Securities and Exchange Comm'n v. Mitchell Stein
906 F.3d 823
9th Cir.2018Background
- SEC sued attorney Mitchell Stein for a scheme to inflate Heart Tronics’ stock by fabricating three purchase orders (CHM and IT Healthcare), fake supporting documents, press releases, and false SEC filings.
- DOJ concurrently prosecuted Stein on related criminal charges (securities, wire/mail fraud, money laundering, conspiracy); after a two-week trial a jury convicted him on all counts.
- Stein was sentenced to 17 years, ordered to forfeit ~$5M and pay ~$13M restitution; his conviction was affirmed on appeal (with sentence remanded for loss recalculation).
- After conviction, SEC moved for summary judgment in the civil enforcement action, arguing the criminal verdict precluded relitigation of facts necessary for SEC fraud claims.
- The district court granted summary judgment on six SEC claims based on offensive nonmutual issue preclusion; Stein appealed.
- The Ninth Circuit reviewed de novo whether issue preclusion applied and affirmed the district court’s entry of summary judgment and denial of additional discovery and partial summary adjudication.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stein’s criminal conviction precludes relitigation of facts underlying SEC securities-fraud claims | SEC: conviction necessarily decided the same facts/elements needed for Section 10(b), Rule 10b-5, and Section 17(a) claims | Stein: civil issues differ; criminal jury didn’t decide some precise factual points (e.g., CHM order details) | Affirmed: conviction determined identical issues; offensive issue preclusion applies |
| Identity-of-issues (Restatement factors) | SEC: substantial overlap of evidence, same legal rules, discovery would have covered civil issues, closely related claims | Stein: differences in proof/standards and some distinct factual nuances | Affirmed: factors weigh in favor of identity—same scheme, same evidence, same legal rules |
| Parklane unfairness / Giglio claim impact | SEC: no unfairness; alleged prosecutorial failures were not material and didn’t make preclusion unjust | Stein: Eleventh Circuit’s Giglio resolution differs from Ninth Circuit; prosecution’s alleged use of false testimony makes preclusion unfair | Rejected: alleged false testimony was not material given overwhelming evidence; any circuit-split argument doesn’t render preclusion unfair |
| Rule 56(d) discovery and summary-adjudication on Paragraph 77 (naked short claim) | Stein: needs additional discovery (SEC database, witnesses) and evidence of naked short selling negates falsity | SEC: Stein already had access during criminal case; proposed discovery speculative and not likely to change result | Affirmed: denial of 56(d) continuance was not abuse; Stein’s evidence was speculative/broken link and would not eliminate genuine dispute |
Key Cases Cited
- Brady v. Maryland, 373 U.S. 83 (1963) (prosecution must disclose material exculpatory evidence)
- Giglio v. United States, 405 U.S. 150 (1972) (government must correct or disclose witness’s false testimony where material)
- Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979) (courts have discretion to apply offensive nonmutual issue preclusion but must avoid unfairness)
- Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558 (1951) (use trial record to determine what a general verdict necessarily decided)
- United States v. Stein, 846 F.3d 1135 (11th Cir. 2017) (criminal-appeal decision affirming conviction and addressing Giglio/Brady arguments)
- Syverson v. IBM Corp., 472 F.3d 1072 (9th Cir. 2007) (discussing offensive nonmutual issue preclusion and prerequisites)