FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff-Appellant, No. 07-56098

v.  D.C. No.

JOHN J. TODD; ROBERT D. MANZA; CV-03-02230-BEN

JEFFREY WEITZEN,

Defendants-Appellees. 

SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff-Appellee,

v.

No. 07-56193

JOHN J. TODD,

Defendant-Appellant,  D.C. No.

CV-03-02230-BEN

and

ROBERT D. MANZA; JEFFREY

WEITZEN,

Defendants. 

8571
SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff-Appellee,

v.

No. 07-56196

JOHN J. TODD,

Defendant, D.C. No.  CV-03-02230-BEN

JEFFREY WEITZEN,

Defendant, OPINION

and

ROBERT D. MANZA,

Defendant-Appellant. 

Appeal from the United States District Court

for the Southern District of California

Roger T. Benitez, District Judge, Presiding

Argued and Submitted

November 5, 2010—Pasadena, California

Filed June 23, 2011

Before: Mary M. Schroeder, Richard C. Tallman, and

Milan D. Smith, Jr., Circuit Judges.

Opinion by Judge Milan D. Smith, Jr.

8572 SEC v. TODD
COUNSEL

Randall Quinn, Assistant General Counsel, Washington, D.C.,

for plaintiff-appellant Securities and Exchange Commission.

Vincent J. Brown and Robert D. Rose, Sheppard, Mullin,

Richter & Hampton, LLP, San Diego, California, for

defendant-appellee John J. Todd; James L. Sanders, McDermott Will & Emery, LLP, Los Angeles, California for

defendant-appellee Robert D. Manza; Matthew E. Sloan,

Skadden, Arps, Slate, Meagher & Flom, LLP, Los Angeles,

California for defendant-appellee Jeffrey Weitzen.

OPINION

M. SMITH, Circuit Judge:

The Securities and Exchange Commission (SEC) brought

suit against senior officers of Gateway Incorporated (now a

subsidiary of Acer, Inc.) claiming that they unlawfully misrepresented Gateway’s financial condition in the third quarter

of 2000 in order to meet financial analysts’ earnings and revenue expectations. After a three-week trial, a jury found two

SEC v. TODD 8577
former Gateway financial executives, John J. Todd and Robert D. Manza, liable on all claims by the SEC. 

The SEC appeals the district court’s order granting, in part,

Todd’s and Manza’s motions for judgment as a matter of law,

following the jury verdict. The SEC also appeals the district

court’s order granting the motion by Jeffrey Weitzen, former

Gateway President and CEO, for summary judgment concerning certain alleged securities violations. On cross-appeal,

Todd and Manza appeal the district court’s order denying in

part their motions for judgment as a matter of law, and denying their motions for a new trial. 

We affirm in part, reverse in part, and remand. We reverse

the district court’s order granting in part Todd’s and Manza’s

motions for judgment as a matter of law on the antifraud

claims under the Securities Exchange Act of 1934 Section

10(b), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R.

§ 240.10b-5, and misrepresentation to auditors claims under

Rule 13b2-2(a)(1), 17 C.F.R. § 240.13b2-2. Substantial evidence supports the jury’s verdict that Todd and Manza at least

recklessly misrepresented revenue related to the Lockheed

transaction, and that Todd recklessly misrepresented revenue

as to the VenServ transaction, in the third quarter of 2000. 

We also reverse the district court’s order granting Weitzen’s motion for summary judgment as to the Section 10(b)

and Rule 10b-5 violations because there are genuine issues of

material fact regarding whether Weitzen knowingly misrepresented Gateway’s financial growth as “accelerated” given his

knowledge of the unusual Lockheed and AOL transactions.

There are also issues of material fact as to whether Weitzen

was a “control person” under Section 20(a), 15 U.S.C.

§ 78t(a). We affirm the district court’s order granting Weitzen’s motion for summary judgment as to the Rule 13b2-2

claim because there is no evidence that Weitzen signed a letter to Gateway’s auditors knowing that it misrepresented

Gateway’s financial position. 

8578 SEC v. TODD
We also affirm the district court’s order denying in part

Todd’s and Manza’s motions for judgment as a matter of law

on the aiding and abetting claims under Sections 13(a), 15

U.S.C. § 78m(a), 13(b)(2)(A), 15 U.S.C. § 78m(b)(2)(A), and

Rule 13b2-1, 17 C.F.R. § 240.13b2-1, and their motions for

a new trial.

BACKGROUND FACTS AND PRIOR PROCEEDINGS

I. Gateway’s Officers and Transactions

Gateway is a manufacturer and seller of personal computers. In 2000, Weitzen was Gateway’s president and chief

executive officer (CEO), Todd was its chief financial officer

(CFO), and Manza was its controller. In addition to maintaining its own internal accounting systems, Gateway retained

PricewaterhouseCoopers (PwC) as its outside accounting and

auditing firm. 

Todd was responsible for Gateway’s financial reporting,

which included reviewing and signing financial reports. Todd

also reviewed press releases, made accounting decisions, and

managed Gateway’s relationships with outside auditors and

investors. Manza was the company’s highest-ranking CPA.

His responsibilities included booking transactions and preparing financial statements, such as Gateway’s 10-Q (quarterly)

and 10-K (yearly) reports. 

Todd and Manza signed the third-quarter 2000 management representation letter to PwC, which claimed that Gateway’s quarterly financial statements were a “fair

presentation” of Gateway’s financial position, and that they

were prepared in “conformity with generally accepted

accounting principles [GAAP].” Also in the third quarter of

2000, Weitzen and Todd represented in a conference call with

analysts that Gateway was experiencing “accelerating revenue

growth.” Weitzen also participated in preparing a press

SEC v. TODD 8579
release claiming that Gateway had “accelerated year-overyear revenue growth.” 

