eliminate us on this case why don't you take a minute or two and get settled and then perhaps someone can tell me how the argument may be divided between between the different counsel if you stretch our time limit a few somewhat but not too much so with life each side trying to handle it in twenty minutes but it's my colleagues want to go along with an additional time to try to do where that that term come from very good that term was agreed upon by all parties as to just give the song name to get her and she ate the acar partners from a whole series about thirteen or nineteen other third leg of a triangle well you said what that did the my thinking or even a word partners and the implication is that there's a whole bunch of partnership law involved and i take it that by the time i got through i was convinced there was none and that partners was really a complete misnomer it is in fact there is no partnership lawful it wasn't very helpful face value and the other thing to happen to me and i'll just give you this is the free legal advice there are a whole bunch of defendants and i get a whole bunch of red briefs and i get a lot of repetition and this court  retirement system very quickly let me run through that since we're all limited time this morning that the defendants have argued collectively although i'm well not refer to them as business partners but what they refer to collectively there's very much your honor the deeds if you read their briefs which i will say was repetitious yet each one argued that we are trying to rewrite central bank so we can put that issue to bed we are not back they were a passive player in the whole central bank scheme the claim against them is very significant the claim that went to the u s supreme court out of the tenth circuit was the outcome of this case but let me go from the difference between central bank in this case and make it absolutely clear the difference is that you read that he actually committed what all regal lacks in other words the roundtrip transactions the through turn around of money of the swaps the pyramid scheme everything they were involved in was legal but it was the home store that committed the illegal act including out the information to the public having said that let me come to the defense of the district court judge just quickly this case was filed in los angeles in the central district some years ago it languished before four different judges the cross at the time you'll recall there was a problem with whether or not excuse me some bacon since there was a massive caseload in the central district to los angeles where it now sits no trial no disposition it now sits waiting for the criminal trials to move ahead so for purposes of this appeal we're at the very beginning of may of two thousand homestar into entered into an agreement with a oh well this is all before discovery now mind you she pointed out in great detail health three point nine million shares were transferred to home store in return for a round trip event she pointed out quote that the agreement received a great deal of news coverage and analysts predicted home store would exceed its stock price another word she went on to say as through detailing each and every act should concluded that these were very serious matters and said quote if i just read this this actually they committed were legal but if they weren't legal they didn't tell the public about if he minds me of what you just said judge various intermediaries to facilitate the circular flow of money money from home store to the various intermediaries these roundtrip transactions and the accompanying circular flow now when i read their briefs they are now claiming that they really didn't mean to argue to judge peckman that they were quote in a special relationship because of page ten thirty of her decision what cooper doesn't tell you central bank does when it uses the language including accountants lawyers and bankers and judge peckman quote cooper a stablish is that's aiding and abetting on not a quick point and other words what this court said the ninth circuit is that defined in any meaningful way in addition there is no indication that the liability for participation in a scheme can extend the on the quick federal officers who not so she got hung up on the argument that they made below in briefs this high that there had to be a special relationship her or you had to be an accountant or a lawyer or a bank as the supreme court said using the word including obviously they were just saying that there could be many difference because the statute on its face any person less date as we stand before you the briefs filed before you they now say well we really didn't mean that and now they concede that that's not the law because now they concede that any person means any person but  now they do say it's however she was right for a different reason and let me come to the different reason which is part two of the answer of your question directly because they admit she was wrong on special relationship now she goes to park to further this scheme i'm going to quote her the court holds that other actors investors and they asked for are secondary violators and you just break that down in other words she said that they couldn't be primary violators because they didn't were not in a special relationship stock was doing now she goes on to say and that's her rationale for a special relationship now she goes on to say that we quite image of statement or mission she starts questioning  they stated quote however we never have been at the crime but we were crazy at the time because the plaintiffs suffered no damage from us because grief of video well quote that the plaintiffs did not rely upon the spam that was going on behind the scenes it relied upon a statement well unfortunately we know that there was a tragedy that happened in the two hundred forty four pages we know that as they even point out put out a joint press release explaining on november twentieth two thousand