Advisor. Winkelmann intended for Blue Ocean to provide its clients honest and economical investment advisory services by focusing on low-cost index funds and eliminating advisor s commissions and other potential conflicts of interest. 15. At all times, Winkelmann has been Blue Ocean s chief executive officer, chief compliance officer, and manager, and has had ultimate decision-making authority at Blue Ocean. Winkelmann Engages Greensfelder to Advise Blue Ocean on Raising Capital 16. In late 2010, during Blue Ocean s first full year of operations, Winkelmann was diagnosed with malignant melanoma, the most dangerous form of skin cancer. With his health in jeopardy, Winkelmann wanted to implement a capitalization strategy for Blue Ocean that would allow it to grow rapidly and provide income for his family should he succumb to the disease. 17. In early 2011, Winkelmann met with Michael Morgan, a Greensfelder attorney experienced in securities matters, to discuss how this goal could be achieved. 18. One idea that Morgan and Winkelmann discussed was an offering of royalty units in Blue Ocean. Investors who purchased the royalty units would contribute capital to Blue Ocean in exchange for the right to receive a certain minimum percentage of its cash receipts. 19. Relying on Morgan s expertise and advice, Winkelmann, Blue Ocean, and the other Plaintiffs agreed to go forward with a royalty unit offering. 20. On or about February 3, 2011, Winkelmann, Blue Ocean, and the other Plaintiffs retained Greensfelder to ensure that Blue Ocean s royalty unit offerings complied with all applicable laws and regulations, and to provide compliance advice to Blue Ocean in connection with certain day-to-day operations, including advice regarding the content of its Forms ADV. 5

6 21. Winkelmann intended from the time the royalty unit offering was devised that Blue Ocean would offer the royalty units to its advisory clients, as well as non-clients. 22. Because Blue Ocean placed great emphasis on avoiding conflicts of interest with its clients, Winkelmann sought Morgan s assurances that there was no conflict in Blue Ocean offering royalty units to its advisory clients. 23. Morgan assured Winkelmann that no conflict existed. Specifically, Morgan told Winkelmann, That s the beauty of the structure, Jim, because there is no conflict of interest. 24. Before making potential investors aware of the first royalty unit offering, Winkelmann ed to Morgan for his review and comment a draft letter to be sent to certain accredited investors who were also advisory clients of Blue Ocean. The exchange between Winkelmann and Morgan, and an affidavit from Greensfelder s general counsel confirming its authenticity, are attached as Exhibit The letter is clear on its face that it was intended for a Blue Ocean advisory client. The letter reads (all emphasis added): Dear Jay, thanks to clients like you we have been steadily growing our Blue Ocean Portfolios business.... I made the decision that once we had acquired about $40 million in assets that we would expand the business. That threshold will be easily met and we will be raising up to $1 million in new capital for our business.... My idea for the new capital would be to sell Blue Ocean Royalty Units for $25,000 each. Each one of these Blue Ocean Royalty Units would give the purchaser rights to at least 0.25% of the cash receipts of Blue Ocean, LLC until the unit holder would be re-paid $75, Because of the fiduciary relationship we have with you I cannot recommend that you or your family participate in this offering due to the potential conflict that such a recommendation will create. Nonetheless I wanted to make you aware of this offering and will provide you with a complete offering document should your interest warrant. Please do not hesitate to call should you have any questions or comments. 6

