U.S. Securities and Exchange Commission v. Big Apple Consulting USA, Inc.

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U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. BIG APPLE CONSULTING USA, INC., MJMM Investments, LLC, Marc Jablon, Mark C. Kaley, Defendants-Appellants, Matthew Maguire, et al., Defendants.

No. 13-11976.

United States Court of Appeals, Eleventh Circuit.

April 9, 2015.

783 F.3d 786

AFFIRMED.

Judge MATHESON joins in all but footnote 6 of the opinion. Judge MORITZ joins in all but Section II, C of the opinion.

Theodore Weiman, Dominick V. Freda, Jeffery T. Infelise, Cheryl J. Scarboro, Thomas A. Sporkin, Duane Kenneth Thompson, U.S. Securities & Exchange Commission Office of the General Counsel, Washington, DC, for Plaintiff-Appellee.

Mark C. Kaley, Orlando, FL, pro se.

Carl Francis Schoeppl, Jr., Brenda Marie Nelson, Schoeppl & Burke, PA, Boca Raton, FL, for Defendants-Appellants.

Keith Jablon, Winter Garden, FL, pro se.

Matthew Maguire, Sanford, FL, pro se.

Before CARNES, Chief Judge, TJOFLAT and SILER,^* Circuit Judges.

SILER, Circuit Judge:

The Securities and Exchange Commission (SEC) brought this civil enforcement action against defendants Big Apple Consulting USA, Inc. (Big Apple), MJMM Investments, LLC (MJMM), Marc Jablon (Jablon), and Mark C. Kaley (Kaley) (collectively, the defendants) for violations of the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78a et seq. The SEC also brought the action against Matthew Maguire (Maguire) and Keith Jablon (Keith), but those defendants are not involved in this appeal. The district court granted summary judgment in favor of the SEC as to some of the claims, and the remainder of the claims proceeded to trial. A jury found in favor of the SEC as to the remaining claims against all defendants.

On appeal, the defendants assert six claims of error involving both the district court‘s partial grant of summary judgment in favor of the SEC and the district court‘s rulings in the jury trial. For the reasons explained below, we affirm.

FACTUAL BACKGROUND

a. The Players

Big Apple and its wholly owned subsidiary, MJMM, provided investor relations and public relations services to microcap companies. Management Solutions International, Inc. (MSI), another wholly owned subsidiary of Big Apple, offered a variety of services, including marketing, business planning, and e-commerce website development and maintenance. Jablon was president and CEO of Big Apple, as well as CEO of MSI. Jablon and Maguire co-founded MJMM; Maguire also served as the vice president of Big Apple. Kaley was president of MJMM and an officer of Big Apple. Kaley was also an attorney. Keith is Jablon‘s brother and was vice president of MSI.

The SEC‘s allegations stem from the defendants’ relationship with CyberKey Solutions, Inc. (CyberKey), previously known as CyberKey Corp., and its CEO James Plant (Plant). CyberKey sold customizable USB drives that could be loaded with encryption software to secure content stored on the drives. Beginning on July 5, 2005, CyberKey‘s stock traded on a website called Pink Sheets, which displays the bid and ask prices for over-the-counter securities (i.e., securities that are not listed on a U.S. exchange). On June 15, 2005, Kaley executed a consulting agreement with CyberKey on behalf of MJMM, in which MJMM agreed to provide services intended to promote CyberKey‘s business. According to the agreement, MJMM would “diligently market and promote [CyberKey] to brokers ... and [] introduce [CyberKey] and its principals to [MJMM‘s] current and future network of brokerage firms and market makers.” Although CyberKey signed the agreement with MJMM, the parties understood that Big Apple and its subsidiaries would provide all the services detailed in the consulting agreement.