two thousand october twentieth excuse me they put out a press release about a deal they did a joint they put out another statement saying how great their earnings are now they got rid of move on dot com that is found in the paragraphs as set forth in the complaint  now let me just conclude and save my time by saying that substantial participation which is the test which they really can't contest because they were involved in the triangles in the swaps which they now admit will tell that substantial participation or intricate involvement in the preparation a fraudulent statement is grounds for primary liability even though that participation might not lead to the act is actual nathan of the statements language of one of the other of those paragraphs quote a course of business which was fraudulent i guess i come back to and i'll close and save my time the evidence is i'm sorry run which would be controlled by central banks if we were in a situation of where we played aiding and abetting and the facts on the show that by the way i might at central bank says clearly it had to stop in your case this very ninth circuit held in webster seventy nine f third seven seven six and i apologize profusely if that's not in the significant issue because that's what the f c c talks about in mary c brief you can't get any more direct than webster at page seven eighty seven in its language and i am apologetic to tell you what the defendants lead judge peckman the believers of ahead of your statement are always made by the defendant or you couldn't be a primary defendant that's just wrong sure well as we discussed in our case the us supreme court and clearly that is not the situation no statement is needed however if you participate in the scam that leads to a statement it is with that unless you have the questions of me i thank you very much and i will save my their business partners as it's alleged that they were entering into business transactions with home store i also want to make a on thing clear at the beginning mr pritchett referred several times to what the defendants have allegedly admitted in this case where at the motion to dismiss in our view this case involves a straightforward application of central bank and this court's opinions applying central bank and distinguishing primary liability from aiding and abetting liability in cases involving misrepresent misrepresentation misrepresentation in central bank the supreme court construe in the text of section ten b so two important things one that there's in a material an important distinction between a primary act that violates the securit laws and simply aiding and abetting someone else and the court held that in a private civil action which this is there is no liability for aiding and abetting there is only a liability for primarily the primary acts in cont people who don't actually make misrepresentations might not be held liable in misrepresentation cases and congress said no congress said among other things it was worried about frivolous shareholder lawsuits and it said it will allow the  to pursue aiding and abetting claims but we won't allow private civil aiding and abetting actions and we would submit that this is a clear example of allegations involving simply aiding and abetting and not a primary violation i want to turn to what conduct is actually alleged here and i think that's important and i don't think it were adequately covered in the prior argument and i also want to point out there was the conductivity issue here that primarily liable it's because they have a significant relationship but she did not in any way say that there was stuff per se test under which only those people with so called special relationships or significant relationships can be held liable she focused on the actual conduct that was alleged so what was alleged here this is a case about misrepresentations made by home store to home store investors relating to home stores financial st that those misstatements and those misstatements alone caused harm to host or shareholders because they affected the price of homes or securities it's not alleged that my client or the other defendants here made any misrepresentations to home store investors or have any duty to home store investors it's not alleged that we had any role whatsoever in helping a creates misrepresentations that were made by home store we had no role in their drafting of their financial statements it's also not alleged that the defendants either had any role in the accounting for these transactions and that's a key concept here it's not only not disputed  controlled its own accounting but undisputed that home store could have accounted for these transactions properly had it chosen to do so the transactions we're talking about inthe district a check described them a great color there basically round trip transactions the allegation is home store was paying money to one business partner or defendant in one transaction and receiving it back in a related transaction there's nothing particularly wrong about a round trip transaction it happens all the time every time you buy a computer and you get a rebate or you buy something and you turn it back in to get a refund that's a round trip transaction and those can be accounted for properly what you do under the accounting rules when required is you net the money you paid out against the money you received back and you only record as a revenue the difference between the two it's not just the unit here that home store had actually netted the revenues if paid out against the revenues it received back there would have been no misrepresentations and again it's not alleged that my client or any of the other defendants here had any role whatsoever in home stores accounting it's also not alleged that investors home store investors were aware of the transactions entered into between host or in my client much less that they relied on them these were transactions business transactions exchanging goods and services and revenues