Sec. & Exch. Comm'n v. e-Smart Techs., Inc.
| Decision Date | 30 March 2015 |
| Docket Number | Civil Action No. 11–895 JEB |
| Court | U.S. District Court — District of Columbia |
| Parties | Securities and Exchange Commission, Plaintiff, v. e–Smart Technologies, Inc., et al., Defendants. |
Kenneth John Guido, Jr., Daniel Joseph Maher, U.S. Securities & Exchange Commission, Washington, DC, for Plaintiff.
Mary A. Grace, Boulder, CO, pro se.
Tamio Saito, Japan, pro se.
Robert J. Rowen, Sebastapol, CA, pro se.
This long-running case features a civil-enforcement action brought by the Securities and Exchange Commission, alleging that e-Smart Technologies, Inc., a public company, was a sham. While it purported to be at the cutting edge of developing and manufacturing a biometric “smart” card, such claims, according to the Commission, were pie in the sky. In fact, pro se Defendants Mary Grace (the company's CEO) and Tamio Saito (its Chief Technology Officer) repeatedly misrepresented the cards' capabilities to investors. This Court, having granted summary judgment to the SEC on most of its claims against Grace, turns now to its allegations concerning Saito.
The Commission moves for summary judgment on both counts asserted against him—namely, that (1) he violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b5 by making material misrepresentations in connection with the sale of securities, and that (2) he violated Section 16(a) of the Act by failing to file required ownership statements. Saito both opposes and cross-moves for summary judgment on these claims. Resolution of these motions, in turn, requires the Court to rule on the parties' dueling independent motions to exclude the others' expert reports. Having waded through the extensive submissions—including Saito's, which are particularly resistant to sensible interpretation—the Court ultimately believes that the SEC has proven its case. It will thus grant the Commission's Motion for Summary Judgment and deny Saito's.
This Court has already described much of the relevant background of this case in previous lengthy Opinions. See SEC v. e-Smart Technologies, Inc. (E–Smart I), 31 F.Supp.3d 69, 74–78 (D.D.C.2014) ; SEC v. e-Smart Technologies, Inc. (E–Smart II), No. 11–895, 82 F.Supp.3d 97, 100–02, 2014 WL 6612422, at *1–4 (D.D.C. Nov. 21, 2014); SEC v. e-Smart Technologies, Inc. (E–Smart III), No. 11–895, 74 F.Supp.3d 306, 311–15, 2015 WL 583931, at *1–2 (D.D.C. Feb. 12, 2015). It therefore summarizes only the basic underlying facts here and sets out more details where relevant in the subsequent analysis. See Section III, infra . In so doing, the Court is aware that, on a motion for summary judgment, it must view the facts in the light most favorable to the non-moving party.See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As explained more fully later on, however, the filings Saito has styled “Statements of Fact” are an often-impenetrable pastiche of passages from emails, reports, and unidentified documents interspersed with commentary. As a result, to summarize the relevant background, the Court draws primarily from undisputed documents and its prior Opinions.
E–Smart was a publicly traded company “engaged in the business of creating, marketing, manufacturing, installing, operating and maintaining biometric identification verification systems.” Pl. Mot., Att. 1 (2006 10–KSB) (ECF No. 388–4) at 3. According to its public filings, its “core technology” was a “state-of-the-art Super Smart Card and Biometric Verification System ... designed to accomplish immediate, local recognition of a person's fingerprint.” Id. at 4. Key to e-Smart's card was “an on-board biometric matching engine,” which enabled it to “perform identification verification without reference to any external database.” Id. According to e-Smart, this technology could be applied in a variety of contexts—such as banking or security access—to verify people's identities and protect personal information contained on, or accessed by, the cards. Id. This, e-Smart claimed, represented a unique and highly lucrative technology. In representations to investors, it claimed to be “the first ... [and] only company offering a commercially available [contact] ... and ... [wireless] ... smart card with a fingerprint sensor onboard, biometric matching engine onboard and a multi-application processor....” Id. at 5.
Notwithstanding these reported achievements, the company struggled to stay afloat. It had little revenue and depended continuously on investors for more funds. See E–Smart III, 82 F.Supp.3d at 101–02, 2015 WL 583931, at *2. E–Smart frequently assured such investors that significant contracts and investments were just around the corner, and its press releases echoed this theme. Id. The purported contracts and investments almost never seemed to materialize, however, and many investors later felt that they had been deceived. Id.