7 26. It is inconceivable that a competent adult could read Winkelmann s draft letter and fail to understand that it was directed toward a Blue Ocean advisory client. 27. Morgan responded to Winkelmann s with a redlined draft of the letter containing several revisions, including multiple revisions to the paragraph referencing the fiduciary relationship between Winkelmann, Blue Ocean, and the addressee. Morgan s revisions are shown below: 28. Yet, Morgan s response in no way indicated that offering royalty units to Blue Ocean advisory clients might create a conflict of interest or otherwise be improper. Indeed, neither Morgan nor any other Greensfelder attorney ever told Winkelmann, Blue Ocean, or the other Plaintiffs that royalty units should not be offered to Blue Ocean advisory clients, or that doing so required additional precautions be taken to avoid a conflict of interest. Greensfelder Advises Blue Ocean on Four Rounds of Royalty Unit Offerings 29. Satisfied with Morgan s assurances that the royalty units could be offered to Blue Ocean advisory clients, Winkelmann and Blue Ocean began making both advisory clients and non-clients aware of the royalty unit offering. 30. Blue Ocean initiated each royalty unity offering with an offering memorandum sent to potential investors. 31. Winkelmann prepared the initial draft of the offering memoranda, and Greensfelder, pursuant to its engagement, reviewed and revised each of the offering memoranda, often exchanging several drafts with Winkelmann. Morgan and Walsh were the Greensfelder 7

8 attorneys principally involved in reviewing the offering memoranda for each royalty unity offering. Menghini also reviewed the offering memoranda for the fourth and final royalty unit offering. Greensfelder approved the final form of all offering memoranda before it was sent to potential investors. 32. Blue Ocean s first royalty unit offering commenced on March 31, The first offering sought to raise up to $1 million by issuing forty royalty units at $25,000 each. Each royalty unit entitled its owner to receive a minimum of 0.25% of Blue Ocean s monthly cash receipts until the owner received a total of $75,000. The first royalty unit offering resulted in Blue Ocean issuing twenty-six royalty units to fourteen investors, ten of whom were Blue Ocean advisory clients. 33. Blue Ocean s second royalty unit offering commenced on March 10, The second offering sought to raise up to $350,000 by issuing fourteen royalty units at $25,000 each. Each royalty unit entitled its owner to receive a minimum of 0.25% of Blue Ocean s monthly cash receipts until the owner received a total of $62,500. The second royalty unit offering resulted in Blue Ocean issuing fourteen royalty units to ten investors, seven of whom were Blue Ocean advisory clients. 34. Blue Ocean s third royalty unit offering commenced on September 1, The third offering sought to raise up to $650,000 by issuing twenty-six royalty units at $25,000 each. Each royalty unit entitled its owner to receive a minimum of 0.10% of Blue Ocean s monthly cash receipts until the owner received a total of $56,250. The third royalty unit offering resulted in Blue Ocean issuing eleven royalty units to four investors, three of whom were Blue Ocean advisory clients. 8

9 35. Blue Ocean s fourth royalty unit offering commenced on February 15, The third offering sought to raise up to $375,000 by issuing seventy-five royalty units at $5,000 each. Each royalty unit entitled its owner to receive a minimum of 0.05% of Blue Ocean s monthly cash receipts until the owner received a total of $12,500. The fourth royalty unit offering resulted in Blue Ocean issuing twenty-five royalty units to two investors, both of whom were Blue Ocean advisory clients. 36. In sum, the four offerings resulted in seventy-six royalty units being issued to twenty-four unique investors for total proceeds of $1.4 million. Nineteen of the twenty-four investors who purchased royalty units were Blue Ocean advisory clients. 37. As Blue Ocean predicted, the royalty unit offerings and the advertising they funded led to dramatic growth in Blue Ocean s business by every measure. Blue Ocean s number of clients, assets under management, and revenue all increased rapidly. Blue Ocean s clients accounts gained over $20 million from January 2011 through December Greensfelder s Bad Advice Puts Winkelmann and Blue Ocean in the Regulators Crosshairs 38. In late 2012, before all but the last round of royalty unit offerings had taken place, Winkelmann received a notice from the Missouri Securities Division informing him that he and Blue Ocean were under investigation for potential violations of Missouri securities law. The notice did not specifically refer to the royalty unit offerings. However, during the fourth offering, the Missouri Securities Division requested that Blue Ocean stop offering royalty units, and Blue Ocean did so. 39. The Missouri Securities Division investigation cast a cloud of uncertainty over Blue Ocean for the next several years. Although Winkelmann worked diligently to keep expanding Blue Ocean, he had no choice but to divert much of the company s advertising budget 9

