Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-05235/USCOURTS-caDC-98-05235-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 24, 1999 Decided April 4, 2000

No. 98-5235

Securities and Exchange Commission,

Appellee

v.

Banner Fund International, et al.,

Eddie R. Blackwell,

Appellant

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

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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.

Ginsburg, Circuit Judge: 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.

I. Background

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

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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

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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

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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

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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. The district

court held that Blackwell and his co-defendants had violated

s 10(b), the antifraud provision of the Securities Exchange

Act of 1934, 15 U.S.C. s 78j(b), and Rule 10b-5, 17 C.F.R.

s 240.10b-5, promulgated thereunder; ss 5(a), 5(c), and

17(a), the antifraud and registration provisions of the Securities Act of 1933, 15 U.S.C. ss 77e(a), 77e(c), 77q(a); and

s 7(d), the prohibition of unregistered foreign public offerings, of the Investment Company Act of 1940, 15 U.S.C.

s 80a-7(d). Accordingly, the district court granted summary

judgment in favor of the SEC and enjoined Blackwell and his

co-defendants from further violations. The court also ordered the defendants to disgorge $6.5 million plus prejudgment interest, provide an accounting of their assets, repatriate any assets belonging to investors in Banner Fund, and

refrain from disposing of or otherwise transferring their

assets. Blackwell and Winburn appealed but we dismissed

Winburn's appeal when, after having been convicted of conspiracy to defraud the United States, he became a fugitive.

II. Analysis

Blackwell raises a plethora of objections, none of which

need long detain us. He contends that the district court lacks

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subject matter and personal jurisdiction and that, in any

event, the court should have abstained under principles of

international comity. Additionally, Blackwell attacks the substance of the district court's order on the grounds that he did

not violate the securities laws of the United States because

neither he nor his co-defendants sold securities; the SEC was

not entitled to summary judgment upon the issue of his

intent; and the court should not have entered an injunction

against him because he was not an active participant in the

Banner Fund scheme. He also maintains that this court

should set aside the disgorgement order insofar as it applies

to him because he no longer has access to assets related to

Banner Fund. We begin, of course, with Blackwell's challenge to the subject matter jurisdiction of the district court.

A. Subject Matter Jurisdiction

Blackwell contests the court's jurisdiction upon two

grounds. First, he contends that the securities laws of the

United States do not apply to his activities because they took

place primarily in Belize. Second, he argues that the district

court cannot adjudicate the SEC's claim because the Belizean

courts have exclusive jurisdiction over the res of the Banner

Fund.

1. Connection to the United States

Whether a federal district court has subject matter jurisdiction over an action arising under the securities laws of the

United States is a question of congressional intent, subject

only to "the broad limits set by the due process clause."

Zoelsch v. Arthur Andersen & Co., 824 F.2d 27, 29 (D.C. Cir.

1987). In the absence of evidence to the contrary, however,

we presume that congressional "legislation ... is meant to

apply only within the territorial jurisdiction of the United

States" because the "Congress is primarily concerned with

domestic conditions." Id. at 31 (in part quoting Foley Bros v.

Filardo, 336 U.S. 281, 285 (1949)). With these principles in

mind, we conclude that the district court's exercise of jurisdiction in this case was fully justified and consistent with the

intent of the Congress.

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(a) 1934 Act. The Congress has not indicated clearly

whether s 10 of the Securities Exchange Act of 1934 is

applicable to cases involving predominantly foreign securities

transactions effected to some degree from outside the United

States.* See Zoelsch, 824 F.2d at 29-30. We have previously

indicated (in a dictum) that a United States court would have

jurisdiction under the 1934 Act "whenever any individual is

defrauded in this country, regardless of whether the offer

originates somewhere else." Id. at 33 n.4. The Second

Circuit has gone further, unambiguously holding that "the

anti-fraud provisions of the federal securities laws ... [a]pply

__________

* Section 10 of the Exchange Act provides in pertinent part as

follows:

It shall be unlawful for any person, directly or indirectly, by

the use of any means or instrumentality of interstate commerce

or of the mails, or of any facility of any national securities

exchange--

* * *

(b) To use or employ, in connection with the purchase or sale

of any security registered on a national securities exchange or

any security not so registered, any manipulative or deceptive

device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. s 78j. Rule 10b-5, in turn, provides:

It shall be unlawful for any person, directly or indirectly, by

the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national

securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to

omit to state a material fact necessary in order to make the

statements made, in the light of the circumstances under which

they were made, not misleading, or

(c) To engage in any act, practice, or course of business

which operates or would operate as a fraud or deceit upon any

person,

in connection with the purchase or sale of any security.