Agreeing, the SEC brought this civil-enforcement action on May 13, 2011, against several Defendants including e-Smart and its CTO, Tamio Saito. Id. The crux of the SEC's Complaint against Saito is that, in his role as the principal architect of e-Smart's technology, he repeatedly lied about the actual capabilities of any product that e-Smart had produced. Although he claimed that the company had a highly functional smart card that was ready for commercial deployment, e-Smart had in fact only developed a prototype that did not even work as promised. Based on these allegedly false statements, the Commission claims that Saito violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b–5 by making material misrepresentations in connection with the sale of securities. See First Am. Compl. (ECF No. 169), ¶¶ 113–15. It also alleges that he violated Section 16(a) of the Act by failing to file certain required ownership statements. See id., ¶¶ 127–29.
As a remedy, the SEC seeks disgorgement and civil penalties. See id. at 30–31 (Prayer for Relief). It also seeks an injunction prohibiting Saito from participating in penny-stock offerings, serving as an officer or director of certain issuers of securities, and engaging in further securities violations. Id. As mentioned previously, the Court has already granted summary judgment to the SEC on the lion's share of counts related to CEO Mary Grace.See E–Smart II, 74 F.Supp.3d 306, 2014 WL 6612422 ; E–Smart III, 82 F.Supp.3d 97, 2015 WL 583931. It is now Saito's turn in the spotlight.
Summary judgment may be granted if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a) ; see also Liberty Lobby, 477 U.S. at 247–48, 106 S.Ct. 2505 ; Holcomb v. Powell, 433 F.3d 889, 895 (D.C.Cir.2006). A fact is “material” if it is capable of affecting the substantive outcome of the litigation. See Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505 ; Holcomb, 433 F.3d at 895. A dispute is “genuine” if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. See Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) ; Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505 ; Holcomb, 433 F.3d at 895. “A party asserting that a fact cannot be or is genuinely disputed must support the assertion” by “citing to particular parts of materials in the record” or “showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed. R. Civ. P. 56(c)(1).
When a motion for summary judgment is under consideration, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [his] favor.” Liberty Lobby, 477 U.S. at 255, 106 S.Ct. 2505 ; see also Mastro v. PEPCO, 447 F.3d 843, 850 (D.C.Cir.2006) ; Aka v. Wash. Hosp. Ctr., 156 F.3d 1284, 1288 (D.C.Cir.1998) (en banc ). On a motion for summary judgment, the Court must “eschew making credibility determinations or weighing the evidence.” Czekalski v. Peters, 475 F.3d 360, 363 (D.C.Cir.2007). The non-moving party's opposition, however, must consist of more than mere unsupported allegations or denials and must be supported by affidavits, declarations, or other competent evidence, setting forth specific facts showing that there is a genuine issue for trial. See Fed. R. Civ. P. 56(e) ; Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-movant is required to provide evidence that would permit a reasonable jury to find in its favor. Laningham v. Navy, 813 F.2d 1236, 1242 (D.C.Cir.1987). If the non-movant's evidence is “merely colorable” or “not significantly probative,” summary judgment may be granted. Liberty Lobby, 477 U.S. at 249–50, 106 S.Ct. 2505.
Before resolving the substantive issues raised in the parties' Cross–Motions for Summary Judgment, the Court must attend to two threshold issues: the significant deficiencies in Defendant's filings and the parties' competing Motions to Strike expert reports. After clearing away this underbrush, it will then turn to the SEC's contentions against Saito—namely, that the undisputed material facts demonstrate that: (1) he violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b–5; and (2) he violated Section 16(a) of the Act.
The Court is once again astonished by the filings in this case. Defendants have been warned that pleadings should not “feature every font available in Microsoft Word and every color in the rainbow, with cut-and-paste e-mails and other outside materials sprinkled throughout the legal argument without demarcation.” E–Smart I, 31 F.Supp.3d at 85–86. “Further filings,” the Court has stated bluntly, “should satisfy the basic demands of readability.”Id. at 86. Saito's filings—whether styled as memoranda, statements of fact,...
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