Under the terms of the original consulting agreement, CyberKey paid MJMM $50,000 per month either in cash or in “free-trading shares”¹ of CyberKey, which was calculated based on the previous ten-day average closing bid price. This sort of exchange was typical for Big Apple; at least ninety-five percent of Big Apple‘s clients paid in stock. The consulting agreement between MJMM and CyberKey was extended twice—once on November 14, 2005 and again on October 9, 2006. Kaley signed both agreements. The October 2006 extension required CyberKey to pay $80,000 per month or a number of CyberKey shares calculated based on a fifty percent discount of the ten-day average closing bid price of CyberKey stock. Thus, assuming a constant closing bid price in CyberKey stock over the previous ten-day period, MJMM received CyberKey stock that had a market value of $160,000 in exchange for $80,000 worth of services. During the entire period that CyberKey contracted with MJMM, CyberKey paid exclusively in stock for services provided. MJMM also negotiated the option to purchase additional CyberKey stock at a significant discount, initially forty percent in July 2006 and increasing to fifty percent shortly thereafter. Ultimately, MJMM received approximately 77 million CyberKey shares for services rendered, and at the direction of Jablon and Kaley, MJMM purchased a total of approximately 648 million more shares by exercising options on a regular basis.

As part of its public relations services to CyberKey and other clients, Big Apple operated a telephone call room that contacted registered securities brokers and dealers to disseminate public information in order to create interest in client companies and their stock. Maguire supervised the call room on a day-to-day basis, but Jablon bore ultimate oversight and was both aware of and authorized all the policies and procedures used in the call room. Big Apple staffed the call room with as many as fifty employees, who used internally-drafted press releases and “bullet sheets” to draw attention among the broker-dealer community to its clients.

b. The Department of Homeland Security Contract

At first, there was no demand for CyberKey stock, but that changed when Plant began reporting fabricated contracts. First, Plant falsely informed Big Apple—on three separate occasions—that CyberKey had been awarded a valuable contract with a fictitious part of the government called the “Military Post Exchange” (MPX). The purported contract allegedly was valued at $15 million, then increased to $19 million, and then to $23.9 million. Both Jablon and Kaley were aware of this claimed purchase order. On each occasion that Plant raised the MPX contract price, the MSI staff drafted a press release that covered details such as the dollar figure of the order and the number of units requested, and each time MSI held the release pending its distribution by CyberKey. On November 11, 2005, approximately four hours after MSI drafted the latest press release announcing a $23.9 million MPX order for 185,000 units and while awaiting Plant‘s approval to publish the release, MSI abruptly revised the press release to reflect a $24.49 million order from the Department of Homeland Security (DHS) for 150,000 units (the DHS contract). Any announcement of the MPX contract was abandoned without explanation.

The newly-announced, fictitious DHS contract was a game changer. Jablon characterized it as “[o]ne in a million,” and both he and Kaley thought the contract would significantly increase demand for CyberKey stock.

Plant showed Jablon and Kaley a document he purported was the DHS contract, and it contained several obvious inconsistencies. Neither Jablon nor Kaley looked closely at the contract. Although the contract was supposedly with DHS, a federal entity, the eight-page document contained multiple references to the State of Connecticut, including a mailing address in the state, a state e-mail address for the purchasing contact, and several contract terms that expressly identified the “State of Connecticut” or “the State” as the counter-party. In fact, only the cover page and the header of each page of the document referred to the DHS. Further, the contract‘s stated value—$24,494,412.15—differed from the amounts Plant had previously reported to the defendants relating to the original MPX deal. The contract award date was also internally inconsistent. On the first and second pages of the contract, the award date was listed as October 31, 2005, but two pages later it was listed as August 12, 2005.

CyberKey publicized the DHS contract in a December 8, 2005 press release that announced “the Company [had received] a multi-million [d]ollar purchase order from the Department of Homeland Security [for over] 150,000 units.” MSI drafted the press release and Big Apple was listed as the primary contact, along with the telephone number 1-866-THE-APPL(E). Incoming brokers’ calls were routed to Big Apple‘s sales floor, and investors’ calls were routed to MSI‘s investor relations team. Over the next fifteen months, the defendants conceived, drafted, edited, or reviewed numerous press releases emphasizing the $25 million DHS contract or aspects related to it. The defendants also drafted press releases announcing the first two shipments of USB devices to DHS and CyberKey‘s receipt of two $4.2 million payments from DHS.

