SEC v. Quan, No. 14-3707 (8th Cir. 2016)
Annotate this CaseDefendant and the entities he controls appeal a judgment entered on jury verdicts finding securities fraud. The SEC alleged that defendant and his companies violated Section 17(a) of the Securities Act, 15 U.S.C. 77q(a); Section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5; and Section 206(4) of the Investment Advisers Act, 15 U.S.C. 80b-6(4), and Rule 206(4)-8 thereunder, 17 C.F.R. 275.206(4)-8. The SEC also alleged that defendant personally violated Section 20(a) of the Securities Exchange Act, 15 U.S.C. 78t(a), and aided and abetted SCAF’s violations of Section 10(b) and Rule 10b-5 and SIA’s violations of Section 206(4) and Rule 206(4)-8, 15 U.S.C. 78t(e) (aiding-and-abetting liability). The jury found liability on every count except the alleged violations of Section 17(a)(1) and the allegation that defendant personally aided and abetted SCAF's violations of Section 10(b) and Rule 10b-5. Because the verdicts in this case are not actually inconsistent, the court assumed without deciding that defendant preserved his argument and proceeded to the merits. The jury's finding that defendant did not violate Section 17(a)(1), but did violate Rule 10b-5 was not inconsistent because the bar for finding liability was higher under Section 17(a)(1) than under Rule 10b-5(b); the jury could have found liability under Section 17(a)(3), requiring only negligence, without finding the intent or severe recklessness necessary for liability under Section 17(a)(1); there is no inconsistency in the jury finding that defendant personally violated Rule 10b-5, but did not aid and abet SCAF in violating the same rule; the court agreed 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); and the disgorgement award the district court ordered here was a permissible equitable remedy. Accordingly, the court affirmed the judgment.
Court Description: Riley, Author, with Smith and Shepherd, Circuit Judges] Civil case - Securities Fraud. Jury verdicts finding defendant violated Rule 10b-5 but did not violate Section 17(a)(1) of the securities Act or aid and abet his securities firm in violating Rule 10(b)(5) were not internally inconsistent, as the bar for finding liability under Section 17(a)(1) was higher and the jury could find that defendant made a false statement or misleading statement (thus incurring Rule 10(b)(5) liability) without concluding that he did enough beyond that (at least with scienter) to rise to the level of employing a device, scheme or artifice to defraud (as would be required for Section 17(a)(1) liability); nor, in light of the evidence, was the verdict inconsistent in imposing personal liability for the Rule 10(b)(5) violation but not aiding-and-abetting liability; jury did not need to unanimously agree on a particular false statement or omission to impose liability; the district court could order disgorgement as a permissible equitable remedy.
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