Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-09-05399/USCOURTS-caDC-09-05399-1/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 November 16, 2010 Decided June 28, 2011

Reissued September 22, 2011

No. 09-5399

SECURITIES AND EXCHANGE COMMISSION,

APPELLEE

v.

CHARLES JOHNSON, JR.,

APPELLEE

CHRIS BENYO,

APPELLANT

MICHAEL KENNEDY, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:05-cv-00036)

Terrance G. Reed argued the cause for appellant. With 

him on the briefs was Vernon T. Lankford.

Luis de la Torre, Senior Litigation Counsel, Securities 

and Exchange Commission, argued the cause for appellee 

Securities and Exchange Commission. With him on the brief 

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were David M. Becker, General Counsel, Jacob H. Stillman, 

Solicitor, and Rada Lynn Potts, Attorney. John D. Worland 

Jr., Counsel, entered an appearance.

Before: SENTELLE, Chief Judge, GINSBURG and 

KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: In this civil enforcement 

action, a jury found Christopher Benyo aided and abetted a 

securities fraud by his former employer PurchasePro.com, 

Inc., in violation of 15 U.S.C. § 78t(e). The district court 

fined Benyo $35,000 and barred him from serving as an 

officer or director of a publicly held company for five years. 

On appeal, Benyo argues the district court erred in allowing

his trial to proceed in the District of Columbia pursuant to the 

“co-conspirator theory of venue.” We reverse the judgment 

of the district court on the basis of improper venue and do not 

reach Benyo’s claims relating to the merits of the case against 

him. 

I. Background*

From 2000 to 2001, Benyo served as Senior Vice 

President for Marketing and Network Development for 

PurchasePro, which made software for online “business-tobusiness” sales. PurchasePro sold licenses that granted the 

holders access to its online “marketplace” where they could 

 * We take the facts in Part I from the evidence at trial, the findings 

of the district court, see SEC v. Johnson, 565 F.Supp.2d 82 (D.D.C. 

2008); SEC v. Johnson, 530 F.Supp.2d 315 (D.D.C. 2008); see also 

SEC v. Johnson, 595 F.Supp.2d 40 (D.D.C. 2009); and the 

undisputed findings of the district court for the Eastern District of 

Virginia in a related criminal case, see United States v. Johnson, 

553 F.Supp.2d 582 (2008). 

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buy and sell goods and build a company-specific site using 

PurchasePro’s technology. 

Early in 2000, America Online, Inc. (AOL) engaged 

PurchasePro to help it build NetBusiness, an online sales 

platform for small businesses, and in March of that year, 

PurchasePro agreed to pay AOL for advertising and for 

referring new customers to PurchasePro. The companies 

entered into additional agreements later that year that made

AOL a sales agent for PurchasePro. By the end of 2000, 

PurchasePro’s business depended heavily upon the payments 

and referrals it received from AOL. 

In September 2000, PurchasePro began to document 

sham transactions in order to inflate its reported revenue. 

Certain customers referred by AOL agreed to buy licenses to 

PurchasePro’s software in exchange for a side agreement for

AOL or PurchasePro to subsidize the purchase. Because 

PurchasePro would disclose the sale but not the side 

agreement, each transaction appeared on paper to generate a 

substantial amount of revenue for PurchasePro.

PurchasePro also backdated or entirely falsified new 

agreements with AOL. The company later attributed $3.65 

million in revenue to one of those contracts — an agreement 

to integrate an auction platform into AOL’s NetBusiness, 

styled as a subcontract under a pre-existing agreement 

between AOL and a third company, AuctioNet, Inc. In the 

first quarter of 2001, two-thirds of PurchasePro’s announced 

revenues of $29.8 million in some way came from the 

company’s dealings with AOL, whether through the sham 

referrals or the new fraudulent contracts. 

PurchasePro’s auditors and attorneys learned the 

AuctioNet deal was phony on May 14, 2001, when AOL sent 

PurchasePro’s chief accounting officer a letter stating it had

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no documentation of the deal. Until then the company’s 

auditors and attorneys had relied upon a “Statement of Work” 

dated February 5, 2001 and apparently executed by AOL and 

PurchasePro, but which they had suspected was a forgery. 

After AOL confirmed that suspicion, PurchasePro excluded 

from its report to the SEC the revenue associated with the 

AuctioNet deal and the other fraudulent agreements it had 

discovered. On the Form 10-Q it filed on May 29, 2001, 

PurchasePro reported only $16 million of the nearly $30 

million in revenue it had publicly announced the month 

before. PurchasePro declared bankruptcy in 2002. 