a lot of it was advertising transactions those transactions were not visible to shareholders but the shareholders allied on the  transaction they could have been reported properly and then they would have been no misrepresentations i don't i think that's one of the quintessential definition of aiding and abetting which is providing substantial assistance to someone else who's doing the act again the prohibited act here the connection to the securities laws is the misrepresentations made by the home store the home store investors i also wanted to point out that this this court already has an established test for distinguishing between primary and aiding and abetting liability in this representation cases which is what we have here today it's an alleged misrepresentation under this courts peste speakers can be  primarily liable and non speakers can be a primary liable but only if they substantially participate and have an intricate involvement in actually creating the misstatement by the primary violat there's simply no way that those that you can find allegations of that in this complaint the out there's no allegation that any of these defendants had any role in any way touched the financial statements or the misrepresentations allegedly made misstatements to securities analyst knowing in intending that they would simply be passed on to investors in every sense the defendant there was substantially participating in actually creating these misrepresentations handing over the misstatements to go to the securities analysts no one that they would go to investors there's certainly some discussion in that case about subsections agency but the actual holding is a straightforward application of the substantial participation don't happen in a vacuum you have to focus on who is allegedly scheming to do what and with whom and here the only scheme that's alleged as judge packman held below is a scheme to misrepresent it was a scheme five home store to misrepresent to its shareholders but my client and the other defendants here were not participants in in that in the representation they were at most assisting it's alleged that they were at most home store in making those this represent patients there's actually a very i think interesting quote from the howard versus ever ex case and one of the cases this court decided applying the substantial participation and intricate involvement test and the court said there is a significant difference however between mere participation in a scheme to misrepresent and those directly attesting to the truth of a statement by making in the ordinary case in which my client and the other clients are ledged to have participated in a scheme to misrepresent what is not alleged that they made in the ordinary sense of the statements that a big gave rise to the alleged liability here five cannot extend further in the scope of section ten v pursuant to which it was promulgated and it's also clear that section ten b only reaches for manipulation and deception the actual words are those of the statute make it unlawful to use or employed in connection with the purchase or silver security any manipulative or deceptive device or contrivance there's no question that this case doesn't involve the manipulation and as the court said in central bank that the sec deception for purposes of section ten b means the making of a material misrepresentation or omission in fact if you go through the cases that this court has decided  we're necessarily is going that far and definitively stating that nor do i think this court would need to say something so that if i get an order for my clients to prevail i would have two things about that first the cases that are cited one of those cases the holding of the court hung on the fact that the court found that the defendant had a duty to disclose and failed to disclose and therefore deceive someone so those cases don't stake out any new territory but i would also add that we don't need to think about what forms of deception might exist beyond misrepresentations or omissions in this case because this is them is this is a misrepresentation case the only connection to investors in this case is the misrepresentations the alleged misrepresentations made by home store the home stores investors there's no deceptive conduct in this case that is alleged independent of the misrepresentations it's alleged that the misrepresentations caused the harm and the question this court has to decide is whether my client and the other defendants were so connected with those misrepresented sions that they can be basically that we helped him store do something that so i think it's irrelevant whether we focused on subsection a or b or c of rule twenty five no matter what we focus on there has to be some as part of a scheme and that at the steps of act can involve a transaction if the primary purpose and effect of the transaction in is to create the impression of false revenues  first of all i think we have to focus on whatever that's not it in a betting that is what they say and to that extent he respectfully disagree on a deceptive act we need again to focus on who who's allegedly deceiving whom my client is alleged to have the seatpost or in this case that was the party that my quite was dealing with my home store to the contrary the allegation is that my client was in cahoots with home store and it's also not alleged that my client did or said anything t actually directly reached a shareholder and somehow deceived them it's not alleged that the shareholders were even aware of the transactions that my client entered into in this case whether we call it conspiracy substantial assistance aiding or abetting the allegation is simply that my client who was allegedly helping them do a bad thing i did want to focus on the i think there's three basic problems with  proposed test here and one actually does involve the in connection with requirement which actually was briefed below and the problem with the f c c is definition of deceptive