Securities and Exchange Commission v. USA Real Estate Fund 1 Inc et al, No. 2:2013cv00157 - Document 53 (E.D. Wash. 2014)
Court Description: ORDER GRANTING SUMMARY JUDGMENT TO PLAINTIFF AND DISMISSING DEFENDANT'S MOTIONS granting 34 Motion for Summary Judgment; denying 43 Motion for Reconsideration ; denying 30 Motion for Summary Judgment Signed by Senior Judge Lonny R. Suko. (VR, Courtroom Deputy)
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Securities and Exchange Commission v. USA Real Estate Fund 1 Inc et al Doc. 53 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF WASHINGTON 8 9 10 11 12 13 14 SECURITIES AND EXCHANGE COMMISSION, ) ) ) Plaintiff, ) ) v. ) ) USA REAL ESTATE FUND 1, INC. ) and DANIEL F. PETERSON, ) ) Defendants. ) _________________________________) NO. CV-13-0157-LRS ORDER GRANTING SUMMARY JUDGMENT TO PLAINTIFF AND DISMISSING DEFENDANT’S MOTIONS 15 BEFORE THE COURT is the Defendant Daniel F. Peterson’s Motion 16 for Summary Judgment Dismissal (with prejudice), ECF No. 30, filed 17 February 26, 2014; and Plaintiff Securities and Exchange 18 Commission’s Cross-Motion For Summary Judgment, ECF No. 34, filed on 19 March 20, 2014 and noted without oral argument on June 18, 2014. 20 SUMMARY OF FACTS1 21 In 2009, Defendant Daniel F. Peterson (“Peterson”) founded USA 22 Real Estate Fund 1, Inc. (“USA Fund”), a Washington state 23 corporation that he operated from his home in Spokane Valley, until 24 May 2013. Peterson was USA Fund’s Chairman, President, and, with his 25 26 1 27 28 The facts are taken from Plaintiff’s Statement of Facts (“SOF”). Defendant Peterson did not submit a separate statement of facts in support of his Motion for Summary Judgment nor has Defendant disputed Plaintiff’s SOF with specific facts or in any otherwise meaningful way. ORDER - 1 Dockets.Justia.com 1 wife, its majority stockholder, and he managed and controlled all 2 aspects of its operations. Peterson sold USA Fund common stock to 21 3 persons in exchange for money they provided. 4 than $400,000 from these investors. The records from USA Fund’s bank 5 (J.P. Morgan Chase Bank, N.A.) reveal that from October 22, 2010 6 through June 13, 2012, USA Fund deposited a total of $435,495, which 7 it had received from 21 different persons. Peterson stated that the 8 purpose of selling the common stock of USA Fund to the investors was 9 “[t]o raise capital” and the price per share and amount of each 10 investment varied based on “how bad we needed the money and the 11 purchaser, what they wanted to put money in.” 12 investors, according to Peterson, “were put into USA [Fund].” Those 13 funds were used, in turn, to pay compensation and travel expenses to 14 Peterson, and to pay two other individuals who were working for USA 15 Fund. Peterson raised more The funds paid by the 16 Peterson also exchanged an additional 61,042 shares of common 17 stock of USA Fund for a debt owed to 26 persons from another failed 18 investment scheme. On July 14, 2010, prior to selling or exchanging 19 any of these shares, Peterson filed a Form D2 with the Commission on 20 behalf of USA Fund for his purported future multi-billion dollar 21 offering. 22 on May 24, 2011, September 9, 2011 and January 30, 2013. 23 D and the amendments each announced USA Fund’s intent to offer and 24 sell between $100 million and $100 billion worth of securities. The 25 original and first two amended Forms D further identified “revenues” Peterson filed three subsequent amendments to the Form D The Form 26 27 2 28 A Form D is a brief notice that companies file to describe their intent to offer and sell securities in unregistered transactions. ORDER - 2 1 of USA Fund to be at that time in the range of between $25 million 2 to $100 million. 3 Peterson’s assertions of positive revenues in the Form D and 4 amendments were false, as Peterson has since acknowledged that USA 5 Fund actually earned no revenues prior to the July 14, 2010 filing, 6 and also did not earn any revenues through September 9, 2011, the 7 time of the second amendment. The third amended Form D filed on 8 January 20, 2013 indicated revenues of between $1 and $1 million, 9 but Peterson has acknowledged that USA Fund still has zero revenue. 10 The Form D contains a “no revenues” option. 