17 C.F.R. s 240.10b-5.

to losses from sales of securities to Americans resident in the

United States whether or not acts (or culpable failures to act)

of material importance occurred in this country...." Bersch

v. Drexel Firestone, Inc., 519 F.2d 974, 993 (1975); see also

Europe & Overseas Commodity Traders, S.A. v. Banque

Paribas London, 147 F.3d 118, 128 n.12 (2d Cir. 1998) (reaffirming test announced in Bersch but stating "U.S. residence

of individual investors--not American nationality--must be

the focus of the ... test"). Because Blackwell and his codefendants operated to a significant degree from within the

United States, however, when they defrauded United States

investors, we need not decide today whether to adopt the

Bersch test for extraterritorial jurisdiction. Instead, we hold

only that when a resident of the United States is allegedly

defrauded in the United States in connection with the sale of

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securities, the courts of the United States have jurisdiction

under the 1934 Act.

Under this test, the district court properly asserted jurisdiction over the claims arising under s 10(b) of the Exchange

Act and Rule 10b-5. The allegations of the SEC clearly

make out a case in which Blackwell and his co-defendants

defrauded investors who resided in the United States. Swiss

Trade mailed brochures advertising Banner Fund to those

investors, first through members of Opportunity Seekers

operating as Swiss Trade's agents in the United States, and

later from Swiss Trade's own affiliate in the United States,

the Fulfillment Center. Swiss Trade's agents in the United

States deposited investors' funds in banks located in the

United States. In short, doing little more offshore than

composing solicitations to be mailed to United States residents from locations in the United States, Blackwell and

company defrauded thousands of investors resident in the

United States. It requires no stretch of the imagination to

conclude, as we do, that the Congress intended s 10(b) of the

1934 Act to apply to a case such as this, in which domestic

investors were defrauded in large part by means of culpable

acts committed in this country.

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(b) 1933 Act. The district court's exercise of jurisdiction

over the claim of fraud in violation of s 17(a) of the Securities

Act of 1933 was also proper.* Section 17(a) is in substance

almost identical to s 10(b) of the 1934 Act and to Rule 10b-5,

and we see no reason to think--in light of our conclusion that

the district court properly asserted jurisdiction over the

claims arising under those sections--that subject matter jurisdiction over the s 17(a) claim is any less proper, again,

considering the domestic locus of the offer and sale of the

securities and of the purchasers.

The range of transactions to which the registration requirements of s 5 of the 1933 Act apply is, however, more circumscribed. The SEC has limited the reach of that section as

follows:

For the purposes only of section 5 of the Act ... the

terms offer, offer to sell, sell, sale, and offer to buy ...

shall be deemed not to include offers and sales that occur

outside the United States.

17 C.F.R. s 230.901. Reasoning that the Congress passed

the registration requirements to "assure full and fair disclosure in connection with the public distribution of securities,"

the Second Circuit has interpreted this regulation to permit

__________

* Section 17(a) reads:

It shall be unlawful for any person in the offer or sale of any

securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use

of the mails, directly or indirectly--

(1) to employ any device, scheme, or artifice to defraud, or

(2) to obtain money or property by means of any untrue

statement of a material fact or any omission to state a material

fact necessary in order to make the statements made, in the

light of the circumstances under which they were made, not

misleading, or

(3) to engage in any transaction, practice, or course of

business which operates or would operate as a fraud or deceit

upon the purchaser.

15 U.S.C. s 77q(a).

the exercise of subject matter jurisdiction over actions based

upon "offers of unregistered securities that tend to have the

effect of creating a market for unregistered securities in the

United States." Europe & Overseas Commodity Traders,

147 F.3d at 126.

Through their extensive advertising and recruiting efforts,

the defendants clearly created a market in the United States

for beneficial interests in Banner Fund. Not only, as we have

seen, did thousands of investors throughout 48 states and the

District of Columbia purchase these interests, but many of

those investors were recruited to sell interests to others.