In 2000, the personal computer market was weakening substantially, yet Gateway continued to claim record earnings

and revenue growth. Skeptical, the SEC began investigating

whether Weitzen, Todd, or Manza had misrepresented Gateway’s financial condition during the second and third quarters

of 2000 in order to meet Wall Street analysts’ expectations.

In the SEC’s view, Weitzen, Todd, and Manza had misrepresented Gateway’s financial status in order to cover a $110

million gap in the third quarter between the analysts’ expectations and its actual revenue. Three transactions are at issue in

this appeal.1

A. The Lockheed Transaction

In the third quarter of 2000, Gateway recorded $47.2 million in revenue from a sale of fixed assets to Lockheed Martin. Contrary to Gateway’s customary practice of selling

Gateway-branded personal computers, the sale was mostly

comprised of IBM and Sun servers. The essence of the transaction was that Lockheed would acquire the equipment for

$47.2 million, and Gateway would lease it back from Lockheed. The deal was to be cash neutral for Lockheed. 

The parties agree that this was an unusual transaction

because Gateway normally sold its own computers to consumers from its inventory, whereas this was a one-time trans1The SEC challenged four transactions at trial as to Todd and Manza.

Because the jury verdict was written in the disjunctive, the SEC need only

demonstrate that one of the transactions was supported by substantial evidence. See McCord v. Maguire, 873 F.2d 1271, 1273-74 (9th Cir.),

amended by 885 F.2d 650 (9th Cir. 1989). We therefore primarily focus

our analysis on the two claims most strongly supported by the evidence

at trial, the Lockheed transaction, and the VenServ transaction as to Todd

only. We express no opinion concerning the two unaddressed claims or the

VenServ transaction as to Manza. 

8580 SEC v. TODD
action involving fixed assets manufactured by other

companies. Gateway booked the sale of the fixed assets as

gross revenue. Thereafter, the $47.2 million transaction was

publicly reported as gross revenue in Gateway’s Form 10-Q

report, the third-quarter earnings release, and in a conference

call with analysts. 

At trial, the parties disputed whether Gateway’s booking of

the transaction as revenue violated GAAP. They also clashed

over whether the booking was at odds with the policy disclosed in Gateway’s 1999 Form 10-K report, in which Gateway indicated that fixed-asset sales would be included as

gains or losses in net income, whereas product sales and services would be recorded as gross revenue. What no one disputes is that absent the $47.2 million in revenue booked by

Gateway from the Lockheed transaction, Gateway would not

have met analysts’ quarterly expectations. 

B. The VenServ Transaction

Gateway’s third-quarter earnings in 2000 also included $21

million derived from an incomplete sale of computers to VenServ, booked as revenue. The sale was incomplete because,

according to a referral agreement, VenServ was not required

to pay Gateway for the computers until Gateway referred

enough customers to VenServ to buy them. Because Gateway

had not yet referred the requisite number of customers to VenServ, the sale could not properly be recorded as revenue.

None of the parties presently disputes the fact that the VenServ sale was improperly booked.

C. The AOL Transaction

In the third quarter of 2000, Gateway and AOL contractually changed the timing of when fees were payable by AOL

to Gateway. Prior to the change, AOL agreed to pay a fee to

Gateway whenever a buyer of a Gateway computer registered

with AOL. Under the modified agreement, the AOL fees were

SEC v. TODD 8581
payable as soon as a Gateway computer was shipped to a customer, permitting Gateway to book revenue upon shipment.

While the transaction itself was not improper, it gave Gateway a one-time revenue boost of $72 million. The SEC

claimed that Weitzen misrepresented Gateway’s growth as

“accelerated” in the conference call with analysts and in a

press release when he did not disclose that the third-quarter

revenue was based in part on this unusual, one-time transaction, rather than on ordinary sales growth.

II. Prior Proceedings

On November 13, 2003, the SEC filed a civil enforcement

complaint alleging that Weitzen, Todd, and Manza had violated various securities antifraud and reporting provisions

under the Securities Act of 1933, 15 U.S.C. § 77a, et seq., and

the Securities Exchange Act of 1934 (Act), 15 U.S.C. § 78a,

et seq. On May 30, 2006, the district court granted Weitzen’s

motion for summary judgment as to (1) the antifraud provisions of Section 10(b), 15 U.S.C. § 78j(b), and Rule 10b-5, 17

C.F.R. § 240.10b-5; (2) the Rule 13b2-2 prohibition against

making misrepresentations to auditors, 17 C.F.R. § 240.13b2-

2; and (3) control person liability under Section 20(a), 15

U.S.C. § 78t(a). 

On March 7, 2007, after a three-week trial, the jury handed

down a verdict against Todd and Manza on all claims against

them. On May 30, 2007, the district court granted Todd’s and

Manza’s motions for judgment as a matter of law and set

aside the jury verdict on most claims, including, in relevant

part, the Section 10(b) and Rule 10b-5 misrepresentation provisions, and the Rule 13b2-2 prohibition against making misrepresentations to auditors. The district court denied Todd’s

and Manza’s motions to set aside the verdict on the Section

13(a) and (b) aiding and abetting and reporting violations. The

SEC, Todd, and Manza appeal and cross-appeal.

8582 SEC v. TODD
STANDARDS OF REVIEW AND JURISDICTION

We review a district court’s summary judgment ruling de

novo. FTC v. Stefanchik, 559 F.3d 924, 927 (9th Cir. 2009).

“We view the evidence in a light most favorable to the nonmoving party and decide whether there are any genuine issues

of material fact and whether the district court correctly

applied the substantive law.” Id. 

