S.E.C. v. Rana Research, Inc.

• Decision Date: 03 November 1993
• Docket Number: 91-55044,Nos. 90-56230,s. 90-56230
• Citation: 8 F.3d 1358
• Parties: , Fed. Sec. L. Rep. P 97,815 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. RANA RESEARCH, INC. (d/b/a Vista Group, Ltd.), Defendant-Appellant. SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. RANA RESEARCH, INC. (d/b/a Vista Group, Ltd.), Defendant; Vipin Sahgal, Defendant-Appellant; Robert H. Bretz, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1358

8 F.3d 1358

62 USLW 2304, Fed. Sec. L. Rep. P 97,815

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. RANA RESEARCH, INC. (d/b/a Vista Group, Ltd.), Defendant-Appellant.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. RANA RESEARCH, INC. (d/b/a Vista Group, Ltd.), Defendant;

Vipin Sahgal, Defendant-Appellant;

Robert H. Bretz, Appellant.

Nos. 90-56230, 91-55044.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 5, 1992.

Decided Nov. 3, 1993.

Robert H. Bretz, Marina del Rey, CA, for defendants-appellants.

Eric Summergrad, Asst. General Counsel, S.E.C., Washington, DC, for plaintiffs-appellees.

Appeal from the United States District Court for the Central District of California.

Before: NELSON, HALL and RYMER, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Rana Research, Inc. and its president/sole shareholder Vipin Sahgal ("Defendants") appeal judgments permanently enjoining them from violating section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission (SEC) Rule 10b-5, 17 C.F.R. § 240.10b-5. The district court had jurisdiction under 15 U.S.C. §§ 78u, 78aa, and this Court has jurisdiction under 28 U.S.C. § 1291.

Defendants raise numerous contentions on appeal, the majority of which we resolve in an unpublished memorandum disposition filed contemporaneously with this opinion. One claim, however, raises an issue of first impression in this circuit and on that issue we hold that the SEC need not prove reliance as an element of its case in an action to enjoin future violations of section 10(b) and Rule 10b-5.

I

Sahgal is a business and financial consultant operating through his private firm Rana Research, Inc., doing business under the name The Vista Group, Ltd. (Rana/Vista). In the fall of 1987, Sahgal became interested in Superior Industries International, Inc. (Superior), a publicly-traded company whose stock was trading on the American Stock Exchange ("AMEX") at a price range of $8 to $10 per share. Sahgal believed that the shares were undervalued, and that Superior was a good candidate for an acquisition.

Superior and Rana/Vista each used the law firm, Hill & Weiss, for legal services. Partner Ronald Givner represented Rana/Vista, and partner Marco Weiss represented Superior. Weiss was also a long-time member of Superior's Board of Directors. At Sahgal's request, Givner arranged a meeting in October 1987 between himself, Weiss and Sahgal to discuss Rana/Vista's interest in Superior. Weiss agreed to call Superior's president, Louis Borick, to see if he thought Superior might be interested in a possible transaction. Borick controlled approximately 25 to 30 percent of Superior's stock, making a transaction without his cooperation nearly impossible. Shortly after, Weiss reported to Sahgal that Borick was not interested.

In November 1987 Sahgal approached Weiss again, with a letter from Trafalgar Holdings Ltd. authorizing Rana/Vista to act as its broker in discussions with Superior. At Sahgal's request Weiss again contacted Borick to express Sahgal's interest in pursuing a transaction; again Borick stated he was not interested in a transaction. Weiss passed this message to Sahgal.

Sahgal then called an acquaintance at Prudential-Bache Securities ("Pru-Bache") in New York, to see if Pru-Bache would be interested in pursuing a transaction with Superior. Analyst Richard Groberg at Pru-Bache reviewed Sahgal's analysis of a leveraged buy out of Superior. In mid-January 1988 he brought in Larry Nathanson, a vice president in Pru-Bache's mergers and acquisitions department, to evaluate the feasibility of acquiring Superior. Nathanson stated that Sahgal gained Pru-Bache's interest by telling them he could "deliver" Borick in a friendly transaction, that he was working with a member of Superior's Board of Directors (Weiss), and that Borick was interested in a transaction and had agreed to meet with him if he had financing. Absent such cooperation by Superior, Pru-Bache would not have entertained the possibility of doing a transaction. Groberg and Nathanson also testified that they explained to Sahgal the procedure for authorizing Pru-Bache's involvement, which consisted of review by several committees following meetings with the target company's management. They stated that they made clear to Sahgal their lack of authority to commit Pru-Bache to a transaction prior to these events.

