Securities & Exchange Commission v. Johnson
397 U.S. App. D.C. 26
D.C. Cir.2011Background
- Benyo, a former PurchasePro executive, was found liable for aiding and abetting PurchasePro's securities fraud in a SEC action; district court fined him $35,000 and barred him from serving as an officer or director for five years.
- SEC alleged Benyo helped draft or caused drafting of a sham AuctioNet-related Statement of Work and proposed a hyperlink to AuctioNet on NetBusiness to create false revenue.
- PurchasePro used AOL as a sales/referral conduit and engaged in revenue inflation via side agreements with AOL to inflate reported revenue.
- Auditors discovered the AuctioNet deal was fake in May 2001, leading to revised SEC reporting and eventual PurchasePro bankruptcy in 2002.
- Venue was challenged as improper in the District of Columbia under § 78aa; SEC relied on a co-conspirator theory of venue to justify DC forum.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the DC venue is permissible under § 78aa via a co-conspirator theory. | Benyo contends no venue flex; the theory expands § 78aa beyond its text. | SEC argues co-conspirator venue is allowed and P ari of scheme occurred in DC. | Co-conspirator venue is not permissible; venue must rest on § 78aa text. |
| Whether § 78aa requires an act in DC by Benyo that constitutes the violation. | DC acts by PurchasePro (e.g., Form 10-Q) suffice to establish venue against Benyo. | No specific Benyo act in DC tied to the violations; venue lacks statutory basis. | Venue requires a direct act by Benyo in DC constituting the violation; co-conspirator theory fails. |
| Whether the remedy for improper venue should be reversal and dismissal without prejudice. | Harmless-error theory could permit affirmance. | Olberding requires reversal with new trial when venue is improper. | Remedy; reversal and dismissal without prejudice. |
| Whether Central Bank of Denver dictates that the co-conspirator theory is invalid for venue in SEC actions. | Conspiracy liability exists for the SEC; theory remains valid post-Central Bank. | Policy arguments do not override § 78aa's text; Central Bank restricts secondary liability. | Central Bank forecloses the co-conspirator theory for venue under § 78aa. |
Key Cases Cited
- Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994) (no private aiding-and-abetting liability implied; limits secondary liability)
- Leroy v. Great Western United Corp., 443 U.S. 173 (1979) (venue interpretation in Exchange Act; cautions against policy overrides)
- Bankers Life & Casualty Co. v. Holland, 346 U.S. 379 (1953) (condemns co-conspirator venue theory as exploitative expansion)
- Radzanower v. Touche Ross & Co., 426 U.S. 148 (1976) (venue and statutory interpretation principles under securities laws)
- Olberding v. Illinois Central Railroad Co., 346 U.S. 338 (1953) (venue remedy—reversal with new trial when venue improper)
- Whittier v. Emmet, 281 F.2d 24 (D.C. Cir. 1960) (venue objections must be timely and preserved)
- SIPC v. Vigman, 764 F.2d 1309 (9th Cir. 1985) (co-conspirator venue decisions pre-date Central Bank; not binding here)