NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
25-P-435
GIUL, LLC
vs.
SHENGHUO MEDICAL, LLC, & others.1
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
GIUL, LLC (GIUL), invested $64,000 in Shenghuo Medical, LLC
(Shenghuo),2 with the understanding that Shenghuo would use the
funds to secure its own investment in Guided Therapeutics, Inc.
(GTI), the manufacturer and worldwide distributor of a medical
device known as LuViva (LuViva device).3 When the investment did
1Michael J. Antonoplos, Richard P. Blumberg, Mark L. Faupel, and Mark S. Pearlstein. Guided Therapeutics, Inc., was joined solely on reach and apply claims.
2Shenghuo later changed its name to K2 Medical. The judge and the parties referred to the company as Shenghuo and so do we.
3The LuViva device is a cervical cancer screening and diagnostic device which "uses spectroscopy to project light onto a woman's cervix, causing cells associated with cancer to fluoresce or to give other recognizable signals." not produce the return that GIUL and its owner, Paul Conte,
anticipated, GIUL sued Shenghuo and its managing members,
Michael J. Antonoplos, Richard P. Blumberg, and Mark L. Faupel.
GIUL also sued Shenghuo's legal counsel, Mark S. Pearlstein.
The majority of GIUL's claims, which were advanced in initial
and amended complaints, were dismissed or resolved in favor of
the defendants prior to the commencement of a bench trial on
claims arising from the Massachusetts Uniform Securities Act,
G. L. c. 110A, § 410 (a) (MUSA), and the Massachusetts Consumer
Protection Act, G. L. c. 93A, § 11 (c. 93A).4 The judge ruled in
favor of the defendants on all remaining claims after the bench
trial.
On appeal, GIUL argues, among other things, that the judge
applied an incorrect legal standard when he concluded that GIUL
failed to prove that the defendants did not disclose material
information about GTI's financial condition before GIUL made its
investment. We agree. We vacate the portion of the judgment on
the MUSA and c. 93A claims as to Shenghuo, Antonoplos, and
4 The procedural history of the litigation is set forth in the judge's findings and need not be repeated here. It suffices to note that GIUL's claims of fraud, breach of fiduciary duty, breach of contract, reach-and-apply claims, and conspiracy were disposed of on motions for judgment on the pleadings and summary judgment. GIUL makes no argument about these claims on appeal.
2 Blumberg, and remand for further proceedings consistent with
this memorandum and order. We otherwise affirm the judgment.
Background. We summarize the facts found by the judge as
articulated in his detailed findings. Faupel coinvented the
LuViva device, which, as noted, is manufactured by GTI. Faupel
served as chief executive officer of GTI from approximately 2008
through 2013, and again in 2023.5 Blumberg met Faupel around
2006 or 2007 and subsequently became a shareholder in GTI,
through which he gained familiarity with the LuViva device, its
intended use, and its international commercial prospects.
Blumberg reached out to entities that had experience in products
being marketed and used internationally. Ultimately, he
approached Antonoplos, who had served as chief executive officer
of a breast cancer diagnostics company.
Antonoplos was interested in the venture and, in February
2015, Antonoplos and Blumberg formed Shenghuo for the purpose of
obtaining licensing rights from GTI, raising capital from
investors, and distributing the LuViva device throughout Asia.
In the beginning, Antonoplos and Blumberg were the sole managing
members of Shenghuo and exercised full control over its
5 From 2013 to 2015, Faupel worked as a consultant for GTI and then joined its board of directors in 2016.
3 operations. Soon thereafter, Faupel and Pearlstein became
members of Shenghuo as well.
In June 2016, Shenghuo entered into a licensing agreement
with GTI in which GTI gave Shenghuo a $200,000 conditional loan.
Under the agreement, GTI was obligated to repay the loan only if
it obtained at least $1 million in additional financing within a
specified timeframe. If GTI failed to obtain such financing, it
would not incur a repayment obligation, but the agreement
allowed for the possibility that any investment from Shenghuo
could be converted into GTI common stock.
Within weeks of signing the licensing agreement with GTI,
Shenghuo raised approximately $136,000 and sought additional
capital to meet the $200,000 investment requirement. Other
investors included John Imhoff and Stephen Maloof.6 Both of them
had ownership interests in GTI and made investments under
subscription agreements drafted by Pearlstein.7 Blumberg
communicated with these investors directly and explained that
repayment depended on GTI's success in raising funds.