11 In addition to the sales of shares to the 21 persons to obtain 12 more than $400,000, Peterson and USA Fund also solicited additional 13 investors, and additional investments, by offering to sell them USA 14 Fund common stock. In an email newsletter attachment Peterson sent 15 in April 2012 to investors, he stated: 16 each of you a chance to increase you stock holdings [sic] in the 17 company. The opportunity will run until the 16th of April. You may 18 buy as little as 200 shares at $2.00 per share. We will make 19 available as a company enough shares to cover any requests received 20 and paid for by the deadline up to 200,000 shares.” “we have decided to give 21 Peterson admits, he and USA Fund have no current means to make 22 money for, or to pay back, the common stock investors, as USA Fund 23 “has never opened for business” and is currently “inactive.” 24 Peterson has consistently claimed that USA Fund will offer new 25 securities in a multi-billion dollar offering that will be the 26 mechanism by which current common shareholders will be enriched. In 27 /// 28 /// ORDER - 3 But 1 his marketing plan set out as Exhibit C to his Motion,3 Peterson 2 states that in July 2010, he and USA Fund prepared a filing for a $2 3 billion offering, just a few months before he obtained the first of 4 the funds from common stock investors. Peterson claims that, through 5 this 6 investment capital is very reasonable,” purportedly based on his own 7 assumptions including selling more than a hundred million dollars of 8 the new securities each month for a year.4 Peterson claims this 9 future offering has been made possible by a statute signed into law 10 on April 5, 2012 called the Jumpstart Our Business Startups Act or 11 the “JOBS Act.” Pub. L. No. 112-106, 126 Stat. 306 (2012). In emails 12 to investors, and in public filings with the Commission, Peterson 13 claimed that USA Fund would raise billions of dollars in investment 14 capital by selling securities to the public. Peterson told the USA 15 Fund common stock purchasers that the multi-billion dollar offering 16 would be the means for a significant pay-out to them. new offering, raising “more than a billion dollars of 17 By way of example, in an April 28, 2012 email and offering 18 letter to prospective common stock investors, Peterson claimed that, 19 following his multi-billion dollar offering of preferred securities, 20 the price of USA Fund common stock would increase to $150 per share, 21 as compared with the $.50 per share they would be paying to obtain 22 the stock. 23 investors about how the envisioned multi-billion dollar securities 24 offering would be “secured” or “insured.” 25 states: “The investors’ invested capital is protected by placing a Peterson states in his Motion For Dismissal that he told 26 27 3 See ECF No. 30-4 at 1. 4 See ECF No. 30; ECF No. 30-11 at 2. 28 ORDER - 4 For example, Peterson 1 percentage of those funds into selected cash equivalent items such 2 as U.S. Government Treasury bonds/notes and Top Ten World Bank 3 Certificates of Deposit which will accumulate interest annually, 4 that interest is reinvested every year until the maturity buy back 5 date at which time the investor is returned the amount of their 6 investment.”5 7 On USA Fund’s website, it similarly states: “our investors will 8 know the exact date on which the financial instruments from the U.S. 9 Government and the Top Rated US and World Insurance and Reinsurance 10 Companies will return to them their share of the protection fund 11 balance.” On the same website, Peterson claimed that Merrill Lynch, 12 a prominent brokerage firm and investment bank, would hold all 13 future investments in an “escrow account” and that Merrill Lynch 14 would “purchase and hold all of the financial instruments that will 15 furnish the funds to pre-purchase all stock shares at the original 16 purchase price.” 