During this time, Big Apple used its call room to aggressively promote CyberKey to broker-dealers; Big Apple routinely designated CyberKey the “on focus” client, making it a priority in salespeople‘s calls. For example, out of a given sixty day period, CyberKey was “on focus” for thirty to forty-five of those days. The defendants prepared or approved the preparation of “bullet sheets” detailing talking points about CyberKey and circulated them to its salespeople in the call room. Generally, Big Apple and MJMM did not disclose to brokers or investors that com-pensation for representing CyberKey came in the form of stock.

c. The Scheme Unravels

Additional signs of Plant‘s dishonesty surfaced in the coming months. In January 2006, Plant sent CyberKey‘s first financial statement for public release, and, according to Jablon, the financial statements looked like they “were prepared by a third grader [and] there was a lot missing.” Despite landing the fabricated DHS contract and supposedly being in receipt of the first $4.2 million payment, CyberKey‘s checking account held a balance of around $6,000. Plant explained CyberKey‘s cash shortage was due to the nature of the DHS contract, which was “front-loaded” and that CyberKey would make all its money “on the back end.” Jablon unsuccessfully attempted to have a third-party auditor review CyberKey‘s financials, but Plant kept “pushing it off.” Plant regularly went “AWOL” and would be unreachable for days or even a week at a time. Kaley and Keith flew to San Diego for several meetings with Plant and potential buyers, but shortly before each meeting was scheduled to occur, Plant would indicate the meeting was rescheduled or canceled.

During the summer of 2006, because of Plant‘s repeated problematic behavior, Jablon asked his brother Keith to draft a list of problems that employees were having with Plant so that Jablon could discuss the issues with Plant. This became known as the “broken promises” memorandum. The memorandum detailed thirteen separate “missed promises” made by Plant. After Jablon received the broken promises memorandum from Keith, he emailed it to Kaley.

On August 3, 2006, the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA), sent a fax to Plant informing him that it was reviewing CyberKey‘s trading activity. NASD requested that CyberKey provide it with the “documents and information” concerning: (1) the DHS contract; (2) an explanation of how the DHS contract was negotiated; (3) a list of CyberKey‘s contacts at DHS; and (4) details of CyberKey‘s relationship with Big Apple. Plant e-mailed the fax to Jablon and Kaley, and they advised Plant to have his securities attorney handle the matter. Jablon and Kaley did not follow up on the status of the inquiry.

Five days later, after speaking with Plant, a DHS official called an employee at MSI, Kelson Monks (Monks), to inquire about CyberKey‘s claimed relationship with DHS. The DHS official informed Monks that he was unable to locate the purchase order relating to a press release CyberKey had recently issued, and the DHS official faxed a confirmation of the conversation seeking any identifying information about the DHS contract from CyberKey. The press release in question announced that DHS had added a $600,000 order for biometric drives to an existing $25 million order. Monks sent the fax from the DHS to Kaley and Jablon, but they did not respond to the request and opted to let Plant handle the matter.

On February 5, 2007, the SEC issued an order suspending the trading of CyberKey stock due to concerns as to the accuracy of assertions made by CyberKey and others in press releases and public statements to investors. From February 20, 2007, the date that CyberKey‘s trading suspension was temporarily lifted, to March 20, 2007, the date CyberKey was de-listed and could no longer be traded, MJMM was a heavy seller of its holdings in the stock. Over the course of the defendants’ relationship with CyberKey, Big Apple and MJMM sold more than a combined 720 million CyberKey shares for approximately $7.8 million. During the time that CyberKey was a client, it was one of the top five most actively traded stocks on Pink Sheets.

The SEC brought suit against Plant for his role in the scheme. Plant was also indicted and convicted on charges of securities fraud. In 2009, he was sentenced to ninety-seven months imprisonment in connection with the criminal charges.

PROCEDURAL BACKGROUND

The SEC filed its complaint in federal court and alleged that not later than August 8, 2006, the defendants “knew, or were severely reckless in not knowing, that CyberKey did not have a $25 million purchase order from the DHS or any other [f]ederal government agency, and thus had very little legitimate revenue at all.” Nonetheless, the defendants “persisted in promoting CyberKey and selling hundreds of millions of unregistered CyberKey shares to unsuspecting investors.” The SEC asserted that the defendants violated various sections of the Securities Act and the Exchange Act.

After the Supreme Court decided

Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 131 S. Ct. 2296, 2302, 180 L. Ed. 2d 166 (2011), which defined what it means to “make” a false statement under SEC Rule 10b-5(b),² the district court granted the SEC‘s motion to amend its complaint. In turn, the SEC withdrew its claims that defendants violated § 10(b) of the Exchange Act and Rule 10b-5, and replaced them with claims that defendants violated § 20(e) of the Exchange Act by aiding and abetting CyberKey‘s and Plant‘s violations of § 10(b) and Rule 10b-5.

