FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALVIN W. GEBHART, JR.; DONNA T. 

GEBHART,

No. 08-74943 Petitioners,

SEC No.

v.  CRD1005905

SECURITIES AND EXCHANGE OPINION COMMISSION,

Respondent. 

On Petition for Review of an Order of the

Securities & Exchange Commission

Submitted December 1, 2009*

Pasadena, California

Filed February 17, 2010

Before: Harry Pregerson, Michael Daly Hawkins and

Raymond C. Fisher, Circuit Judges.

Opinion by Judge Fisher

*The panel unanimously finds this case suitable for decision without

oral argument. See Fed. R. App. P. 34(a)(2). 

2483
COUNSEL

Charles F. Goria, Goria, Weber & Jarvis, San Diego, California, for the petitioners.

David M. Becker, Mark D. Cahn, Jacob H. Stillman, Randall

W. Quinn, William K. Shirey, Securities and Exchange Commission, Washington, D.C., for the respondent.

OPINION

FISHER, Circuit Judge:

Alvin W. and Donna T. Gebhart petition for review of an

order by the Securities and Exchange Commission (SEC) sustaining a disciplinary action by the National Association of

Securities Dealers (NASD).1 The NASD found that the Gebharts, securities salespersons, committed securities fraud in

violation of section 10(b) of the Securities Exchange Act of

1934 and Rule 10b-5 by making false statements to clients in

connection with the sale of promissory notes used to finance

the conversion of mobile home parks to resident ownership.

The SEC upheld the NASD’s disciplinary action, concluding

that the Gebharts acted with scienter because they made “representations to their clients despite not knowing whether they

were true or false.” We hold that the SEC applied the correct

scienter standard and that substantial evidence supports the

SEC’s conclusion that the Gebharts acted with scienter. We

therefore deny the petition for review.

I. BACKGROUND

Alvin Gebhart has been in the securities industry since 1983.2

1The NASD is now the Financial Industry Regulatory Authority

(FINRA). 

2

In May 1983, Gebhart registered with the NASD as an investment

company products and variable contracts representative (“IC representa2486 GEBHART v. SEC
In 1994, he began working at Mutual of New York (MONY)

in San Diego, where he sold annuities and mutual funds.

While at MONY, Gebhart met Jack Archer, a fellow MONY

salesperson. In 1995, Archer told Gebhart about a business

venture, Community Service Group (CSG), run by James

Scovie. CSG was in the business of converting mobile home

parks to resident ownership. CSG purchased parks from the

owners and then assisted residents in purchasing them. In late

1996, Scovie and another person, David Mounier, created

MHP Conversions, LLC (MHP) to facilitate the conversion

process. MHP issued promissory notes that were sold to individual investors to raise funds for CSG’s purchase of the

parks. The MHP notes had one-year terms with fixed interest

rates of 18 percent for new investments and 14 percent for

reinvested funds. Each note stated that it would “ultimately be

secured by a deed of trust” on the particular park to be purchased with the funds, but that “[u]ntil such time as said deed

of trust is recorded, the sole asset of [the issuer] will be a deed

of trust for the property known as Eastern Trailer Park.”

Archer told Gebhart about the MHP program and asked

Gebhart whether any of his clients were interested in investtive”) with the Prudential Insurance Company of America. In January

1996, he became associated with Mutual Service Corporation (MSC), a

NASD member, as an IC representative. In December 1997, he passed the

Series 7 general securities representative qualifying examination and

became associated with MSC as a general securities representative. 

Donna Gebhart registered with the NASD through Pacific Mutual as an

IC representative on February 13, 1996. On February 14, 1996, she

became associated with MSC as an IC representative. In April 1998, she

passed the Series 7 qualifying examination and became associated with

MSC as a general securities representative. 

In August 2000, MSC terminated the Gebharts’ registrations. The Gebharts subsequently registered as general securities principals, general

securities representatives and IC representatives with Sentra Securities

Corporation, another NASD member. They were associated with Sentra at

the time of the NASD disciplinary proceedings that are the subject of this

case. 