17 frequently asked questions(“FAQ”) page, it states: 18 19 20 21 Additionally on the USA Fund website, on the Q: How do you assure the investor that they will not lose their investment? A: Our protection works much the same as flood insurance or earthquake or tornado insurance. We buy from the US Governments financial instruments that will provide the money to insure against loss. 22 Peterson made similar claims in emails and letters soliciting 23 investors for prospective purchases of common stock. On August 18, 24 2011, Peterson told a prospective investor that Merrill Lynch would 25 buy “guarantee instruments and then transfer the net proceeds to USA 26 [Fund].” On July 9, 2012, Peterson told investors that the USA Fund 27 28 5 ECF No. 30 at 4. ORDER - 5 1 had just begun “marketing of our 20 Year Preferred shares both on 2 our 3 marketing arrangement. In an April 28, 2012 letter offering stock to 4 more than 100 potential investors, Peterson said that Merrill Lynch 5 would set aside 25% of the money raised from the second offering to 6 preferred shareholders into an account “that grows and pays back the 7 investors all of their invested dollars in the future.” own and in conjunction with Merrill,” when there was no 8 In his Motion For Dismissal, Peterson describes the claimed 9 guarantee, pointing to a 2002 Smith Barney brochure describing an 10 account 11 investment.6 12 “Guarantee 13 financial guarantee pursuant to a financial guarantee insurance 14 policy issued for the benefit of the shareholders of the fund ...”.7 15 However, unlike the Smith Barney brochure, Peterson’s stated basis 16 for calling the USA Fund guaranteed or secured, did not include an 17 arrangement for, or payment for, any such insurance. Instead, 18 Peterson claimed, and still claims, that investments in Treasuries 19 and CDs in an account supposedly managed by Merrill Lynch would 20 somehow provide such insurance against loss.8 with a limited The Smith Period” guarantee, Barney “backed by as brochure an a supposedly describes unconditional, comparable a five-year irrevocable 21 Contrary to Peterson’s assertions to the investors, there was 22 no “escrow account” or “protection fund” with Merrill Lynch, nor had 23 Peterson ever discussed the possibility of such an account with 24 25 6 26 ECF No. 30 at 4-5 (“Major investment firms such as Smith Barney have used this process for decades.” 27 7 ECF No. 30-5 at 2. 28 8 ECF No. 30 at 4. ORDER - 6 1 Merrill 2 impossible. 3 comprised of 25% of the principal invested, but that the very same 4 “protection fund” would itself quadruple in value to replace the 5 remainder of the principal. However, the government securities (and 6 bank CDs) Peterson said would be purchased with those funds could 7 not achieve such returns. Between August 2011 and April 2013, the 8 yield on U.S. Treasury instruments maturing in 20 years was less 9 than 2%. Even if USA Fund had created a “protection fund” that 10 remained invested for 20 years, to achieve the projected results, 11 the protection fund would have had to consistently earn annualized 12 returns of well more than double the yield on the U.S. Treasury 13 instruments.9 14 6-month CD rates never reached 1%, often less than 0.5%.10 Lynch. He Further, promised Peterson’s that the claims prove “protection mathematically fund” would be From January 1, 2010 through May 31, 2013, the 15 Peterson’s promise to the common stock investors was based on 16 a further misstatement that rendered his claims impossible. He 17 claimed that early investors could split among them the monies 18 raised from future investors, minus the 25% to be set aside for the 19 “protection fund,” and thus ignored, and failed to disclose, that 20 those future security holders would also have a claim on the funds 21 they invested. Peterson also disregarded that those monies were 22 supposed to be invested in other projects, according to his own 23 24 25 9 The Court takes judicial notice of the U.S. Treasury public reports on the http://www.federalreserve.gov/releases/h15/data.htm website. 26 10 27 28 The Court takes judicial notice in the U.S. Federal Reserve Systems’ historical interest rates published on the http://www.federalreserve.gov/releases/h15/data.htm website. ORDER - 7 1 projections. 2 stock that the various businesses and financial schemes of USA Fund 3 would generate massive returns using the money of investors in the 4 future offering. The wide-ranging business plan included investments 5 in technology start-ups, mortgage notes, defaulted real estate, 6 “conduit lending,” and development of a resort called “Xanadu.” Peterson thus told persons who were purchasing common 7 Peterson posted return-on-investment projections on USA Fund’s 8 website for each of the company’s constituent funds, which purported 9 to show projected earnings on a $1,000 investment over 10 years. 