Tenth Circuit holds consultant liable for false SEC filings

[JURIST] The US Court of Appeals for the Tenth Circuit [official website; JURIST news archive] ruled [opinion, PDF] Tuesday that a non-employee consultant may be held liable for misstatements or omissions in periodic financial reports filed with the US Securities and Exchange Commission (SEC) [official website; JURIST news archive]. The ruling affirms a district court decision granting summary judgment [SEC press release] in a civil enforcement action against Jon R. Marple and consulting firm Grateful Internet Associates LLC, whom the SEC charged with violating anti-fraud provisions of the Securities Exchange Act of 1934, the Securities Act of 1933 and SEC regulations [text]. The SEC alleged that Marple drafted false filings for a public company, F10 Oil and Gas Properties Inc., in which he otherwise played a major role despite his status as a consultant. Marple argued that, as a consultant, he could not be held primarily liable because he did not "directly or indirectly engage in any manipulative or deceptive acts." Circuit Judge Carlos F. Lucero [official profile] wrote for the three-judge panel:

Specifically, they [defendants] claim that the Commission showed only that F10 made the material misstatements or omissions, not that they as individuals "made" such misstatements or omissions. Marple and Grateful were, according to their theory, mere secondary actors subject at most to liability as aidors and abettors. ...

The relevant question is only whether he can fairly be said to have caused F10 to make the relevant statements, and whether he knew or should have known that the statements would reach investors. ... Under the facts discussed, this standard was satisfied. We thus hold that because Marple caused the misstatements and omissions to be made, and knew that the statements were calculated to reach investors, defendants can properly be held liable....
In addition to ruling against the defendants on their substantive arguments, the panel also rejected their claim that the district court erred procedurally. Marple was among 21 individuals and entities whom the SEC alleged [complaint, PDF; press release] were part of "a scheme to sell securities in five United States-based microcap issuers to hundreds of investors located primarily in the United Kingdom, Australia and New Zealand through a boiler room located in Vientiane, Laos." In addition to various other consequences, Marple and his firm were ordered to disgorge $149,487 plus interest and to pay a civil monetary penalty of $100,000.

In July, the Second Circuit [official website] held [opinion, PDF; JURIST report] that knowingly violating exchange regulations and subsequently trying to conceal one's actions does not constitute criminal securities fraud. The court held that the actions themselves must be deceptive, and must be intended to defraud customers. The ruling affirmed the district court's reversal of the conviction of David Finnerty, a former specialist trader at Fleet Specialist Inc., a subsidiary of FleetBoston Financial Corp., who had been accused of making improper trades for his firm’s account on the New York Stock Exchange (NYSE) [official website] by “interpositioning,” a process in which brokers step in front of their customers to intercept trades at more favorable prices.


 

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