GEBHART v. SEC 2487
ing. Gebhart arranged for Archer to make a presentation of

the MHP program to three of his clients, all of whom made

investments in the program. Archer earned a sales commission, and paid half of the commission to Gebhart.

In early 1996, Gebhart moved from MONY to another

financial services firm, Mutual Service Corporation (MSC), a

broker-dealer and member of the NASD. His wife, Donna

Gebhart, joined him at MSC and the two opened and operated

a MSC branch in Rancho Bernardo, California, where they

sold insurance and annuities and provided financial planning

services to clients. In October 1996, Archer approached the

Gebharts about selling MHP notes to their MSC clients. The

Gebharts met with Archer for about 40 minutes. Archer told

them that the MHP program had been approved by the compliance officer at Archer’s firm, MONY. This was not true,

however. Archer also told the Gebharts “that the parks were

in good shape and he always assured us that they had a lot of

equity in them. He said they [were] 45 to 55 percent leveraged.” 

The Gebharts conducted no independent investigation into

the MHP program, either in 1996 or over the next four years,

during which time they sold MHP notes to their clients. They

failed to obtain any financial statements for CSG or MHP,

ascertain who were the owners, officers or shareholders of

CSG or MHP, determine what compensation would be paid

to CSG or MHP or their officers, verify that trust deeds securing the notes were being recorded or obtain copies of recorded

trust deeds. They visited two of the mobile home parks subject to the notes, but those visits do not appear to have served

any useful purpose. When Archer would approach the Gebharts with the opportunity for clients to invest in a new park

conversion, they conducted no independent analysis of the

park in question. Rather, “[i]t was always our understanding

that they wouldn’t have done a conversion on a park that

wasn’t — had good cash flow and that would be a deal worth

them doing.” Although the Gebharts believed that their cli2488 GEBHART v. SEC
ents’ loans would be secured by second trust deeds, they did

not inquire why they were not first trust deeds or who held the

first trust deeds. In lieu of an independent investigation, the

Gebharts relied on Archer’s representations. As Alvin Gebhart explained:

Throughout our four-year relationship, Mr. Archer

continually stressed the strength of this program.

Even in February [2000] when he spoke to Mr. Dave

Mounier, the other principal [in MHP], he indicated

that the parks were deep with equity. Donna and I

had continuously interviewed Mr. Archer about the

economics of this program. Initially, we were

assured that the parks were financed only to 55% of

value. Moreover, the monthly rents paid by the

homeowners supplied working capital to Community

Service Group. Indeed, we were assured that Community Service Group would not even consider a

conversion of a park unless it had sufficient rents to

pay all costs and interest to the Noteholders.

Donna Gebhart confirmed that she and her husband had simply relied on Archer’s representations about the MHP program:

[Archer] basically explained the program [at the

October 1996 meeting]. I don’t remember all of the

details, but he went over it and I just wanted to be

sure that — I wanted to make sure that these notes

or trust deeds were secured and he assured us many

times that they were always secured . . . . I remember

he sort of went through the program. I don’t remember word-for-word what the man said, but he came

to us and he was a pension administrator, a Pacific

Life former manager, and we always looked at him

as being probably further up in the — obviously

more experienced in stuff than we had.

GEBHART v. SEC 2489
Between the Gebharts’ meeting with Archer in October

1996 and CSG’s collapse in 2000, the Gebharts sold nearly

$2.4 million in MHP promissory notes to 45 of their clients,

earning about $105,000 in commission fees.3 The sales were

based on several statements by the Gebharts that, it later

became clear, were false. The Gebharts told their clients that

the MHP notes were a proven investment that offered substantial returns and were secured by recorded deeds of trust.

They said that in the worst case scenario their clients would

be part owners of the mobile home parks and would be able

to recover their investments. In fact, the trust deeds were not

recorded and the parks were significantly overencumbered.

The Gebharts failed to disclose that their statements were

based on information provided by Archer rather than their

own, independent investigation.

