Securities and Exchange Commission v. StratoComm Corp., 652 F. App'x 35

SEC filed suit against StratoComm and Roger Shearer for alleged securities fraud under Section 10(b) and Rule 10b-5 and Section 17(a).
District Court granted SEC summary judgment finding misrepresentations and scienter and ordered disgorgement, penalty, and injunction.
The challenged statements were in November 2007 and January 2008 press releases touting contracts and a product (TTS) for sale.
Undisputed facts show StratoComm never built, tested, or possessed a functioning TTS and had no customers or funds to complete or sell one.
StratoComm argued there were genuine factual disputes about materiality and scienter, and about whether statements were truly false.
Second Circuit reviews de novo the summary judgment on §10(b) and §17(a) issues and affirms.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether statements were material misrepresentations or omissions	SEC	StratoComm	No genuine dispute; statements misleading as to product existence
Whether StratoComm acted with scienter	SEC	StratoComm	No genuine dispute; defendants knew statements were false
Whether the statements violated Section 10(b)/Rule 10b-5 and Section 17(a)	SEC	StratoComm	Violations established; liability found

Allianz Insurance Co. v. Lerner, 416 F.3d 109 (2d Cir. 2005) (frame for de novo review of summary judgment in securities cases)
SEC v. Monarch Funding Corp., 192 F.3d 295 (2d Cir. 1999) (elements of §10(b) and the requirement of scienter)
SEC v. Northway, Inc., 426 U.S. 438 (U.S. 1976) (materiality standard and reasonable investor reliance framework)
SEC v. McNulty, 137 F.3d 732 (2d Cir. 1998) (reckless disregard as evidence of scienter)
SEC v. Enters. Solutions, Inc., 142 F. Supp. 2d 561 (S.D.N.Y. 2001) (statements portraying revenue misleading when lacking revenue)
N. Am. Research & Dev. Corp., 424 F.2d 63 (2d Cir. 1970) (materiality and impact of misrepresentations on investors)