Source: https://law.justia.com/cases/federal/appellate-courts/F3/13/1334/631774/
Timestamp: 2020-07-09 09:15:26
Document Index: 228143152

Matched Legal Cases: ['§ 77', '§ 77', '§ 78', '§ 77', '§ 77', '§ 77', '§ 78']

Securities and Exchange Commission, Plaintiff-appellee, v. Eurobond Exchange, Ltd., Defendant,andgerald L. Rogers, Aka J.k. Glenn, Defendant-appellant, 13 F.3d 1334 (9th Cir. 1994) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1994 › Securities and Exchange Commission, Plaintiff-appellee, v. Eurobond Exchange, Ltd., Defendant,andger...
Securities and Exchange Commission, Plaintiff-appellee, v. Eurobond Exchange, Ltd., Defendant,andgerald L. Rogers, Aka J.k. Glenn, Defendant-appellant, 13 F.3d 1334 (9th Cir. 1994)
U.S. Court of Appeals for the Ninth Circuit - 13 F.3d 1334 (9th Cir. 1994) Submitted Feb. 1, 1993. *Submission Deferred March 1, 1993. Resubmitted June 21, 1993. Submission Withdrawn Aug. 24, 1993. Resubmitted Oct. 25, 1993. Decided Jan. 7, 1994
The Securities and Exchange Commission ("SEC") brought this action against Gerald L. Rogers, president of the defendant Eurobond Exchange, Ltd. ("Eurobond"), for violations of anti-fraud and registration provisions of the federal securities laws. The complaint charged Rogers with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 (the "1933 Act"), 15 U.S.C. §§ 77e(a) and 77e(c); the anti-fraud provisions of Section 17(a) of the 1933 Act, 15 U.S.C. § 77q(a); and the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. § 78j(b), and Commission Rule 10b-5, 17 C.F.R. 240.10b-5. The complaint sought a permanent injunction and disgorgement of Eurobond's profits.
The SEC maintained that the investment program whereby Rogers sold to American citizens certain interest-bearing treasury bonds issued by foreign governments, purchased in large part with foreign currency loans carrying much lower interest rates than those received on the bonds, was an investment contract. The SEC claimed that Rogers violated federal securities law by not registering the investment program pursuant to sections 5(a) and 5(c) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a) and 77e(c) (1988). The SEC also contended that Rogers made material misrepresentations and omissions in the sale of the bonds because he purchased bonds other than those advertised in Eurobond's sales materials; he sent false confirmation statements; he listed non-existent bonds; and he failed to reveal that he was a felon convicted of fraud and a fugitive from justice.
No person surrendered by either of the Contracting States to the other shall be prosecuted or punished for any offense committed before the demand for extradition [.]
Article IX incorporates the doctrine of specialty. "As a matter of international comity, the doctrine of 'specialty' prohibits the requesting nation from prosecuting the extradited individual for any offense other than that for which the surrendering state agreed to extradite." United States v. Khan, 993 F.2d 1368, 1373 (9th Cir. 1993) (citations omitted), as amended, May 11, 1993.