CSG and MHP collapsed in the middle of 2000. In May,

Scovie sent a letter to MHP noteholders explaining that an illness was forcing his absence from MHP and CSG. He disclosed that few of the deeds of trust purportedly securing the

notes were recorded. In fact, there were approximately

$3,670,000 in outstanding promissory notes, of which only

$605,000 were secured by recorded deeds of trust. Gebhart

admitted that “none of our clients’ notes were recorded,” and

that the mobile home parks turned out to be “substantially

overencumbered.” At the time of MHP’s collapse, the Gebharts’ clients had over $1.5 million invested in outstanding

MHP notes.4 MSC terminated the Gebharts’ employment in

August 2000.

As a result of these events, in 2002 the NASD’s Department of Enforcement filed a complaint against the Gebharts

3The Gebharts also invested thousands of dollars of their own funds in

the notes between 1996 and 1999. 

4The Gebharts’ clients pursued a number of remedies, with the apparent

support of the Gebharts, and were eventually able to recover about 84 percent of their investments. 

2490 GEBHART v. SEC
for securities fraud.5

 The NASD asserted that the Gebharts

had made materially false and misleading statements to their

clients, in violation of section 10(b) of the Securities

Exchange Act of 1934, SEC Rule 10b-5 and NASD Conduct

Rule 2120.6 A NASD hearing panel found that the Gebharts

had acted in good faith and therefore rejected the fraud

charges, but the NASD National Adjudicatory Council (NAC)

reversed. The NAC found that the Gebharts had committed

fraud, imposed a lifetime bar on Alvin Gebhart and imposed

a one-year suspension and a $15,000 fine on Donna Gebhart.

The SEC upheld the NASD decision in 2006.

The Gebharts petitioned for review of the SEC decision.

We vacated and remanded in an unpublished decision, Gebhart v. SEC, 255 Fed. App’x 254, 2007 WL 4144635 (9th Cir.

Nov. 21, 2007), out of concern that the Commission had

applied a purely objective scienter standard that disregarded

the Gebharts’ actual state of mind. We remanded for reconsideration of the question of scienter and instructed the SEC to

give careful consideration to the Gebharts’ claims that, notwithstanding their objectively unreasonable conduct, they had

acted in good faith.

On remand, the SEC once again determined that the Gebharts had acted with scienter and reaffirmed the NASD decision. The Gebharts have again petitioned for review. We have

jurisdiction under 15 U.S.C. § 78y(a)(1), and deny the petition.

5

In addition to the fraud claims, the NASD complaint alleged that the

Gebharts had offered and sold unregistered securities, in violation of

NASD Conduct Rule 2110, and engaged in private securities transactions,

in violation of Conduct Rules 2110 and 3040. The NASD found that the

Gebharts had indeed violated these provisions and the SEC affirmed the

NASD’s findings. The Gebharts do not contest those findings in this

appeal. Only the fraud charges are at issue here. 

6NASD Conduct Rule 2120 provides: “No member shall effect any

transaction in, or induce the purchase or sale of, any security by means of

any manipulative, deceptive or other fraudulent device or contrivance.” 

GEBHART v. SEC 2491
II. SCIENTER

The Gebharts challenge the SEC’s finding of scienter on

two bases. First, they contend that the SEC applied an erroneous legal standard for scienter. Second, they contend that the

SEC’s finding of scienter is not supported by substantial evidence. We reject their contentions.

A.

The first question is whether the SEC applied the correct

scienter requirement applicable to a claimed violation of section 10(b) and Rule 10b-5. We review de novo the SEC’s conclusions of law.7

Section 10(b) of the Securities Exchange Act of 1934

states, in relevant part:

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 . . . [t]o 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. § 78j. SEC Rule 10b-5, which implements section

10(b), provides that it is unlawful “[t]o employ any device,

7

“The Commission’s conclusions of law are to be set aside if arbitrary,

capricious, or otherwise not in accordance with law.” Ponce v. SEC, 345

F.3d 722, 728 (9th Cir. 2003) (quoting Rutherford v. SEC, 842 F.2d 214,

215 (9th Cir. 1988)) (internal quotation marks omitted). 

2492 GEBHART v. SEC
scheme, or artifice to defraud.” 17 C.F.R. § 240.10b-5(a). It

also declares it unlawful “[t]o 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.” Id.

