{"id":491,"date":"2026-01-20T12:00:00","date_gmt":"2026-01-20T12:00:00","guid":{"rendered":"https:\/\/california.shuster.info\/?p=491"},"modified":"2026-01-20T12:00:00","modified_gmt":"2026-01-20T12:00:00","slug":"north-investment-berkower-cd-cal-fraud-aiding-abetting-trinad-k1-scienter","status":"publish","type":"post","link":"https:\/\/california.shuster.info\/?p=491","title":{"rendered":"North Investment v. Berkower \u2014 C.D. Cal. Tosses Fraud and Aiding-and-Abetting Claims Against Accounting Firm Over False Schedule K-1s"},"content":{"rendered":"
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Case<\/dt>\n
North Investment Limited Partnership v. Trinad Capital L.P. (Berkower LLC)<\/dd>\n
Court<\/dt>\n
U.S. District Court \u2014 Central District of California<\/dd>\n
Date Decided<\/dt>\n
2026-01-20<\/dd>\n
Docket No.<\/dt>\n
2:25-cv-05553-ODW<\/dd>\n
Status<\/dt>\n
Unreported \/ Non-Citable<\/dd>\n
Topics<\/dt>\n
Fraud, aiding and abetting breach of fiduciary duty, scienter, Schedule K-1, accounting firm liability, UCL, Rule 12(b)(6)<\/dd>\n<\/dl>\n<\/div>\n

Background<\/h2>\n

North Investment Limited Partnership and Amy Elias invested as limited partners in Trinad Capital L.P. in 2005, a fund managed by Robert Ellin. In April 2022, they exercised their right to redeem the full investment. In April 2023, the fund\u2019s outside accountants \u2014 Berkower LLC \u2014 prepared Schedule K-1 forms for plaintiffs that indicated the redemption capital had been distributed.<\/p>\n

The distributions never actually happened. After more than a year of unsuccessful communications with Ellin, plaintiffs notified Berkower in mid-2024 that the K-1s were inaccurate and asked Berkower to revise them. Berkower responded that it could not act without Trinad\u2019s approval. Plaintiffs filed this action in June 2025, asserting fraud, aiding and abetting breach of fiduciary duty, and a violation of California\u2019s Unfair Competition Law (UCL) against Berkower, along with claims against Trinad and Ellin.<\/p>\n

The Court’s Holding<\/h2>\n

The court dismissed all three claims against Berkower with leave to amend. The opinion turned on a single missing element: scienter \u2014 the defendant\u2019s knowledge that its statements were false at the time they were made.<\/p>\n

For the fraud claim, although Federal Rule 9(b) allows a party to allege intent and knowledge generally, the underlying allegations must still satisfy Rule 8\u2019s plausibility standard. Plaintiffs\u2019 only assertion of Berkower\u2019s state of mind was a single conclusory phrase pleaded \u201cupon information and belief\u201d that the firm \u201cknowingly or recklessly participated in the dissemination of [the] K-1s.\u201d Without factual content from which the court could plausibly infer that Berkower actually knew, when it issued the April 2023 K-1s, that Trinad had not made the distributions, the claim failed.<\/p>\n

The court also rejected plaintiffs\u2019 argument that Berkower\u2019s knowledge of the falsity in mid-2024 (after plaintiffs notified the firm of the error) supplied scienter. Under California law, fraud requires knowledge at the time of the representation \u2014 not awareness acquired later.<\/p>\n

The aiding-and-abetting breach-of-fiduciary-duty claim required even more: actual knowledge of the specific primary wrong (Trinad\u2019s and Ellin\u2019s alleged breach of fiduciary duties to plaintiffs). The same conclusory pleading failed for the same reason. Plaintiffs cited cases where general knowledge allegations sufficed, but each of those involved additional facts (such as bank monitoring of unusual account activity) that made the inference of knowledge plausible \u2014 facts plaintiffs did not allege here.<\/p>\n

The UCL claim was derivative of the fraud and aiding-and-abetting theories and fell with them. The court allowed plaintiffs until February 3, 2026, to amend, with the dismissal converting to one with prejudice if they failed to do so.<\/p>\n

Key Takeaways<\/h2>\n