Securities & Exchange Commission v. Das
2013 U.S. App. LEXIS 15327
| 8th Cir. | 2013Background
- InfoUSA reimbursed Gupta's personal expenses (private jet, yacht, cars, clubs, home, etc.) through Gupta or his entities, enabling hidden income without extra taxes.
- SEC filed a civil enforcement action against Stormy L. Dean (CFO) and Rajnish Das; Dean was tried after consolidation with Das and found liable on all claims.
- SEC's claims included securities fraud, soliciting false proxies, falsifying books, false reports, deceiving auditors, and aiding/abetting false filings and falsifying books and records.
- Evidence showed extensive related-party transactions and undisclosed perquisites; SEC expert Henning testified underreporting of perquisites and related-party transactions.
- District court imposed penalties, enjoined Dean, and barred him from serving as officer/director; court reserved issues about restitution and indemnification; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of the evidence | SEC contends evidence supports the standard of care violation by Dean. | Dean claims insufficient evidence on Dean’s duty and standard applied. | Evidence adequate; judgment affirmed on sufficiency. |
| Admission of expert testimony | Henning’s testimony aided understanding of perquisites and related-party issues. | Henning misapplied standards and rates of error; testimony should have been excluded. | District court did not abuse discretion; Henning’s testimony admissible. |
| Jury instructions regarding reliance and negligence/intent | Instructions properly framed Dean’s duties and reliance on corporate information. | Dean requested specific instruction about reliance on officers; district court erred. | Instructions adequately reflected law; no abuse of discretion. |
| Rule 14a-9 scienter standard for 14(a) claims | Scienter required for lax proxy claims against corporate officers. | Scienter not required for 14(a) against corporate officers. | Scienter not required for 14(a) against corporate officers; affirmed. |
| 13b2-1 and 13b2-2 knowledge standards | Rule 13b2-1 and 13b2-2 require certain mental state; Dean’s role questioned. | No knowledge element for 13b2-1 and 13b2-2; different treatment across circuits. | 13b2-1 requires no scienter; 13b2-2 also does not require knowledge; 13(b)(5) issue vacated and remanded. |
| Bad-faith finding | Bad faith finding supported by jury’s verdict and conduct toward shareholders. | Bad-faith finding was unnecessary and not supported by the jury record. | Bad-faith finding vacated. |
Key Cases Cited
- Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394 (U.S. 2006) (postverdict motions limit on sufficiency challenges)
- Linden v. CNH Am., LLC, 673 F.3d 829 (8th Cir. 2012) (limits on postverdict sufficiency challenges)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (U.S. 1999) (gatekeeping standard for expert testimony)
- McConville v. SEC, 465 F.3d 780 (7th Cir. 2006) (Rule 13b2-1 no scienter requirement)
- McNulty v. SEC, 137 F.3d 732 (2d Cir. 1998) (Rule 13b2-1/13b2-2 knowledge context)
- Shidler v. All Am. Life & Fin. Corp., 775 F.2d 917 (8th Cir. 1985) (negligence standard for 14(a) claims)
- Shanahan (SEC v. Shanahan), 646 F.3d 536 (8th Cir. 2011) (outsider directors/accountants scienter standard for 14(a))
- Adams v. Standard Knitting Mills, Inc., 623 F.2d 422 (6th Cir. 1980) (scienter for outside directors/accountants under 14a-9)
- Wintermute, 443 F.3d 993 (8th Cir. 2006) (excluding expert testimony for mis-stated legal issue)