10 to legal fees. Other business development activities were also curtailed. Blue Ocean had opened a Chicago office in October 2012 but closed it only months later after learning of the investigation. In early 2013, Blue Ocean laid off several key employees. 40. Because Blue Ocean s assets under management had grown dramatically from $40 million in early 2011 to over $100 million in April 2013, Blue Ocean was required to register with the U.S. Securities and Exchange Commission ( SEC ). 41. In May 2013, the Missouri Securities Division referred Blue Ocean to the SEC, and the SEC conducted a comprehensive on-site audit of Blue Ocean s operations. 42. In March 2014 before Winkelmann and Blue Ocean learned they were the subjects of an active SEC investigation the SEC issued Blue Ocean a deficiency letter setting forth concerns it had regarding the royalty unit offerings. 43. At this time, Greensfelder was still representing Winkelmann and Blue Ocean in connection with the royalty unit offerings and compliance matters, and Greensfelder represented Blue Ocean in responding to the SEC s deficiency letter. Menghini was the Greensfelder attorney primarily responsible for responding to the deficiency letter. 44. Greensfelder s attempt to persuade the SEC that the royalty unit offerings were proper was not successful. In September 2014, the SEC s Enforcement Division gave Greensfelder (through Menghini) notice that it was conducting an active investigation of Winkelmann and Blue Ocean. 45. Winkelmann, aware that his reliance on Greensfelder for all legal and regulatory matters related to the royalty offerings made Greensfelder a key witness to the SEC s investigation, asked Greensfelder to cease its representation and retained other counsel. 10

11 46. Winkelmann and Blue Ocean, confident they had nothing to hide, fully cooperated with the SEC investigation as it proceeded over the next year. The SEC Institutes Proceedings Against Winkelmann and Blue Ocean 47. On May 19, 2016, the SEC issued an order instituting proceedings ( OIP ) against Winkelmann and Blue Ocean. The OIP charged Winkelmann and Blue Ocean with violating the antifraud provisions of Securities Act 17(a), Exchange Act 10(b) and Rule 10b- 5, and Advisers Act 206(1) and 206(2) (collectively, the Antifraud Provisions ). The OIP further charged Winkelmann and Blue Ocean with violating the custody and compliance provisions of Advisers Act 206(4) and Rules 206(4)-2 and 206(4)-7, and Advisers Act 207 (collectively, the Custody and Compliance Provisions ). 48. On October 4 7 and 13 14, 2016, a hearing on the charges was held in St. Louis, Missouri before SEC administrative law judge Jason S. Patil. 49. On March 20, 2017, Judge Patil issued an initial decision setting forth findings of fact and conclusions of law (the Initial Decision ). The Initial Decision found both Winkelmann and Blue Ocean liable for violations of the Antifraud Provisions and the Custody and Compliance Provisions. 50. With respect to the Antifraud Provisions, the Initial Decision found Winkelmann and Blue Ocean willfully violated them by failing to disclose actual and potential conflicts of interest when soliciting investors for the royalty unit offerings. Specifically, Winkelmann and Blue Ocean should have disclosed to investors that (i) some of revenue received from royalty unit purchases might be used to increase Winkelmann s compensation, and (ii) there was an inherent conflict between royalty unit owners interest in receiving monthly payments above the 11