In January 2005, the Government filed in the Eastern 

District of Virginia a 31-count indictment against Benyo,

three other PurchasePro employees, and two executives of 

AOL. By that time, six former executives of PurchasePro had 

agreed to plead guilty to charges relating to the fraud and 

cover-up and, as part of a deferred-prosecution agreement, 

AOL had admitted having aided and abetted a securities 

fraud. See Dep’t of Justice, America Online Charged with 

Aiding and Abetting Securities Fraud, 

http://www.justice.gov/opa/pr/2004/December/04_crm_790.h

tm (Dec. 15, 2004).

On the same day, the SEC filed this civil enforcement 

action against the same defendants in the District of 

Columbia. The SEC alleged Benyo had “worked on drafting 

or caused others to draft” the Statement of Work for the 

phony AuctioNet deal. The complaint further alleged that, in 

order “to create the false appearance ... the [integration] 

services described in the Statement of Work had actually been 

performed” during the first quarter of 2001, Benyo had 

devised a plan to place on the NetBusiness site a hyperlink to 

AuctioNet.com. From the alleged facts, the SEC inferred

Benyo “knew or was reckless in not knowing” PurchasePro 

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intended to recognize and report revenue associated with the 

fraudulent Statement of Work; therefore he had aided and 

abetted the company’s fraud, in violation of 15 U.S.C. § 

78t(e);*

The SEC’s civil case against Benyo went to trial only 

after the jury in Virginia had acquitted Benyo of all criminal 

charges. The civil jury here then found Benyo liable on the 

one count of aiding and abetting PurchasePro’s securities 

fraud and absolved him of the other charges. The district 

court fined Benyo $35,000 and barred him from serving as an 

officer or director of a publicly traded company for five years, 

as authorized by § 78u(d). 

aided and abetted the company’s failure to maintain 

internal accounting controls, in violation of § 78m(b)(5); 

falsified books and records, also in violation of § 78m(b)(5) 

and of 17 C.F.R. § 240.13b2-1 (Rule 13b2-1); and misled an 

accountant or auditor, in violation of 17 C.F.R. § 240.13b2-2 

(Rule 13b2-2). 

In his answer to the SEC’s complaint, Benyo had argued

venue was improper in the District of Columbia. He renewed 

that objection in a motion for summary judgment, and again 

after trial in a motion for judgment as a matter of law. In each 

filing, Benyo argued the allegations showed he had acted only 

in Nevada, and, more important, no “act or transaction 

constituting the violation[s]” with which he was charged had 

occurred in the District of Columbia, as required for venue 

under § 78aa. The SEC countered that the District was a 

permissible forum under the “co-conspirator venue theory” 

because Benyo had been “in league with a defendant who ...

 * Statutory references hereinafter refer to Title 15 of the United 

States Code unless otherwise noted.

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act[ed] within the [D]istrict.” Johnson, 565 F. Supp. 2d at 

92.*

The district court adopted the Commission’s “coconspirator theory of venue,” which it said courts “routinely 

apply” when a complaint alleges a securities fraud “involving 

multiple defendants acting in multiple districts.” Id. at 92. 

Here, the defendant had allegedly “aided and abetted a 

scheme, a material part of which occurred in the District of 

Columbia,” to wit, PurchasePro’s filing a misleading Form 

10-K for 2000 and Form 10-Q for the first quarter of 2001. 

Id. at 93; see SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1154 

& n.12 (D.C. Cir. 1978) (filings with SEC occur as a matter of 

law in the District of Columbia). The district court rejected, 

however, the SEC’s assertion the scheme had also reached the 

District of Columbia by way of a press release PurchasePro 

had sent out nationwide and a nationally broadcast conference 

call with securities analysts in which PurchasePro had made

misleading or incorrect statements about the company’s 

revenue. Johnson, 565 F. Supp. 2d at 91, n.11. 

II. Analysis

The parties’ dispute over the proper interpretation of § 

78aa, the special venue section of the Securities Exchange Act 

of 1934, clearly raises a question of law. Therefore we 

address it de novo. See 5B CHARLES ALAN WRIGHT, ARTHUR 

R. MILLER, MARY K. KANE, & RICHARD L. MARCUS,

FEDERAL PRACTICE & PROCEDURE § 1352 (3d ed.); see also

Armstrong v. Geithner, 608 F.3d 854, 857 (D.C. Cir. 2010).

 * The SEC also argued the District was a permissible forum under 

the doctrine of pendent venue, but the district court did not address 

that argument and the SEC does not renew it on appeal. 

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Venue for a civil action under the securities laws lies “in 

the district wherein the defendant is found or is an inhabitant 

or transacts business,” or “in the district wherein any act or 

transaction constituting the violation occurred.” § 78aa. By 

the reference to “any act,” the statute permits a plaintiff to 

bring suit in any district where any person has committed any 

act that “constitute[s]” the offense with which the defendant is 

charged.

