SEC v. Wallace, 94 F. Supp. 2d 1 (D.D.C. 2000)

Larry P. Ellsworth, Securities and Exchange Commission, Washington, D.C., John Sullivan, John Henry Schlie, P.C., Denver, CO, for plaintiff.

Donald C. Wallace, Little Rock, AR, Janet K. DeCosta, Washington, D.C., for defendant.

ROBERTS, District Judge.

The Securities and Exchange Commission ("SEC") sued several individuals and entities for allegedly engaging in a fraudulent scheme to sell unregistered securities, and failing to register as investment advisers. Defendant Tedford has moved under 28 U.S.C. § 1406 (1994) to dismiss claims against him or to transfer this case alleging that venue is improper in this district. Because the special venue provisions of the applicable securities statutes make venue proper in this district, I deny the motion.

The first and second claims of the complaint allege that Tedford and the remaining defendants engaged in fraudulent misrepresentations and fraudulent securities transactions in violation of § 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b) (1994), and § 17(a) of the Securities Act, 15 U.S.C. § 77q(a) (1994). The third claim alleges that defendant Wallace violated § 203(a) of the Advisers Act by acting as an investment advisor and by not registering with the SEC in Washington, D.C. as required. 15 U.S.C. § 80b-3(a) (1994). As such, the complaint alleges an act and an omission, or failure to act, as violations.

*2 Venue for the Advisers Act violation is governed by Section 214 of that Act. It places venue for suits or actions to enforce a liability or duty created by § 203(a), or to enjoin any violation of § 203(a), in any district where the act or transaction constituting the violation occurred, among other districts. 15 U.S.C. § 80b-14 (1994).

In an action alleging a failure to make a required filing with the SEC, venue lies in the District of Columbia. See Investors Funding Corp. of New York v. Jones, 495 F.2d 1000, 1003 (D.C.Cir.1974). Jones involved the failure to timely file corporate quarterly and annual reports under the Securities Exchange Act of 1934. "The place where a document is to be filed may be regarded as the place where any asserted non-filing or misfilings occurred." SEC v. Savoy Indus. Inc., 587 F.2d 1149, 1154 (D.C.Cir.1978) (citations omitted) (involving three filings under the Securities Exchange Act). The special venue provision of the Securities Exchange Act of 1934 is identical in all material respects to the Advisers Act special venue language. Compare 15 U.S.C. § 78aa (1994) with 15 U.S.C. § 80b-14 (1994). I find, then, that venue for the Advisers Act claim against defendant Wallace of failing to register with the SEC is proper in this district.

Because venue is proper in the District of Columbia as to defendant Wallace, the question is whether venue is also proper as to defendant Tedford. I conclude that it is. In SEC v. National Student Mktg. Corp., 360 F. Supp. 284 (D.D.C.1973), the SEC alleged that multiple defendants engaged in a securities fraud scheme involving a merger of the District of Columbia-based company and failure by its New York counsel to correct false financial representations about the company, in violation of the Securities Exchange Act of 1934. Judge Parker held that any material act committed by one defendant in the District in furtherance of a multi-defendant fraudulent scheme satisfies venue under the Securities Exchange Act of 1934 as to all defendants whether or not the other defendants ever committed a violation in the District. Id. at 291-292.^[1]

In this case, an investor allegedly was induced to invest $100,000 in non-existent prime bank securities. Defendant Wallace purportedly acted as the investment adviser and was responsible for arranging the trades using the money that defendant Tedford channeled to Wallace. If the complaint is correct, then Wallace's role was key, and his failure to register with the SEC in this district was of no small moment in minimizing scrutiny and maximizing the success of this fraud.

I conclude, then, that venue for this law suit is proper in this district and I deny defendant Tedford's motion.

[1] Plaintiff also cites in support of its venue argument Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1317 (9th Cir. 1985) and SEC v. Diversified Indus., 465 F. Supp. 104, 111 (D.D.C.1979). Unlike the instant case, those cases involve actual allegations of conspiracy. Those opinions nevertheless support a broad application of venue where a common scheme of acts or transactions to violate securities acts is alleged.