6 Maloof had his spouse make the investment on his behalf.
7 These agreements provided that repayment would occur only if GTI obtained financing and that investors would retain their equity interest even if repayment occurred.
4 At about the same time, Antonoplos reached out to Conte,
who owns and controls GIUL.8 Antonoplos called Conte in June
2016 to solicit investments. The judge found that during this
conversation Antonoplos made clear to Conte that Shenghuo had no
present income and that its only "real asset was its licens[ing]
agreement with GTI." Antonoplos informed Conte that he had
already helped raise approximately $136,000 and said that
Shenghuo needed an additional $64,000 to complete its funding
obligations. Antonoplos further explained in "general terms
that anyone willing to invest the remaining $64,000 would
receive an ownership interest in Shenghuo as well as a
conditional right to repayment of the investment amount." The
judge found that Antonoplos told Conte that repayment of the
investment "was contingent on GTI raising an additional $1
million and then repaying Shenghuo," and that Antonoplos "never
told Conte that repayment would be guaranteed or that there
would be any deadline by which Shenghuo would be required to
repay this investment." During this same conversation, Conte
asked Antonoplos to send him an e-mail message summarizing the
investment opportunity.
8 Conte and Antonoplos had known each other for about ten years and spoke with each other by phone several times a week. Conte had decades of professional experience with financial transactions and investments as well as a law degree.
5 As requested, on June 9, 2016, Antonoplos followed up in an
e-mail message to Conte. The e-mail message stated, "[H]ere is
a deal that perhaps you can assist on, but it has a short fuse
. . . check the website for [GTI]. . . . [I]f you look at the
[GTI] web site you will readily [] see the 'integrity' of this
device." Antonoplos then outlined the terms of the investment
as follows:
"As part of the aforementioned agreement Shenghuo need to come up with a total of $200K payment (loan) to [GTI] by July 31, 2016 . . . in this regard we have raised $136K so we need an additional $64K by the end of July . . .
"For the $64K the following will be offered:
"20% interest if loan is paid back within 90 days, another 25% if not paid thereafter and any unpaid balance not paid by December 31, 2016 will accrue and 20% annual compound interest factor[.]
"Additionally, the lender will be given 100% warrant coverage on their loan and in addition they will have the ability to convert their loan into stock plus receive an interest in Shenghuo."
Antonoplos then wrote, "Obvious[ly] . . . if there is interest
there is more documented info you would need but let me say
this[,] I am invested in this[,] it is a winner and the lender
is so covered[.] [L]et's discuss further." In the subject line
of the e-mail message, Antonoplos provided a link to GTI's
website.
At the time, GTI was a publicly traded company and had a
public website which provided information to potential
6 investors, including links to its prior regulatory filings with
the Securities and Exchange Commission (SEC). Those filings
disclosed that GTI was not profitable, had limited cash
reserves, carried significant debt, and required additional
financing to continue operations.9 More specifically, the
filings stated that GTI had a "working capital deficit of
approximately $4.0 million," was uncertain "that [its] existing
and available capital resources [would] be available to satisfy
[its] funding requirements through the second quarter of 2016,"
and had "substantial doubt about [its] ability to continue"
generating profit and functioning as a business. The judge
found that if Conte "had clicked on the link to GTI's website
that Antonoplos provided, he could easily have accessed GTI's
regulatory filings with the SEC, including the most recent 10-K
annual report and most recent 10-Q quarterly report." These
reports disclosed the information described above.
Two days later, on June 11, 2016, Conte responded to
Antonoplos's e-mail message and asked whether "the lender get[s]
the 64K in stock too in making the loan?" and if so Conte would
be interested in making an investment himself. Antonoplos
replied "Yes" and later that day sent a clarifying e-mail
9 While those filings were not introduced by the parties at trial, the judge took judicial notice of them.
7 message and explained, "[J]ust to clarify, [the] $64K lender
gets, at his/her option: (1) . . . $76,800 if repaid within 90
days or 4,413,286 shares or . . . $83,200 if repaid later or
4,781,060 shares." Conte then agreed to the deal and Antonoplos
and Blumberg instructed Pearlstein to prepare an agreement for
Conte. Pearlstein did so by relying on the drafts of the
agreements he had prepared for Imhoff and Maloof. As the judge
explained, Pearlstein changed the name of the investor to Conte
and changed the amount of the investment from $60,000 to $64,000
but failed to insert the conditional repayment provision that
Antonoplos had offered Conte in the June 11 e-mail message. No
one noticed this error and, after reviewing it, Conte signed the
agreement on July 18, 2016, and wired Shenghuo $64,000 the next
day.10 Later, Conte asked to revise the agreement to state that
the investment was being made by GIUL rather than Conte
individually. Pearlstein made that change in the version he had
previously sent to Conte and that Conte had already signed.