12 guaranteed minimum percentage and Winkelmann s interest in keeping the additional revenue for himself. 51. With respect to the Custody and Compliance Provisions, the Initial Decision found Winkelmann and Blue Ocean violated them by (i) accruing in Blue Ocean s operating bank account the percentage of Blue Ocean cash receipts owed to the royalty unit investors who were Blue Ocean advisory clients; (ii) falsely stating in Blue Ocean s compliance policies and procedures manuals that it did not have custody of client assets; and (iii) filing at least twenty Form ADVs that inaccurately represented that Blue Ocean did not have custody of client funds. Greensfelder s Bad Advice Causes Winkelmann and Blue Ocean to be Found Liable 52. Winkelmann and Blue Ocean have always endeavored to comply with the securities laws and their fiduciary obligations with the utmost diligence. From Blue Ocean s inception in 2009 to the present day, no Blue Ocean client or investor has ever lodged a complaint against Winkelmann or Blue Ocean. The royalty unit investors have always been paid (and continue to be paid) in accordance with the terms of the offerings. The findings of liability set forth in the Initial Decision are solely attributable to Greensfelder, Walsh, and Menghini. 53. Winkelmann, Blue Ocean, and the other Plaintiffs engaged Greensfelder to make sure the royalty unit offerings complied with all applicable laws and regulations, including the Antifraud Provisions and the Custody and Compliance Provisions. 54. Winkelmann, Blue Ocean, and the other Plaintiffs maintained regular communication with Greensfelder (through Morgan, Walsh, and Menghini) regarding the royalty unit offerings, and furnished Greensfelder with all necessary information for it to render proper legal advice. 12

13 55. Winkelmann, Blue Ocean, and the other Plaintiffs relied on Greensfelder s advice with respect to all legal and regulatory aspects of the royalty unit offerings, including all offering memoranda, subscription agreements, and other disclosures made to royalty unit purchasers. 56. Winkelmann, Blue Ocean, and the other Plaintiffs also relied on Greensfelder s advice with respect to all compliance matters involving the royalty unit offerings, including those related to custody of amounts owed to royalty unit holders, and representations made in compliance policies, procedure manuals, and Form ADV filings. 57. Throughout Greensfelder s representation of Winkelmann, Blue Ocean, and the other Plaintiffs, it repeatedly advised them (through Morgan, Walsh, and Menghini) that the royalty unit offerings and their related compliance practices complied with all applicable laws and regulations. 58. Greensfelder never advised Winkelmann, Blue Ocean, or the other Plaintiffs that any aspect of the royalty unit offerings violated or potentially violated any part of the Antifraud Provisions. 59. Greensfelder never advised Winkelmann, Blue Ocean, or the other Plaintiffs that any aspect of their compliance practices with respect to the royalty unit offerings violated or potentially violated any part of the Custody and Compliance Provisions. 60. If Greensfelder had properly advised Winkelmann, Blue Ocean, and the other Plaintiffs with respect to the Antifraud Provisions and the Custody and Compliance Provisions, they would have followed Greensfelder s advice, and neither Winkelmann nor Blue Ocean would have had regulatory proceedings brought against them. 61. Moreover, if Greensfelder had properly advised Winkelmann, Blue Ocean, and the other Plaintiffs with respect to the Antifraud Provisions and the Custody and Compliance 13

14 Provisions, Blue Ocean would undoubtedly have realized Winkelmann s objective of becoming a large, profitable, and self-sustaining investment advisory firm. Even despite the negative publicity, legal expenses, and other inconveniences caused by the SEC investigation and administrative proceeding, Blue Ocean s average assets under management steadily increased every year it was in business, excepting a slight decline from 2015 to Greensfelder s Bad Advice Has Disastrous Consequences for Winkelmann and Blue Ocean 62. The Initial Decision levied numerous sanctions against Winkelmann and Blue Ocean for their violations. Winkelmann was permanently barred from registering as an investment adviser or being associated with an investment adviser, and was ordered to pay $415,000 (plus interest) in disgorgement and $187,500 in civil penalties. Winkelmann and Blue Ocean were further ordered to cease and desist from violating the Antifraud Provisions. 63. The Initial Decision did not revoke Blue Ocean s registration as an investment adviser, reasoning that Blue Ocean should be allowed to remain in business so that the royalty unit owners could be repaid in full. As a practical matter, however, the Initial Decision s findings soon forced Blue Ocean to cease all business operations. 64. From its inception, Blue Ocean used Scottrade as custodian of its advisory accounts. This relationship was to continue with TD Ameritrade following that firm s acquisition of Scottrade in September On October 10, 2017, as a direct result of the findings set forth in the Initial Decision, TD Ameritrade permanently terminated its relationship with Blue Ocean, effective December 22,

