N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
UNITED STATES SEC UR ITIES AND EXC HANGE C OM M ISSION, Plaintiff - Appe lle e , v. R ADIC AL B U

NNY LLC ; e t a l., De fe nda

nts - Appe lla

nts. No. 11-16275

D.C . No. 2:09-c v-01560-SR B
M EM O R ANDUM *

Appe a l from

the Unite d

Stat e s Distric t C ourt for the Distric t of Ariz o na Susa n R . B olton, Distric t Judge , Pre siding Argue d a nd Subm itte d Oc tobe r 16, 2012 San Fran c isc o , C a lifornia B e fore : WALLAC E a

nd B EA, C irc uit Judge s , a nd RESTANI, Judge
. ** De fe nda nts-Appe lla

nts Tom Hirsc h, B e rta

W a lde r, Howa

rd W a lde r, a

nd Harish P. Sha

h a ppe a l from

the distric t c o urt’ s sum

m ary judgm e nt in fa

vor of the 

# FIL ED
JUL 10 2013 M OLLY C. DW Y E R, CLERK U. S. CO URT O F A PPEALS

* This disposition is not a ppropria te for public at ion a

nd is not pre c e de nt e xc e pt a s provide d

by 9th C ir. R . 36-3. ** The Honora

ble Ja ne A. R e sta

ni, Judgefor the U.S. C ourt of Inte rnationa l Tra de , sitting by de signa tion.Se c uritie s a

nd Exc ha nge C om m ission (“ SEC ” ), an d de nia l of Appe lla nts’ c rossm otion for sum

m a ry judgm e nt. Appe lla

nts we re offic e rs (c a lle d “ M e m be r M an a g e rs” ) in R a dic a l B unny , LLC (“ R a dic a l B unny ” ). B e twe e n Ja nua ry 2006
and June 2008, Appe l la

nts ra ise d m ore tha

n $189,500,000.00 from

inve stors a

nd
use d tha t m one y to m ak e loa

ns to a nothe r c om

pa ny c a lle d M ortga ge s Lim ite d. M ortga ge s Lim ite d wa s in turn to make loa ns to de ve lope rs a

nd re a l e s tate buy e rs, who we re to se c ure the re pa ym e nt of the loa

ns by de e ds of trust on the

la nd the borrowe rs de ve lope d or bought. The inve stors in Ra dic a l B unny we re to be nam e d
a s be ne fic ia

rie s of suc h de e d s of trust. Appe lla nts c ha lle nge the distric t c ourt’ s de te rm i nation tha

t the y we re se lling “ se c uritie s” or “ note s ,” and the distric t c ourt’ s de te rm i nation tha

t the y a c t e d with there quisitesc ie nte r to c onstitute fra ud whe n Appe l la nts told inve stors the i r loa n s would bese c ure d by De e ds of Trust or M ortga ge s, e ve n though the loa ns we re not so se c ure d. Appe lla nts a lso c ha lle nge the d istric t c o urt’ s de te rm ination tha t the y a c te d with the re quisitesc ie nte r whe n the y fa ile d to disc lose to inve stors tha t R a dic a l B unny

m ay have be e n viola

ting
se c uritie s la

w. W e have jurisdic tion unde r 28 U.S.C . § 1291. W e re vie w the distric t c ourt’ s
sum m ary judgm e nt denov o , se e Godw in v
. Hunt W e sson, Inc
. , 150 F.3d 1217, 1219–20 (9th C ir. 1998), a nd we a ffirm
.

21. Appe lla nts fa i le d to ra ise a

tria b le issue of m ate ria l fa c t a s to whe the r the inve stm e nts we re se c uritie s, a nd the re fore the distric t

c o urt c orre c tly

he l d tha t the SEC wa s e ntitle d

to sum m ary judgm e nt a s to whe the r the Dire c tions to Purc ha se
we re “ s e c uritie s” for purpose s of the Se c uritie s Ac t of 1933 under the te st se t forth in SEC v . W
. J . How e y C o. , 328 U.S. 293, 301 (1946). The sta tute de fine s a

“ se c urity ” a s inc luding a

ny “ note ,” “ inve stm e nt

c ontra c t,” or “ instrum e nt
c om m only known a s a

‘ s e c urity .’ ” 15 U.S.C . §§ 77b(a)(1), 78c (a )(10). The undispute d fa c t s show tha t Appe lla nts se nt e a c h inve stor be twe e n Ja nua ry 2006
and June 2008 a

doc um e nt e ntitle d “ Dire c tion to Purc ha se ,” whic h c onstitute d the inve stor’ s c ontra c t with Appe lla nts. Theinve stm e nts m a de pursua nt to the Dire c t ions to Purc ha s e we re in a c om m on e nte rprise (the purc ha se of loa n s from M ortga ge s Lim ite d), a

nd a ll profits we re to c om e from the Appe lla

nts’ e fforts. Appe l la nts prom ise d the inve s tors a profit of 11% intere st a