§ 240.10b-5(b).

[1] To establish a violation of section 10(b) and Rule 10b5, the SEC is required to “show that there has been a misstatement or omission of material fact, made with scienter.” Ponce

v. SEC, 345 F.3d 722, 729 (9th Cir. 2003) (quoting SEC v.

Fehn, 97 F.3d 1276, 1289 (9th Cir. 1996)) (internal quotation

marks omitted); see also SEC v. Rana Research, Inc., 8 F.3d

1358, 1364 (9th Cir. 1993) (discussing the elements the SEC

must prove to establish a misrepresentation violating Rule

10b-5).8“The plaintiffs may establish scienter by proving

either actual knowledge or recklessness.” In re Software Toolworks Inc., 50 F.3d 615, 626 (9th Cir. 1994); see Ponce, 345

F.3d at 729 (“[S]cienter may be established by demonstrating

that the defendant acted recklessly.” (citing Hollinger v. Titan

Capital Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990) (en

banc))).

Scienter may be established, therefore, by showing that the

defendants knew their statements were false, or by showing

that defendants were reckless as to the truth or falsity of their

8The elements of a section 10(b) or Rule 10b-5 claim vary depending

on the identities of the parties and the nature of the relief sought. In a private securities fraud action, the plaintiff generally must prove five elements: (1) a material misrepresentation or omission of fact; (2) scienter;

(3) a connection with the purchase or sale of a security; (4) transaction and

loss causation; and (5) economic loss. Zucco Partners, LLC v. Digimarc

Corp., 552 F.3d 981, 990 (9th Cir. 2009). Our focus here is on the elements that the SEC must establish. The fourth and fifth elements of a private claim are therefore inapplicable. In this case, moreover, only the

scienter element is at issue. The Gebharts do not dispute that their statements were material or in connection with the sale of securities, and, for

the reason given in Part III, they have not preserved their claim that their

statements were not false. 

GEBHART v. SEC 2493
statements. See Ponce, 345 F.3d at 729-30 (scienter is established where defendants make “statements that they know, or

are reckless in not knowing, are false”); In re Vantive Corp.

Sec. Litig., 283 F.3d 1079, 1085 (9th Cir. 2002) (scienter is

established where “the defendant made false or misleading

statements either intentionally or with deliberate recklessness”), abrogation on other grounds recognized by South

Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir.

2008); United States v. Farris, 614 F.2d 634, 638 (9th Cir.

1979) (“[T]he reckless disregard for truth or falsity is sufficient to sustain a finding of securities fraud.”).9

This familiar definition of scienter in a securities fraud case

based on a misrepresentation is recognized not only in this

circuit but in others as well. In SEC v. Lyttle, 538 F.3d 601,

603 (7th Cir. 2008), for example, Judge Posner explained that

to establish scienter the SEC was required to show that “the

defendants either knew that the representations they made to

investors were false or were reckless in disregarding a substantial risk that they were false.” See also South Cherry

Street, LLC v. Hennessee Group LLC, 573 F.3d 98, 109 (2d

Cir. 2009) (“This Court has also long held that the scienter

element can be satisfied by a strong showing of reckless disregard for the truth.”); Levinson v. Basic Inc., 786 F.2d 741, 749

(6th Cir. 1986) (“Scienter, a traditional element of a section

10(b) and Rule 10b-5 action, can be proven by a showing that

the defendants issued false or misleading . . . statements with

knowledge that those statements were false or misleading, or

with reckless disregard as to their false or misleading character.”) (citation omitted), vacated on other grounds, Basic Inc.

v. Levinson, 485 U.S. 224 (1988). It is also consistent with

9

In some circumstances not relevant here, the Private Securities Litigation Reform Act (PSLRA) requires a showing that the defendants knew

their statements were false. See 15 U.S.C. § 78u-5(c)(1)(B)(i) (requiring

“actual knowledge . . . that the statement was false or misleading” in private securities actions challenging forward-looking statements). The

claims in this case are not covered by the PSLRA, so scienter can be

established by either knowledge or recklessness. 

