NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

 FOR THE NINTH CIRCUIT

UNITED STATES SECURITIES AND

EXCHANGE COMMISSION,

 Plaintiff - Appellee,

 v.

RADICAL BUNNY LLC; et al.,

 Defendants - Appellants.

No. 11-16275

D.C. No. 2:09-cv-01560-SRB

MEMORANDUM*

Appeal from the United States District Court

for the District of Arizona

Susan R. Bolton, District Judge, Presiding

Argued and Submitted October 16, 2012

San Francisco, California

Before: WALLACE and BEA, Circuit Judges, and RESTANI, Judge.

** 

Defendants-Appellants Tom Hirsch, Berta Walder, Howard Walder, and

Harish P. Shah appeal from the district court’s summary judgment in favor of the

FILED

JUL 10 2013

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

 * This disposition is not appropriate for publication and is not precedent

except as provided by 9th Cir. R. 36-3.

 ** The Honorable Jane A. Restani, Judge for the U.S. Court of

International Trade, sitting by designation.
Securities and Exchange Commission (“SEC”), and denial of Appellants’ crossmotion for summary judgment. Appellants were officers (called “Member

Managers”) in Radical Bunny, LLC (“Radical Bunny”). Between January 2006

and June 2008, Appellants raised more than $189,500,000.00 from investors and

used that money to make loans to another company called Mortgages Limited. 

Mortgages Limited was in turn to make loans to developers and real estate buyers,

who were to secure the repayment of the loans by deeds of trust on the land the

borrowers developed or bought. The investors in Radical Bunny were to be named

as beneficiaries of such deeds of trust. Appellants challenge the district court’s

determination that they were selling “securities” or “notes,” and the district court’s

determination that they acted with the requisite scienter to constitute fraud when

Appellants told investors their loans would be secured by Deeds of Trust or

Mortgages, even though the loans were not so secured. Appellants also challenge

the district court’s determination that they acted with the requisite scienter when

they failed to disclose to investors that Radical Bunny may have been violating

securities law. 

We have jurisdiction under 28 U.S.C. § 1291. We review the district court’s

summary judgment de novo, see Godwin v. Hunt Wesson, Inc., 150 F.3d 1217,

1219–20 (9th Cir. 1998), and we affirm. 

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1. Appellants failed to raise a triable issue of material fact as to whether the

investments were securities, and therefore the district court correctly held that the

SEC was entitled to summary judgment as to whether the Directions to Purchase

were “securities” for purposes of the Securities Act of 1933 under the test set forth

in SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946). The statute defines a

“security” as including any “note,” “investment contract,” or “instrument

commonly known as a ‘security.’” 15 U.S.C. §§ 77b(a)(1), 78c(a)(10). The

undisputed facts show that Appellants sent each investor between January 2006

and June 2008 a document entitled “Direction to Purchase,” which constituted the

investor’s contract with Appellants. The investments made pursuant to the

Directions to Purchase were in a common enterprise (the purchase of loans from

Mortgages Limited), and all profits were to come from the Appellants’ efforts. 

Appellants promised the investors a profit of 11% interest annually on their

investment. The 11% annual payments were not measured by, nor paid from, the

amount of profit made by Mortgages Limited, but were to be paid by Radical

Bunny. The offering was widely disseminated, leading to 900 separate accounts in

20 states. A reasonable investor would have viewed the offering as involving an

initial investment of money with the expectation of profit. Investors did not

exercise any control over the loans; only Appellants had the authority to manage

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the investments. Finally, no regulatory scheme reduced the risk inherent in these

investments. 

2. The district court also correctly granted summary judgment in favor of the

SEC in holding that the defendants committed fraud by “misrepresent[ing] their

knowledge as to whether the Radical Bunny investments were subject to governing

securities laws.” The undisputed facts show that Radical Bunny was on notice that

it was potentially violating securities law, and that it did not disclose that fact to

investors. These facts are sufficient to establish scienter as a matter of law. 

Appellants argue they were told only that they might be selling a security without a

license in violation of the law. This point is irrelevant, because even knowing that

they might be violating securities law was material information they should have

told their investors.1 In response to the SEC’s motion for summary judgment,

Appellants produced no evidence that they had a good faith belief they were

1

 Additionally, neither Harish P. Shah nor Howard Walder properly raise the

issue whether their knowledge was only that the investment might be a “security.”

Although Shah and H. Walder argued that they lacked the requisite scienter as to

the issue whether the securities were backed by collateral in their Reply Brief, they

made no argument as to whether the record shows that they had the requisite

scienter that the sale of the investments constituted a sale of “securities,” and was

therefore a securities law violation, in either their Opening or Reply Briefs. Thus,

the argument is waived. See United States v. Kama, 394 F.3d 1236, 1238 (9th Cir.

2005) (“Generally, an issue is waived when the appellant does not specifically and

distinctly argue the issue in his or her opening brief.”).

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complying with the securities laws, nor did they produce any opinion by a

qualified expert witness to that effect. Because the Appellants have failed to raise

a genuine issue of material fact on this point, we affirm the district court’s grant of

summary judgment. 

3. The district court also correctly held that the SEC was entitled to

summary judgment on its claim that Appellants engaged in fraud in the offer or

sale of securities when they told their investors the loans to Radical Bunny would

be secured by collateral in the form of deeds of trust given by the eventual

borrowers from Mortgages Limited. See 15 U.S.C. § 77q(a); 15 U.S.C. § 78j(b);

17 C.F.R. § 240.10b–5. The undisputed facts in this case demonstrate that each

Appellant either knew or was “reckless in not knowing,” Ponce v. SEC, 345 F.3d

722, 729 (9th Cir. 2003), that these securities were not backed by the collateral

they had promised their investors, and therefore acted with the requisite scienter

for fraud. 

Accordingly, because Appellants failed to raise a triable issue of material

fact as to any of their claims, and because the SEC proved it was entitled to

summary judgment, the district court’s judgment is

AFFIRMED.

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