We also review the district court’s grant of judgment as a

matter of law de novo. EEOC v. Pape Lift, Inc., 115 F.3d 676,

680 (9th Cir. 1997). A jury’s verdict must be upheld if it is

supported by “substantial evidence.” Maynard v. City of San

Jose, 37 F.3d 1396, 1404 (9th Cir. 1994). “Substantial evidence is evidence adequate to support the jury’s conclusion,

even if it is also possible to draw a contrary conclusion from

the same evidence.” Wallace v. City of San Diego, 479 F.3d

616, 624 (9th Cir. 2007) (citation and internal quotation

marks omitted). The court must not weigh the evidence, but

rather should ask whether the plaintiff has presented sufficient

evidence to support the jury’s conclusion. See Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1227-28 (9th

Cir. 2001). The evidence must be viewed in the light most

favorable to the nonmoving party, and all reasonable inferences must be drawn in favor of that party. Id. at 1227.

We have jurisdiction pursuant to 28 U.S.C. § 1291.

DISCUSSION

I. The Section 10(b) and Rule 10b-5 Verdict Against

Todd and Manza

Section 10(b) of the Act provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of

interstate commerce . . . To use or employ, in conSEC v. TODD 8583
nection with the purchase or sale of any security . . .

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(b). Rule 10b-5 further delineates that it is

unlawful 

(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. § 240.10b-5.

[1] Liability under Section 10(b) and Rule 10b-5 therefore

requires evidence of (1) a material misrepresentation, (2) in

connection with the purchase or sale of a security, (3) with

scienter, (4) by means of interstate commerce. SEC v. Dain

Rauscher, Inc., 254 F.3d 852, 855-56 (9th Cir. 2001) (citing

SEC v. Rana Research, Inc., 8 F.3d 1358, 1364 (9th Cir.

1993)). For a misrepresentation to be material, “there must be

a substantial likelihood that the disclosure of the omitted fact

would have been viewed by the reasonable investor as having

significantly altered the ‘total mix’ of information made available.” Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)

(citation and internal quotation marks omitted). 

8584 SEC v. TODD
Scienter is the “mental state embracing intent to deceive,

manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425

U.S. 185, 193 n.12 (1976). Reckless conduct may also constitute scienter. Dain Rauscher, Inc., 254 F.3d at 856. Reckless

conduct is a highly unreasonable act or omission that is an

“extreme departure from the standards of ordinary care, and

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.” Id. (citation and internal quotation marks omitted). 

The jury found Todd and Manza liable for securities fraud

under Section 10(b) and Rule 10b-5. Only the material misrepresentation and scienter elements of the claimed 10(b) violations are disputed on appeal. We reverse the district court’s

grant of judgment as a matter of law because substantial evidence supports the jury’s verdict concerning Todd and

Manza. 

A. The Lockheed Transaction

1. Material Misrepresentation

The district court granted Todd’s and Manza’s motions for

judgment as a matter of law, reasoning that the SEC’s expert,

Professor Arnold, did not cite a specific GAAP provision prohibiting the booking of revenue from the sale of fixed assets,

and that Manza had disclosed this unusual transaction to PwC.

The SEC argues that substantial evidence supports the jury’s

verdict because Professor Arnold and other witnesses testified

at trial that Todd and Manza misrepresented the financial

statements for the Lockheed transaction by knowingly recording the revenue improperly under GAAP, and by failing to

disclose a material change in Gateway’s accounting practices.

[2] We recognize that GAAP “tolerate[s] a range of ‘reasonable’ [accounting] treatments, leaving the choice among

alternatives to management.” Thor Power Tool Co. v.

SEC v. TODD 8585
Comm’r of Internal Revenue, 439 U.S. 522, 544 (1979).

Fraudulent accounting decisions are “not merely the difference between two permissible judgments,” as flexible

accounting concepts “do not always (or perhaps ever) yield a

single correct figure.” In re GlenFed, Inc. Sec. Litig., 42 F.3d

1541, 1549 (9th Cir. 1994) (en banc), superseded by statute

on other grounds as recognized in Ronconi v. Larkin, 253

F.3d 423, 429 n.6 (9th Cir. 2001); see also Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1020-21 (5th Cir. 1996)

(explaining that GAAP encompasses “a wide range of acceptable procedures, such that ‘an ethical, reasonably diligent

accountant may choose to apply any of a variety of acceptable

accounting procedures when that accountant prepares a financial statement’ ”) (citation omitted). 

[3] Here, the parties presented competing expert testimony

concerning the propriety of Gateway’s accounting treatment

of the Lockheed transaction. Todd and Manza justified their

treatment of the Lockheed transaction by relying on GAAP’s

Statement of Financial Accounting Concept #6, which defines

revenue as “inflows or other enhancements of assets or an

entity or settlements of its liabilities (or a combination of

both) from delivering or producing goods, rendering services,

or other activities that constitute the entity’s ongoing major or

central operations.” According to the defense, because Gateway ordinarily sold computer equipment as part of its central

operations, Gateway could properly recognize the revenue

even though it was generated by the sale of a “fixed asset”

rather than the sale of inventory. 

[4] On the other hand, substantial evidence was presented

to the jury that enabled it to properly find that GAAP did not

permit Gateway to book the Lockheed transaction as it did.

The SEC’s expert testified at trial that, based on his reading

of Concept #6, it was inappropriate to consider the sale as revenue generating because “no company sells its fixed assets on

a regular basis” unless “it’s liquidating.” Additionally, the

8586 SEC v. TODD
defense expert conceded that in his entire career as an auditor

he had never seen a fixed-asset sale recorded as revenue. 

Assessing expert witness credibility is within the province

of the jury. See, e.g., Dorn v. Burlington N. Santa Fe R.R.

Co., 397 F.3d 1183, 1196 (9th Cir. 2005) (“If two contradictory expert witnesses can offer testimony that is reliable and

helpful, both are admissible and it is the function of the finder

of fact, not the trial court, to determine which is the more

trustworthy and credible.” (citation and alterations omitted)).

Here, the jurors were presented with competing expert testimony about the propriety of the accounting treatment, and

they were at liberty to choose which testimony they found

more credible. 