The result can fairly be described, for the purposes of the

1933 Act, as "tend[ing] to have the effect of creating a

market" for interests in Banner Fund. We hold in part II.D,

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below, that those interests are securities, and Blackwell does

not dispute that they are not registered with the SEC. The

district court therefore properly exercised jurisdiction over

the claims arising under s 5 of the Securities Act.

(c) 1940 Act. The district court's exercise of jurisdiction

over that portion of the SEC's claim arising under s 7(d) of

the Investment Company Act of 1940 was also proper. By its

terms, s 7(d) regulates the activities of foreign investment

companies operating in the United States.* Here, the SEC

__________

* Section 7(d) reads:

No investment company, unless organized or otherwise created

under the laws of the United States or of a State, and no

depositor or trustee of or underwriter for such a company not

so organized or created, shall make use of the mails or any

means or instrumentality of interstate commerce, directly or

indirectly, to offer for sale, sell, or deliver after sale, in

connection with a public offering, any security of which such

company is the issuer. Notwithstanding the provisions of this

subsection ... the Commission is authorized, upon application

by an investment company organized or otherwise created

under the laws of a foreign country, to issue a conditional or

unconditional order permitting such company to register under

this title and to make a public offering of its securities ....

15 U.S.C. s 80a-7(d).

alleges, and Blackwell does not dispute, that Blackwell and

his co-defendants used the mails to offer to sell unregistered

interests in Banner Fund, a foreign entity, without having

gotten an order from the SEC permitting such offers. The

actions as alleged clearly come within the condemnation of

s 7(d) of the 1940 Act and the district court correctly asserted subject matter jurisdiction over those aspects of the SEC's

complaint arising under that Act.

2. In Rem and Quasi In Rem Jurisdiction

Various proceedings concerning the res of the Banner Fund

trust have been going on in Belize almost since the SEC filed

this suit in the district court. Because of the potential for the

two court systems to issue conflicting orders, Blackwell

claims that the district court lacks jurisdiction until the

Belizean proceedings are concluded. The SEC responds

tersely to this argument, stating only that this "is not an in

rem proceeding. It is [an] enforcement action" directed at

Blackwell and his co-defendants. We reject Blackwell's challenge in part for that reason and in part because, to the

extent that there may be a conflict between the courts of

Belize and those of the United States, the district court

asserted jurisdiction first and was therefore justified in adjudicating the case to its conclusion.

To a large extent, the SEC is correct that the suit in the

district court is an enforcement action directed at Blackwell

and his co-defendants rather than at the res of Banner Fund.

Much of the relief the district court granted the SEC does

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not affect the res and, therefore, does not even potentially

interfere with any orders the courts of Belize might issue

concerning that res. Certain aspects of the district court's

order do, however, concern the res. Specifically, the district

court ordered Blackwell and his co-defendants: (1) not to

dispose of any of their assets, including assets related to

Banner Fund; (2) to repatriate all funds solicited for investment in Banner Fund; and, of less certain but arguable

relevance to the res, (3) not to alter or otherwise dispose of

any documents relating to transactions involving Banner

Fund or the defendants' communications with each other.

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Insofar as these aspects of the relief implicate the res, we

observe that, according to longstanding precedent and practice, the first court seized of jurisdiction over property, or

asserting jurisdiction in a case requiring control over property, may exercise that jurisdiction to the exclusion of any other

court. This doctrine arose first in the context of Our Federalism, with its dual court system:

Where the judgment sought is strictly in personam,

for the recovery of money or for an injunction compelling

or restraining action by the defendant, both a state court

and a federal court having concurrent jurisdiction may

proceed with the litigation, at least until judgment is

obtained in one court which may be set up as res

adjudicata in the other. But if the two suits are in rem

or quasi in rem, requiring that the court or its officer

have possession or control of the property which is the

subject of the suit in order to proceed with the cause and

to grant the relief sought, the jurisdiction of one court

must of necessity yield to that of the other. To avoid

unseemly and disastrous conflicts in the administration of

our dual judicial system, and to protect the judicial

processes of the court first assuming jurisdiction, the

principle, applicable to both federal and state courts, is

established that the court first assuming jurisdiction over

the property may maintain and exercise that jurisdiction

to the exclusion of the other.