After receiving the final investment from Conte in July of
2016, Shenghuo made its investment payment of $200,000 to GTI.
However, GTI's subsequent efforts to raise additional capital
10The agreement signed by Conte included representations that he had sufficient knowledge and experience to evaluate the investment, had access to relevant financial information, and understood the risks.
8 from that point on and through early 2017 were unsuccessful.
Conte made inquiries about the status of GIUL's investment, and
in 2018 sent e-mail messages to Faupel, Antonoplos, and
Pearlstein seeking assurances that GIUL would be repaid with
interest. Antonoplos and Faupel passed Conte's e-mail messages
onto GTI's then chief executive officer, Gene Cartwright, who
assured Conte that he would be repaid when GTI raised $1 million
in financing, something GTI was "in the end stages of
completing."
However, by the end of 2019, GTI suffered a severe cash
flow crisis and failed to raise the additional $1 million. GTI
reached out to Shenghuo and explained that its existing $200,000
debt to Shenghuo was an obstacle to raising additional capital.
Blumberg and Pearlstein, the managing members at the time, then
concluded it was in the best interest of Shenghuo to enter into
an exchange agreement with GTI, under which Shenghuo's loan to
GTI would be converted into GTI stock. The exchange agreement
thereby (1) ensured that GTI would not need to raise the
additional capital to reach the $1 million repayment threshold,
and (2) effectively extinguished the condition under which
Shenghuo would have to repay GIUL. Although, as the judge
found, GTI has become very valuable since that agreement was
9 made, GIUL has still not received repayment on its initial
$64,000 investment.11
GIUL commenced this action in 2019. As previously stated,
a bench trial on GIUL's MUSA and c. 93A claims was held in March
2024. The thrust of GIUL's allegations at trial was that the
defendants withheld material information from Conte before GIUL
invested in Shenghuo. As relevant here, the judge found that
GIUL had not proved that (1) the defendants never intended to
provide GIUL with a conditional repayment right; (2) no one told
Conte that Shenghuo's managing members would make any future
decisions to exchange its loan to GTI for shares of stock in
GTI; (3) no one disclosed GTI's dire financial condition to
Conte; and (4) Conte was not told that repayment of GIUL's
investment depended on GTI's raising $1 million.12
11As Shenghuo's only asset is its equity interest in GTI and GTI has done very well, Shenghuo's other investors, Maloof and Imhoff, have seen sizable returns on their investment as they both hold ownership interests in GTI. GIUL's return, in comparison, has been far more modest as it does not hold any independent ownership interest in GTI.
12 GIUL also claimed that it was misled by Shenghuo's failure to explain that it had no "sales, approvals, products, partners, or manufacturer or manufacturing expertise" and that its only real asset was its licensing agreement with GTI, and by not disclosing that GTI's investment banker was not investing in GTI but seeking outside investors. The judge rejected these allegations as well and GIUL does not challenge these rulings on appeal.
10 Regarding Shenghuo's granting a conditional repayment right
to GIUL, the judge "found that the conditional repayment terms
always were and remain part of GIUL's subscription agreement
with Shenghuo," even though Pearlstein "inadvertently omitted
them from the final forms of the agreement [that] Pearlstein
sent to Conte for his signature." The judge also found that
Shenghuo was not required to disclose to GIUL that Shenghuo or
its managing members could convert Shenghuo's loans to stock in
GTI given "any reasonable investor in Conte's position would
have known, that Conte and GIUL would have no control over any
of Shenghuo's business decisions." As for GIUL's contention
that GTI's dire financial condition was never disclosed, the
judge found that Antonoplos told Conte to go to GTI's website
which contained its public filings and therefore GIUL did not
show "any material information about GTI was withheld from" it.
Lastly, the judge credited Antonoplos's testimony that he told
Conte that repayment of GIUL's $64,000 was conditioned on GTI
raising $1 million and relied on Conte's 2018 e-mail messages
which admitted the same.