Ultimately, the SEC‘s amended complaint asserted that: (i) all defendants violated § 17(a) of the Securities Act and aided and abetted violations of § 10(b) of the Exchange Act and SEC Rule 10b-5, in violation of § 20(e) of the Exchange Act; (ii) Big Apple, MJMM, and Marc Jablon violated § 5(a) and (c) of the Securities Act; (iii) Big Apple and MJMM violated § 15(a) of the Exchange Act; and (iv) Jablon and Kaley aided and abetted the § 15(a) violations, in violation of § 20(e) of the Exchange Act. The district court granted summary judgment in favor of the SEC as to claims (ii), (iii), and (iv).

Only the claims under (i)—that the defendants violated § 17(a) of the Securities Act and aided and abetted violations of § 10(b) of the Exchange Act and SEC Rule 10b-5, in violation of § 20(e) of the Exchange Act—proceeded to trial. At the conclusion of the SEC‘s case, the defendants orally moved for judgment as a matter of law under Fed.R.Civ.P. 50(a). They argued that the SEC presented insufficient evidence to establish actual knowledge, which they maintained was required to establish a violation of § 20(e) of the Exchange Act. The district court reserved ruling, and the defendants orally renewed their motion after presenting their defense, adding an argument that in light of the Supreme Court‘s decision in

Janus, the § 17(a) claims should not have gone to the jury.

The jury returned a verdict finding that the defendants violated each of the three subsections of § 17(a) and that the defendants violated § 20(e), marking on the verdict form that the defendants acted with both actual knowledge and severe recklessness. After trial, the defendants orally renewed their Rule 50(b) motion and argued that the jury was improperly instructed that it could find the defendants liable if they acted with deliberate ignorance. Big Apple, MJMM, and Jablon filed a written Rule 50(b) motion, in which they argued that the evidence was insufficient to support that the defendants acted with deliberate indifference and that the instruction misstated the law by not focusing on the defendants’ subjective beliefs. Kaley, proceeding pro se, also filed a Rule 50(b) motion arguing that the evidence was insufficient to support the claims asserted against him. The court denied both motions.

Defendants raise six errors on appeal. They claim the district court erred by: (1) submitting the § 17(a) claims to the jury in light of the Supreme Court‘s decision in

Janus; (2) instructing the jury that § 20(e) violations may be established by showing actual knowledge or severe recklessness; (3) improperly instructing the jury with regard to deliberate ignorance; (4) granting partial summary judgment in favor of the SEC; (5) excluding certain evidence and expert testimony; and (6) denying Kaley‘s sufficiency of the evidence claim in his Rule 50(b) motion.

ANALYSIS

1. Primary Violations of § 17(a) of the Securities Act

We review the district court‘s rulings concerning questions of law de novo.

SEC v. Merch. Capital, LLC, 483 F.3d 747, 754 (11th Cir. 2007).

The defendants argue that the decision in

Janus—a case that defined the word “make” as it relates to SEC Rule 10b-5(b)‘s prohibition against “mak[ing] any untrue statement of a material fact“—extends to claims brought under § 17(a) of the Securities Act. In

Janus, the Court considered whether an LLC mutual fund investment adviser could be held liable in a private action under Rule 10b-5(b) for misleading statements contained in its clients’ prospectuses, which the adviser was in-volved in preparing.

131 S. Ct. at 2299. The Court answered in the negative and explained that “[o]ne who prepares or publishes a statement on behalf of another is not its maker.”

Id. at 2302. Rather, “the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.”

Id. According to the defendants’ logic, because they did not have ultimate authority over the content of CyberKey‘s press releases, they could not be considered “makers” of any material misstatements and thus could not be liable under the provisions of § 17(a), which they assert are “largely coextensive in scope” to those of Rule 10b-5. We disagree.

