UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee v. Marlon QUAN; Acorn Capital Group, LLC; Stewardship Investment Advisors, LLC, Defendants-Appellants Stewardship Credit Arbitrage Fund, LLC; Putnam Green, LLC; Livingston Acres, LLC, Defendants ACG II, LLC, Defendant-Appellant Florence Quan, Defendant Nigel Chatterjee; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main; Sovereign Bank; Topwater Exclusive Fund III, LLC; Freestone Low Volatility Partners, LP; Freestone Low Volatility Qualified Partners, LP, Intervenors Gary Hansen, Receiver.
No. 14-3707.
United States Court of Appeals, Eighth Circuit.
Submitted: Oct. 20, 2015. Filed: March 22, 2016.
817 F.3d 583
For these reasons, I vigorously dissent. For this non-violent offense, Ellis has been sentenced quite harshly. Ellis‘s conviction under
Thomas Casamassima, argued, Los Angeles, CA (Laura Schwalbe, Bruce E. Coolidge, Washington, DC, on the brief), for Defendant-Appellant.
Before RILEY, Chief Judge, SMITH and SHEPHERD, Circuit Judges.
RILEY, Chief Judge.
Marlon Quan, along with entities he controls, (collectively, Quan, unless context dictates otherwise) appeals a judgment entered on jury verdicts finding securities fraud. Quan challenges the coherence of the verdicts, the accuracy of the jury instructions, and the authority of the district court1 to order disgorgement. We affirm.
I. BACKGROUND
Marlon Quan managed a hedge fund, Stewardship Credit Arbitrage Fund, LLC (SCAF) and its offshore twin, Stewardship Credit Arbitrage Fund, Ltd., through his company Stewardship Investment Advisors, LLC (SIA). The funds invested
The U.S. Securities and Exchange Commission (SEC) sued Quan for securities fraud on two basic theories: (1) he made false statements about what he did to protect the funds against fraud and other risks; and (2) he concealed problems with the funds’ investments as Petters‘s scheme began to unravel. The SEC alleged Quan and his companies violated
Quan moved for judgment as a matter of law and a new trial. The SEC moved for remedies and a final judgment. The district court denied Quan‘s motions, entered injunctions against him, and ordered him to disgorge almost $81 million in profits, plus prejudgment interest. We have jurisdiction of Quan‘s appeal. See
II. DISCUSSION
A. Verdict Internal Consistency
Quan first argues he is entitled to a new trial because the jury contradicted itself by finding he violated
The district court held Quan could not seek a new trial based on alleged inconsistencies in the verdicts because he did not ask to have the verdicts sent back to the jury before it was discharged. The district court relied on our statement, “If a party feels that a jury verdict is inconsistent, it must object to the asserted inconsistency and move for resubmission of the inconsistent verdict before the jury is discharged or the party‘s right to seek a new trial is waived.”2 Parrish v. Luckie, 963 F.2d 201, 207 (8th Cir.1992) (emphasis added); accord, e.g., Brode v. Cohn, 966 F.2d 1237, 1239 (8th Cir.1992). Quan arguably objected by saying “I will just state for the record that the verdict is internally contradictory” after the district court read the verdicts, cf.
We first observe that we have not previously imposed forfeiture in such a situation—where a party pointed out an alleged inconsistency, but did not formally request relief. To the contrary, we appear to have arrived at the formulation requiring both forms of preservation by successively restating general propositions from past cases that did not themselves contain such a requirement. See, e.g., Parrish, 963 F.2d at 207 (citing Lockard v. Mo. Pac. R.R., 894 F.2d 299, 304 (8th Cir.1990) (“[I]f trial counsel fails to object to any asserted inconsistencies and does not move for resubmission of the inconsistent verdict before the jury is discharged, the party‘s right to seek a new trial is waived.“)). On the other hand, we also recognize that the purpose of the forfeiture rule in this context “is to allow the original jury to eliminate any inconsistencies without the need to present the evidence to a new jury,” thereby “prevent[ing] a dissatisfied party from misusing procedural rules and obtaining a new trial for an asserted inconsistent verdict.” Lockard, 894 F.2d at 304. Though that policy would be partially served by an objection standing alone—which might at least flag a potential issue for the district court—it would be further advanced by requiring the objecting party to specify in a motion how it proposes to solve the problem.
We need not definitively weigh these competing rationales here, because the verdicts in this case are not actually inconsistent. We therefore assume without deciding Quan preserved his argument and proceed to the merits.
Quan could be entitled to a new trial “only if there was ‘no principled basis upon which to reconcile the jury‘s inconsistent findings.‘”3 Top of Iowa Coop., 324 F.3d at 633 (quoting Bird v. John Chezik Homerun, Inc., 152 F.3d 1014, 1017 (8th Cir.1998)). The district court has discretion over whether to grant a motion for a new trial, but here the decision turns on a question of law, so we address Quan‘s two proffered irreconcilable inconsistencies de novo. See, e.g., Behlmann v. Century Sur. Co., 794 F.3d 960, 963 (8th Cir.2015).