Penn General Casualty Co. v. Pennsylvania, 294 U.S. 189,

195 (1935) (citations omitted); see Colorado River Water

Conservation Dist. v. United States, 424 U.S. 800, 818 (1976);

see also Princess Lida v. Thompson, 305 U.S. 456, 466 (1939).

This first-in-time rule has since been applied to federal cases

as to which there were cognate proceedings in the courts of

another country. See Dailey v. NHL, 987 F.2d 172, 175-78

(3d Cir. 1993) (district court must yield to Canadian court,

which was first to assert quasi in rem jurisdiction); Chesley

v. Union Carbide Corp., 927 F.2d 60, 66 (2d Cir. 1991) ("[T]he

rule [is] equally applicable to requested interference by

American courts with a res under the jurisdiction of a foreign

court").

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In the cited cases the courts of the United Stated yielded to

the earlier asserted in rem jurisdiction of a foreign court, but

we are aware of no reason for applying the rule asymmetrically, that is, only in cases where the foreign court is first to

assume jurisdiction over the property. True, we cannot

require a foreign court to yield when the United States court

was the first to assume jurisdiction, but neither can we

acquiesce in a rule under which the United States court

recedes regardless of its priority in time. That rule would

empower a defendant in the United States to oust our courts

of in rem jurisdiction merely by filing its own action in the

courts of any hospitable country--of which there would be no

shortage if that were our rule.

Even to the extent that this case is in rem, however, the

first-in-time rule of jurisdiction offers Blackwell no comfort:

The record reveals that the district court was the first to

assert jurisdiction. The SEC filed this suit on February 24,

1994 and the next day the district court issued a temporary

restraining order granting much of the relief that the court

made permanent when it entered summary judgment for the

SEC. By Blackwell's own account of events, the courts of

Belize did not begin any proceeding related to Banner Fund's

assets until, at the earliest, March 2, 1994--and that was at

the instance of the SEC, which asked the Supreme Court of

Belize to implement the Letter of Request issued by the

district court. We therefore reject Blackwell's challenge to

the subject matter jurisdiction of the district court.

B. Comity

Although the international aspect of this case does not

deprive the district court of jurisdiction, it does raise a

concern with comity among nations. For that reason, Blackwell argues that the district court should have stayed its hand

pending the conclusion of proceedings in the courts of Belize,

and that certain aspects of the district court's order offend

the notion of comity by requiring the defendants to take

actions that violate the laws of Belize. The SEC urges us to

reject both arguments because, it asserts, accepting either

argument "would allow fraudfeasors effectively to nullify

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United States [securities] law by conducting some part of

their scheme overseas." We do reject Blackwell's comity

arguments but upon grounds significantly more narrow than

that urged by the SEC.

As we have explained before, comity "summarizes in a brief

word a complex and elusive concept--the degree of deference

that a domestic forum must pay to the act of a foreign

government not otherwise binding on the forum." Laker

Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d

909, 937 (1984). "Comity ordinarily requires that courts of a

separate sovereign not interfere with concurrent proceedings

based on the same transitory claim, at least until a judgment

is reached in one action, allowing res judicata to be pled in

defense." Id. at 939. Whether a case raises a concern with

comity is inherently fact-dependant. Nonetheless, there are

some general guidelines available to structure and to cabin

the inquiry, including this one: "[A] domestic forum is not

compelled to acquiesce in pre- or postjudgment conduct by

litigants which frustrates the significant policies of the domestic forum." Id. at 915. With these principles in mind, we

turn first to Blackwell's contention that the district court

should have abstained pending the outcome of proceedings in

the courts of Belize.

The record discloses two such proceedings, the first of

which, as we have said, was begun by the SEC on March 2,

1994 as part of its effort to obtain discovery. Through local

counsel the SEC asked a Belizean court for assistance pursuant to the Letter of Request issued by the district court,

which sought production and examination of documents and

witnesses. Ultimately the Belizean court declined to help

with the discovery request, from which order the appeal of

the SEC is pending. Even if the SEC succeeds on appeal,

however, its application for judicial assistance from the courts

of Belize is not a ground for abstention by the district court

because there is no potential for conflict between any orders

the two courts might issue.

