SEC v. Basic Energy

Court of Appeals for the Sixth Circuit·Decided December 3, 2001·No. 00-1472·Published

Opinion

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

(/(&7521,& &,7$7,21  )(' $SS 3 WK &LU )LOH 1DPH DS

81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

6(&85,7,(6 $1' (;&+$1*( ; &200,66,21  3ODLQWLII$SSHOOHH   1RV  /(:,6 * 026%85* s5 !  &RQVHUYDWRU$SSHOOHH   Y   %$6,& (1(5*< $)),/,$7('   5(6285&(6 ,1&HWDO  'HIHQGDQWV   s$0(6 & %581$&.(<   s$0(6 '  $''$%2HWDO     0RYDQWV$SSHOODQWV 1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW 1RnsRKQ&RUEHWW2j0HDUD'LVWULFWsXGJH 6XEPLWWHG$XJXVW 'HFLGHGDQG)LOHG'HFHPEHU

  6HFXULWLHVDQG([FKDQJH&RPPjQ 1RV HWDOY%DVLF(QHUJ\HWDO

%HIRUH0225(DQG&2/(&LUFXLWsXGJHV)25(67(5 &KLHI'LVWULFWsXGJH BBBBBBBBBBBBBBBBB &2816(/ 21 %5,()  :DOWHU / %DXPJDUGQHU sU 086,//, %$80*$5'1(5 6W &ODLU 6KRUHV 0LFKLJDQ IRU $SSHOODQWV  'RXJODV : 9DQ (VVHQ 67(1*(5 67(1*(5*UDQG5DSLGV0LFKLJDQIRU$SSHOOHHVsDPHV &%UXQDFNH\:LOOLDPVEXUJ0LFKLJDQSURVH BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB .$5(11(/6210225(&LUFXLWsXGJH+ROGLQJLWVHOI RXW WR WKH LQYHVWLQJ SXEOLF DV DQ HQHUJ\ FRPSDQ\ %DVLF (QHUJ\DQG$IILOLDWHG5HVRXUFHV,QF m%($5l ZDVDFWXDOO\ D3RQ]LVFKHPHSD\LQJHDUOLHULQYHVWRUVRXWRIIXQGVUDLVHG IURPVXEVHTXHQWLQYHVWRUV%HIRUHWKHGLVWULFWFRXUWHQMRLQHG %($5jV RIILFHUV DQG DJHQWV RQ 1RYHPEHU   IURP VROLFLWLQJDQ\DGGLWLRQDOLQYHVWPHQWV%($5KDGVXFFHVVIXOO\ ELONHGWKRXVDQGVRILQYHVWRUVRXWRIPLOOLRQVRIGROODUV,Q 'HFHPEHUDWWKHUHTXHVWRIWKH6HFXULWLHVDQG([FKDQJH &RPPLVVLRQ m6(&l WKHGLVWULFWFRXUWDSSRLQWHG/HZLV* 0RVEXUJ sU DV FRQVHUYDWRU m5HFHLYHUl  DQG FKDUJHG KLP ZLWKPDUVKDOLQJ%($5jVDVVHWVDQGGHYLVLQJDSODQIRUWKH GLVJRUJHPHQWRIWKHSURFHHGVWR%($5jVLQYHVWRUV,Q0D\ WKHGLVWULFWFRXUWDSSURYHGWKHSUHOLPLQDU\GLVWULEXWLRQ SODQSURSRVHGE\WKH5HFHLYHUDQGLQ6HSWHPEHUWKH GLVWULFWFRXUWILQDOL]HGWKHGLVWULEXWLRQOLVWDQGGLVJRUJHPHQW SODQ  7KH SUHVHQW DSSHDOV LQYROYH %($5 LQYHVWRUVj

7KH +RQRUDEOH .DUO 6 )RUHVWHU &KLHI 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH (DVWHUQ 'LVWULFW RI .HQWXFN\ VLWWLQJ E\ GHVLJQDWLRQ  6HFXULWLHVDQG([FKDQJH&RPPjQ 1RV 1RV 6HFXULWLHVDQG([FKDQJH&RPPjQ  HWDOY%DVLF(QHUJ\HWDO HWDOY%DVLF(QHUJ\HWDO