15 66. Winkelmann and Blue Ocean repeatedly asked TD Ameritrade to rescind the termination, explaining that the violations set forth in the Initial Decision are entirely attributable to Greensfelder s failure to provide adequate legal advice. TD Ameritrade refused to do so. 67. Winkelmann explored all available options for custody of Blue Ocean s advisory accounts. Even though Blue Ocean s assets under management exceeded $130 million, each custodian that Winkelmann contacted rejected Blue Ocean due to the Initial Decision s derogatory findings. Consequently, Winkelmann unemployed and owing thousands of dollars in legal fees had no choice but to sell Blue Ocean s assets in a distressed sale. 68. In December 2017, Winkelmann and Blue Ocean reached an agreement to sell Blue Ocean s book of business and related tangible and intangible assets to a small investment advisory firm. The terms of the sale were substantially inferior to what could have been received but for the Initial Decision and its derogatory findings. The sale price is subject to substantial adjustments to be made based upon the buyer s ability to retain and receive revenue from the former Blue Ocean clients. Furthermore, the price is to be paid in installments and will not be paid in full until December 31, Winkelmann and Blue Ocean appealed the Initial Decision to the SEC Commissioners. 70. On November 30, 2017, due to developments in a case pending before the U.S. Supreme Court, the SEC issued an order requiring all administrative law judges who had issued an initial decision then pending before the SEC Commissioners to reopen the record for new evidence, reconsider the full record, and ratify or revise their initial decision. Winkelmann and Blue Ocean took this opportunity to submit additional evidence, including the s contained in Exhibit 1, which demonstrate Greensfelder s knowledge that Blue Ocean would be offering 15

16 royalty units to its advisory clients. As of the date of filing, Judge Patil has not yet affirmed or revised the Initial Decision. 71. Even if the Initial Decision is revised so to vacate its findings of violation and sanctions, Winkelmann and Blue Ocean remain irreparably damaged. Winkelmann, now 60 years old, cannot again embark on the long and difficult road of building an investment advisory firm from the ground up. The findings set forth in the Initial Decision caused as a direct result of Greensfelder s malpractice have already tarnished Winkelmann s reputation and forced him to sell Blue Ocean s assets at a steep discount. Those harms cannot be undone. 72. Furthermore, Greensfelder s malpractice may still cause more harm to Winkelmann, Blue Ocean, and the other Plaintiffs. 73. In October 2017, the Missouri Securities Division provided Winkelmann with a draft petition charging him, Blue Ocean, Patricia Winkelmann, and Glen Abbey Partners with numerous violations of the Missouri securities laws. Most of the proposed charges arise from Blue Ocean s royalty unit offerings. The draft petition seeks to impose over $500,000 in civil penalties. If the draft petition is ultimately filed, Plaintiffs will face additional legal expenses, emotional trauma, reputational damage, and, potentially, monetary liability. COUNT I LEGAL MALPRACTICE 74. Plaintiffs incorporate by reference all preceding paragraphs as though fully set forth herein. 75. Plaintiffs and Defendants had an attorney-client relationship with respect to Blue Ocean s royalty unit offerings and compliance practices. 76. Defendants were negligent in their representation of Plaintiffs by failing to advise Plaintiffs that Blue Ocean s royalty unit offerings and compliance practices violated or 16