10 Peterson’s projections showed consistent, year-over-year earnings 11 culminating in returns for USA Fund investors of 500% to more than 12 1,300%. 13 support these incredible projections. 14 he 15 “assumptions” 16 investors are paid out would be through raising money from sales of 17 shares. Peterson projected raising $1.4 billion cumulatively through 18 such future sales of stock. Peterson was unable to produce any numerical analysis to prepared for USA that the Fund common purported Peterson’s projections that stock means investors by which reveal common his stock 19 Peterson promised remarkable returns for early investors, which 20 he projected on a per-share basis. In a January 18, 2012 email to 21 prospective investors, Peterson sent a spreadsheet showing that an 22 investment of $10,000 (5,000 shares at $2 per share) would yield 23 $376,552 in returns in five years. Peterson claimed that the board 24 and Merrill Lynch have signed off on these projections. Peterson 25 admits that he told investors that his scheme had the backing of 26 two major investment firms, Merrill Lynch and BlackRock. Contrary to 27 Peterson’s assertions to investors, Merrill Lynch never reviewed or 28 approved his projections for USA Fund. ORDER - 8 Contrary to Peterson’s 1 claims, BlackRock denied that Peterson and USA Fund had any such 2 affiliation. Instead, Blackrock clearly stated that it “does not 3 have any investment or commercial relationship with the [USA] Fund.” 4 Peterson simply could not offer any numerical analysis to support 5 his claims. 6 Finally, as of June 17, 2013, Peterson claimed to have resigned 7 his position as an officer and director of USA Fund and each of its 8 subsidiaries. 9 from acting The Preliminary Injunction Order prohibits Peterson as an officer or director of USA Fund, or from 10 controlling or managing it in any way until further order of the 11 Court.11 12 director of USA Fund, Peterson stated in a Declaration filed in this 13 matter on March 13, 2014, that he is a “member of the board of 14 directors of USA Real Estate Fund 1, Inc.”12 Despite the prohibition 15 against his directly or indirectly managing USA Fund in any way, in 16 a Notice of Appearance on behalf of himself as a pro se litigant, 17 Peterson stated that he would be “securing new counsel for Defendant 18 USA 19 feasible.”13 Real Despite the explicit prohibition against his acting as a Estate Fund 20 21 1, Inc. as soon as it is financially ANALYSIS I. Legal Standard - Summary Judgment 22 The summary judgement procedure is appropriate for promptly 23 disposing of actions. See Fed. R. Civ. Proc. 56. The judgment sought 24 25 11 26 See Stipulated Preliminary Injunction Order, ECF No. 16, entered on June 20, 2013. 27 12 ECF No. 33 at 1. 28 13 ECF No. 29. ORDER - 9 1 will be granted "if the movant shows that there is no genuine 2 dispute as to any material fact and the movant is entitled to 3 judgment as a matter of law." Fed. R. Civ. P. 56(a); see also 4 Celotex Corp. V. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 91 L. 5 Ed. 2d 265 (1986); Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th 6 Cir. 2007). 7 there is no genuine issue of material fact and that it is entitled 8 to prevail as a matter of law. Celotex, 9 moving party without the ultimate burden of persuasion at trial ... 10 may carry its initial burden of persuasion of production by either 11 of two methods. The moving party may produce evidence negating an 12 essential element of the non-moving party's case, or, after suitable 13 discovery, the moving party may show that the nonmoving party does 14 not have enough evidence of an essential element of its claim or 15 defense to carry its ultimate burden of persuasion at trial." Nissan 16 Fire & Marine Ins. Co., Ltd., v. Fritz Companies, 210 F.3d 1099, 17 1102 (9th Cir.2000). If the movant meets its burden, the nonmoving 18 party must come forward with specific facts demonstrating a genuine 19 factual issue for trial. 20 Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). The moving party bears the initial burden of showing 477 U.S. at 325. "A Matsushita Elec. Indus. Co., Ltd. V. 21 If the nonmoving party fails to make a showing sufficient to 22 establish the existence of an element essential to that party's 23 case, and on which that party will bear the burden of proof at 24 trial, "the moving party is entitled to a judgment as a matter of 25 law." Celotex Corp. V. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 26 91 L.Ed.2d 265 (1986). 27 28 In opposing summary judgment, the nonmoving party may not rest on his pleadings. ORDER - 10 He "must produce at least some ‘significant 1 probative evidence tending to support the complaint." T.W. Elec. 2 Serv., 3 (9th Cir. 1987) (quoting First Nat'l Bank v. Cities Serv. Co., 391 4 U.S. 253, 290, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968). Inc. V. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 5 The Court does not make credibility determinations with respect 6 to evidence offered, and is required to draw all inferences in the 7 light most favorable to the non-moving party. See T.W. Elec. Serv., 8 Inc., 809 F.2d at 630-31 (citing Matsushita, 475 U.S. at 587). 9 Summary judgment is therefore not appropriate "where contradictory 10 inferences may reasonably be drawn from undisputed evidentiary 11 facts..." Hollingsworth Solderless Terminal Co. V. Turley, 622 F.2d 12 1324, 1335 (9th Cir. 1980). The court must not weigh the evidence or 13 determine the truth of the matter, but only determine whether there 14 is a genuine issue for trial. Balint v. Carson City, 180 F.3d 1047, 15 1054 (9th Cir.1999). 16 II. Violations of the Securities Laws 17 Plaintiff asserts Defendant Peterson violated Section 10(b) of 18 the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 19 240.10b-5, and Section 17(a) of the Securities Act, 15 U.S.C. § 20 77q(a), which prohibit the making of materially false or misleading 21 statements to investors in the sale of securities. 22 A. 23 Securities Exchange Act Section 10(b) and Rule 10b-5 together 24 make it "unlawful for any person, directly or indirectly . . . [t]o 25 make any untrue statement of a material fact or to omit to state a 26 material fact necessary in order to make the statements made, in the 27 light 28 misleading . . . in connection with the purchase or sale of a Securities Exchange Act--Section 10(b) and Rule 10b-5 of ORDER - 11 the circumstances under which they were made, not 1 security." 17 C.F.R. § 240.10b-5(b). The courts have implied from 2 these statutes and Rule a private damages action, which resembles, 3 but is not identical to, common-law tort actions for deceit and 4 misrepresentation. 5 requirements on that private action . . . (citations omitted). 6 In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 737–40 7 (1975), 8 considerations," limited the Rule 10b-5 private right of action to 9 plaintiffs who themselves were purchasers or sellers. 10 the . . Supreme . And Congress Court, relying has imposed chiefly on statutory "policy A violation of the antifraud provisions is established by 11 evidence 12 misrepresentation; (2) in connection with the purchase, offer or 13 sale of a security; (3) involving interstate commerce; and (4) with 14 scienter. SEC v. Platforms Wireless, 617 F.3d at 1092; SEC v. Rana 15 Research, Inc., 8 F.3d 1358, 1364 (9th Cir. 1993). Each of these 16 elements is satisfied here as discussed below. that (1) defendant(s) made a material omission or 17 B. 18 Similarly, Securities Act Section 17(a) prohibits any person, 19 in the offer or sale of a security, from employing any deceptive 20 device; 21 misrepresentations of fact or omissions of fact; or engaging in any 22 transaction, practice or course of business which operates or would 23 operate as a fraud upon the purchaser. 15 U.S.C. § 77q(a)(1)-(3). Securities Act Section 17(a) or from obtaining money by means of material 24 1. Peterson Made Materially False Statements to Investors 25 Peterson made material misrepresentations of fact to the common 26 stock investors and to potential investors, both in his own name and 27 on behalf of USA Fund. Peterson acknowledged that he approved all of 28 the content on the USA Fund website, and is therefore the "maker" of ORDER - 12 1 2 USA Fund's misrepresentations made there. Misrepresentations and omissions of fact are considered 3 "material" if there is a substantial likelihood that a "reasonable 4 investor" would consider them significant to the total mix of 5 available information. Basic v. Levinson, 485 U.S. 224, 231-32 6 (1988). See United States v. Jenkins, 633 F.3d 788, 802 (9th Cir. 7 2011) ("the standard of materiality is an objective one," based on 8 whether a "reasonable investor" would consider the false or omitted 9 information "useful or significant"). 