Sec. v. Thompson
| Decision Date | 04 October 2013 |
| Docket Number | No. 11–4182.,11–4182. |
| Parties | SECURITIES and EXCHANGE COMMISSION, Plaintiff–Appellee, v. Ralph W. THOMPSON, Jr., Defendant–Appellant, and Robert Casey Hall; US Ventures, a Utah limited liability company; Robert L. Holloway; Duane C. Johnson; Online Strategies Group, a Delaware corporation; RCH2, a Utah limited liability company; David Story; Eric J. Wheeler; US Ventures International, a Utah limited liability company, Defendants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
OPINION TEXT STARTS HERE
Catherine A. Broderick, Senior Appellate Counsel, Securities and Exchange Commission (Mark D. Cahn, General Counsel; Michael A. Conley, Deputy General Counsel; Jacob H. Stillman, Solicitor; and Susan S. McDonald, Senior Litigation Counsel, with her on the brief), Washington, D.C., for Plaintiff–Appellee.
John J.E. Markham, II, Markham & Read, Boston, MA, for Defendant–Appellant.
Before KELLY, BALDOCK, and EBEL, Circuit Judges.
This appeal arises out of a civil-enforcement action brought by the Securities and Exchange Commission (“SEC”) against Defendant–Appellant Ralph W. Thompson, Jr., in connection with an alleged Ponzi scheme Thompson ran through his company, Novus Technologies, L.L.C. (“Novus”). The district court granted summary judgment in the SEC's favor on several issues, including the issue of whether the instruments Novus sold investors were “securities,” as that term is defined under the Securities Act of 1933 and the Securities Exchange Act of 1934 (collectively, the “Securities Acts”).
Thompson's sole claim on appeal is that the district court ignored genuine disputes of material fact on the issue of whether the Novus instruments were securities, and that he was entitled to have a jury make that determination. We conclude, under the test articulated by the Supreme Court in Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), that the district court correctly found that the instruments Thompson sold were securities as a matter of law. Exercising jurisdiction under 28 U.S.C. § 1291, we AFFIRM.
Sometime in 2000, Appellant Thompson founded Novus as a vehicle for his business ventures in China and elsewhere across the globe. According to Thompson, by 2005, his connections in China had yielded some lucrative business opportunities. Thompson's most promising prospect involved selling a quantity of biodiesel reactors to a Chinese company at a substantial profit. But before Thompson could cash in, he needed to raise $12 million to facilitate that transaction. In fact, each of Thompson's prospects in China required significant capital, of which Thompson had none.
By 2006, however, Thompson had attracted the attention of a partner, Duane C. Johnson,2 who “had some borrowing power.” Aplt.App. at 136. They began to “set about finding ways to obtain money to fund the China office for these projects.” Id. at 137. Their search ultimately led them to the doorstep of Robert Holloway, who told the pair about a proprietary algorithm he had developed for trading on the S & P 500. Holloway explained that his algorithm enabled him to guarantee his investors minimum monthly returns of five percent on their investment, but that his investors sometimes received as much as forty percent per month. Holloway conducted a real-time demonstration of the algorithm for Thompson and Johnson, and as they watched the gains “occurring on his screen,” they became believers. Id. at 141.
Thompson and Johnson's enthusiasm about Holloway's program piqued after they spoke with one of Holloway's investors, Casey Hall, who told them he had already successfully invested millions with Holloway. Hall also told Thompson and Johnson about his own real-estate based investment program, which guaranteed investors an even more enticing ten percent monthly return. At Hall's suggestion, Thompson and Johnson obtained $360,000 in investment capital through Chase Bank's small business loan program, and the two began—through Novus—to invest in both ventures. Later, Novus would also invest in yet another alleged real-estate program, Emma Golding's “Calypso,” which promised staggering monthly returns of fifteen percent on investment.3
Attracted by the prospect of such impressive returns, “friends and family” began to inquire with Thompson and Johnson about participating in these programs, and the two approached Hall about involvingother investors. However, Hall, unwilling to “deal with a lot of people's money,” insisted that Thompson acquire “loans” from “anyone interested” and invest the proceeds with Hall through Novus. Aplt.App. at 167. Holloway insisted on the same arrangement. Eager to “grow a reserve toward the $12 [m]illion needed to fund the China [b]iodiesel project,” id., Thompson undertook, through Novus, to borrow money to invest with Hall, Holloway, and later, Calypso, and by September 2006, Novus had begun transacting in the instruments at the heart of this appeal.