2494 GEBHART v. SEC
traditional common law principles. See generally Restatement

(Second) of Torts § 526 (1977) (permitting scienter to be

established by showing either knowledge or conscious recklessness).10

[2] “Scienter can be established by direct or circumstantial

evidence.” Provenz v. Miller, 102 F.3d 1478, 1490 (9th Cir.

1996). In Hollinger, we explained that the objective unreasonableness of a defendant’s conduct may give rise to an inference of scienter:

[R]eckless conduct may be defined as . . . an extreme

departure from the standards of ordinary care, . . .

which presents a danger of misleading buyers or sellers that is either known to the defendant or is so

obvious that the actor must have been aware of it.

Hollinger, 914 F.2d at 1569 (quoting Sundstrand Corp. v. Sun

Chem. Corp., 553 F.2d 1033, 1045 (7th Cir. 1977)) (first

alteration in original).

[3] Scienter, however, is a subjective inquiry. It turns on

the defendant’s actual state of mind. See 8 Louis Loss & Joel

Seligman, Securities Regulation 3676 (3d ed. 2004). Thus,

although we may consider the objective unreasonableness of

the defendant’s conduct to raise an inference of scienter, the

ultimate question is whether the defendant knew his or her

statements were false, or was consciously reckless as to their

truth or falsity. See Ernst & Ernst v. Hochfelder, 425 U.S.

185, 206 (1976) (“There is no indication that Congress

intended anyone to be made liable for such practices unless he

10The conclusion that we require either knowledge of falsity or conscious recklessness is supported by our decision in In re Silicon Graphics

Inc. Securities Litigation, 183 F.3d 970 (9th Cir. 1999), abrogation on

other grounds recognized by South Ferry LP, 542 F.3d at 784, where we

explained that, in the securities fraud context, scienter requires “deliberate

recklessness,” which we defined as conduct reflecting “some degree of

intentional or conscious misconduct.” Id. at 977. 

GEBHART v. SEC 2495
acted other than in good faith.”); Hollinger, 914 F.2d at 1570

(scienter requires “something more egregious than even

‘white heart/empty head’ good faith.” (quoting Sundstrand,

553 F.2d at 1045) (internal quotation marks omitted)); Kaplan

v. Rose, 49 F.3d 1363, 1379-81 (9th Cir. 1994) (applying

good faith standard); In re Worlds of Wonder Sec. Litig., 35

F.3d 1407, 1425 (9th Cir. 1994) (same); In re Apple Computer Sec. Litig., 886 F.2d 1109, 1117-18 (9th Cir. 1989)

(same); cf. Restatement (Second) of Torts § 526 cmt. d (“The

fact that the misrepresentation is one that a man of ordinary

care and intelligence in the maker’s situation would have recognized as false is not enough to impose liability . . . , but it

is evidence from which his lack of honest belief may be

inferred.” (emphasis added)).11

B.

The Gebharts contend that the SEC applied an erroneous

scienter standard in this case by focusing exclusively on Hollinger’s objective inquiry and disregarding evidence of sub11Our decision in Kaplan is illustrative of the respective roles played by

the objective and subjective components of the scienter inquiry. We began

by citing Hollinger and observing that scienter can be established by

showing an extreme departure from the ordinary standards of care and an

obvious danger of misleading investors. 49 F.3d at 1378. But we also

observed that several defendants had submitted sworn declarations testifying that they believed in good faith that their statements were true. Id. at

1379. The plaintiff argued that he had presented sufficient evidence of

scienter to survive summary judgment because “[t]hese statements are so

false that defendants must have known they were false and must have

intended to mislead the public.” Id. We disagreed, explaining that plaintiff’s argument “does not suffice to rebut the declarations of good faith

made by the defendants.” Id. Kaplan shows that the objective unreasonableness of the defendant’s actions may raise an inference of scienter, but

the factfinder must consider the direct and circumstantial evidence as a

whole to determine whether the defendant knew his or her statements were

false, or consciously disregarded the risk that they were false. See Kaplan,

49 F.3d at 1379-80; Worlds of Wonder, 35 F.3d at 1424-25; Apple, 886

F.2d at 1117-18. In Kaplan, as to those particular defendants, the evidence

as a whole was insufficient to survive summary judgment. 