10 The Court finds that Peterson made materially false assertions 11 about the purported involvement of prominent investment firms, 12 Merrill Lynch and BlackRock, in order to give the illusion of 13 legitimacy to the USA Fund. Peterson’s Form D filing with the 14 Commission, on behalf of USA Fund, contained materially false and 15 misleading claims about USA Fund’s purported revenues of between $25 16 million and $100 million, or later, between $1 and $1 million, which 17 he now admits USA Fund has never earned. Peterson admitted USA Fund 18 has never actually "opened for business". ECF No. 30 at 2. False 19 claims 20 overstatement of revenue, are "material" to reasonable investors. 21 Peterson's numerous falsehoods were made to portray a seemingly 22 legitimate, safe and fictionally profitable multi-billion dollar 23 offering. Gould v. American Hawaiian S.S. Co., 331 F. Supp. 981, 997 24 (D. Del. 1971) (aggregate effect of numerous falsehoods most clearly 25 evidenced materiality). Cooper v. Pickett, 137 F.3d 616, 626 (9th 26 Cir. 1997) ("A company that substantially overstates its revenues by 27 reporting 28 misleading statements of material fact."). of ORDER - 13 substantial consignment unearned revenue, transactions as or sales the makes substantial false or 1 Peterson attempts to justify his actions by suggesting that his 2 exceptionally high projections for returns are in keeping with real 3 financial 4 securities to the common stock investors are somehow exempt from 5 registration requirements of the Securities Exchange Act and he 6 should 7 Finally, Peterson's arguments that the investors "solicited" him, 8 and letters16 he extracted from them after the fraud was complete, 9 doesn’t examples.14 be protect change Peterson also argues that his sales of from this this court’s suit view and federal that jurisdiction.15 fraudulent, material 10 representations were made. Had investors known that his basis for 11 projecting the unrealistically high returns was Peterson’s personal 12 belief, they could have understood the real risk of giving their 13 money to Peterson and USA Fund. 14 2. Peterson’s Requisite Scienter 15 Scienter is an element of any Section 10(b) and Rule 10b-5 16 claim, and it is also required to prove violations of Section 17 17(a)(1). However, scienter is not an element required to prove 18 violations of Sections 17(a)(2) or (3); rather, the lesser mental 19 state of negligence will suffice. Aaron v. SEC, 446 U.S. 680, 701-02 20 (1980). Recklessness is misconduct that is "so obvious that the 21 actor must have been aware of it." Hollinger v. Titan Capital Corp., 22 23 24 25 26 14 Peterson attempts to justify his claims by comparing his claims to three hypothetical "investments" that are purportedly akin to returns on investment exceeding 500% to 1300% : a purchase of Microsoft stock during some unstated 10-year period; a purported payment stream on an usurious "loan" of $1,000 with an 89% interest rate; and a payment stream to a pawn shop over a ten-year period. ECF No. 30-6, Exh. E, F, and G. 27 15 ECF No. 30 at 30-2, Exh. A. 28 16 ECF No. 30; ECF No. 30-3. ORDER - 14 1 914 F.2d 1564, 1569 (9th Cir. 1990). It may be inferred from 2 circumstantial evidence suggesting an obvious risk of misleading 3 investors that is so great that it is simply implausible that 4 defendant did not know about it. Vernazza v. SEC, 327 F.3d 851, 5 860–61 & n. 8 (9th Cir. 2003); In re Software Toolworks Inc., 50 6 F.3d 615, 627 (9th Cir. 1994). 7 In the Ninth Circuit, "[s]cienter may be established, 8 therefore, by showing that the defendants knew their statements were 9 false, or by showing that defendants were reckless as to the truth 10 or falsity of their statements." Gebhart v. SEC, 595 F.3d 1034, 1041 11 (9th Cir. 2010). 12 The court has no difficulty finding that the requisite scienter 13 existed, considering Peterson’s descriptions to investors about the 14 supposed affiliation with Merrill Lynch and BlackRock when there was 15 no actual partnership. 16 appears quite articulate in his pro se briefing, did not know full 17 well that he was deceiving investors. 