nnua lly on the ir inve stm e nt. The 11% a

nnua l pa ym e nts we re not m e a sure d by , nor pa id from , the
am ount of profit ma de by M ortga ge s Lim ite d , but we re to be pa i d by R a dic a l B unny . The offe ring wa s wide ly disse m inate d, le a ding to 900 se p arate a c c ounts in 20 sta te s. A re a sona

ble inve stor would ha

ve vie we d

the offe ring a s involving a n initia l inve stm e nt of m one y with thee xpe c tation of profit. Inve stors did not
e xe rc ise any

c ontrol ove r the loa

ns; only Appe lla nts ha d the a uthority to m ana ge
3the i nve stm e nts. Fina lly , no re g ulatory sc h e m e re duc e d the risk inhe re nt in the se inve stm e nts. 2. The distric t c ourt a lso c orre c tly grante d sum m ary judgm e nt in fa

vor of the SEC in holding tha

t the de fe n da

nts c om m itte d fra ud by “ m isre pre s e nt[ing] the ir knowle dge a s to whe the r the R a dic a l B unny inve stm e nts we re subje c t to gove rning
se c uritie s la

ws.” The undispute d fa c ts show tha t R a dic a l B unny

wa s on notic e tha

t it wa s pote ntia lly

viola ting se c uritie s la

w, a nd tha t it did not disc lose tha

t fa c t to inve stors. The se fa c ts a

re suffic ie nt to e s ta

blish sc i e nte r a s a

m atte r of la

w. Appe l la nts a rgue the y we re told only

tha t the y might

be se lling a se c urity

without a lic e nse in viola

tion of thela

w. This point is irre le va

nt, be c a use e ve n knowing tha

t the y m ight be viola

t ing se c uritie s la

w wa s m ate ria l inform ation the y should ha ve told the ir inve stors. 1 In re sponse to the SEC ’ s m otion for sum m ary judgm e nt, Appe l la nts produc e d

no e vide nc e tha

t the y ha d a good fa i th be lie f the y

we re

1 Additionally , ne ithe r Harish P. Sha h nor Howa

rd W a lde r prope rly ra ise the issue whe the r the ir knowle dge wa s only tha t the inve stm e nt m i ght be a “ se c urity .” Although Sha

h a nd H. W a lde r argue d tha

t the y la c ke d the re quisitesc i e nte r a s to the i ssue whe the r the se c uritie s we re ba c k e d by c olla te ra l in the ir R e ply

B rie f, the y m a de no a

rgum e nt a s to whe the r the re c ord shows tha t the y ha d the re quisite sc ie nte r tha

t the sa le of the inve stm e nts c onstitute d a sa l e of “ se c uritie s,” and wa s the re fore a

se c uritie s la

w viola t ion, in e ithe r the ir Ope ning or R e ply B rie fs. Thus, the a rgum e nt is wa ive d. Se eUnite d State s v . K ama , 394 F.3d 1236, 1238 (9th C ir. 2005) (“ Ge ne ra lly , a

n issue is wa ive d whe n the a ppe lla nt doe s not spe c ific a lly

and distinc tly argue t he issue in his or her ope ning brie f.” ).
4c om

ply i ng with these c uritie s la ws, nor did they

produc e any opinion by

a qua lifie d e xpe rt witne s s to tha t e ffe c t. B e c a

use the Appe lla

nts ha ve fa i le d to ra ise
a ge n uine issue of m ate ria l fa c t on this point, we a ffirm the distric t c ourt’ s gra

nt of
sum m ary judgm e nt. 3. The distric t c ourt a lso c orre c tly he ld tha t the SEC wa s e ntitle d

to
sum m ary judgm e nt on its c la i m

tha t Appe l la nts e nga g e d in fra

ud in the offe r or
sa le of se c uritie s whe n the y told the ir inve s tors the loa n s to R a d ic a l B unny

would be se c ure d by

c o lla te ra l in theform

of de e ds of trust given by the e ve ntua l borrowe rs from

M ortga ge s Lim ite d. S

e e15 U.S.C . § 77q(a ); 15 U.S.C . § 78j(b); 17 C
. F.R . § 240.10b–5. The undispute d fa c ts in this c a se de m o nstra te tha t e a c h Appe l la nt e ithe r kne w or wa s “ re c kle ss in not knowing,” P onc e v . SEC , 345 F.3d 722, 729 (9th C ir. 2003), tha t the se se c uritie s we re not ba c ke d by the c olla te ra l the y ha d prom ise d the ir inve stors, a nd the re fore a c te d with there quisitesc i e nte r for fraud. Ac c ordingly , be c a

use Appe lla

nts fa ile d to ra ise a

tria ble issue of m ate ria l fa c t a s to a ny of the i r c la im s, a

nd be c a use the SEC prove d it wa s e ntitle d to
sum m ary judgm e nt, the distric t c ourt’ s judgm e nt is AFFIRM E D.

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