is that it's completely divorced from the securities markets and investors there's no in connection here my client enters into a business transaction buys or sells ads with home store there's no connection with actuaries action in the securities markets there's no in connection with the connection comes when home store accounts for that transaction improperly and then misrepresents revenues to issue is how are they accounted for and there are counting rooms that dictate how revenues are to be accounted for and there's no question again here that if the home store had accounted for these transactions there would have been no misrepresentation and therefore no false revenues or true revenues c says that if you engage in a so called legitimate transaction even if you know that your counterparty is going to misrepresent the revenues from that transaction that's at most aiding and abetting but they say if you have the purpose of creating false revenues that might mean that you're primarily liable for the securities laws don't focus just on a defendant state of mind there's a conduct requirement as well and it's not and i'm not have a test ton on what what the defendant state of mind was third and i think perhaps the most important problem with as he sees test and with a lot of the arguments we've heard from the plaintiff is that they don't take  hear the bedrock holding in central bank that there's a reliance requirement here and then the problem with aiding and abetting liability in the supreme court's view is that it would have this rate that the reliance requirement of section ten b public information about a security here there was no public information about the transaction between my client and home store the only public information was the misrepresentations made by a home store estes test in fact who are the lions in this case talks in terms of the consequences flowing from certain actions even if there are subsequent links in the chain they basically argue that because the acts that are alleged have been entered into over via my client in the other business partners if you will because that was a necessary link in the chain leading to home store making it misrepresentation that that's adequate suits their fulfill the reliance requirement i would submit that has to be wrong because if you accept that view of reliance then in every single aiding and abetting case you would find with the supreme court said one of the reasons we can't have aiding and abetting liability is because of the reliance requirement and finally i wanted to point out i think a really important point here is that the supreme court says it's that there is a meaningful distinction between primary liability and aiding and abetting liability in a ten to five case and they stand at that was necessary in  simply by saying that someone engaged in a deceptive act as part of a scheme that ultimately led to a misrepresentation by someone else in every single case where you could give substantial assistance someone it could be alleged that you engaged in a scheme with them to do a bad thing the f c c has proposed a number of hypotheticals in its brief to try and deal with the distinctions between for mary and aiding and abetting liability there are two basic problems i think with those hypotheticals one is that they're all phrased in terms of what may or could constitute a primary violation of the securities laws  actually come out and say what actually would constitute they only turn to talk in terms of what might or may or could constitute a primary violation and so i would submit that there are hypotheticals are not particularly helpful here and it's also not hold that the transaction what is a fictional transaction versus of the set of a transaction as opposed to actually focusing on the underlying conduct third while four five the jump site is now five two arguments raising apply for the first time of the in way that's what's happened on this appeal secondly judge if you look at the coup quite the complaint devotes ninety paragraphs to cataloguing in securities litigation sixty f thirty five ninety one nine hundred ninety five decision health specifically the conspiring is a form of secondary liability that is barred by central ba is absolutely a word for word it goes over the page paragraph three seventy four explaining the falsity of  with what was said in our opening brief present cendant committed fraudulent acts all of which were relayed to the public did we spell out the october twenty seventh the answer is no when they said in us about the statute and the rule is i think about that while i was sitting there i did think about it very quickly and i pulled out hot filter u s supreme court said quote we do not think it sounds to dismiss a complaint merely because the alleged scheme does not involve the type of fraud that is usually associated with the sale and purchase of securities quote we believe that section ten b and rule ten b five prohibit all fraudulent schemes in connection with the purchase or sale of security whether the artific be communicated to the public because that's something you can't deceive without telling home store investors about it like the teachers pension fund that i represent a one would only have to look at paragraphs ninety one three twenty nine three thirty five and three fifty five where we specifically states elwell knew precisely how home store was reporting to the public and operated at the end of each quarter as a matter of fact through the use of the us attorney statements we were able to ascertain as alleged in the complaint that they would get on the phone two days before all the reporting period at the end of the quarter in one instance they waited until now good night to get the phone call as to whether or not they'd do the round trip so one council says they didn't know anything about it how they were reporting it one has only to read the complaint in cooper excuse me in sanfor the court said and this is just three years ago