There are several reasons why we reject Rogers' argument that the courts lack jurisdiction. First, the purpose of the extradition process is to obtain a court's personal jurisdiction over a defendant. 2 D. O'Connell, International Law 792-806 (1965) (Ch. 23, "Personal Jurisdiction: Extradition and Asylum"). The Supreme Court long ago recognized that the doctrine of specialty implicates the question of whether there is personal jurisdiction over a defendant as a result of the extradition process. United States v. Rauscher, 119 U.S. 407, 432-33, 7 S. Ct. 234, 247-48, 30 L. Ed. 425 (1886); accord, United States v. Najohn, 785 F.2d 1420, 1422 (9th Cir.) (per curiam), cert. denied, 479 U.S. 1009, 107 S. Ct. 652, 93 L. Ed. 2d 707 (1986); United States v. Vreeken, 803 F.2d 1085, 1088-89 (10th Cir. 1986), cert. denied, 479 U.S. 1067, 107 S. Ct. 955, 93 L. Ed. 2d 1003 (1987). In civil cases, Federal Rule of Civil Procedure 12(h) (1) mandates a waiver of the defense of lack of personal jurisdiction unless it is raised in the answer. Elder v. Holloway, 975 F.2d 1388, 1395 n. 4 (9th Cir. 1991) (listing cases), cert. granted, --- U.S. ----, 113 S. Ct. 3033, 125 L. Ed. 2d 721 (1993). Here, Rogers filed his answer on February 20, 1990, but he did not claim a defense based on a lack of personal jurisdiction. He did not move to dismiss based on the doctrine of specialty until March 22, 1991, well beyond the point at which he could assert a defense of lack of personal jurisdiction. Cf. Vreeken, 803 F.2d at 1088-89 (court refuses to reach rule of specialty claim for failure to timely raise defense of lack of personal jurisdiction in a criminal case).
Second, "the protection [of the rule of specialty] exists only to the extent that the surrendering country wishes." See Najohn, 785 F.2d at 1422. The Swiss Federal Office for Police Matters, the office in the Swiss government responsible for international extradition cases, has represented to the Office of International Affairs ("OIA") of the Department of Justice that the rule of specialty in Article IX of the Treaty for the Extradition of Criminals does not apply to this civil enforcement action filed by the SEC. Declaration of Mary Jo Grotenrath, Associate Director of the OIA, at 2, para. b. Therefore, as a matter of international comity a trial in this civil matter will not offend the Swiss. Cf. United States v. Cuevas, 847 F.2d 1417, 1426 (9th Cir. 1988) (" [T]he United States has guaranteed, pursuant to [the Swiss] treaty, that it will honor limitations placed on prosecution in the United States."), cert. denied, 489 U.S. 1012, 109 S. Ct. 1122, 103 L. Ed. 2d 185 (1989)).
Finally, in support of his argument that federal courts lack jurisdiction where there is a rule of specialty, Rogers cites Van Cauwenberghe v. Biard, 486 U.S. 517, 108 S. Ct. 1945, 100 L. Ed. 2d 517 (1988).2 In that case, the Supreme Court stated:
Id. at 525, 108 S. Ct. at 1951 (citation and footnote omitted). Here, there is no question of an abuse of the extradition process on the part of the United States where the Swiss have made known their belief that the Treaty does not apply to this action.
A grant of summary judgment is reviewed de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir. 1986). Viewing the evidence in the light most favorable to the non-moving party, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir. 1986). We review de novo the district court's determination that the Eurobond program consisted of investment contracts. SEC v. Goldfield Deep Mines Co., 758 F.2d 459, 463 (9th Cir. 1985).
The investment program offered and sold by Rogers and Eurobond Exchange Ltd., a/k/a EuroGold and Bond Exchange Ltd., a/k/a EBX Trust A.G. (Eurobond) was an investment contract and therefore, a security under Section 2(1) of the Securities Act of 1933 [15 U.S.C. 77b(1) ] (Securities Act) and Section 3(a) (10) of the Securities Exchange Act of 1934 [15 U.S.C. 78c(a) (10) ] [Exchange Act].
No. CV90-378 DT (GHKX), Final Judgment and Order of Permanent Injunction and Disgorgement Against Gerald Rogers, at 2, para. 2. The court found that Rogers had not registered the Eurobond investment contract, a security, but that he had made use of the means and instruments of transportation and communication in interstate commerce and of the mails in its offer and sale. The court therefore concluded that Rogers had violated sections 5(a) and (c) of the Securities Act, 15 U.S.C. § 77e(a) and (c) (1988).3
The federal securities laws apply to securities in the form of investment contracts. Section 2(1) of the 1933 Act, 15 U.S.C. § 77b(1), and section 3(a) (10) of the 1934 Act, 15 U.S.C. § 78c(a) (10), provide that " [t]he term 'security' means any ... investment contract...." The Supreme Court has held that, for purposes of the Securities Act, an investment contract "means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party...." SEC v. W.J. Howey Co., 328 U.S. 293, 298-99, 66 S. Ct. 1100, 1103, 90 L. Ed. 1244 (1946).