The second proceeding, which Blackwell and Winburn instituted in Belize, resulted in the substitution of Unicorn for

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Swiss Trade as the trustee of the Endeavor Trusts. While

this proceeding does conflict with the action in the district

court, it does not require the district court to abstain. As

stated above, conduct by a litigant designed to frustrate a

significant policy of the United States is not a ground for

abstention on the basis of comity. Here, Blackwell and

Winburn acted specifically to defeat the orders of the district

court, which were issued in order to remedy the massive

fraud that Blackwell and Winburn perpetrated against thousands of investors in the United States. If comity required

the district court to defer to the Belizean court proceeding

that Blackwell and Winburn initiated solely for the purpose of

avoiding justice in the courts of the United States, then it

would be a vicious doctrine indeed.

Blackwell also complains that some of the relief ordered by

the district court conflicts with the Trusts Act, 1992 of Belize.

He asserts, for example, that the accounting requirement in

the orders of the district court conflicts with the confidentiality requirement of the Trusts Act. We have been quite clear,

however, that "one who relies on foreign law assumes the

burden of showing that such law prevents compliance with

the court's order," In re Sealed Case, 825 F.2d 494, 498 (1987)

(citing Ohio v. Arthur Andersen & Co., 570 F.2d 1370, 1374

(10th Cir. 1978)), and this Blackwell has failed utterly to do.

Indeed, to the extent there is anything in the record relating

to this issue, it appears that it is Blackwell and his codefendants, not the laws of Belize, who prevent compliance

with the orders of the district court. Section 4(4) of the

Trusts Act provides that a trust agreement may allow the

trustee to change the governing law from that of Belize to

that of another jurisdiction, and the Endeavor Trust agreement contains just such a permissive clause. Therefore,

Blackwell and his co-defendant Winburn, who together owned

and controlled Swiss Trade, which was the trustee for the

Endeavor Trusts, could have changed the governing law to

that of the United States and thus avoided any conflict with

Belizean law. That is not to say that Blackwell had a legal

duty to prevent a potential conflict between the Trusts Act

and the orders of the district court; our point is simply that

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because he could have avoided any such conflict but chose not

to do so, comity does not require the district court to stay its

hand.

C. Personal Jurisdiction

In a fleeting passage in his opening brief, Blackwell asserts

his affirmative defense that the district court lacks personal

jurisdiction over him because he was never properly served

with papers. His specific objection is that the "SEC was

bound by the dictates of the Hague Convention in its efforts

to serve Swiss Trade in Belize, as well as himself, in Belize,

which it did not." This argument concerning personal jurisdiction is not burdened by any explanation of or citations to

the relevant provisions of the Hague Convention. Any doubt

about the considered nature of Blackwell's failure to develop

the argument more fully is dispelled by his silence, both in his

reply brief and at oral argument, in response to the SEC's

detailed arguments demonstrating that Belize is not a signatory to the Hague Convention, and that the service of process

upon Blackwell did in any event comply with the requirements of that Convention.

Federal Rule of Appellate Procedure 28(a)(9)(A) requires

that the appellant's argument "contain [his] contentions and

the reasons for them, with citations to the authorities and

parts of the record on which the appellant relies." We have

repeatedly held that we will not address an "asserted but

unanalyzed" argument because "appellate courts do not sit as

self-directed boards of legal inquiry and research, but essentially as arbiters of legal questions presented and argued by

the parties before them." Carducci v. Regan, 714 F.2d 171,

177 (D.C. Cir. 1983); see United States v. Watson, 171 F.3d

695, 699 n.2 (D.C. Cir. 1999) (declining to address "asserted

but unanalyzed" argument); United States v. Clarke, 24 F.3d

257, 262 (D.C. Cir. 1994) (same); International Bhd. of

Teamsters v. PeNa, 17 F.3d 1478, 1487 (D.C. Cir. 1994)

(same).

Blackwell's less than half-hearted effort upon the issue of

personal jurisdiction is insufficient to put his objection before

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this court. We therefore decline to address Blackwell's argument concerning personal jurisdiction.

