Sec. And Exch. Comm'n v. Platforms Wireless Int'l Corp.
| Decision Date | 27 July 2010 |
| Docket Number | No. 07-56542,09-55039.,07-56542 |
| Citation | 617 F.3d 1072 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,v.PLATFORMS WIRELESS INTERNATIONAL CORPORATION; William C. Martin; Robert D. Perry; Francois M. Draper; Charles B. Nelson, Defendants-Appellants.Securities and Exchange Commission, Plaintiff-Appellant,v.Platforms Wireless International Corporation; William C. Martin; Robert D. Perry; Francois M. Draper; Charles B. Nelson, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
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Stanley C. Morris (argued), Corrigan & Morris LLP, Santa Monica, CA, Thoms M. Brown, Kenneth P. White, and George P. Schiavelli, Brown, White & Newhouse LLP, Los Angeles, CA, for defendant-appellant and cross-appellee William C. Martin.
Daniel L. Rasmussen, Benjamin A. Nix, and Erik M. Andersen, Payne & Fears LLP, Irvine, CA, for defendant-appellant and cross-appellee Platforms Wireless International Corp.
Mark Pennington (argued), David M. Becker, Mark D. Cahn, Michael A. Conley, and Catherine A. Broderick, Securities and Exchange Commission, Washington, D.C., for plaintiff-appellee and cross-appellant Securities and Exchange Commission.
Appeal from the United States District Court for the Southern District of California, Jeffrey T. Miller, District Judge, Presiding. D.C. Nos. CV-04-02105-JTM, 3:04-cv-02105-JM-AJB.
Before: D.W. NELSON and RONALD M. GOULD, Circuit Judges, and DAVID D. DOWD, JR., Senior District Judge.*
The opinion filed on July 27, 2010, and published at 2010 WL 2902393, is AMENDED as follows.
The second sentence in the first paragraph on page 10765 of the slip opinion states:
We conclude, however, that Section 1961 provides an appropriate interest rate in this case.
The word “appropriate” is replaced with the word “inappropriate” so that the sentence now reads:
We conclude, however, that Section 1961 provides an inappropriate interest rate in this case.
This appeal concerns a civil enforcement action filed by the Securities and Exchange Commission (“SEC”). After concluding that there were securities law violations, the district court entered a final judgment under Federal Rule of Civil Procedure 54(b) pursuant to a partial summary judgment against Platforms Wireless International Corporation (“Platforms”) and William Martin (“Martin”), its former Chairman and CEO. The district court held that Martin and Platforms sold unregistered securities to the public in violation of the registration provisions of Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and that they issued a fraudulent press release in August 2000 in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. The district court ordered Platforms and Martin jointly and severally to disgorge about $1.75 million in proceeds from the sales that violated Section 5, plus almost $1 million in prejudgment interest. The court denied summary judgment on the SEC's allegations that Martin and Platforms also violated Section 10(b) and Rule 10b-5 by issuing five other press releases between May 2000 and March 2001. Martin and Platforms appeal the partial summary judgment and disgorgement order; the SEC cross-appeals the partial denial of summary judgment. We affirm the partial summary judgment and disgorgement order, and we dismiss as moot the SEC's cross-appeal.
Platforms is an Oklahoma corporation whose stock is not registered with the SEC under the Securities Act of 1933 (“Securities Act”). Since March 2000, Platforms' stock has been traded on the Pink Sheets, now known as Pink Quote, an inter-dealer electronic quotation and trading system for registered and unregistered securities.1
At relevant times Platforms was working to develop a new technology, called the “ARC System,” to provide cellular communications services to large geographic territories. Platforms represented that its ARC System would be a low-cost alternative to ground-based cellular antenna towers or satellites. The ARC System was to be comprised of two components: (1) a portable antenna payload, which would receive radio frequency signals from devices such as cellphones and consolidate and relay those signals to ground stations; and (2) aircraft to carry the antenna payload, either several airplanes flying in rotating shifts or an aerostat (a lighter-than-air aircraft). It is undisputed that Platforms never built or tested a completed ARC System, although by March 5, 2001, it had built and conducted limited ground-based testing on a prototype payload.