[5] Moreover, technical compliance with GAAP does not

preclude a finding that an accounting treatment was a material

misrepresentation. See, e.g., United States v. Sarno, 73 F.3d

1470, 1482 n.6 (9th Cir. 1995) (“Adherence to GAAP would

obviously qualify as weighty exculpatory evidence; it does

not, however, necessarily shield one from [ ] liability.”) (citing United States v. Weiner, 578 F.2d 757, 785-86 (9th Cir.

1978)); Monroe v. Hughes, 31 F.3d 772, 774 (9th Cir. 1994)

(same). Regardless of whether Gateway’s accounting treatment of the Lockheed transaction technically complied with

GAAP, there was evidence to support a finding that booking

the transaction as revenue was nonetheless materially misleading to investors. The SEC proffered the testimony of other

witnesses at trial who claimed that it was unreasonable to

record the transaction as revenue. For example, McLaughlin,

a partner from PwC, testified that “there was no basis to

record a sale of fixed assets as revenue in GAAP.” Foote, a

PwC manager, testified that she was “surprised, shocked” that

the transaction was recorded as revenue. Manza himself,

while stating that he eventually grew comfortable with the

idea, also testified that if he were CFO, he would not have

recognized the transaction as revenue generating. Other Gateway employees—Bird, head of Gateway’s consumer division;

SEC v. TODD 8587
Richard, a Gateway manager; and Paustian, a Gateway CPA

—all testified that they would not have recognized the proceeds of the Lockheed transaction as revenue. Collectively,

this testimony constitutes substantial evidence that the jury

was entitled to credit in reaching its verdict. See United States

v. Reyes, 577 F.3d 1069, 1076 (9th Cir. 2009) (holding that

the witnesses’ cumulative testimony, viewed in the light most

favorable to the prosecution, was sufficient to support the

jury’s finding of material omissions and misstatements) (citing United States v. Gonzalez-Torres, 309 F.3d 594, 598 (9th

Cir. 2002)). 

[6] Furthermore, evidence was also introduced showing

that Gateway’s internal policies, which had been disclosed to

investors, were violated. For example, there was evidence that

booking the Lockheed transaction as revenue was contrary to

Gateway’s accounting policy of recording fixed-asset sales as

gains or losses, rather than as revenue. Gateway’s accounting

policy for fixed assets was stated in its 1999 Form 10-K

report, and neither Todd nor Manza disclosed a change to that

policy in Gateway’s third-quarter 10-Q report. For these reasons, we conclude that the jury relied on substantial evidence

in finding a material misrepresentation concerning improper

and misleading accounting for the Lockheed transaction. 

2. Scienter

[7] The district court found that there was insufficient evidence to establish scienter as to Todd and Manza because

PwC was informed of the unusual Lockheed transaction.

However, evidence was introduced showing that Todd

instructed Manza not to tell PwC that Gateway had recognized the $47.2 million as revenue after Manza had voiced

concerns that “the auditors wouldn’t go for” it;2 and that Todd

2Todd objected at trial to the introduction of the statement that he

instructed Manza not to tell PwC and continues to argue that the statement

is inadmissible hearsay. However, Todd does not provide any analysis as

8588 SEC v. TODD
and Manza did not tell PwC that Gateway had already recognized the $47.2 million as revenue when they informed PwC

of the Lockheed transaction or seek an opinion from PwC

concerning whether the Lockheed transaction could properly

be booked as revenue. Thus, while PwC learned about the

Lockheed transaction in a timely manner, it only learned that

the transaction had been treated as revenue component in January 2001, after the third-quarter numbers had been posted

and reported in Gateway’s 10-Q report. Moreover, once it

learned about how Gateway had treated the Lockheed transaction, PwC did not “go for it,” and Gateway ultimately restated

the transaction.

[8] A jury could reasonably find that Todd and Manza’s

actions delayed PwC’s discovery that $47.2 million had been

recorded as revenue until after the release of the third-quarter

numbers, and that the failure to disclose the accounting treatment in the fall of 2000 for this unusual transaction was a significant departure from the standards of ordinary care and

presented a danger of misleading buyers and sellers as to

Gateway’s actual financial status. Considering the foregoing

evidence, we conclude that there was substantial evidence for

the jury to find at least recklessness, and therefore scienter, on

the part of Todd and Manza. 

to why the district court purportedly abused its discretion in permitting the

testimony at trial. See Sullivan v. Dollar Tree Stores, Inc., 623 F.3d 770,

776 (9th Cir. 2010) (“We review the admission of evidence under an

exception to the hearsay rule for abuse of discretion.”) (citation and internal quotation marks omitted); see also, e.g., Greenwood v. FAA, 28 F.3d

971, 977 (9th Cir. 1994) (“We will not manufacture arguments for [a

party]. . . .”). Moreover, because there is sufficient other evidence in the

record, including Manza’s own testimony, from which a jury could reasonably infer that Todd and Manza knew that recording the Lockheed

transaction as revenue was problematic, but still did not fully disclose to

PwC the accounting treatment in fall 2000, there is no prejudice. See

McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1032 (9th Cir. 2003). 

SEC v. TODD 8589
B. The VenServ Transaction

[9] The parties now agree that revenue from the VenServ

transaction was improperly recognized in the third quarter of

2000. Because Gateway’s sale of computers to VenServ was

incomplete, it was improper to record the $21 million in revenue for the sale. The issue before us on appeal is whether

there was substantial evidence to permit a jury to find that

Todd acted with scienter when the transaction was improperly

recorded. We conclude that there was.

[10] Generally, a GAAP violation is insufficient, without

more, to support a finding of scienter. In re Software Toolworks Inc., 50 F.3d 615, 627 (9th Cir. 1994); see also In re

Daou Sys., Inc., 411 F.3d 1006, 1022 (9th Cir. 2005)

(“[W]hile scienter cannot be established by publishing inaccurate accounting figures, even when in violation of GAAP, significant violations of GAAP standards can provide evidence

of scienter.” (citation omitted)). 