Regarding Conte's MUSA claim against Pearlstein, the judge
held Pearlstein did not "make" nor have "involvement in mak[ing]
an offer to sell a security to GIUL or soliciting an offer by
GIUL to invest in Shenghuo," and that even if Pearlstein was
11 "acting as Shenghuo's legal counsel in connection with GIUL's
investment . . . that limited role as an agent" could not
subject him to primary or secondary liability under MUSA.
Similarly, with regard to Faupel, the judge found that Faupel
had no liability because he had no communication with GIUL about
its investment in Shenghuo and did not act as Shenghuo's agent
to facilitate the sale.
Discussion. 1. GIUL's MUSA and c. 93A claims against
Pearlstein and Faupel. GIUL has not raised any challenge
regarding the dismissal of the claims against Pearlstein.
Accordingly, any arguments regarding Pearlstein's liability are
waived under Mass. R. A. P. 16 (a) (9) (A), as appearing in 481
Mass. 1628 (2019). Even if this were not the case, we agree
with the judge that there was no evidence that Pearlstein, who
only drafted agreements as Shenghuo's counsel, "offer[ed],"
"s[old]," or "materially aid[ed]" the sale of a security. G. L.
c. 110A, § 410 (a) (2), (b) (defining primary and secondary
liability respectively under MUSA). The same reasoning supports
dismissal of GIUL's c. 93A claim against Pearlstein. Even if
GIUL had raised an argument regarding the judge's decision, we
would nevertheless agree with the judge that Pearlstein's
decision as a managing member in 2019 to exchange Shenghuo's
loan interest in GTI for common stock was a "reasonable exercise
12 of business judgment." We therefore affirm the judgment in
favor of Pearlstein in its entirety.
With respect to Faupel, GIUL argues that the judge
"entirely missed [its] point." We are not persuaded. To the
contrary, the judge properly concluded that a MUSA claim cannot
be brought against Faupel as he had no communications with Conte
or GIUL regarding Shenghuo's offer and, "although [he] was
acting as Shenghuo's agent during 2016 in trying to identify a
commercial partner in China," Faupel also did nothing to
materially aid the transaction at issue here. As Faupel cannot
be held primarily or secondarily liable under MUSA, all claims,
including the c. 93A claim, against him were properly dismissed.
2. GIUL's MUSA claim against Shenghuo, Antonoplos, and
Blumberg (remaining defendants). We reach a different
conclusion regarding the judgment as it concerns Shenghuo,
Antonoplos, and Blumberg.
When reviewing the decision of a judge after a bench trial,
we review his "findings of fact . . . for clear error" and
"legal conclusions, by contrast, we review de novo." H1
Lincoln, Inc. v. South Washington St., LLC, 489 Mass. 1, 13
(2022). To prove a claim under MUSA, the plaintiff must show
"(1) the defendant 'offer[ed] or [sold] a security'; (2) in Massachusetts; (3) by making 'any untrue statement of a material fact' or by omitting to state a material fact; (4) the plaintiff did not know of the untruth or omission;
13 and (5) the defendant knew, or 'in the exercise of reasonable care [would] have known' of the untruth or omission" (footnote omitted). Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 52 (2004),
quoting G. L. c. 110A, § 410 (a) (2).
To begin with, we agree with GIUL that while the judge
cited to the applicable law, he applied it incorrectly when he
concluded that GTI's financial condition had been disclosed to
Conte before GIUL made its investment.13 According to the judge,
Antonoplos's e-mail message which included a link to GTI's
website was a proper disclosure because "[i]f Conte had gone to
13We agree with the judge's reasoning that GIUL failed to prove that its other allegations rise to the level of material omissions under MUSA and that they are not unfair or deceptive under c. 93A. Regarding GIUL's claims that the defendants never intended to provide GIUL with a conditional repayment right and that GIUL was not told repayment would only occur if GTI reached the $1 million fundraising threshold, the judge relied on Antonoplos's testimony, which he found credible, and, in addition, did not credit Conte's contradictory testimony. The credibility of the witnesses is the province of a judge in a bench trial and as "the judge's account is plausible in light of the entire record" we "decline to reverse it." Demoulas v. Demoulas Super Mkts, Inc., 424 Mass. 501, 510 (1997). As for GIUL's claim that it was not informed Shenghuo's managing members would make all future decisions to exchange its loan to GTI for shares of stock in GTI, we agree with the judge: "To the extent that GIUL now contends that it had such a right, . . . GIUL was never promised" that right by any of the defendants based on our review of Antonoplos's June 9 e-mail message and the agreement between GIUL and Shenghuo. And even if it was, a reasonable investor, and especially someone like Conte who had a law degree, would have known that GIUL would have no right to dictate Shenghuo's subsequent business decisions. See Marram, 442 Mass. at 58 (test for materiality uses a "reasonable investor" standard [citation omitted]).
