378 F.3d 1211 (11th Cir. 2004), 02-13445, S.E.C. v. Calvo

Docket Nº:02-13445.
Citation:378 F.3d 1211
Party Name:SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. William A. CALVO, III, Defendant-Appellant.
Case Date:July 27, 2004
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

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378 F.3d 1211 (11th Cir. 2004)



William A. CALVO, III, Defendant-Appellant.

No. 02-13445.

United States Court of Appeals, Eleventh Circuit

July 27, 2004

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[Copyrighted Material Omitted]

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Hala A. Sandridge, Fowler, White Gillen Boggs, Villareal et al., Tampa, FL, for Defendant-Appellant.

Michael A. Conley, Eric Summergrad, Luis de la Torre, Washington, DC, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT and CARNES, Circuit Judges, and CONWAY [*], District Judge.


This appeal arises from an enforcement action brought by the Securities and Exchange Commission ("SEC") against William A. Calvo III ("Calvo"), Diversified Corporate Consulting Group ("Diversified"), Jerome E. Rosen ("Rosen"), and Joseph D. Radcliffe ("Radcliffe") for violations of the Federal Securities Act of 1933 ("the Securities Act"), and the Federal Securities Exchange Act of 1934 ("the Exchange Act").

The instant Order concerns only Calvo's appeal; Rosen and Radcliffe did not appeal and we address Diversified's appeal in a separate opinion released simultaneously herewith. Having reviewed the record and the parties' briefs, we determine that no reversible error has been shown; accordingly we affirm.


In a Complaint filed in the United States District Court for the Southern District of Florida on January 30, 2001, the SEC alleged that Calvo, Rosen, Radcliffe, and Diversified engaged in a "pump and dump" scheme involving a company known as Software of Excellence, Inc., a.k.a., Systems of Excellence, Inc. ("SOE"). Simply stated, the SEC claimed that the parties artificially pumped up the price of SOE stock only to dump it on unsuspecting investors in order to reap millions of dollars in illicit gains.

On summary judgment, the district court adjudicated Calvo and Diversified liable for the sale of unregistered securities in violation of § 5(a) and (c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c). The remaining claims against Diversified and Rosen were then tried before a jury

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which returned a verdict in favor of the SEC, finding liability for material misrepresentations in the sale of securities in violation of § 17(a) of the Securities Act, 15 U.S.C. § 77q(a), § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5.

On March 19, 2002 the district court conducted a remedies hearing in connection with the abovementioned securities laws violations. Taking into account the evidence adduced there, the court entered a judgment against Calvo and Diversified, jointly and severally, for $2,511,145.60 in disgorgement. The court also assessed civil penalties, and permanently restrained and enjoined Calvo from violating § 5(a) and (c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).

Calvo now appeals, contending that the district court erred in granting summary judgment on the SEC's § 5 claims and in formulating the remedy it imposed.



Calvo's first assignment of error charges the district court with improperly granting summary judgment on the SEC's § 5(a) 1 and (c) 2 claims; he argues that he did not participate in the sale of SOE securities so as to render him responsible for such sales.

Summary judgment is proper if the record evinces that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is material if it is one that might affect the outcome of the case. See id. When a court considers whether or not to enter summary judgment, it views all of the evidence, and all inferences drawn therefrom, in the light most favorable to the non-moving party. See Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918 (11th Cir. 1993).

In order to establish a prima facie case for a violation of § 5 of the Securities Act, the SEC must demonstrate that (1) the defendant directly or indirectly sold or offered to sell securities; (2) through the use of interstate transportation or communication and the mails; (3) when no registration statement was in effect. See SEC v. Cont'l Tobacco Co., 463 F.2d 137, 155 (5th Cir. 1972)

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3; SEC v. Friendly Power Co. LLC, 49 F.Supp.2d 1363, 1367 (S.D.Fla.1999) (accord); SEC v. Unique Fin. Concepts, Inc., 119 F.Supp.2d 1332, 1339 (S.D.Fla.1998), aff'd 196 F.3d 1195 (11th Cir. 1999) (accord).

Here, Calvo challenges only the first element of the prima facie case. On that subject, he states that "[e]ven though it was undisputed that Diversified sold unregistered SOE stock, that evidence alone was insufficient to render summary judgment against Calvo ... Calvo did not sell the securities." Appellant's Opening Brief at 18.

To demonstrate that a defendant sold securities, the SEC must prove that the defendant was a "necessary participant" or "substantial factor" in the illicit sale. See Friendly Power Co. LLC, 49 F.Supp.2d at 1371; see also SEC v. Holschuh, 694 F.2d 130, 139-40 (7th Cir. 1982); SEC v. Murphy, 626 F.2d 633, 649-52 (9th Cir. 1980). Scienter is not a consideration. Swenson v. Engelstad, 626 F.2d 421, 424 (5th Cir. 1980) ("The Securities Act of 1933 imposes strict liability on offerors and sellers of unregistered securities ... regardless of ... any degree of fault, negligent or intentional, on the seller's part") (internal citation omitted); Friendly Power Co. LLC, 49 F.Supp.2d at 1367 ("Neither negligence nor scienter is an element of a prima facie case under Section 5 of the Securities Act") (internal citation omitted); SEC v. Current Fin. Servs., 100 F.Supp.2d 1, 6 (D.D.C.2000), aff'd sub nom. SEC v. Rayburn, 22 Fed.Appx. 1 (D.C.Cir. 2001) ("Scienter is not required under section 5 of the Securities Act") (internal citations omitted).

Applying these standards, we find that the undisputed material facts amply support the district court's determination that, as a matter of law, Calvo illegally sold unregistered...

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