D. Sale of Securities

The sections of the 1933, 1934, and 1940 Acts that the

district court found Blackwell to have violated apply only to

transactions involving "securities." See 15 U.S.C. s 77e(a)

(1933 Act, regulating "[s]ale or delivery after sale of unregistered securities"); 15 U.S.C. s 77e(c) (1933 Act, prohibiting

offers to sell or to buy unregistered security); 15 U.S.C.

s 77q(a) (1933 Act, outlawing fraudulent practices in connection with sale of any security); 15 U.S.C. 78j(b) (1934 Act,

prohibiting manipulative or deceptive practices in connection

with sale of any security); 15 U.S.C. s 80a-7(d) (1940 Act,

prohibiting investment company from offering for sale "any

security of which such company is the issuer"). All three

statutes define "security" to include an "investment contract,"

see 15 U.S.C. s 77b(a)(1); 15 U.S.C. s 78c(a)(10); 15 U.S.C.

s 80a-2(a)(36). An investment contract is, for these purposes, anything that investors purchase with "(1) an expectation of profits arising from (2) a common enterprise that (3)

depends upon the efforts of others." SEC v. Life Partners,

Inc., 87 F.3d 536, 542 (D.C. Cir. 1996) (citing SEC v. W.J.

Howey Co., 328 U.S. 293, 298-99 (1946)).* The SEC maintains, and Blackwell denies, that the beneficial interests in

Banner Fund, which Swiss Trade sold, are investment contracts.

1. Expectation of Profits

The first element in the definition of an investment contract

requires only that "the expected profits must, in conformity

__________

* Howey arose under the 1933 Act. Because the definition of

"security" is "virtually identical" in the 1934 Act, the Supreme

Court has held that "the coverage of the two Acts may be considered the same." Reves v. Ernst & Young, 494 U.S. 56, 61 n.1 (1990)

(citation omitted). Inasmuch as the definition of "security" in the

1940 Act, see 15 U.S.C. s 80a-2(a)(36), is in turn virtually identical

to the cognate definitions in the two earlier Acts, we hold that the

elements of Howey are also applicable to the 1940 Act.

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with ordinary usage, be in the form of a financial return on

the investment, not in the form of consumption." Life Partners, Inc., 87 F.3d at 543. Advertisements for Banner Fund

clearly led potential investors to expect a "financial return"

on their capital outlays. For example, the brochure distributed to potential investors gave, as one of the main reasons to

invest, that Banner Fund offered "major returns and multiples in profits." Furthermore, Banner Fund's referral system induced others to recruit investors by promising recruiters 20% of any new investor's earnings from the Banner

Fund Program. We think it obvious, therefore, that investors

were induced to purchase beneficial interests in Banner Fund

with the expectation of a financial return on their investments.

2. Common Enterprise

The second element of the definition, that the investment

be in a "common enterprise," is ordinarily met by a showing

of horizontal commonality, see Life Partners, Inc., 87 F.3d at

543 (citing Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir.

1994)), which requires that there be a "pooling of investment

funds, shared profits, and shared losses." Id. The Banner

Fund Program putatively pooled investment funds by, in its

own words, "put[ting] individual small investors together with

others to leverage their funds to a point where they can

participate." The very premise upon which Swiss Trade

marketed the program was that Banner Fund would combine

funds from small investors so that they could participate in

deals requiring large capital outlays. Indeed, the brochure

advertising the program ends by stating:

Perhaps the only thing that keeps you out of the market

is money ... money in sufficient amounts to be "respectable" in the market place. In Banner Fund International you can, working with others, with an accumulative

amount sufficient to do the job.

Simply placing investors' funds into individual trusts before

pooling them did not, as Blackwell contends, change the

pooled nature of the Banner Fund Program.

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Equally apparent are the profit and loss sharing aspects of

the Banner Fund Program. Each investor received a portion

of Banner Fund's monthly earnings based upon the amount of

his investment. In addition, the referral program allocated

10% of each investor's earnings to Swiss Trade and 20% of

those earnings to whomever recruited the investor for Banner

Fund. Banner Fund's pooling of investors' money and its

spreading of profits and losses among investors, recruiters,

and Swiss Trade demonstrate horizontal commonality sufficient to meet the second element of the definition of an

investment contract.