D GLVWULEXWLRQ SODQ WKDW ZDV IDLU DQG HTXLWDEOH  7KXV ZH FKDOOHQJHV WR WKH GLVWULFW FRXUWjV RUGHUV SXUVXDQW WR WKLV FDQQRW FRQFOXGH WKDW WKH GLVWULFW FRXUW KDV DEXVHG LWV GLVWULEXWLRQSODQ GLVFUHWLRQ ,Q &DVH 1R  sDPHV %UXQDFNH\ DUJXHV WKDW WKH ,,,&21&/86,21 GLVWULFW FRXUW HUUHG LQ FODVVLI\LQJ KLP DV DQ mLQVXEVWDQWLDO PDUNHWHUlXQGHUWKHFODVVLILFDWLRQVFKHPHHVWDEOLVKHGLQWKH )RU WKH UHDVRQV VWDWHG DERYH ZH $)),50 WKH GLVWULFW GLVWULEXWLRQSODQ,QVWHDG%UXQDFNH\DUJXHVWKDWKHVKRXOGEH FRXUWjV FKDOOHQJHG RUGHUV UHJDUGLQJ %UXQDFNH\ DQG WKH FODVVLILHG DV D mQRQPDUNHWHUl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jVILQGLQJRIIDFWFDQQRWEHVDLGWRKDYHEHHQ FOHDUO\HUURQHRXV)RUWKLVUHDVRQZH$)),50 ,Q &DVH 1R  WZHQW\WZR %($5 LQYHVWRUV KHUHLQDIWHU WKH m(VFURZ ,QYHVWRUVl  FKDOOHQJH WKH GLVWULFW FRXUWjVRUGHUWUHDWLQJD)OHHW%DQNHVFURZDFFRXQWDVD%($5 DVVHWWREHGLVWULEXWHGZLWKWKHUHVWRI%($5jVDVVHWVXQGHU WKHGLVWULEXWLRQSODQ7KLVHVFURZDFFRXQWZDVHVWDEOLVKHG ZLWK IXQGV WKDW WKH (VFURZ ,QYHVWRUV DGYDQFHG DIWHU WKH GLVWULFWFRXUWKDGHQMRLQHG%($5DQGLWVRIILFHUVDQGDJHQWV IURPIXUWKHUVROLFLWLQJRIIXQGV:H$)),50WKHGLVWULFW FRXUWjVRUGHUWUHDWLQJWKHHVFURZDFFRXQWDVD%($5DVVHW :HFRQFOXGHWKDWWKH(VFURZ,QYHVWRUVZHUHQRWGHQLHGGXH SURFHVVDQGWKDWWKHGLVWULFWFRXUWjVILQGLQJWKDWWKHHVFURZ DFFRXQWZDVD%($5DVVHWZDVVXSSRUWHGE\WKHHYLGHQFH ,%$&.*5281' %UXQDFNH\1R %UXQDFNH\D%($5LQYHVWRUDSSHDOVWKHRUGHUFODVVLI\LQJ KLPDVDQmLQVXEVWDQWLDOPDUNHWHUl8QGHUWKHGLVWULEXWLRQ  6HFXULWLHVDQG([FKDQJH&RPPjQ 1RV 1RV 6HFXULWLHVDQG([FKDQJH&RPPjQ  HWDOY%DVLF(QHUJ\HWDO HWDOY%DVLF(QHUJ\HWDO