Our conclusion is driven by an adherence to the statutory text. Section 17(a) of the Securities Act makes it:

unlawful for any person in the offer or sale of any securities ... by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly

(1) to employ any device, scheme, or artifice to defraud, or

(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or

(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

15 U.S.C. § 77q(a). Though Rule 10b-5 regulates a different activity, i.e., the “purchase or sale” of securities rather than their “offer or sale,” it borrows much, though not all, of its language from § 17(a). That is not by coincidence. See

Hooper v. Mountain States Sec. Corp., 282 F.2d 195, 201 n. 4 (5th Cir. 1960), cert. denied,

365 U.S. 814, 81 S.Ct. 695, 5 L.Ed.2d 693 (1961);

United States v. Persky, 520 F.2d 283, 287 (2d Cir. 1975). Rule 10b-5 makes it:

unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce ...

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. The overlap is most pronounced in Rule 10b-5 subsections (a) and (c), which, like § 17(a) subsections (1) and (3), prohibit schemes to defraud and fraudulent courses of business, respectively. However, subsections (1) and (3) in § 17(a) and subsections (a) and (c) in Rule 10b-5 do not use the word “make” or even address misstatements. The Court in

Janus interpreted what it means to “make” a misrepresentation under subsection (b) of Rule 10b-5. Thus, any attempts by the defendants to import the Court‘s narrow holding to the entirety of § 17(a) is untenable on its face. See

SEC v. Garber, 959 F. Supp. 2d 374, 380 (S.D.N.Y. 2013) (”Janus would not affect claims under Section 17(a)(1)....“).

Indeed, the Court recognized in

Cent. Bank of Denver N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 191, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994), that, despite foreclosing private aiding and abetting liability under § 10(b), “secondary actors in the securities markets ... who employ[ ] a manipulative device ... on which a purchaser or seller of securities relies may be liable as a primary violator under SEC Rule 10b-5, assuming all of the requirements ... are met.” See also

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 166, 128 S. Ct. 761, 169 L. Ed. 2d 627 (2008) (citing

Cent. Bank, 511 U.S. at 191, 114 S. Ct. 1439) (“[T]he implied right of action in § 10(b) continues to cover secondary actors who commit primary violations.“). Therefore, the reality remains that even a person like the mutual fund investment adviser in

Janus, who is not the “maker” of an untrue statement of material fact, nonetheless could be liable as a primary violator of Rule 10b-5(a) and (c). See

SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279, 287 (2d Cir. 2013) (“[S]ubsection (b) was the only subsection at issue in Janus.“);

Garber, 959 F. Supp. 2d at 380 (”Janus does not extend to claims based on schemes to defraud under Rule 10b-5(a) and (c).“). Given that § 17(a)(1) and (3), on which Rule 10b-5(a) and (c) are modeled, do not contain the word “make” or address misstatements, and given that the Court in

Janus did not alter the potential for liability under Rule 10b-5(a) and (c), it would be incongruous to remove the potential for liability under § 17(a)(1) and (3).

The defendants’ primary contention is that because § 17(a)(2) is the analogue to Rule 10b-5(b), therefore the Court‘s holding in

Janus should apply to § 17(a)(2). Recall, § 17(a)(2) renders it “unlawful for any person in the offer or sale of any securities ... to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact.” (Emphasis added.) “When a word is not defined by statute, we normally construe it in accord with its ordinary or natural meaning.” See

Smith v. United States, 508 U.S. 223, 228, 113 S. Ct. 2050, 124 L. Ed. 2d 138 (1993). The Supreme Court has also recognized that “[t]he use of different terms within related statutes generally implies that different meanings were intended.”

United States v. Bean, 537 U.S. 71, 76 n. 4, 123 S. Ct. 584, 154 L. Ed. 2d 483 (2002). We have not yet addressed the definition of “by means of” in § 17(a)(2), but we agree with the First Circuit that “the text suggests that ... it is irrelevant for purposes of liability whether the seller uses his own false statement or one made by another individual.” See

SEC v. Tambone, 550 F.3d 106, 127 (1st Cir. 2008).³ While the First Circuit‘s decision in

Tambone was rendered prior to the Court‘s decision in

Janus, its point is well-taken.

SEC v. Tambone, 597 F.3d 436 (1st Cir. 2010) (en banc). “In short, the drafters of Rule 10b-5 had before them language that would have covered the ‘use’ of an untrue statement of material fact ... They declined to do so. Instead, the drafters—who faithfully tracked section 17(a) in other respects—deliberately eschewed the expansive language of section 17(a)(2).”