[11] Here, there is additional evidence in the record that

Todd understood that the VenServ transaction was not a complete sale, and therefore acted recklessly by improperly

recording revenue that they knew was not yet realized. Todd

knew the terms of the VenServ agreement and that it was not

yet a complete sale. The referral agreement outlined the terms

of the transaction, and specified that the sale would be considered incomplete until a sufficient number of customers were

referred to VenServ by Gateway. Even though Todd did not

directly admit at trial that he signed the referral agreement, he

acknowledged that the signature on the referral agreement

could have been his, and the jury was able to compare the signature on the referral agreement with other examples of his

signature in order to determine that he signed the agreement.

See, e.g., United States v. Jenkins, 785 F.2d 1387, 1395 (9th

Cir. 1986). The jury could also reasonably conclude that Todd

knew and agreed with the terms of the referral agreement.

8590 SEC v. TODD
Indeed, evidence was introduced showing that Todd knew

that Gateway was obligated to refer customers to VenServ. 

[12] Other evidence suggested that Todd knew that the

VenServ sale was not complete. He was informed that, to fill

a Gateway order, Gateway had removed computers allegedly

sold to VenServ from a separated area of Gateway’s warehouse used to store VenServ purchases. He also approved the

immediate booking of the revenue from the VenServ sale

even though VenServ was given a four-month extension to

pay for the computers. Because there was sufficient evidence

to support a finding that Todd knew that the VenServ sale was

incomplete, but was nevertheless included in Gateway’s quarterly revenue, the jury could properly infer at least recklessness on Todd’s part. Accordingly, we conclude that the jury

reasonably could have found that Todd acted with scienter as

to the improper treatment of the VenServ transaction.

II. Todd’s and Manza’s Rule 13b2-2 Liability for

Improper Reporting to Accountants

The SEC contends that Todd and Manza violated Rule

13b2-2 by signing and submitting to PwC the management

representation letter for the third quarter of 2000, which

falsely stated that the financial statements were prepared in

accordance with GAAP. 

[13] Rule 13b2-2(a)(1) provides that “[n]o director or officer of an issuer shall, directly or indirectly . . . [m]ake or

cause to be made a materially false or misleading statement

to an accountant.” 17 C.F.R. § 240.13b2-2. To be liable, one

must “knowingly” make false statements. United States v.

Goyal, 629 F.3d 912, 916 n.6 (9th Cir. 2010) (“[L]iability

under Rule 13b2-2 . . . requires that a false statement to an

auditor be made knowingly.”). “Knowledge requires that [the

defendant] ‘was aware of the falsification and did not falsify

through ignorance, mistake, or accident.” Id. at 916 (quoting

Reyes, 577 F.3d at 1080).

SEC v. TODD 8591
The trial court granted Todd’s and Manza’s motions for

judgment as a matter of law on the Rule 13b2-2 claim because

it concluded that neither Todd nor Manza knew that the management representation letter to PwC that they signed was

false. 

[14] The SEC urges us to find that the district court impermissibly grafted a scienter requirement onto the rule by

requiring Todd and Manza to know that they were falsely

signing the management representation letter. The district

court properly applied a “knowing” standard, which the SEC

fails to distinguish from intent to mislead. See, e.g., United

States v. Watkins, 278 F.3d 961, 968-69 (9th Cir. 2002)

(explaining that mere knowledge of falsity does not suffice to

prove intent to mislead). The SEC acknowledges that the rule

does not create a “strict liability” regime. Rather, the SEC

seeks to impose a standard closer to negligence or reasonableness. However, we cannot relax the standard from the statutory command, as it would impose liability on a broader range

of conduct than Congress intended. See Goyal, 629 F.3d at

916 n.6. Accordingly, while we acknowledge that the district

court applied the appropriate rule—the requirement that the

defendants knowingly submit false reports—we disagree with

the district court’s application of the rule to the facts of this

case. There is sufficient evidence that Todd and Manza had

scienter with respect to the Section 10(b) violations, and

therefore knew that the management representation letter they

signed was false, in violation of Rule 13b2-2. Therefore, we

reverse as to this claim.

III. Weitzen’s Motion for Summary Judgment

The SEC contends that the district court erred in granting

summary judgment in favor of Weitzen because: (1) there

were genuine issues of material facts as to Weitzen’s direct

liability under Section 10(b) and Rule 10b-5; (2) the court

applied the wrong legal standard for determining “control per8592 SEC v. TODD
son” liability under Section 20(a); and (3) the court erred in

applying Rule 13b2-2. 

A. The Section 10(b) and Rule 10b-5 claims for 

securities fraud

The SEC contends that there are genuine issues of material

fact as to whether Weitzen misrepresented Gateway’s revenue

growth in the third quarter of 2000 as “accelerated.” The SEC

argues that Weitzen failed to publicly disclose in an analysts’

conference call and an earnings press report that Gateway’s

ability to meet analysts’ revenue growth expectations was

based largely on the one-time Lockheed and AOL transactions. Only the material misrepresentation and scienter elements of the SEC’s claim are in dispute in this appeal. We

agree with the SEC that there are genuine issues of material

fact, precluding summary judgment, as to these elements.

1. Material Misrepresentations

The SEC contends that Weitzen made material misrepresentations in the conference call with analysts and the earnings press report by characterizing Gateway’s growth as

“accelerated,” when the reality was that Gateway only met

financial analysts’ expectations because of the one-time Lockheed and AOL transactions.3

 The Lockheed transaction

resulted in Gateway booking $47.2 million in revenue from

the sale of fixed-asset, non-Gateway branded computers and

servers to Lockheed. The AOL transaction resulted in a one3The SEC moved for summary judgment against Weitzen on the Lockheed and AOL transactions, as well as Gateway’s increase in high-risk

consumer lending, but only appeals the Lockheed and AOL transactions.