Nathanson worked with Sahgal to refine Sahgal's analysis of the Superior acquisition and expressed Pru-Bache's willingness to participate in a transaction. At Sahgal's request, Nathanson agreed to send an introductory letter to Borick at Superior, expressing in a general way Pru-Bache's interest in participating in a transaction. Nathanson understood that Sahgal was to hand-deliver it in a meeting Sahgal was to have with Borick. Nathanson sent the signed letter on Pru-Bache letterhead to Sahgal for hand delivery to Borick. Sahgal did not meet with Borick; instead Rana/Vista had the letter delivered by messenger with a cover letter from Rana/Vista.

Borick responded two days later by telephone, confirmed by letter (which Sahgal adamantly denies receiving), that Superior had no interest in being acquired or in a management-led leveraged buy out. Sahgal told Nathanson that Borick wanted an offer price in order to evaluate the letter. He did not disclose that Borick had rejected his overture. At Sahgal's request, Nathanson agreed that Rana/Vista and Pru-Bache would communicate a price to Borick. Sahgal characterized the price as a "firm price," and the offer subsequently conveyed as a "firm price offer," although he understood that the transaction itself was subject to contingencies and that the price was subject to adjustment. Nathanson regarded it as merely a preliminary indication to Superior of Pru-Bache's degree of interest.

The letter Nathanson authorized stated that Rana/Vista "along with Prudential-Bache Securities, Inc. and its affiliates are prepared to offer sixteen dollars per share, payable in cash, to all of the shareholders of Superior Industries International, Inc." (Emphasis added.) It also stated that the offer was based solely on public information; that they wanted to meet with the company and would revise the bid if warranted by the company's internal business plans; that the offer was conditioned on legal and financial due diligence; and that they were "prepared to commit the resources" to do the deal quickly. The letter was sent to Borick on Monday morning, February 8, 1988.

Around noon that day, Sahgal asked his office manager Barbara Blackmore to write a press release, using the information in Pru-Bache's introduction letter, Rana/Vista's cover letter and the joint offer letter. Sahgal claimed he believed the offer had to be disclosed to the market, but also admitted he wanted to pressure Borick to present the offer to Superior's board of directors. Sahgal reviewed the release and made no significant changes in it; near close of business on February 8, Blackmore sent the release by fax to various news services. The press release stated:

New York based Prudential-Bache Securities, Inc. and Los Angeles based The Vista Group, Ltd. announced today that they had made a firm offer in a letter to Mr. Louis Borick, Chairman of the Board and President of Superior Industries International, Inc., to acquire all of the outstanding stock of Superior Industries International, Inc. at $16.00 per share in a leveraged buy-out transaction. "Such a transaction would deliver to the shareholders of Superior a significant premium over the current market value of their shares" said Vipin Sahgal of The Vista Group, Ltd. Prudential-Bache Securities, Inc. and The Vista Group, Ltd. stated they have ample resources available to effectuate the transaction quickly.

The news appeared on financial news services around 8:00 a.m. on Tuesday, February 9. The AMEX suspended trading in Superior's stock, and no shares were traded on February 9.

During the course of the day, Rana/Vista, Pru-Bache, and Superior made numerous statements to the media. Pru-Bache first issued a statement denying any involvement with Rana/Vista. In answer to various media inquiries, Rana/Vista confirmed the information in its previous release. Superior issued a statement acknowledging a communication from Rana/Vista and Pru-Bache, but denying it was engaged in discussions or had signed a letter of intent. Pru-Bache later issued another statement acknowledging some involvement with Rana/Vista, but declaring the relationship terminated. At the close of business on February 9, Rana/Vista issued the following release:

Vista Group Ltd. intends to pursue the acquisition of Superior Industries.

Representatives of Vista will seek to meet with Superior Industries to discuss the proposed acquisition and with Prudential-Bache Securities, Inc. to determine Prudential-Bache's interest, if any, in participating with Vista in the proposed acquisition. A legal representative of Prudential-Bache has indicated that he does not believe that Prudential-Bache is interested in meeting with Vista to further discuss the proposed acquisition.

Vista's plans are subject to the availability of financing, customary due diligence and compliance with applicable securities laws.

Vista intends to issue a further statement following its proposed meetings with Superior and Prudential-Bache.

On February 10, AMEX reopened trading in Superior's stock. The stock price surged upward on strong volume, opening at $15.00 per share. It had closed at $11.50 on February 8. By the close of the day, the price had dropped to $13.625, still substantially above the pre-announcement price. Neither Sahgal nor Rana/Vista, nor Pru-Bache, purchased or sold any Superior securities.

The SEC filed a complaint seeking permanent injunctive relief against the Defendants, alleging that the initial press...