Id. at 444. Likewise, we also agree with the Securities and Exchange Commission‘s recent opinion, which held ”Janus‘s limitation on primary liability under Rule 10b-5(b) does not apply to claims arising under Section 17(a)(2).” In the Matter of John P. Flannery and James D. Hopkins, Admin. Proc. File No. 3-14081, at 15 (Dec. 15, 2014).⁴

One final aspect of the Court‘s decision in

Janus solidifies our conclusion that the Court‘s definition of “to make” in Rule 10b-5 does not apply to § 17(a)(2).

Janus involved a private action under Rule 10b-5. “[N]either Rule 10b-5 nor § 10(b) expressly creates a private right of action, [though the Supreme] Court has held that ‘a private right of action is implied under § 10(b).‘”

Janus, 131 S. Ct. at 2301 (quoting

Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6, 13, n. 9, 92 S. Ct. 165, 30 L. Ed. 2d 128 (1971)). For that reason, the Court remained “mindful” that it had to “give ‘narrow dimensions ... to a right of action Congress did not authorize when it first enacted the statute and did not expand when it revisited the law.‘”

Id. at 2302 (quoting

Stoneridge, 552 U.S. at 167, 128 S. Ct. 761). Unlike Rule 10b-5, however, there is no private right of action under § 17(a).

Currie v. Cayman Res. Corp., 835 F.2d 780, 784-85 (11th Cir. 1988). Accordingly, there is not the same concern regarding the expansion of a judicially-created private cause of action.

We therefore decline the defendants’ invitation to supplant the language of § 17(a)(2) with words taken from another authority, particularly with words “beyond the four corners of the [Securities] Act.”

Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 595, 115 S. Ct. 1061, 131 L. Ed. 2d 1 (1995) (Thomas, J., dissenting); see also

Pinter v. Dahl, 486 U.S. 622, 653, 108 S. Ct. 2063, 100 L. Ed. 2d 658 (1988) (“The ascertainment of congressional intent with respect to the scope of liability created by a particular section of the Securities Act must rest primarily on the language of that section.“). We conclude that “obtain[ing] money ... by means of any untrue statement” under § 17(a)(2) of the Securities Act encompasses a broader range of conduct than “mak[ing]” such a statement as defined in SEC Rule 10b-5(b). Finally, even if we accepted the defendants’ position that these two phrases are equivalent, which we do not, the defendants ignore the fact that the jury found the defendants violated not only § 17(a)(2), but also § 17(a)(1) and (3), which are in no way directly or indirectly affected by the

Janus decision. As stated in the district court‘s instructions to the jury, to show a violation of § 17(a), “[i]t is not necessary that the SEC prove that the [d]efendants engaged in all three types of conduct” set forth in subsections (1)–(3). Instead, as properly instructed, “[a]ll that the SEC needs to prove to prevail is that the [d]efendants engaged in any one of the types of conduct.”

...

For the foregoing reasons, we AFFIRM the judgment of the district court.

SILER

UNITED STATES CIRCUIT JUDGE

Notes

1

“Free-trading shares” are not subject to restrictions such as a waiting period and can be readily sold in the market; however, the subsequent offer or sale of the shares is not necessarily exempt from registration requirements. See 15 U.S.C. § 77e.

2

17 C.F.R. § 240.10b-5. Rule 10b-5 is promulgated under § 10(b) of the Exchange Act.

3

The First Circuit vacated this decision by granting en banc review on an unrelated issue.

SEC v. Tambone, 573 F.3d 54 (1st Cir. 2009). It subsequently reinstated the § 17(a)(2) analysis from the panel decision in its en banc opinion. See

SEC v. Tambone, 597 F.3d 436, 450 (1st Cir. 2010) (en banc).

4

Available at https://www.sec.gov/alj/aljdec/2011/id438bpm.pdf.

*

The Honorable Eugene E. Siler, Jr., United States Circuit Judge for the Sixth Circuit, sitting by designation.

Case Details

Case Name: U.S. Securities and Exchange Commission v. Big Apple Consulting USA, Inc.

Court Name: Court of Appeals for the Eleventh Circuit

Date Published: Apr 9, 2015

Citation: 783 F.3d 786

Docket Number: 13-11976

Court Abbreviation: 11th Cir.