1. Liability Under Rule 10b-5, but Not Section 17(a)(1)
The jury found Quan did not violate
But that is not what the district court told the jury. According to the jury instructions, “A device, scheme or artifice to defraud“—the basis for liability under Section 17(a)(1)—“must involve conduct beyond just misrepresentations or omissions“—the basis for liability under Rule 10b-5(b). In other words, the bar for finding liability was higher under Section 17(a)(1) than under Rule 10b-5(b). In light of those instructions, the straightforward inference from the verdicts is that the jury concluded Quan made a false statement or misleading omission, but did not do enough beyond that (at least with scienter) to rise to the level of employing a device, scheme, or artifice to defraud. Cf. Anheuser-Busch, Inc. v. John Labatt Ltd., 89 F.3d 1339, 1347 (8th Cir.1996) (“As the unchallenged instructions of the District Court make clear, the two claims have different elements: In these circumstances, the jury could have found that [the plaintiff] proved all of the elements of [one claim] while failing to prove one of the separate elements of the [other claim].“). This understanding fits aptly with the approach taken at trial, where the parties and the district court treated the different provisions as separate theories of liability based on different facts: (1) false-statement or misleading-omission liability for lying about the funds’ safeguards; and (2) fraudulent-scheme liability for hiding problems with the Petters investments.
We are not persuaded by any of Quan‘s challenges to reconciling the verdicts in this way. His assertion that Section 17(a)(1) “plainly does impose liability for false statements, not solely for non-speech conduct” is beside the point. We
Quan also protests that the jury “did in fact find non-speech ‘scheme’ liability” because it found violations of
Quan‘s next argument is not actually about inconsistent verdicts at all. He says the jury could not have carefully separated liability for false statements or misleading omissions from liability for fraudulent scheming because it split liability the same way for one of his finance companies, even though the SEC did not present evidence about the finance company making any representations whatsoever. That is, at most, a suggestion the evidence was not sufficient to support the verdict against the finance company. But Quan has not raised that issue on appeal. It is forfeited.
Quan‘s last challenge is both misguided and misleading. He argues the jury instructions do not in fact support reconciling the verdicts because the district court told the jury the requirements of Section 17(a) were “substantially the same as” Rule 10b-5, with “three exceptions that are relevant,” and the exceptions did not include a distinction between scheme liability and false-statement or misleading-omission liability. But of course nothing in the district court‘s top-level comparison of the two provisions speaks to differences between a subsection of Section 17(a), namely (a)(1), and Rule 10b-5 as a whole.
2. Personal Liability, but Not Aiding-and-Abetting Liability Under Rule 10b-5
Quan also sees inconsistency in the jury finding he personally violated
The district court concluded the verdicts could be reconciled because the trial focused on Quan‘s role at the other companies involved in managing and operating the funds and “the jury may have concluded that they lacked sufficient evidence to determine Quan‘s role in SCAF LLC or that Quan had aided and abetted a Section 10(b) violation by SCAF LLC.” In light of “our duty to harmonize [apparently] inconsistent verdicts” when we can, Anheuser-Busch, 89 F.3d at 1347, and recognizing the district court‘s firsthand experience with the strategy and focus of the trial, we agree. The funds did not participate in the trial and none of the evidence showed SCAF actively doing anything. Rather, the SEC told the jury the fund was “just a big pool of money” that “goes into a bank account, and ... sits there.” We think it is reasonable to sup
FDIC v. Munn, 804 F.2d 860 (5th Cir.1987), which Quan cites as analogous to his case, does not convince us otherwise. In Munn, the Fifth Circuit granted a new trial to a bank that was found to have committed fraud even though the agent whose conduct was the only basis for finding fraud was not. Id. at 867. Here, by contrast, the SEC presented extensive evidence of Quan—the analogue to the bank in Munn—committing fraud through other entities, apart from SCAF. We also note that the decision in Munn was driven in part by the fact that the court had separately decided to remand for a new trial on other, closely related claims and worried that limiting the new trial to a subset of the issues would risk confusing the jury, making it unclear exactly what role the jury‘s conflicting findings played in the outcome. Id.
B. Unanimity About False Statements or Misleading Omissions
The second major issue Quan raises relates to the jury instructions about
Quan‘s argument presents the question of whether a particular false statement or misleading omission is the sort of fact about which the jury must be unanimous to find liability—labeled an “element” of a violation—or, instead, is just one of the subsidiary facts by which an element might be proved and about which jurors can disagree. Cf. Richardson v. United States, 526 U.S. 813, 817, 119 S.Ct. 1707, 143 L.Ed.2d 985 (1999). Reviewing this question of legal interpretation de novo, see, e.g., Kahle v. Leonard, 563 F.3d 736, 741 (8th Cir.2009), we agree with the district court that the jury need not agree on a particular false statement or misleading omission for liability under Section 17(a)(2) or Rule 10b-5(b).