The VenServ transaction was not considered in the Weitzen summary

judgment, but was a focus in the Todd-Manza trial. Likewise, the AOL

transaction was not a focus of the Todd-Manza trial. Accordingly, only the

effect of the Lockheed and AOL transactions are considered on appeal

regarding the motions for summary judgment. 

SEC v. TODD 8593
time revenue increase of $72 million to Gateway based on a

change in the way AOL paid fees to Gateway. 

Generally, “whether a public statement is misleading, or

whether adverse facts were adequately disclosed is a mixed

question to be decided by the trier of fact.” Fecht v. Price Co.,

70 F.3d 1078, 1081 (9th Cir. 1995); see also Durning v. First

Boston Corp., 815 F.2d 1265, 1268 (9th Cir. 1987) (stating

that adequacy of disclosure is normally a jury question).

Accordingly, resolving an issue as a matter of law is only

appropriate when the adequacy of the disclosure is “so obvious that reasonable minds [could] not differ.” Durning, 815

F.2d at 1268; accord TSC Indus., Inc. v. Northway, Inc., 426

U.S. 438, 450 (1976). 

[15] Information regarding a company’s financial condition is material to investment. Reyes, 577 F.3d at 1076 (citing

SEC v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980) (“Surely

the materiality of information relating to financial condition,

solvency and profitability is not subject to serious challenge.”)). Moreover, how officers and directors of a public

corporation describe revenue growth to investors is important.

See Ronconi v. Larkin, 253 F.3d 423, 430 (9th Cir. 2001). We

have explained,

The statement that “sales growth was accelerating,”

. . . is material and descriptive of historical fact,

rather than forward looking. The statement that

“growth” is “accelerating” means that a graph of

sales against time shows a concave line. Prospective

investors deciding whether a business is doing well

look at whether sales revenue is flat, increasing, or

declining, and if it is increasing or declining,

whether the change appears to be accelerating or

flattening out. Sales that are not only growing, but

growing faster and faster, matter to an investor.

Id. at 430-31; see also United States v. Ebbers, 458 F.3d 110,

116, 126 (2d Cir. 2006) (holding that a “gap closing” program

8594 SEC v. TODD
that included as revenue several new “largely one-time items

not previously counted in revenue,” violated Section 10(b)

because investors “would not have been alerted to the fact that

revenue as previously calculated was actually down”).

[16] Here, a rational trier of fact could find that Weitzen

misled investors by publicly describing Gateway’s growth as

“accelerated” without simultaneously disclosing the unusual

nature of the Lockheed and AOL transactions. There is evidence in the record showing that Weitzen participated in the

“gap filling” program that led to the two transactions. Weitzen

testified that he “understood where the individual [business]

units were and what they were going to try to do to close the

gaps.” These two gap fillers were unusual sources of revenue

for Gateway. The Lockheed transaction was unusual because

it was a sale of fixed assets, whereas Gateway mainly sold

computers to consumers from its inventory. The AOL revenue

was also atypical because it was from a one-time advanced

payment based on a change in the terms of the contract

between Gateway and AOL. 

The record further demonstrates that Weitzen understood

that the transactions were significant and that the revenue gap

would not have been closed without them. Weitzen testified

that he understood that the Lockheed transaction, which was

cash neutral to Lockheed, involved an unusually large sale of

non-Gateway IT hardware, and that he was not aware of any

large P.C. inventory sales at the end of the quarter that were

used for “gap filling.” Weitzen also thanked AOL’s president

—who acknowledged that the revised AOL contract deal

would allow Gateway “to take top line rev[enues]”—for providing Gateway with “favorable accounting treatment. It’s

helping us.” Viewed in the light most favorable to the SEC,

a rational trier of fact could reasonably infer from these facts

that the two unusual transactions were the primary reason

why Gateway met analysts’ expectations, and that they did

not fall within Gateway’s traditional core business model of

selling to consumers. 

SEC v. TODD 8595
Despite his understanding of the true nature of the Lockheed and AOL transactions, however, Weitzen publicly stated

in the conference call with analysts that Gateway was “experiencing accelerating revenue growth” and further explained

that Gateway’s growth in 2000, compared to 1999, demonstrated that “[w]e’ve had acceleration of revenue growth.”

Weitzen also substantially participated in preparing Gateway’s press release for the third quarter of 2000, which

claimed that Gateway had “accelerated year-over-year revenue growth.” Weitzen contrasted Gateway’s financial success

with the rest of the industry, which was facing “troubling

news.” Gateway’s purported success was at least impliedly

attributed to Gateway’s “strong growth in sales to consumers,” small business sales, and the beyond-the-box strategy,

all of which were emphasized in public statements. However,

Weitzen did not disclose that but for the unusual and large

Lockheed and AOL transactions, Gateway would not have

met analysts’ revenue expectations, and would have been

experiencing the same “troubling news” as others in the business. 

[17] The fact that Gateway would not have met analysts’

expectations without booking the unusual Lockheed and AOL

transactions as revenue could lead a reasonable juror to find

that Gateway’s revenue was not growing “faster and faster”

as a characteristic of accelerated growth. If Gateway had not

met analysts’ expectations or Weitzen had disclosed the true

source of the revenue, the investing public would have been

alerted to the lesser rate of growth for Gateway’s traditional

sources of revenue. Under the circumstances, a rational trier

of fact could conclude that Weitzen omitted material information regarding the Lockheed and AOL transactions, which

misled investors into believing that Gateway was experiencing a higher rate of growth based on its public business model

than it was achieving in fact.