14 [GTI's website] he could have easily accessed and been able to
review GTI's filings . . . in which GTI fully disclosed its
financial and business prospects." However, as GIUL correctly
contends, buyers have no duty to investigate or verify facts
alleged by a seller of securities. See Marram, 442 Mass. at 53,
quoting MidAmerica Fed. Sav. & Loan Ass'n v. Shearson/American
Express Inc., 886 F.2d 1249, 1256 (10th Cir. 1989) ("the buyer
[of a security does not] have any duty to investigate or to
'verify a statement's accuracy'"). Consequently, when
Antonoplos provided Conte with a link to GTI's website and told
him to "check [it]," Conte was not required to then explore
GTI's website and seek out its public filings. A seller under
MUSA "who voluntarily discloses material facts in connection
with securities transactions assumes a duty to speak fully and
truthfully on those subjects" (emphasis added). Kushner v.
Beverly Enters., 317 F.3d 820, 831 (8th Cir. 2003), quoting
Helwig v. Vencor, Inc., 251 F.3d 540, 561 (6th Cir. 2001)
(addressing seller's disclosure obligations when selling
securities under Securities Exchange Act, 15 U.S.C. § 78j[b],
78t). See Marram, supra at 51 ("we look to Federal decisions"
on Securities Exchange Act for our interpretation of MUSA).
Simply providing the link to GTI's website, which required
additional navigation via the Internet to locate GTI's public
15 filings, is not the same as providing a link to the filings
themselves. Moreover, the argument that Conte knew or should
have known the link to GTI's website would disclose GTI's
financial problems is not supported by the text of the e-mail
message itself. In the second paragraph of the e-mail message,
Antonoplos told Conte "if you look at the [GTI] web site you
will readily . . . see the 'integrity' of this device which is
presently being manufactured and distributed worldwide."
Objectively viewed, the e-mail message does not disclose that
clicking onto GTI's website would reveal GTI's financial
difficulties. Rather, it indicated no more that the website
would confirm the "integrity" of the LuViva device. Our
conclusion that the judge erred is also consistent with MUSA's
central premise: to create a "strong incentive for sellers of
securities to disclose fully all material facts about the
security." Marram, supra at 51. Furthermore, because the
remaining defendants are potentially liable under MUSA for this
omission, they are also potentially liable under c. 93A should
the judge find, on remand, that the omission was material and
amounted to an unfair or deceptive practice.
That said, the omission of a fact is only one of the
elements of a MUSA violation. See Marram, 442 Mass. at 52. The
plaintiff also needed to prove that the fact omitted was
16 material. See id. Here, there was evidence that the entire
basis of this transaction was GTI's need for additional capital
in order to proceed with marketing its product. In that
context, the judge could find that the fact that GTI was not
viable without additional capital was not a material fact in the
context of this investment. Whether the facts and inferences
drawn from the facts lead to a conclusion of materiality is for
the trial judge to decide in the first instance.
Conclusion. We vacate so much of the judgment as entered
in favor of Shenghuo, Antonoplos, and Blumberg on GIUL's claims
under the Massachusetts Uniform Securities Act and G. L. c. 93A,
and remand for further proceedings consistent with this
17 memorandum and order. The remainder of the judgment is
affirmed.14
So ordered.
By the Court (Vuono, Ditkoff & D'Angelo, JJ.15),
Clerk
Entered: June 22, 2026.
14GIUL's request for attorney's fees is denied. If, after remand, judgment is granted in favor of the GIUL on its c. 93A claim, GIUL shall be awarded reasonable attorney's fees under that statute. See G. L. c. 93A, § 11. Attorney's fees attributable to this appeal and any proceedings after remand may be included in the award. See Patry v. Liberty Mobilehome Sales, Inc., 394 Mass. 270, 272 (1985).
15 The panelists are listed in order of seniority.