We begin with the text. The language of the provisions does not conclusively establish whether a particular false statement or misleading omission is an element, but neither is it entirely neutral. Although worded slightly differently, both provisions refer broadly to “any” false statement or misleading omission. See
The wider statutory and regulatory context supports that interpretation. “The ‘evil at which [the securities laws are] directed is the fraud in the sale [or purchase] of securities.‘” Little v. United States, 331 F.2d 287, 292 (8th Cir.1964) (emphasis omitted) (quoting United States v. Cashin, 281 F.2d 669, 674 (2d Cir.1960)) (going on to explain “a scheme to defraud, in relation to a sale of securities, ... is the gist of the crime denounced by the Congress in Section 17(a)“). To that end, Section 17(a) and Rule 10b-5 impose liability not only for false statements and misleading omissions, but also for two other broad and potentially overlapping categories of fraud. See
Quan attempts to counter this reasoning by citing the Eighth Circuit‘s model jury instruction on perjury, which says the jury must all agree about at least one false statement. See Judicial Comm. on Model Jury Instructions for the Eighth Circuit, Manual of Model Criminal Jury Instruc
In reaching our conclusion on this issue, we give little weight to United States v. Rice, 699 F.3d 1043 (8th Cir.2012), or other cases dealing with mail and wire fraud, cases on which the SEC relies heavily. Though the relevant provisions share some language and the general subject matter of fraud, the differences between the laws—the mail- and wire-fraud statutes by their terms impose liability on the use of the mail or wires to further a “scheme or artifice to defraud,” see
On the other hand, neither are we swayed by Quan‘s claim that fairness favors requiring unanimity. The conduct prohibited by Section 17(a)(2) and Rule 10b-5(b) is sufficiently narrow and well-defined that allowing jurors to reach different conclusions about particular false statements or misleading omissions does not raise concerns about “wide disagreement ... about just what the defendant did, or did not, do” or findings of liability based on a defendant‘s “bad reputation,” rather than specific facts. Richardson, 526 U.S. at 819. And Quan‘s assertion that a heightened unanimity requirement would reduce the risk of a defendant facing potentially catastrophic liability—which, naturally, is true of any number of laws—does not implicate the sort of “fairness” relevant to this analysis. See id.
Finally, we note some of the decisions Quan cites address duplicity, or the improper grouping of multiple separate offenses in a single count of an indictment. See, e.g., United States v. Yielding, 657 F.3d 688, 702-03 (8th Cir.2011); United States v. Holley, 942 F.2d 916, 927-29 (5th Cir.1991). Though duplicity in some ways resembles the concern Quan raises, in that both present questions about what exactly a jury must agree on, it is a separate, conceptually distinct issue. Most simply, duplicity deals with multiple violations, whereas the issue addressed in this case deals with multiple ways of committing a single violation. See United States v. Stegmeier, 701 F.3d 574, 581 (8th Cir.2012) (distinguishing between duplicity and the
C. Disgorgement
Quan‘s last argument is that the district court could not order disgorgement because it was only authorized to grant equitable relief, see
Quan‘s position finds no support in our precedent or elsewhere in the extensive body of case law on securities fraud. Cf. SEC v. Ridenour, 913 F.2d 515, 517 (8th Cir.1990) (“An individual found liable for fraudulently trading federal securities may properly be ordered to disgorge any ill-gotten profits.“). To the contrary, “the Federal Reporter is replete with instances in which judges ... deeply familiar with equity practice have permitted the SEC to obtain disgorgement without any mention of tracing.” FTC v. Bronson Partners, LLC, 654 F.3d 359, 374 (2d Cir.2011); see also, e.g., SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d Cir.1978) (Friendly, J.). Quan insists the Supreme Court implicitly overruled this longstanding consensus by holding that a provision allowing only equitable relief did not authorize a claim for “restitution” because it sought, “in essence, to impose personal liability ... for a contractual obligation to pay money,” which was not a remedy “typically available in equity.” Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210, 212, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002).
But Quan‘s case is not about restitution in the same sense, and the SEC seeking disgorgement is not analogous to a private plaintiff suing for money it is owed under a contract. See Commonwealth Chem., 574 F.2d at 95 (“[T]he court is not awarding damages to which plaintiff is legally entitled but is exercising the chancellor‘s discretion to prevent unjust enrichment.“). Indeed, disgorged funds are paid not to the SEC, but to the district court, which has discretion over how to disburse them. See SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir.2006). Quan cites no authority suggesting a lawsuit by an organ of the government acting in the public interest to enforce specific statutory and regulatory provisions and prevent violators from keeping their ill-gotten gains resembles a traditional suit at law. Cf. id. at 116-20 (“Because chancery courts possessed the
III. CONCLUSION
The jury‘s findings were reconcilable, the district court did not need to tell the jury they could only find Quan liable if they agreed on a particular false statement or misleading omission, and the district court was authorized to order disgorgement. The judgment is affirmed, and we remand for further proceedings.