2. Scienter

[18] Based on the foregoing facts, a rational juror could

conclude that Weitzen acted at least recklessly when he did

8596 SEC v. TODD
not disclose the unusual sources of revenue that enabled Gateway to meet analysts’ revenue expectations. The record suggests that Weitzen knew that the Lockheed and AOL

transactions were unusual, one-time events used to meet the

quarterly revenue targets. The record further demonstrates

that Weitzen understood that without the Lockheed and AOL

transactions, Gateway would not meet the analysts’ quarterly

expectations. This is sufficient to create an issue of fact as to

whether Weitzen at least acted recklessly (and thus with

scienter) when he claimed that Gateway’s financial growth

was “accelerated.” 

[19] Accordingly, we conclude that there is a genuine issue

of material fact as to whether Weitzen made material misrepresentations when he stated in a press release and in a conference call with analysts that Gateway was achieving

“accelerated” growth while failing to disclose the unusual,

significant sources of the revenue derived from the Lockheed

and AOL transactions, and whether Weitzen acted with

scienter. Thus, summary judgment was inappropriate on the

Section 10(b) and Rule 10b-5 claims. 

B. The Section 20(a) claim for control person liability

The SEC asserts that there are genuine issues of material

fact as to whether Weitzen was a “control person” for purposes of finding liability under Section 20(a) of the Act, 15

U.S.C. § 78t(a). It also maintains that the district court erred

in ruling that Weitzen met his burden of establishing a goodfaith defense of relying on others, and that he did not induce

fraud when he reported misleading information about Gateway’s financial condition. We agree. We conclude that there

is a genuine issue of material fact concerning Weitzen’s control over Gateway. Moreover, because Weitzen substantially

participated in the preparation of the press release, his knowledge that he misrepresented the nature of the one-time transactions vitiates his good-faith-reliance defense at the

summary judgment stage of this litigation.

SEC v. TODD 8597
[20] The Act provides:

Every person who, directly or indirectly, controls

any person liable under any provision of this chapter

or of any rule or regulation thereunder shall also be

liable jointly and severally with and to the same

extent as such controlled person to any person to

whom such controlled person is liable . . . unless the

controlling person acted in good faith and did not

directly or indirectly induce the act or acts constituting the violation or cause of action.

15 U.S.C. § 78t(a). Accordingly, under Section 20(a), a defendant may be liable for securities violations if (1) there is a violation of the Act and (2) the defendant directly or indirectly

controls any person liable for the violation. Howard v. Everex

Sys., Inc., 228 F.3d 1057, 1065 (9th Cir. 2000).4 The definition of “person” under the Act encompasses a “company,” 15

U.S.C. § 78c(a)(9), rendering Gateway the violator at issue

here, as discussed supra. However, even if a securities violation occurs, there is no liability if “the controlling person

acted in good faith and did not directly or indirectly induce

the act or acts constituting the violation.” 15 U.S.C. § 78t(a).

The burden is on the defendant to show that both requirements of the good-faith exception are met. Howard, 228 F.3d

at 1065 (“[A] defendant is entitled to a good faith defense if

he can show no scienter and an effective lack of participation.”).

When determining “control person” status, the issue is

whether the defendant exercised power or control over the

primary violator, and the plaintiff “need not show that the

defendant was a culpable participant in the violation.” How4The SEC defines “control” as “the possession, direct or indirect, of the

power to direct or cause the direction of the management and policies of

a person, whether through ownership of voting securities, by contract, or

otherwise.” 17 C.F.R. § 230.405. 

8598 SEC v. TODD
ard, 228 F.3d at 1065. “Whether [the defendant] is a controlling person is an intensely factual question, involving scrutiny

of the defendant’s participation in the day-to-day affairs of the

corporation and the defendant’s power to control corporate

actions.” Kaplan v. Rose, 49 F.3d 1363, 1382 (9th Cir. 1994)

(citation and internal quotation marks omitted). The fact that

a person is a CEO or other high-ranking officer within a company does not create a presumption that he or she is a “controlling person.” Paracor Fin., Inc. v. Gen. Elec. Capital

Corp., 96 F.3d 1151, 1163 (9th Cir. 1996). Rather, indicia of

“control” include whether the person managed the company

on a day-to-day basis and was involved in the formulation of

financial statements, which is sufficient to “presume control

over the ‘transactions giving rise to the alleged securities violation.’ ” Howard, 228 F.3d at 1065 (citing Wool v. Tandem

Computers Inc., 818 F.2d 1433, 1441 (9th Cir. 1987)). Moreover, actual authority over the preparation and presentation to

the public of financial statements is sufficient to demonstrate

control. Howard, 228 F.3d at 1066. 

[21] Here, there is sufficient evidence to create a genuine

issue of fact as to whether Weitzen was properly considered

a “control person” within the meaning of the statute. According to Gateway’s bylaws, Weitzen, as president and CEO, had

“general management and control of the business and the officers and the employees of the Company.” He had day-to-day

control of the company, and could veto any plan or strategy.

He was responsible for Gateway’s financial reporting. Weitzen also signed the management representation letter to PwC

confirming the 10-Q report. Additionally, Weitzen substantially assisted in preparing the press release that reported the

results from the third quarter, including the unusual Lockheed

and AOL transactions.

[22] Moreover, Weitzen does not meet his burden of showing that he is entitled to a good-faith defense. To be eligible

for the defense, Weitzen must demonstrate that he acted in

good faith based on an absence of scienter, and did not “diSEC v. TODD 8599
rectly or indirectly induce the act or acts constituting the violation.” 15 U.S.C. § 78t(a); Paracor, 96 F.3d at 1164. Here,

there is a genuine issue of material fact as to whether Weitzen

acted in good faith. As discussed supra, there is evidence that

Weitzen acted with at least recklessness, or scienter, when he

reported the Lockheed and AOL transactions as “accelerated

growth.” This precludes his ability to rely on the good-faith

defense to defeat summary judgment.5See Howard, 228 F.3d

at 1065. 