18 851, 860–61 & n. 8 (9th Cir. 2003). 19 3. 20 The 21 22 23 24 25 26 27 28 It is simply implausible that Peterson, who See Vernazza v. SEC, 327 F.3d Misrepresentation Connected to Security Purchase/Offer/Sale in Interstate Commerce remaining elements require that the material misrepresentations or omissions occur in the purchase, offer or sale of security involving interstate commerce. sold securities to the common stock Peterson admits that he investors. Each of the misrepresentations, including direct email solicitations, the USA Fund's website, and the Form D that Peterson filed for USA Fund, was used to encourage investors to invest. Accordingly, his fraud was in connection with the offer to sell or sales themselves. ORDER - 15 See SEC v. 1 Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir.1993)("in connection 2 with" requirement is generally met where fraudulent statements are 3 circulated or made available to potential investors). Peterson also 4 made extensive use of the Internet, emails, telephone calls to 5 persons outside Washington (such as Marek of Merrill Lynch) to 6 perpetrate his fraud, satisfying the jurisdictional, interstate 7 commerce element. Fratt v. Robinson, 203 F.2d 627, 633-34 (9th Cir. 8 1953) (the use of mails, wires, etc. need not be the mechanism for 9 the fraud itself). Accordingly, the evidence not reasonably in 10 dispute satisfies the elements needed to prove Peterson's securities 11 fraud. 12 No. 52) filed June 16, 2014, weeks after the pending motions herein 13 were under advisement, is of no force or effect and does not change 14 the Court’s ruling. In addition, Defendant Peterson’s untimely declaration (ECF 15 The court finds that based on the parties' submissions, there 16 is no genuine factual dispute remaining to be tried as Peterson has 17 failed to meet his burden of providing specific facts demonstrating 18 a genuine factual issue for trial. Peterson largely admits to facts 19 that 20 repeatedly made material statements to investors that had no basis 21 in reality and which he knew lacked any support. Those statements 22 included baseless claims both about the supposed lack of risk and 23 the incredible, projected rewards for the investors in USA Fund, as 24 well as false and misleading claims about USA Fund's purported 25 prominent partners in its financial business. To the extent that 26 Peterson may have had a “theory” as to how he could achieve such 27 historical returns using Treasuries and CDs, he did not disclose it 28 /// establish ORDER - 16 his liability for securities fraud. Peterson 1 to shareholders, as Peterson has not explained what of truth, if 2 anything, he disclosed to the investors in his motion.17 3 Summary judgment is thus appropriate on the Commission's claims 4 against Peterson him for violating the antifraud provisions of the 5 Securities Act and the Exchange Act. SEC v. Platforms Wireless Int'l 6 Corp., 617 F.3d 1072 (9th Cir.2010). 7 IT IS HEREBY ORDERED that: 8 1. 9 10 11 12 Defendant Daniel F. Peterson's Motion for Summary Judgment Dismissal (with prejudice), ECF No. 30, is DENIED. 2. Defendant Daniel F. Peterson's Motion for Reconsideration Re: Motion For Summary Judgment, ECF No. 43, is DENIED. 3. Plaintiff’s Cross-Motion For Summary Judgment, ECF No. 34, 13 is GRANTED. Summary judgment is granted in favor of the Commission 14 on the claims that Defendant Peterson is liable for violations of 15 the antifraud provisions under Section 10(b) of the Securities 16 Exchange Act of 1934 [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. 17 § 240.10b-5], and Section 17(a)(1)-(3) of the Securities Act of 1933 18 [15 U.S.C. § 77q(a)(1)-(3)]. 19 The District Court Executive is directed to enter judgment 20 consistent with this order and provide copies to Plaintiff and to 21 Defendant at his last known addresses18. 22 DATED this 26th day of June, 2014. 23 s/Lonny R. Suko ___________________________________ LONNY R. SUKO Senior United States District Judge 24 25 26 17 27 18 28 ECF No. 30 at 4-5, 9. The court notes that mail sent to Defendant Peterson on June 5, 2014 addressed to 700 West 7th Avenue #808, Spokane, WA, 99204 was returned to the court as being undeliverable. ORDER - 17
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