Securities & Exchange Commission v. Carroll
835 F. Supp. 2d 281
W.D. Ky.2011Background
- SEC sued eight defendants for violations of §10(b) and Rule 10b-5 relating to insider trading in STTX prior to Mitsui acquisition announcement.
- Calcutts reside in North Carolina with limited Kentucky contacts; issue is whether venue lies in Western District of Kentucky under SEA §27.
- SEC asserts venue via broad §27 reach and co-conspirator theory for multi-defendant scheme.
- Allegations focus on David Calcutt’s receipt of material nonpublic information from Michael Carroll in Louisville and related trading in January and February 2007.
- Christopher Calcutt allegedly traded on the same inside information learned from David; venue sought for both Calcutts under either direct acts or co-conspirator theory.
- Court previously denied 12(b)(2) and 12(b)(6) motions; now addresses whether venue is proper for the Calcutts under Fed.R.Civ.P. 12(b)(3).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kentucky is a proper venue under §27 for the Calcutts. | SEC contends act-or-transaction in Kentucky by disclosures/trading suffices. | Calcutts argue no Kentucky act or transacting in Kentucky; North Carolina residence suggests improper venue. | Yes; Kentucky proper as venue under act-or-transaction theory. |
| Whether Michael Carroll’s Kentucky-based disclosure was a sufficient act to confer venue. | Disclosure in Kentucky was essential, material, and in furtherance of the scheme. | If disclosure occurred outside Kentucky, venue not proper. | Yes; disclosure in Kentucky was a material act conferring venue. |
| Whether co-conspirator venue theory supports jurisdiction over Christopher Calcutt. | David’s disclosures and Christopher’s trading render Christopher a participant in same scheme. | Limited or no Kentucky connection for Christopher. | Yes; co-conspirator theory supports venue for Christopher. |
Key Cases Cited
- In re AES Corp. Sec. Litig., 240 F.Supp.2d 557 (E.D. Va. 2003) (venue sustains acts disseminating misrepresentations in district)
- Mariash v. Morrill, 496 F.2d 1138 (2d Cir. 1974) (venue proper for insider trading when act is part of scheme)
- Hooper v. Mountain States Sec. Corp., 282 F.2d 195 (5th Cir. 1960) (broad act-or-transaction approach to venue)
- Geibel v. United States, 369 F.3d 682 (2d Cir. 2004) (criminal venue distinctions; not controlling for civil actions)
- Clayton v. Heartland Resources, Inc., No. 1:08-CV-94-M, 2008 WL 5046806 (W.D. Ky. 2008) (co-conspirator venue theory recognized in district)
- Johnson v. U.S., 510 F.3d 521 (4th Cir. 2007) (constitutional venue considerations in criminal context cited)
- Thrasher v. Motel 6, 1993 WL 37044 (S.D.N.Y. 1993) (insider trading venue discussions noted (non-official reporter)}] })