We are further persuaded that there is a genuine issue of

material fact whether Weitzen indirectly induced fraud,

thereby precluding him from using the good-faith defense to

defeat summary judgment. The SEC, relying on Nordstrom,

Inc. v. Chubb & Son, Inc., 54 F.3d 1424 (9th Cir. 1995),

argues that Weitzen induced fraud when he substantially participated in the press release that reported the unusual and

one-time Lockheed and VenServ transactions. Under our case

law, these facts are sufficient to vitiate Weitzen’s defense at

the summary judgment stage. In Nordstrom, we held that officers and directors could be liable under Section 20(a) when

they authorized misleading public disclosures, press releases,

and statements to the press that were allegedly fraudulent. Id.

at 1434. We further concluded that the good-faith “defense is

unavailable even when the defendants who induced the fraud

believed in good faith that they were not perpetrating a

fraud.” Id. Here, not only is there evidence of Weitzen’s

scienter, but he engaged in disseminating misleading information to the public regarding Gateway’s purported financial

health in the third quarter of 2000. 

[23] Accordingly, we conclude that there is a genuine issue

of material fact as to whether Weitzen is a “control person”

under Section 20(a), and that summary judgment on this claim

5As discussed below, the SEC fails point to any evidence in the record

that Weitzen knew that there were accounting improprieties. 

8600 SEC v. TODD
was inappropriate. We further conclude that Weitzen’s goodfaith defense fails at the summary judgment stage.

C. The Rule 13b2-2 claim for improperly reporting to

accountants

[24] The SEC argues that the district court erred by requiring that Weitzen know that the representation letter to PwC

was false when he signed it. We disagree. As discussed

above, to be directly liable for improperly reporting to

accountants, Weitzen had to have knowledge that he was

signing a false management representation letter to PwC. See

Goyal, 629 F.3d at 916. 

[25] Here, the SEC does not point to any evidence in the

record that Weitzen knew that the revenue from any of the

transactions was improperly booked. Accordingly, the SEC

cannot demonstrate that Weitzen knew he was falsely signing

the management representation letter sent to Gateway’s outside auditors. Therefore, we conclude that the district court

properly granted Weitzen’s motion for summary judgment as

to this claim.

IV. Todd’s and Manza’s motions for judgment as a matter of law as to Sections 13(a) and 13(b)(2)(A) and

Rule 13b2-1

Todd and Manza argue that the district court erred when it

did not grant their motions for judgment as a matter of law as

to the aiding and abetting claims under Sections 13(a),

13(b)(2)(A), and Rule 13b2-1. We disagree.

Sections 13(a) and (b) of the Act outline some of the financial reporting requirements for corporations that issue securities. 15 U.S.C. §§ 78m(a) (reporting provisions),

78m(b)(2)(A) (books and records provisions). The reporting

requirements are enforced by Rule 13b2-1, which provides

that “[n]o person shall directly or indirectly, falsify or cause

SEC v. TODD 8601
to be falsified, any book, record or account subject to Section

13(b)(2)(A) of the Securities Exchange Act.” 17 C.F.R.

§ 240.13b2-1. To establish aiding and abetting liability under

Section 13, the jury must have found that: (1) Gateway violated the relevant securities laws; (2) Todd and Manza had

knowledge of the primary violation and of their own role in

furthering it; and (3) Todd and Manza provided substantial

assistance in the primary violation. See Ponce v. SEC, 345

F.3d 722, 737 (9th Cir. 2003).

[26] The aiding and abetting claims against Todd and

Manza relate to the Lockheed and VenServ transactions. Substantial evidence supports the jury’s verdict. A jury could reasonably conclude that the Lockheed transaction was

improperly recorded, and there is no dispute that there was

accounting impropriety as to the VenServ transaction. Both

were reported on the third-quarter 10-Q report. The misrepresentations were material because by including the transactions, Gateway was able to meet analysts’ expectations for the

third quarter of 2000. Furthermore, as noted previously, a jury

could reasonably conclude that Todd and Manza acted at least

recklessly when they recognized revenue from the Lockheed

and VenServ transactions. Accordingly, there was substantial

evidence supporting the jury’s verdict on this claim, and the

district court properly denied Todd’s and Manza’s motions for

judgment as a matter of law. R. 59.

V. Todd’s and Manza’s Motions for a New Trial

[27] A district court’s decision concerning a motion for a

new trial is reviewed for an abuse of discretion. Pape Lift,

Inc., 115 F.3d at 680. A motion for a new trial is granted if

the verdict “is against the ‘great weight’ of the evidence, or

‘it is quite clear that the jury has reached a seriously erroneous result.’ ” Id. (citation and internal quotation marks omitted). Here, the verdict is not against the great weight of the

evidence. The SEC met its burden at trial and proffered sufficient evidence that Todd and Manza knowingly participated

8602 SEC v. TODD
in activities that misrepresented Gateway’s financial health in

2000. The district court did not abuse its discretion in denying

Todd’s and Manza’s motions for a new trial.

CONCLUSION

For the foregoing reasons, we:

(1) REVERSE the district court’s order granting, in part,

Todd’s and Manza’s motions for judgment as a matter of law;

(2) REVERSE the district court’s order granting Weitzen’s

motion for summary judgment as to the Section 10(b) and

Rule 10b-5 violations;

(3) AFFIRM the district court’s order granting Weitzen’s

motion for summary judgment as to the Rule 13b2-2 claim;

(4) AFFIRM the district court’s order denying, in part, Todd’s

and Manza’s motions for judgment as a matter of law on the

aiding and abetting claims under Sections 13(a), 13(b)(2)(A),

and Rule 13b2-1; and

(5) AFFIRM the district court’s order denying Todd’s and

Manza’s motions for a new trial.

Each party shall bear its own costs on appeal.

AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED. .

SEC v. TODD 8603