17 potentially violated the Antifraud Provisions, the Custody and Compliance Provisions, and other applicable laws and regulations. 77. Defendants should have realized that their negligence in their representation of Plaintiffs exposed Plaintiffs to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and thus created an unreasonable risk of causing Plaintiffs severe and medically significant emotional distress. 78. Defendants should have realized that their negligence in their representation of Plaintiffs created a high degree of probability that Plaintiffs would be subject to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and accordingly, Defendants negligence in their representation of Plaintiffs was so reckless as to show complete indifference or a conscious disregard for Plaintiffs rights. 79. As a direct and proximate result of Defendants negligence, Plaintiffs suffered damages in an amount to be determined at trial. COUNT II BREACH OF CONTRACT 80. Plaintiffs incorporate by reference all preceding paragraphs as though fully set forth herein. 81. Plaintiffs and Defendants had a contract under which Defendants agreed to provide Plaintiffs legal advice with respect to Blue Ocean s royalty unit offerings and compliance practices in exchange for Plaintiffs payment of fees, as demonstrated through the parties conduct. 82. Plaintiffs fulfilled all of their obligations to Defendants under the contract. 83. Defendants breached their obligations to Plaintiffs under the contract by failing to advise Plaintiffs that Blue Ocean s royalty unit offerings and compliance practices violated or 17

18 potentially violated the Antifraud Provisions, the Custody and Compliance Provisions, and other applicable laws and regulations. 84. As a direct and proximate result of Defendants breach, Plaintiffs suffered damages in an amount to be determined at trial. COUNT III NEGLIGENT MISREPRESENTATION 85. Plaintiffs incorporate by reference all preceding paragraphs as though fully set forth herein. 86. Defendants, in the course of their professional employment, represented to Plaintiffs that Blue Ocean s royalty unit offerings and related compliance practices did not violate any applicable laws or regulations. 87. Defendants made these representations with the intent that Plaintiffs rely upon them in making Blue Ocean s royalty unity offerings and in designing and implementing their compliance practices. 88. Plaintiffs relied on Defendants representations and their reliance was reasonable under the circumstances, given Defendants purported expertise. 89. Defendants representations were material to Plaintiffs decisions in making Blue Ocean s royalty unit offerings and in designing and implementing their compliance practices. 90. Defendants representations were false, in that Blue Ocean s royalty unit offerings and related compliance practices were determined to have violated applicable laws and regulations. 91. Defendants failed to use ordinary care in making the representations to Plaintiffs. 92. Defendants should have realized that their negligence in making the representations to Plaintiffs exposed Plaintiffs to the action brought by the SEC, and to the action 18

19 that may be brought by the Missouri Securities Division, and thus created an unreasonable risk of causing Plaintiffs severe and medically significant emotional distress. 93. Defendants should have realized that their negligence in making the representations to Plaintiffs created a high degree of probability that Plaintiffs would be subject to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and accordingly, Defendants negligence in their representation of Plaintiffs was so reckless as to show complete indifference or a conscious disregard for Plaintiffs rights. 94. As a direct and proximate result of Defendants negligence, Plaintiffs suffered damages in an amount to be determined at trial. COUNT IV NEGLIGENT MISREPRESENTATION BY OMISSION 95. Plaintiffs incorporate by reference all preceding paragraphs as though fully set forth herein. 96. Defendants, in the course of their professional employment, had a duty to disclose to Plaintiffs that Blue Ocean s royalty unit offerings and related compliance practices violated or potentially violated applicable laws or regulations. 97. Defendants did not disclose to Plaintiffs that Blue Ocean s royalty unit offerings and related compliance practices violated or potentially violated applicable laws or regulations. 98. Plaintiffs relied on Defendants nondisclosure of such facts and their reliance was reasonable under the circumstances, given Defendants purported expertise. 99. Defendants nondisclosure of such facts was material to Plaintiffs decisions in making Blue Ocean s royalty unit offerings and in designing and implementing their compliance practices. 19