Between 1998 and January 17, 2000, William Martin owned and operated a sole proprietorship called Intermedia Video Marketing Company (“Intermedia”). During that time, Martin provided consulting services to Platforms as an employee of Intermedia, but he was otherwise unaffiliated with Platforms. Martin alleges that in exchange for those consulting services, Intermedia earned at least 17.45 million unregistered shares of Platforms stock but that those shares were not then issued to Intermedia.2
Martin became the Chairman and CEO of Platforms in March 2000. Before that event, in January 2000, Martin transferred his ownership interest in Intermedia to his former wife as part of a divorce settlement. Martin remained an officer of Intermedia after the transfer and continued to take actions on behalf of Intermedia, including: (1) applying for a business Visa credit card for Intermedia; (2) executing a document that authorized Martin to transfer and sell “any and all ... securities ... in the name of or owned by” Intermedia; (3) keeping open and using a joint Intermedia/Platforms checking account; and (4) selling Platforms stock from a brokerage account registered to “Intermedia Video Marketing Corp.; Attn: William C. Martin.” Martin executed some of the above documents in his capacity as Intermedia's “President” or “President and CEO.”
In August of 2000, Platforms issued a press release declaring that Platforms “Unveils New Airborne Wireless Communications ‘ZeroGravity AeroStructures.’ ” The press release described technical details and performance characteristics of five discrete AeroStructure models. When the press release was issued, Platforms had only a description of how the ARC System would operate and did not have prototypes built, nor even the money to build a prototype.
In two transactions in September 2000 and February 2001, Platforms transferred 17.45 million of the unregistered shares to Intermedia in payment for its consulting services. Three million of those shares were issued to Francois Draper, Platforms' then-Executive Vice President, Chief Operating Officer, and Chief Technology Officer. The remaining 14.45 million shares went to Benefit Consultants, a company affiliated with Charles Nelson, Platforms' Chief Financial Officer and a member of its board of directors. When the shares were issued, Intermedia executed documents transferring its “beneficial ownership” of those shares to Draper and Benefit Consultants. Platforms' General Counsel, Forrest Walworth Brown (“Brown”), issued opinion letters stating that the transfers complied with a safe harbor from Securities Act registration violations. Shortly after receiving the shares, Draper and Benefit Consultants sold them to the public.
The SEC alleges, and the defendants do not dispute, that the proceeds from Draper's and Benefit Consultants' public stock sales totaled $1,756,861. Martin testified that the shares were sold with the understanding that the money would pay for Platforms' operating expenses and other obligations, including certain employee salaries. It is not disputed that at least some of the money was thus spent.
The SEC filed this civil enforcement action in federal district court in October 2004 against Platforms, Martin, and several other Platforms officers and directors.3 The SEC alleged that Platforms, Martin, and Draper violated Section 5 of the Securities Act by selling to the public the 17.45 million unregistered Platforms securities “beneficially owned” by Intermedia.4 The SEC further alleged that the defendants committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 by issuing six materially misleading press releases between May 2000 and March 2001, including the August 2000 press release suggesting that a working ARC System had been developed when none in fact existed.5
In a series of orders, the district court granted the SEC partial summary judgment on its Section 5 claim, and on its Section 10(b) claim based on the August 2000 press release. First, in a January 2007 order, the district court granted the SEC's motion for summary judgment on the Section 5 claim. It concluded that the SEC had established prima facie Section 5 violations by showing that unregistered securities were sold to the public without an exemption. The court further concluded that because Martin controlled Intermedia at the time of the transactions, and because the defendants did not take reasonable care to assure that Intermedia was not an underwriter, the 17.45 million in stock transfers did not qualify for a registration exemption. Then, in an April 2007 order, the district court granted in part the SEC's motion for summary judgment on the Section 10(b) claims based on four of the six press releases, including the August 2000 press release, and denied summary judgment on the two remaining press releases. In a subsequent order, the district court held Martin and Platforms jointly and severally liable for the Section 5 violations and ordered them to disgorge the total proceeds from the sales, $1,756,861,...
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