The co-conspirator theory of venue is but a gloss upon 

and an extension of § 78aa. The question presented in this 

case is whether that extension is consistent with the terms of § 

78aa. Benyo contends it is not, relying in particular upon 

Central Bank of Denver v. First Interstate Bank of Denver, 

511 U.S. 164 (1994), in which the Supreme Court held there 

was no private right of action for aiding and abetting 

securities fraud and strongly implied there could be no cause 

of action for any form of “secondary liability” for fraud that 

does not require proof of each of the elements of the primary 

violation, see id. at 180, 184. After Central Bank of Denver

was decided, the Congress enacted § 78t(e) to give the SEC 

express authority to pursue a person who has aided and 

abetted a securities fraud. See Private Securities Litigation 

Reform Act of 1995, § 104, Pub. L. 104-67, 109 Stat. 737, 

757 (1995); Stoneridge Investment Partners, LLC v. 

Scientific-Atlanta, Inc., 552 U.S. 148, 158 (2008). Because § 

78t(e) did not similarly authorize the SEC to sue for 

conspiracy to commit securities fraud, Benyo reasons, an 

allegation of conspiracy is not by itself — that is, without 

proof of his actual participation in a fraud — a sufficient basis 

for liability under Central Bank of Denver and therefore 

cannot be a sufficient basis for venue. 

The SEC responds, “[f]irst, conspiracy liability is 

available to the Commission” because Central Bank of 

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Denver concerned an implied private right of action and 

therefore “did not apply to” the SEC, and, second and “[m]ore 

fundamentally,” the scope of venue does not turn upon the 

scope of liability. Indeed, we are told, the co-conspirator 

theory of venue “is often used” by the SEC, “serves important 

purposes,” and has been adopted by “at least” three other 

circuits. All the circuit court decisions in question, however, 

pre-date Central Bank of Denver, see SIPC v. Vigman, 764 

F.2d 1309, 1317 (9th Cir. 1985); Hilgeman v. Nat’l Ins. Co. of 

Am., 547 F.2d 298, 302 & n.12 (5th Cir. 1977); Wyndham 

Assocs. v. Bintliff, 398 F.2d 614, 620 (2d Cir. 1968), and 

hence the SEC’s reliance upon them begs the question 

whether Central Bank of Denver precludes the co-conspiracy 

theory of venue. 

We believe § 78aa by its terms forecloses use of the coconspirator theory of venue; a suit simply may not be brought

in a forum where there is no statutory basis for venue. We 

cannot countenance any so-called theory that “add[s] a gloss 

to the operative language of the statute quite different from its 

commonly accepted meaning.” Ernst & Ernst v. Hochfelder, 

425 U.S. 185, 199 (1976).

Benyo’s case is paradigmatic: The SEC did not identify 

in the complaint or in its evidence at trial “any act or 

transaction” of Benyo’s occurring in the District of Columbia 

and “constituting the violation” of § 78t(e), §78m(b)(5), Rule 

13b2-1, or Rule 13b2-2 with which he was charged. Instead it 

argues the filing of a Form 10-Q with the SEC was an act in 

the District constituting “a securities fraud violation” by 

PurchasePro. That is not the violation attributed to Benyo,

however, as § 78aa requires; the revenue item he allegedly 

falsified was not included in the Form 10-Q. If the only act 

allegedly done in this district is not linked to Benyo in any of 

the ways listed in § 78aa, then no “theory” can supply the 

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deficiency. In other words, at least one statutory basis for 

venue, no matter how broadly or narrowly that particular 

requirement might be construed, must have occurred in the 

chosen forum. 

We note the Supreme Court has rejected the coconspirator theory as a basis for venue in a suit under the 

antitrust laws, which permit a plaintiff to sue only in a district 

wherein the defendant “resides or is found or has an agent.” 

15 U.S.C. § 15. In Bankers Life & Casualty Co. v. Holland, 

the Supreme Court condemned the theory as “a frivolous 

albeit ingenious attempt to expand the statute,” 346 U.S. 379, 

384 (1953) (dictum). That, as a practical matter, was the end 

of the co-conspirator theory of venue in antitrust. See, e.g.

Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 

491, 494-95 (9th Cir. 1979); San Antonio Tel. Co. v. AT&T, 

499 F.2d 349, 351 n.3 (5th Cir. 1974); H.L. Moore Drug 

Exchange, Inc. v. Smith, Kline & French Labs., 384 F.2d 97, 

98 (2d Cir. 1967); see also In re Cotton Yarn Antitrust Litig., 

505 F.3d 274, 283-84 (4th Cir. 2007) (citing Bankers Life and 

noting antitrust plaintiffs have no “statutory right” to try all 

antitrust co-conspirators in the same district). 