20 100. Defendants nondisclosure was the result of such facts was the result of Defendants failure to use ordinary care Defendants should have realized that their nondisclosure of such facts exposed Plaintiffs to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and thus created an unreasonable risk of causing Plaintiffs severe and medically significant emotional distress Defendants should have realized that their nondisclosure of such facts to Plaintiffs created a high degree of probability that Plaintiffs would be subject to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and accordingly, Defendants negligence in their representation of Plaintiffs was so reckless as to show complete indifference or a conscious disregard for Plaintiffs rights As a direct and proximate result of Defendants negligence, Plaintiffs suffered damages in an amount to be determined at trial. COUNT V BREACH OF FIDUCIARY DUTY 104. Plaintiffs incorporate by reference all preceding paragraphs as though fully set forth herein Plaintiffs and Defendants had an attorney-client relationship with respect to Blue Ocean s royalty unit offerings and compliance practices, which imposed on Defendants a fiduciary duty to Plaintiffs Defendants breached their fiduciary duty to Plaintiffs by failing to advise Plaintiffs that Blue Ocean s royalty unit offerings and compliance practices violated or potentially violated the Antifraud Provisions, the Custody and Compliance Provisions, and other applicable laws and regulations. 20

21 107. Defendants should have realized that the breach of their fiduciary duty to Plaintiffs exposed Plaintiffs to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and thus created an unreasonable risk of causing Plaintiffs severe and medically significant emotional distress Defendants should have realized that the breach of their fiduciary duty to Plaintiffs created a high degree of probability that Plaintiffs would be subject to the action brought by the SEC, and to the action that may be brought by the Missouri Securities Division, and accordingly, Defendants negligence in their representation of Plaintiffs was so reckless as to show complete indifference or a conscious disregard for Plaintiffs rights As a direct and proximate result of Defendants breach of their fiduciary duty to Plaintiffs, Plaintiffs sustained damages in an amount to be determined at trial. COUNT VI NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS 110. Plaintiffs incorporate by reference all preceding paragraphs as though fully set forth herein Plaintiffs and Defendants had an attorney-client relationship with respect to Blue Ocean s royalty unit offerings and compliance practices, which imposed on Defendants the duty to protect Plaintiffs from injury within the scope of the representation Defendants were negligent in their representation of Plaintiffs by failing to advise Plaintiffs that Blue Ocean s royalty unit offerings and compliance practices violated or potentially violated the Antifraud Provisions, the Custody and Compliance Provisions, and other applicable laws and regulations Defendants should have realized that their negligence in their representation of Plaintiffs exposed Plaintiffs to the action brought by the SEC, and to the action that may be 21

22 brought by the Missouri Securities Division, and thus created an unreasonable risk of causing Plaintiffs severe and medically significant emotional distress As a direct and proximate result of Defendants negligence, Plaintiffs suffered severe and medically significant emotional distress, causing them damages in an amount to be determined at trial. PRAYER FOR RELIEF 115. Plaintiffs respectfully request that on each of the above Counts, the Court award: a. damages in an amount to be determined at trial; b. punitive damages; c. Plaintiffs costs and disbursements in this action; d. all other relief the Court deems just and proper. DEMAND FOR JURY TRIAL 116. Plaintiffs respectfully request a trial by jury on all issues so triable. 22

23 Dated: June 28, 2018 Respectfully submitted, EDGAR LAW FIRM LLC /s/ John M. Edgar John M. Edgar # Matthew J. Limoli # Pennsylvania Avenue Kansas City, Missouri Telephone: (816) Facsimile: (816) jme@edgarlawfirm.com mjl@edgarlawfirm.com David W. Edgar # Lincoln Street, Ste Denver, Colorado Telephone: (720) dwe@edgarlawfirm.com Terry L. Pabst # Francis Place, Ste. 107 St. Louis, Missouri Telephone: (314) Facsimile: (314) tpabst@webpabstlaw.com Attorneys for Plaintiffs 23