The boilerplate “UNSECURED PROMISSORY NOTE” (the “Instrument”), which governed the majority of the transactions between Novus and its “lenders” (the “holders”), stated in relevant part that Novus “promise[d] to [re]pay” the principal amount (Novus required a minimum “loan” of $100,000) after a term of six months, plus monthly interest of between three and five percent, depending upon whether the holder chose monthly payments or a lump sum at maturity. Id. at 246. The Instrument also stated the following:
It is expressly understood between the parties that the Borrower shall be using proceeds from the Note for further investments and it may not be financially prudent because of the market conditions to pay the principal at the end of the Note term. Therefore, Borrower shall have the option to extend the term of the Note for a period of 6 months as long as the monthly interest payments on the unpaid principal are made on a timely basis.
Id. (emphasis added). Finally, the Instrument stated on its face that it was not a security, and it bore features such as acceleration conditions, a waiver-of-presentment clause, a non-assignment clause, an attorney-fee-collection clause.4
According to Thompson, the Instrument was “not offered publicly all at once,” Aplt. Br. at 5, and “what [he] told prospective lenders varied as time passed and as our company evolved,” Supp.App. at 321. At first, Thompson simply “ma [de] referrals” to his “friends and family” so that they could take out small business loans, as he had, from Chase Bank. Id. at 213. But in so doing, Thompson would “make them aware of the money they could earn ... how [Thompson] was earning money.” Id. Eventually, Hall agreed to accept the proceeds of “loans” between Novus and Instrument holders, and so early holders “loaned funds to Novus and then [Thompson] loaned them to Casey Hall.” Id. at 230. Thompson told these early holders “the type of business that [he] was doing and what the money was used for.” Id. at 231. As “more and more people were interested in the loan program ... [Thompson and Johnson] decided to turn [the Instruments] into more of a business.” Id. at 236.
As Novus grew, Thompson fielded conference sales calls set up by a third party; he offered existing holders referral fees; he began to advertise the Instruments on Novus's web site; and by February 2007, he had begun personally touting the Instruments at shopping-mall seminars, where he would explain to prospective holders how they could liquidate equity in their homes and invest in the Instrument, which he “characterized ... as low risk,” Supp.App. at 262: he claimed that Novus's product was “more conservative than a 401(k) [or a] mortgage,” Aplt.App. at 458, extoled Novus's “reserve of cash and assets to cover any money that we borrow for six months,” id. at 479–80, and asserted that “when you put $100,000 into our program, we only use $25,000 of that” for core-business “projects”; “[t]he other $75,000,” he claimed, “we don't use,” id. at 479.
On April 11, 2007, the SEC curtailed Novus's activities when it filed a civil complaint and obtained a temporary restraining order against Novus, Thompson, Hall, Holloway, and others. All told, before the SEC shut it down, Novus made a total of 138 of its “loans” to around sixty holders.
After filing suit against Thompson and others under several civil-enforcement provisions of the Securities Acts, including 15 U.S.C. §§ 77q(a)(1)-(3), 78j(b), 77e(a) & (c), and 780(a), the SEC filed a motion for summary judgment, which the district court granted in part and denied in part. As is relevant here, the district court granted the SEC's motion on the issue of whether the Instruments Thompson and Novus sold were securities as defined under the Securities Acts, holding that they were securities as both “notes” under Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), and “investment contracts” under SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). Thompson timely filed this appeal, in which he argues only that the district court erred when it granted summary judgment on the issue of whether the Instruments Novus sold were securities.
We review a district court's grant of summary judgment de novo. Garrison v. Gambro, Inc., 428 F.3d 933, 935 (10th Cir.2005). Summary judgment is appropriate when “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). In making that determination, a court “view[s] the evidence and draw[s] reasonable inferences therefrom in the light most favorable to the nonmoving party.” Garrison, 428 F.3d at 935 (quoting Simms v. Okla. ex rel. Dept. of Mental Health & Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir.1999)).
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