United States v. Bryan Behrens, 713 F.3d 926

Behrens pled guilty to one count of securities fraud under 15 U.S.C. § 78j(b) and Rule 10b-5, and was sentenced to 5 years’ imprisonment, 3 years of supervised release, and restitution of $6,841,921.90.
Behrens owned 21st Century Financial Group, Inc. and National Investments, Inc. (NII), promoting NII as a solid investment and issuing promissory notes to investors.
Rather than investing funds as promised, Behrens operated a Ponzi scheme using investor money to support other ventures and personal spending.
The district court originally determined that the no-knowledge defense under § 78ff(a) did not apply to defeats of imprisonment for violations of securities statutes, not rules, and Behrens’ plea did not qualify him for the defense.
This court previously vacated the sentence and remanded, holding Behrens could contest imprisonment under the no-knowledge defense because one element of § 78j(b) involves violation of SEC rules or regulations.
On remand, the district court again denied the no-knowledge defense, concluding Behrens knew Rule 10b-5 prohibitions, so no-knowledge did not apply; Behrens appealed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Scope of the no knowledge defense under § 78ff(a)	Behrens argues the defense applies if he lacked knowledge of the rule’s substance.	Behrens contends the defense should cover lack of knowledge of applicability to conduct as well as existence of the rule.	No-knowledge defense extends to knowledge of the rule’s substance, not merely its existence.
Whether Behrens had knowledge of the substance of Rule 10b-5	Behrens had knowledge of Rule 10b-5’s existence and its general proscription.	Behrens only knew the rule in general and argues lack of knowledge of its applicability to his notes.	Behrens failed to prove no knowledge of the substance of Rule 10b-5; knowledge of the rule’s substance defeats the defense.
Appropriate standard to apply on sentencing	Court should apply standard recognizing knowledge of term's existence as sufficient for imprisonment.	Court should apply broader no-knowledge standard to avoid imprisonment if substance of the rule was unknown to him.	Court adopts substance-rule approach; no-knowledge defense excludes imprisonment if defendant had no knowledge of the substance.

United States v. O’Hagan, 521 F.3d 642 (Supreme Court 1997) (no knowledge defense is a sturdy safeguard regarding scienter)
Behrens, 644 F.3d 754 (8th Cir. 2011) (review of no knowledge defense in securities fraud sentencing)
Reyes, 577 F.3d 1069 (9th Cir. 2009) (substance-rule interpretation of no knowledge defense; falsification of books and records)
Lilley, 291 F. Supp. 989 (S.D. Tex. 1968) (no knowledge of the specific conduct within the prohibition suffices)
United States v. Johnson, 413 F. App’x 151 (11th Cir. 2011) (affirming imposition where defendant aware of substance of securities laws)
Cheek v. United States, 498 U.S. 192 (Supreme Court 1991) (willfulness requires knowledge of duty when defining mens rea in tax context)