3. Efforts of Others

The third element of the definition requires that "profits be

generated ... 'predominantly' from the efforts of others," not

counting purely "ministerial or clerical" efforts. Life Partners, Inc., 87 F.3d at 545 (citing SEC v. International Loan

Network, Inc., 968 F.2d 1304, 1308 (D.C. Cir. 1992)). Again,

the Banner Fund Program meets this requirement. An

individual investor in Banner Fund was supposed to receive

returns without exerting any effort himself. According to the

brochure advertising the program, Swiss Trade was to manage all funds in its capacity as trustee. Although an investor

separately could earn $50 for each new person he recruited

into the program, the return from his financial investment

was to come from the "arbitrage and leveraging" transactions

Banner Fund was supposedly conducting.

In sum, the Banner Fund Program has all the elements of

an "investment contract." Accordingly, we hold that beneficial interests in Banner Fund are securities.

E. Summary Judgment

Blackwell argues that because he denied the SEC's allegations that he made false and misleading statements in connection with the sale of securities, the district court should not

have disposed of the securities fraud claims on summary

judgment. We review de novo the district court's grant of

summary judgment, see Jackson v. Finnegan, Henderson,

Farabow, Garrett & Dunner, 101 F.3d 145, 150 (D.C. Cir.

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1996), but because Blackwell did not properly controvert the

SEC's statement of undisputed facts before the district court

we will not now consider his arguments predicated upon there

being a dispute over those facts. After reviewing the evidence properly presented to the district court, we conclude

that the SEC was entitled to summary judgment.

Under Federal Rule of Civil Procedure 56(c), the district

court is to grant a motion for summary judgment "if the

pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there

is no genuine issue as to any material fact and that the

moving party is entitled to a judgment as a matter of law." A

party opposing such a motion on the ground that there are

material facts in dispute must "set forth [the] specific facts

showing that there is a genuine issue for trial." Fed. R. Civ.

P. 56(e). In the United States District Court for the District

of Columbia, a party opposing a motion for summary judgment must also comply with Local Rule LCvR 7.1(h), which

provides in relevant part:

An opposition to ... a motion [for summary judgment]

shall be accompanied by a separate concise statement of

genuine issues setting forth all material facts as to which

it is contended there exists a genuine issue necessary to

be litigated, which shall include references to the parts of

the record relied on to support the statement .... In

determining a motion for summary judgment, the court

may assume that facts identified by the moving party in

its statement of material facts are admitted, unless such

a fact is controverted in the statement of genuine issues

filed in opposition to the motion.

If the party opposing the motion fails to comply with this

local rule, then "the district court is under no obligation to sift

through the record" and should "[i]nstead ... deem as admitted the moving party's facts that are uncontroverted by the

nonmoving party's Rule [LCvR 7.1(h)] statement." Jackson,

101 F.3d at 154.

Although he filed a statement pursuant to Rule LCvR

7.1(h) in support of his own motion for summary judgment,

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Blackwell did not follow the rule in opposing the SEC's

motion for summary judgment; instead he filed a response

and an affidavit, neither of which pointed to specific parts of

the record controverting the SEC's lengthy statement of

undisputed facts. The district court was therefore fully justified in treating as admitted the SEC's statement of material

facts. Those facts, only some of which we have recounted

above, detail at length Blackwell's role in preparing statements, which he knew were false and misleading, and in

sending them to investors and potential investors. We therefore affirm the district court's grant of summary judgment.

Cf. Jackson, 101 F.3d at 154 ("It was irrelevant [once the

court struck the opposing party's Rule 7.1(h) statement]

whether the record could have supported a finding of a

genuine issue of material fact").

F. Injunctive Relief

Blackwell argues that because he was not an "active participant" in Banner Fund's "financial dealings," the district court

committed reversible error by entering an injunction against

him. We review the district court's grant of an injunction

only for abuse of discretion; that is we will not "disturb [its]

remedial choice unless there is no reasonable basis for the

decision." SEC v. First City Financial Corp., Ltd., 890 F.2d

1215, 1228 (D.C. Cir. 1989).

