Securities & Exchange Comm'n v. Banner Fund Int'l
| Citation | 211 F.3d 602 |
| Decision Date | 04 April 2000 |
| Docket Number | No. 98-5235,98-5235 |
| Parties | (D.C. Cir. 2000) Securities and Exchange Commission, Appellee v. Banner Fund International, et al., Eddie R. Blackwell, Appellant |
| Court | United States Courts of Appeals. United States Court of Appeals (District of Columbia) |
[Copyrighted Material Omitted]
[Copyrighted Material Omitted] Appeal from the United States District Court for the District of Columbia(No. 94cv00342)
Afton Jane Izen argued the cause and filed the briefs for appellant.
Mark R. Pennington, Counsel, Securities & Exchange Commission, argued the cause for appellee. With him on the brief were David M. Becker, Deputy General Counsel, Eric Summergrad, Assistant General Counsel, and Nathan A. Forrester, Attorney. Jacob H. Stillman, Solicitor, entered an appearance.
Before: Ginsburg and Randolph, Circuit Judges and Buckley, Senior Circuit Judge.
Opinion for the court filed by Circuit Judge Ginsburg.
The district court entered a summary judgment against the appellant, Eddie R. Blackwell, and against Lloyd R. Winburn and Swiss Trade & Commerce Trust, Ltd., on the complaint of the Securities and Exchange Commission that the defendants violated the anti-fraud and registration provisions of the securities laws of the United States. The district court enjoined the defendants from committing further violations, and ordered them to disgorge $6.5 million plus prejudgment interest, to provide a sworn accounting of their assets and of financial activities related to the Banner Fund Program, and to repatriate assets received from investors.
On appeal Blackwell argues that: the district court lacks subject matter jurisdiction over the case and personal jurisdiction over him; the district court should have abstained under principles of international comity; he did not violate the securities laws of the United States because the interests Swiss Trade sold were not securities; and neither summary judgment nor the relief granted the SEC are warranted. Some of Blackwell's arguments are not properly before this court; the others are without merit. We therefore affirm the judgment of the district court.
Blackwell and Winburn created Banner Fund International as a unit trust under the laws of the Jersey Islands in 1992.At about the same time, they began actively operating Swiss Trade, a limited liability company they had organized under the laws of Aruba. In 1993 they moved Swiss Trade to Belize City, where they established it as a Belizean International Business Company. Winburn served as Chairman of the Board and President of Swiss Trade and managed its daily operations, while Blackwell oversaw operations at several of Banner Fund's investments, including a shrimp farm located in southern Belize, where he spent most of his time.
Swiss Trade solicited funds from investors in the United States by means of a brochure and a one-page application form touting the "Off Shore Banner Fund International Arbitrage Program." Upon receiving an application and a check representing funds for investment, Swiss Trade exchanged the investor's money for a beneficial interest in Banner Fund. Instead of issuing the beneficial interest to the investor directly, however, Swiss Trade placed it in an irrevocable individual trust created under Belizean law (which Swiss Trade branded an "Endeavor Trust") naming Swiss Trade as the Trustee, Banner Fund as the settlor, and the investor as the beneficiary. The individual investor was not a party to the Endeavor Trust agreement and was not ordinarily apprised of the terms of the trust arrangement prior to investing. Swiss Trade had absolute control over the trust assets, including the right to refuse to return the investor's money. Swiss Trade did not register the beneficial interests in Banner Fund with the SEC.
The brochure advertising Banner Fund, drafted by Winburn and reviewed by Blackwell, was directed at low income individuals to whom Blackwell privately referred as "Joe lunch bag[s]." Their brochure represents that the Banner Fund Program will use leverage, which it describes as "borrowing against your assets at good multiples on favorable terms and [at] low interest," and arbitrage, which it describes as "the art of purchasing in one market for the [sic] immediate resale in another market," to "allow[ ] the little guy to take advantage of" deals previously available only to "insider[s]." Claiming that Banner Fund is an independent investment fund with "strong bank connections, knowledge of the market and the workings of the insider's [sic] deals," the brochure promises to "put[ ] individual small investors together with others to leverage their funds to a point where they can participate." The brochure ends with a catalogue of the purported benefits of the Banner Fund Program, including a promise that Banner Fund would return any investment "[a]ny time after the first 180 days," and a hypothetical demonstration of how $5,000 invested in Banner Fund could grow to more than $25,000 in one year.