2496 GEBHART v. SEC
jective good faith. We disagree. The SEC considered all of the

evidence bearing on the Gebharts’ actual state of mind,

including the Gebharts’ extreme departure from ordinary standards of care, and found that the Gebharts were consciously

aware of the risk that their statements were false. There was

no error.

The SEC certainly considered the objective unreasonableness of the Gebharts’ actions as part of its analysis. The SEC

found that the Gebharts’ failed to perform any meaningful

investigation into the MHP promissory notes — an extreme

departure from ordinary standards of care that “created the

substantial [and obvious] risk . . . that their representations

were not true.” The SEC found that the Gebharts “made no

effort to investigate or understand why their clients were

being sold second (and not first) deeds of trust; no effort to

identify the first trust deed holders or the amounts of those

outstanding trust deeds; and no effort to ensure their clients’

investments were actually being secured by recorded trust

deeds.” The Gebharts made “no effort” to corroborate

Archer’s representations that the parks were not overly

encumbered.

[4] The SEC properly considered the objective unreasonableness of the Gebharts’ actions as some evidence supporting

the inference that the Gebharts acted with scienter, but did not

treat it as dispositive. The Commission recognized that

scienter turns on “an actor’s actual state of mind at the time

of the relevant conduct.” It considered the Gebharts’ arguments that they acted in good faith and took into account “the

Gebharts’ assertions that they believed they had done enough

to confirm the truthfulness of their statements to clients.” It

evaluated “the evidence the Gebharts put forward to demonstrate their good faith beliefs” as “part of the complete mix of

facts bearing on an evaluation of their [actual] state of mind”

and concluded that the “[e]vidence from the Gebharts about

their subjective belief [wa]s not sufficient to overcome” the

inference of scienter created by the evidence as a whole. The

GEBHART v. SEC 2497
Gebharts’ assertions of good faith were “not plausible” and

lacked “credibility.” Based on the evidence as a whole, the

SEC determined that the Gebharts “knew they had no direct

knowledge of the truth or falsity” of their statements, and

made their statements “despite not knowing whether they

were true or false.” The SEC correctly applied the appropriate

scienter standard.

C.

The Gebharts also argue that the SEC’s finding that they

acted with scienter is not supported by substantial evidence.

We disagree.

The SEC’s factual findings are reviewed for substantial evidence. Ponce, 345 F.3d at 728. The substantial evidence standard also applies to the SEC’s finding of scienter. Vernazza

v. SEC, 327 F.3d 851, 859 (9th Cir.), amended by 335 F.3d

1096 (9th Cir. 2003). Substantial evidence means more than

a mere scintilla but less than a preponderance; it means such

relevant evidence as a reasonable mind might accept as adequate to support a conclusion. NLRB v. Int’l Bhd. of Elec.

Workers, Local 48, 345 F.3d 1049, 1053-54 (9th Cir. 2003).

The standard is “extremely deferential” and a reviewing court

must uphold the agency’s findings “unless the evidence presented would compel a reasonable finder of fact to reach a

contrary result.” Monjaraz-Munoz v. INS, 327 F.3d 892, 895

(9th Cir.), amended by 339 F.3d 1012 (9th Cir. 2003) (quoting

Singh-Kaur v. INS, 183 F.3d 1147, 1149-50 (9th Cir. 1999))

(internal quotation marks omitted). If the evidence is susceptible to more than one rational interpretation, we may not substitute our judgment for that of the agency. Bear Lake Watch,

Inc. v. Fed. Energy Regulatory Comm’n, 324 F.3d 1071, 1076

(9th Cir. 2003).

The Gebharts point out that there is some evidence supporting an inference that they genuinely believed that they had an

adequate basis for their statements. Significantly, the Geb2498 GEBHART v. SEC
harts themselves invested substantially in the MHP notes. See

8 Loss & Seligman, supra, at 3691 n.558 (“[I]nvestment of

one’s own money tends to negate scienter, since it ‘belies any

known or obvious danger.’ ” (quoting Hoffman v. Estabrook

& Co., 587 F.2d 509, 517 (1st Cir. 1978))). The Gebharts also

may have sincerely, if mistakenly, believed that MONY and

MSC had approved the MHP program. 