The essence of Blackwell's argument is that Winburn managed Swiss Trade's daily operations and Winburn did not

provide Blackwell with access to client account records.

Even if this be true, it does nothing to undermine the district

court's grant of injunctive relief against Blackwell. There is

abundant evidence in the record documenting Blackwell's

extensive involvement with the Banner Fund scheme. He

reviewed the brochure advertising the Banner Fund Program. He signed a letter urging investors to recruit new

members. He used investors' funds to purchase a house for

his family and to pay his daughter's college tuition. He

helped Winburn substitute Unicorn for Swiss Trade as the

trustee for the Endeavor Trusts, thereby flouting the district

court's order directing him to freeze Swiss Trade's assets.

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Although Blackwell may have played Cassius to Winburn's

Brutus--the record does not reveal whether he has a lean

and hungry look--he was far from a passive bystander in the

securities law violations committed in connection with the

Banner Fund Program. Therefore, the district court did not

abuse its discretion in entering injunctive relief against Blackwell.

G. Disgorgement

The final dispute before us concerns the district court's

order requiring Blackwell and his co-defendants to "disgorge

$6.5 million, plus prejudgment interest in the amount of

$2,697,303.84 representing their unjust enrichment from their

violations of the statutes set forth above." Blackwell maintains that he cannot comply with the order because he does

not have access to any assets related to Swiss Trade or to

Banner Fund. The SEC in turn contends that Blackwell

does control some of Banner Fund's assets and that, in any

event, the disgorgement order imposes an obligation upon

Blackwell personally, which he may satisfy using his own

assets. Because disgorgement is an equitable obligation to

return a sum equal to the amount wrongfully obtained, rather

than a requirement to replevy a specific asset, we reject

Blackwell's challenge and affirm the district court.

An order to disgorge is not a punitive measure; it is

intended primarily to prevent unjust enrichment. See, e.g.,

First City Financial Corp., Ltd., 890 F.2d at 1231. Accordingly, a court "may exercise its equitable power [of disgorgement] only over property causally related to the wrongdoing."

Id. As the SEC points out, the requirement of a causal

relationship between a wrongful act and the property to be

disgorged does not imply that a court may order a malefactor

to disgorge only the actual property obtained by means of his

wrongful act. Rather, the causal connection required is

between the amount by which the defendant was unjustly

enriched and the amount he can be required to disgorge. To

hold, as Blackwell maintains, that a court may order a

defendant to disgorge only the actual assets unjustly received

would lead to absurd results. Under Blackwell's approach,

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for example, a defendant who was careful to spend all the

proceeds of his fraudulent scheme, while husbanding his other

assets, would be immune from an order of disgorgement.

Blackwell's would be a monstrous doctrine for it would perpetuate rather than correct an inequity.

Blackwell's approach also conflicts with longstanding precedent. In a securities fraud case dealing with disgorgement,

the Second Circuit upheld an order directing the defendant to

disgorge his "paper profits." See SEC v. Shapiro, 494 F.2d

1301, 1309 (1974). The defendant in that case had purchased

stock without disclosing material, non-public information, in

violation of s 10(b) of the 1934 Act and of SEC Rule 10b-5.

Id. at 1307. Had the defendant sold the stock promptly after

the information became public, he would have made a handsome profit; in the event, however, he held the stock too long

and sold it at a lesser gain. Id. at 1309. The district court

nevertheless ordered him to disgorge all the profits he would

have made had he sold the stock at the higher price. The

court of appeals affirmed, stating:

The district court's approach was reasonable. A violator

of the securities laws should disgorge profits earned by

trading on non-public information. Once public disclosure is made and all investors are trading on an equal

footing, the violator should take the risks of the market

himself.

Id.; see also SEC v. UNIOIL, 951 F.2d 1304, 1306 (D.C. Cir.

1991) (Edwards, J., concurring). As the Second Circuit decision makes clear, an order to disgorge establishes a personal

liability, which the defendant must satisfy regardless whether

he retains the selfsame proceeds of his wrongdoing. We

therefore reject Blackwell's challenge to the disgorgement

order.

III. Conclusion

For the forgoing reasons the judgment of the district court

is in all respects

Affirmed.

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