Initially Swiss Trade disseminated the brochure through Opportunity Seekers, an organization whose members are engaged in multilevel marketing in the United States. Later Winburn established the Fulfillment Center in Beaumont, Texas, which was organized as a trust under the laws of Delaware, to distribute brochures and other information related to Banner Fund. An investor in Banner Fund received $50 for each new participant he recruited, plus 20% of the new recruit's earnings from Banner Fund. Swiss Trade, which received 10% of each new recruit's earnings, sold packets of brochures and applications to investors who were interested in soliciting new members for the Banner Fund Program.
In order to help launch the referral system, Blackwell signed a letter (which he says Winburn wrote) urging each investor in Banner Fund to recruit ten new participants; he also aided the marketing team by giving them a chart showing how a $200 investment in Banner Fund could grow to $1,741 in one year. The marketing efforts reached people in 48 states, the District of Columbia, and several foreign countries. Eventually, Banner Fund attracted approximately 10,000 investors, mostly from the United States, and raised about $6.5 million dollars.
Swiss Trade sent monthly newsletters and account statements to investors. In the newsletters it emphasized Banner Fund's liquidity, stating, for example, that "[t]he investment staff know that they must have funds in easily liquidated instruments in anticipation of any needs [an investor] might have to withdraw." Swiss Trade also used the newsletters to reassure investors that the Fund would be "leveraging to the maximum" by the end of 1993.
Swiss Trade deposited funds received from investors in the Banner Fund Program into its bank accounts in California, where they were commingled with Swiss Trade's general operating funds; that is, Swiss Trade used the same accounts to pay creditors and investors. Although Blackwell, Winburn, and Swiss Trade have refused on the basis of Belizean trust law to provide an accounting of the investors' funds, the SEC has traced more than $4.7 million of those funds. Three examples of its findings are particularly relevant to this appeal because they demonstrate Blackwell's involvement in the Banner Fund scheme.
First, Swiss Trade lent investors' money to Commonwealth Overseas, Ltd., a Belizean company, which in turn purchased the shrimp farm. After Blackwell had moved to the farm and well after the district court had ordered Swiss Trade to freeze its assets, Winburn and Blackwell caused Commonwealth Overseas to sell the farm to Sweetwater Investments, A.V.V., a company owned by Blackwell, for $3.2 million payable to Swiss Trade over five years. Second, a trust in which Swiss Trade had invested money intended for the Banner Fund Program lent $4,500 to Blackwell's daughter for college tuition; neither Blackwell nor his daughter ever repaid the loan. Finally, Swiss Trade put $120,000 into a trust that Blackwell controlled and that he used to purchase the house in which his family resides in Texas. Although Blackwell signed a note for the $120,000, he has not made any payments.
In February 1994 the SEC brought suit in the district court against Blackwell, Winburn, Swiss Trade, and several other defendants involved in the Banner Fund venture. The district court entered a temporary restraining order directing the defendants to freeze their assets, to account for and to repatriate funds received as part of the Banner Fund Program, and to stop soliciting or accepting new investors. One day later the SEC obtained from the district court a Letter of Request asking the courts of Belize to help in getting discovery of documents and of witnesses. On March 2, 1994 the SEC's attorney in Belize obtained an ex parte order from a Belizean court implementing the Letter of Request, as a result of which many documents relating to Banner Fund were placed in the custody of the Belizean court. On March 7 the district court issued a preliminary injunction extending the relief granted in the temporary restraining order. Contrary to the orders of the district court, Swiss Trade continued to solicit investors and to pay creditors, clients, and employees.
Blackwell and his co-defendants challenged the ex parte order of the Belizean court and in January 1995 the court reversed its decision implementing the Letter of Request. The Belizean court ordered that the documents remain in its custody, however, pending the outcome of the SEC's appeal. In December 1995, Blackwell and Winburn obtained a Belizean court order appointing Unicorn Trust, Ltd., a Belizean company, the successor to Swiss Trade as trustee for all the Endeavor Trusts, and directing Unicorn Trust to dissolve the trust of any beneficiary who so desired.
Meanwhile back in district court the SEC and Blackwell filed cross motions for summary judgment....
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