SODQ GHYLVHG E\ WKH 5HFHLYHU DQG DSSURYHG E\ WKH GLVWULFW DFFRXQW%XWLIWKDWLVWKHFDVHWKHQLWLVDJDLQXQFOHDUZKDW FRXUWHDFK%($5LQYHVWRULVDVVLJQHGDQLQYHVWPHQWQXPEHU WKH (VFURZ ,QYHVWRUV H[SHFW WR DFKLHYH LQ DQ HYLGHQWLDU\ DQHWLQYHVWRUFODLP m1,&l DQGDQDGMXVWHG1,& m$1,&l  KHDULQJLQWKHGLVWULFWFRXUW (DFK LQYHVWPHQW LV DVVLJQHG DQ 1,& E\ VXEWUDFWLQJ DQ\ FRPPLVVLRQSD\PHQWVLQWHUHVWSD\PHQWVUHWXUQRISULQFLSDO ,QVXPWKHSURFHGXUHVXVHGE\WKHGLVWULFWFRXUWZHUHZHOO SD\PHQWVRUVLPLODUSD\PHQWVPDGHE\%($5WRWKDWDFFRXQW ZLWKLQWKHOLPLWVRIWKDWFRXUWjVHTXLWDEOHGLVFUHWLRQLQVXFKD IURPWKHDJJUHJDWHLQYHVWPHQW,QYHVWRUVDUHWKHQFODVVLILHG FDVH  7KH GLVWULFW FRXUW FRQVLGHUHG WKH HYLGHQFH DQG LQWRRQHRIIRXUFDWHJRULHVGHIHQGDQWVVXEVWDQWLDOPDUNHWHUV DUJXPHQWVSUHVHQWHGE\WKH(VFURZ,QYHVWRUVjDWWRUQH\DWD LQVXEVWDQWLDOPDUNHWHUVDQGQRQPDUNHWHUV7KH$1,&IRUDOO PRWLRQ KHDULQJ KHOG EHIRUH LVVXDQFH RI WKH  WUDQVIHU GHIHQGDQWVLQWKHXQGHUO\LQJ6(&DFWLRQLVVHWDW]HUR7KXV RUGHU  ,W SURYLGHG WKH (VFURZ ,QYHVWRUV ZLWK DPSOH GHIHQGDQWVDUHQRWHQWLWOHGWRUHFHLYHDQ\SHUFHQWDJHRIWKHLU RSSRUWXQLWLHVWRUHEXWWKH5HFHLYHUjVFKDUDFWHUL]DWLRQRIWKH 1,&V DV SDUW RI WKH GLVWULEXWLRQ SODQ  7KH $1,& IRU D IDFWVDQGWRSUHVHQWDOWHUQDWLYHFKDUDFWHUL]DWLRQV0RUHRYHU VXEVWDQWLDO PDUNHWHU GHILQHG DV DQ LQYHVWRU ZKR UHFHLYHG WKH (VFURZ ,QYHVWRUV KDYH IDLOHG WR GHPRQVWUDWH WKDW WKH PRUH WKDQ  LQ FRPPLVVLRQV  LV HTXDO WR KLV 1,& SURFHGXUHVIROORZHGSUHMXGLFHGWKHP UHGXFHGE\QLQHW\SHUFHQW7KXVVXEVWDQWLDOPDUNHWHUVDUH HQWLWOHGWRUHFHLYHXSWRWHQSHUFHQWRIWKHLU1,&VDVSDUWRI 7KLVFRQFOXVLRQLVVXSSRUWHGE\WKH)LIWK&LUFXLWjVKROGLQJ WKHGLVWULEXWLRQSODQ7KH$1,&IRUDQLQVXEVWDQWLDOPDUNHWHU LQ6(&Y)RUH[$VVHW0DQDJHPHQW//&)G WK GHILQHGDVDQLQYHVWRUZKRUHFHLYHGFRPPLVVLRQVOHVVWKDQ &LU    $IWHU HVWDEOLVKLQJ LWV DSSHOODWH MXULVGLFWLRQ  LVHTXDOWRKHU1,&UHGXFHGE\ILIW\SHUFHQW7KXV GLVFXVVHG VXSUD WKH )RUH[ FRXUW ZHQW RQ WR KROG WKDW WKH LQVXEVWDQWLDOPDUNHWHUVDUHHQWLWOHGWRUHFHLYHXSWRKDOIRI GLVWULFWFRXUWKDGQRWDEXVHGLWVGLVFUHWLRQLQGHWHUPLQLQJWKDW WKHLU1,&VXQGHUWKHGLVWULEXWLRQSODQ)LQDOO\QRQPDUNHWHUVj WKHLQYHVWRUVjVKRXOGEHWUHDWHGWKHVDPHDVRWKHU 1,&VDUHQRWUHGXFHGDQGWKXVWKH\DUHSRWHQWLDOO\HQWLWOHGWR )RUH[ DVVHWV GHVSLWH LWV WUDFHDELOLW\  6HH LG DW   7KH UHFHLYHWKHLUHQWLUH1,&VXQGHUWKHSODQ )RUH[FRXUWFRQFOXGHG

$FFRUGLQJWRWKHSUHOLPLQDU\LQYHVWRUOLVWFRPSLOHGE\WKH 7KH GLVWULFW FRXUW FDUHIXOO\ FRQVLGHUHG WKH >

Free access — add to your briefcase to read the full text and ask questions with AI

SEC v. Basic Energy, (6th Cir. 2001).

SEC v. Basic Energy (SEC v. Basic Energy) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.