S.E.C. v. Rogers
| Decision Date | 03 June 1986 |
| Docket Number | No. 85-5841,85-5841 |
| Citation | 790 F.2d 1450 |
| Parties | Fed. Sec. L. Rep. P 92,763 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Gerald L. ROGERS; International Exchange, S.A.; Compagnie Miniere Paul Isnard, S.A.R.L.; Diversiones Internacionales, S.A.; Norsul Oil Mining, Ltd.; Wayne E. Fowler; Paula Molina d/b/a Telecom, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
David A. Sirignano, S.E.C., Washington, D.C. for plaintiff-appellant.
Pierce O'Donnell, O'Donnell & Gordon, Los Angeles, Cal., for defendants-appellees.
Appeal from the United States District Court for the Central District of California.
Before PREGERSON, BEEZER, and NOONAN, Circuit Judges.
The Securities and Exchange Commission ("SEC") appeals from the district court's finding that appellee Gerald Rogers did not substantially participate in three public offerings of tax-shelter investments promoted by International Monetary Exchange, S.A. ("IME"). The SEC charged Rogers with selling unregistered securities in violation of section 5 of the Securities Act of 1933 ("the 1933 Act"); using fraudulent practices in the sale of securities in violation of section 17(a)(1) of the 1933 Act and section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC also charged Rogers with aiding and abetting violations of the antifraud provisions of the securities laws. After a bench trial, the district court entered judgment in favor of Rogers on all charges.
IME is a Panamanian organization specializing in the promotion of tax-shelters. In annual public offerings from 1978 through 1980 in the United States, IME promoted tax-shelter investment programs called "Gold for Tax Dollars" (GFTD). These programs involved mining rights to gold-bearing properties in Panama (in 1978) and French Guiana (1979-80). In each of the three years of the GFTD offerings, thousands of United States investors were solicited by direct mail, telephone, newspaper advertisements, and investors' seminars. Hundreds of sales persons and brokers were engaged in GFTD sales activities.
In 1975 the Panamanian government awarded Concession No. 35 for placer gold mining to Tuquesa Mining, S.A. (TMSA). TMSA was controlled by Tylor F. Kittredge, an experienced American geologist who had explored the area over a six year period and had written numerous geological and assay reports for the Panamanian government. These reports represented In early 1978, Kittredge met Gerald Rogers, who was acting as an agent for a company called Diversiones Internationales, S.A. (DISA). On the basis of Kittredge's representations, Rogers, who was not a geologist or mining engineer, leased for DISA the right to mine gold on Concession No. 35.
that commercial quantities of gold existed in Concession No. 35.
In 1978, when IME introduced the GFTD program, DISA agreed to sublease its rights in Concession No. 35 to IME. Although investors had the right to mine their own lots individually and select their own mining contractor, most chose IME as their agent. IME then entered into contracts with Tuquesa Amalgamated, S.A., a Panamanian company, which was to arrange for the development of the investor's individual tract. IME selected Norsul Oil and Mining Ltd., a public Canadian company, as the overall mining contractor for those investors who designated IME as their agent. 1
DISA and Norsul entered into a joint venture agreement on June 18, 1979, in which DISA retained Norsul to operate Concession No. 35. Dr. Wayne E. Fowler, president of Norsul, relied on Kittredge's reports in making his projections concerning the future recovery of gold.
Because Kittredge was disappointed that his company, TMSA, was not selected as the overall mining contractor, he interfered with Norsul's efforts to mine the property. Further, TMSA and Kittredge opposed the efforts by DISA and Norsul to qualify to develop and mine Concession No. 35. Notwithstanding these repeated interferences, DISA and Norsul were able to obtain the necessary financial and technical approvals for their mining plan from the Panamanian government by February 1980.
In 1980, Norsul began mining the Concession. However, Norsul's mining efforts were hampered by adverse weather conditions and severe flooding. Norsul continued to encounter constant harassment from Kittredge, government-ordered work stoppages at Kittredge's instigation, and threats of law suits from Kittredge.