[5] Substantial evidence, however, supports the SEC’s

finding of recklessness. The Gebharts represented that the

MHP notes were a good investment, that they were secured

by recorded trust deeds and that in the event of a problem

investors would be able to get their investments back because

the parks were not heavily leveraged. The Gebharts based

these statements on representations by Archer and conducted

no meaningful independent investigation to confirm the truth

of their representations.12 It was therefore reasonable for the

12The Gebharts contend that they conducted an adequate investigation

into the MHP program and that they sincerely believed they had a reasonable basis for their statements that the MHP notes were secured and that

the parks were not overencumbered. In addition to their own purchases of

MHP notes, they point to (1) their mistaken belief (based on Archer’s

statements) that MONY had approved the MHP program; (2) their having

informed MSC’s compliance officer about the MHP program and receiving no objection in response; (3) their belief that third party banks would

confirm that deeds of trust were being recorded; (4) the absence of any

problems with payments on the notes prior to 2000; (5) their visits to two

mobile home parks that were part of the program; and (6) statements by

clients that the Gebharts never intended to deceive them. They also rely

on the NASD hearing panel’s finding that they “truly believed that they

had fulfilled their responsibilities to assure that MHP and CSG were

appropriate investments.” The SEC reasonably discounted most of this

evidence. The Gebharts failed to confirm Archer’s claim that MONY had

approved the MHP program and the Gebharts acknowledge that MSC

never formally approved the program. Whether clients believed the Gebharts intended to deceive them — there is no evidence in the record that

the Gebharts ever intended to defraud anyone — is irrelevant to whether

the Gebharts made statements recklessly. The Gebharts’ visits to the two

parks afforded them no information about whether the parks were overencumbered or the trust deeds were recorded. The SEC found no credibilGEBHART v. SEC 2499
SEC to infer that the Gebharts were consciously aware that

they lacked sufficient information for their statements. See

Restatement (Second) of Torts § 526 (1977) (“A misrepresentation is fraudulent if the maker . . . does not have the confidence in the accuracy of his representation that he states or

implies, or . . . knows that he does not have the basis for his

representation that he states or implies.”). By asking the court

to draw inferences different from those reasonably drawn by

the SEC, the Gebharts misapprehend the nature of our review.

See Vernazza, 327 F.3d at 861. We may not substitute our

judgment for the reasonable judgment of the Commission. See

Ponce, 345 F.3d at 728 (“If . . . the evidence is open to more

than one interpretation, we are required to uphold the SEC’s

finding.”).

III. REMAINING ISSUES

[6] The Gebharts’ remaining contentions are unpersuasive.

The SEC adequately explained its determination not to defer

to the NASD hearing panel’s finding that the Gebharts acted

in good faith by offering detailed, specific reasons supported

by substantial evidence for rejecting the hearing panel’s finding. See Maka v. INS, 904 F.2d 1351, 1355 (9th Cir. 1990),

amended by 932 F.2d 1352 (9th Cir. 1991). The Gebharts

waived their challenges to the SEC’s factual findings (that the

trust deeds were not recorded and that the parks were overencumbered) by failing to raise them in their prior appeal. See

In re Cellular 101, Inc., 539 F.3d 1150, 1155-56 (9th Cir.

2008). The SEC did not abuse its discretion by imposing a

lifetime bar on Alvin Gebhart. See Ponce, 345 F.3d at 740-41.

PETITION DENIED.

ity in the Gebharts’ claims that they relied on third-party banks to ensure

the validity of the MHP program and the recording of trust deeds. The

hearing panel’s finding of good faith was reversed by the NASD National

Adjudicatory Council. Our role is not to weigh the evidence for ourselves

but to determine whether the SEC reached a reasonable conclusion. We

cannot say that it did not do so. 

2500 GEBHART v. SEC