The SEC argues that the Eurobond program is an investment contract because, as Howey requires: (1) there was an investment of money; (2) the investment occurred in a common enterprise; and (3) the profits were to come solely from the efforts of others. See Goldfield Deep Mines Co., 758 F.2d at 463 (listing elements) (citing Howey, 328 U.S. at 301, 66 S. Ct. at 1104). We discuss the facts supporting the three elements of the Howey test.
Id. (quoting Brodt v. Bache & Co., 595 F.2d 459, 460 (9th Cir. 1978) (quoting Securities and Exchange Comm'n v. Glenn W. Turner Enter., 474 F.2d 476, 482 n. 7 (9th Cir.), cert. denied, 414 U.S. 821, 94 S. Ct. 117, 38 L. Ed. 2d 53 (1973)) (other citations omitted).
Rogers contends that this is no common enterprise because the investors did not share profits with Eurobond. He states that Eurobond's compensation was not paid from the investor's profits; rather, it was paid up front so that the investors did not share directly or indirectly in the profits of Eurobond. There is support for this contention in the record. Each investor sent Eurobond Exchange Ltd. a set of client instructions to the custodian, Bank Rohner of Switzerland. The instructions gave Bank Rohner the authority to withdraw up front from the gross funds transmitted a transaction fee of 3% to Eurobond Exchange. Further, the instructions required that a loan fee of 1% of the gross funds for each year of the duration of the investment be remitted up front to Eurobond Exchange Ltd. These instructions belie the SEC's claim that "Rogers admits that Eurobond's compensation was paid from investor's profits: ' [A]ll interest income came from the [bond] issuing countries and all expenses ... [were] paid out of the interest income.' " SEC Brief at 22-23 & n. 22 (quoting Rogers' Opening Brief at 2, Attachment "A."). The instructions also belie the SEC's claim that Eurobond was to " [m]ake a non-recourse loan ... and invest loan proceeds ... to earn income to pay costs." Id. at n. 22.4
Eurobond's commission was paid upfront at the advice of Client by the custodian bank before the bonds were even purchased. The investors ['] profit, on the other hand, was dependant [sic] on the Bond Issuers' continuance of interest payments. With this arrangement Eurobond [']s prepaid profit was not shared with the investor, nor did Eurobond share any los [s]es that could inure to the investor. In this manner, Eurobond could get rich from upfront commission, which the investor could lose, if the bond issuers defaulted.
Appellant offered only investment advice through licensed securities brokers coupled with a limited power of attorney to carry out the investor [']s desires that resulted in the purchase of Triple A rate bonds, sold and financed by very reputable banks. In return, the defendants were paid upfront fees and a termination fee, which none were shared with the investors. Furthermore, the record is void of evidence that the investors shared in the profits of Eurobond!
Even if this factor does not make the program a common enterprise, however, the investor and Eurobond shared the risk of loss. If the foreign governments were to default on the bonds, Eurobond and the investors would lose whatever profits they gained from those bonds purchased with the foreign currency loans. As for those loans from Eurobond itself, the investors were advised that "if [Eurobond] defaults you could lose a pro rata portion of your investment." The investor's success, then, was correlated with the financial stability of Eurobond. We have held that where an investor's avoidance of loss depends on the promoter's "sound management and continued solvency," a common enterprise exists. United States v. Carman, 577 F.2d 556, 563 (9th Cir. 1978). "This risk of loss is sufficient to bring the transaction within the meaning of a security, even where the anticipated financial gain is fixed." Id.