By late 1980, it became clear to DISA and to Norsul that Concession No. 35 would not be profitable for investors because Kittredge had grossly exaggerated the quantity and quality of gold present. The representations and estimates in Kittredge's promotional brochure were erroneous. Instead of 125 million cubic meters of gold-bearing gravel with a grade of 0.77 gms, the Norsul mining operation showed that the quantity of gold-bearing gravel was small and the actual grade was poor. At trial, Kittredge appeared as a key witness for the SEC and admitted that he had falsified his geological reports in numerous material respects. 2 The district court found that Norsul had conducted a professional mining operation on the Concession and that failure of the operation was not attributable to Norsul or DISA.
In March 1981, the Panamanian government cancelled the Concession, citing its unprofitability and the alleged violation by DISA of a Panamanian mining code provision (Article 100A) requiring prior government approval before the public dissemination of information about the value of a mining Concession. 3 IME notified investors of the cancellation of the Concession and offered them the opportunity to have their investments transferred to another placer gold mining claim outside of Panama.
In early 1979, DISA, represented by its agent Rogers, acquired from an American, William DeNicolo, a 94% interest in Companie Miniere Paul Isnard, S.A.R.L. (CMPI, S.A.R.L.). CMPI, S.A.R.L. held the Paul Isnard placer gold mining concession in French Guiana. Earlier geological studies prepared by the French government and by an American experienced in placer gold mining, James Knapp, confirmed that the Paul Isnard gold concession was very valuable and contained millions of tons of gold in alluvial deposits. In 1979 and in 1980, CMPI, S.A., a Panamanian corporation acting on behalf of CMPI, S.A.R.L., entered into sublease agreements for individual claims or lots with investors found by IME. Using a format similar to the Panamanian GFTD program, investors were offered the opportunity to lease designated mineral claims or lots in exchange for advance payment for all development expenses. IME sold gold options, having a term of approximately seven years, for the investors.
In April 1979, Norsul entered into a management agreement with CMPI, S.A.R.L., to serve as technical supervisor for the mine. Norsul prepared a development plan, ordered millions of dollars worth of advance mining equipment, hired an extensive American and local work force, and completed in one year an 85-mile jungle supply road. At the time of the trial, development and extraction had been ongoing at Paul Isnard since 1979. The French Guiana Bureau of Mines and the Bureau de Recherche Geologique et Miniere supervised the mining activities of the Paul Isnard concession. Under DISA's direction, the gold production at the Paul Isnard concession exceeded the predictions made by the French and American geologists. The profit potential, based on expert evaluation, was excellent. 4 The district court concluded that the mining operation at the Paul Isnard concession was "professional."
The SEC brought charges against Rogers and nineteen other individual and corporate defendants alleging (1) that the GFTD mining investments in both Panama and French Guiana were securities that should have been registered with the SEC under section 5 of the 1933 Act, 15 U.S.C. Sec. 77e; (2) that Rogers engaged in the sale of these unregistered securities without registering as a broker or dealer; and (3) that Rogers and other defendants had violated the antifraud provisions of the securities laws, section 17(a)(1) of the Securities Act of 1933, and section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Secs. 77q(a)(1) and 78j(b), by making false and misleading statements in connection with the Panamanian venture, and by failing to disclose material information to the investors.
Seven months before the trial, on June 19, 1981, the district court issued, at the SEC's request, a letter rogatory to the government of Panama asking that various former officers of IME and DISA be deposed. The Panamanian Government granted this request with respect to Mireye Uribi Prada, a former president of DISA and secretary of IME, on May 11, 1982. Immediately, the SEC moved the district court to permit it to supplement the record after taking Prada's deposition. The district court, which had been trying the case for about five weeks, denied the SEC's request on May 13, 1982.
We review a district court's decision to grant or deny injunctive relief as to a particular defendant for abuse of discretion or for application of erroneous legal principle. SEC v. Goldfield Deep Mines Co. of Nevada, 758 F.2d 459, 465 (9th Cir.1985).
We ...
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