After the Bankers Life decision and their own antitrust 

cases following it, the Second, Fifth, and Ninth Circuits again 

approved use of the co-conspirator theory under § 78aa. The 

Second and the Ninth Circuits did so based expressly upon 

“[t]he strong policy favoring the litigation of related claims in 

the same forum.” Vigman, 764 F.2d at 1318; Wyndham 

Assocs., 398 F.2d at 617, 619 (similar); see generally Rhett

Traband, The Case Against Applying the Co-Conspiracy 

Venue Theory in Private Securities Actions, 52 Rutgers L. 

Rev. 227, 246-47 (1999) (“the avoidance of duplicative 

litigation has been the chief policy argument invoked in favor 

of the [co-conspirator] Theory”). 

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The Supreme Court has repeatedly made clear “[p]olicy 

considerations cannot override our interpretation of the text 

and structure of the [Exchange] Act.” Central Bank of 

Denver, 511 U.S. at 188. Indeed, the Court has refused to 

consider policy arguments in the interpretation specifically of 

§ 78aa. See, e.g., Leroy v. Great Western United Corp., 443 

U.S. 173, 181-82 & n.14 (1979) (rejecting plaintiff State’s 

argument for broad reading of venue under § 78aa offered to 

facilitate policy of Exchange Act generally favoring 

plaintiffs); Radzanower v. Touche Ross & Co., 426 U.S. 148, 

156 & n.12 (1976) (holding § 78aa did not supersede 

narrower venue provision in National Bank Act and rejecting 

amicus SEC’s suggestion § 78aa should apply nonetheless to 

facilitate consolidation of litigation as a “policy argument[] ... 

more appropriately addressed to Congress”); see also Leroy, 

443 U.S. at 184 (“The desirability of consolidating similar 

claims in a single proceeding ... does not justify reading [28 

U.S.C. § 1391] to give the plaintiff the right to select the place 

of trial that best suits his convenience”); Olberding v. Illinois 

Cent. R.R. Co., 346 U.S. 338, 340 (1953) (“The requirement 

of venue is specific and unambiguous; it is not one of those 

vague principles which, in the interest of some overriding 

policy, is to be given a ‘liberal’ construction”). 

Accordingly, we hold the SEC failed to lay venue in the 

District of Columbia under “the straightforward language of 

[§ 78aa].” Leroy, 443 U.S. at 182 n.14. 

III. Remedy

There remains the question of remedy. The SEC argues 

the improper venue in this case was a harmless error, not 

prejudicial to Benyo, and should be overlooked, whereas 

Benyo argues reversal is the appropriate remedy for improper 

venue, even after a jury trial. That was the judgment of the 

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Supreme Court in Olberding v. Illinois Central, 346 U.S. at 

340 (reversing verdict for plaintiff after jury trial in a venue 

improper under 28 U.S.C. § 1391(a)), and despite the passage 

of time, Olberding remains the law. See Lexecon Inc. v. 

Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 41 

(1998) (“reversal with new trial is required [where] venue is 

precluded by the governing statute” (citing Olberding)); 

Leroy, 443 U.S. at 181, 184 & n.18 (citing Olberding and 

reversing declaratory judgment for improper venue). 

The SEC ignores Olberding notwithstanding Benyo’s 

reliance upon it. The Commission instead suggests we can 

affirm the judgment on the ground the error is harmless, as it 

says we did in Whittier v. Emmet, 281 F.2d 24 (D.C. Cir. 

1960), where sailors’ claims for life insurance benefits owed 

them by the Government had been erroneously consolidated 

in this district. We noted there in a dictum that none of the 

parties had been prejudiced by the error, id. at 30: not the 

plaintiffs, because they had failed to make and preserve a 

timely objection to venue, and not the Government, because 

we ruled in its favor on the merits of its appeal. Here, as we 

have seen, Benyo preserved his objection to venue at every 

opportunity and the error in venue would be “harmless” to 

him, in the sense in which we used that term in Whittier, only 

if we were also to rule in his favor on the merits. Whittier

therefore cannot carry the weight the SEC would have us 

place upon it. See also Cottman Transmission Sys., Inc. v. 

Martino, 36 F.3d 291, 297 (3d Cir. 1994) (describing Whittier 

facts as “somewhat unique” [sic] and venue question as 

“really only of academic interest”). 

The judgment below is accordingly reversed and the 

district court is instructed to dismiss the case without 

prejudice. 

So ordered.

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