Opinion ID: 1442955
Heading Depth: 2
Heading Rank: 2

Heading: Second Tier Penalties

Text: The district court also imposed civil penalties for three second-tier Securities Act violations. A second-tier penalty is an intermediate level sanction that can be imposed only if the violation involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. 15 U.S.C. § 77t(d)(2)(B). Thus, unlike disgorgement, the imposition of second-tier penalties requires an assessment of scienter. On summary judgment, a district court must determine whether genuine issues of material fact exist, and must resolve any uncertainty in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). While the district court properly determined that no genuine issue of material fact existed with respect to whether Medley violated Section 5 of the Securities Act, the district court's imposition of second-tier penalties was improper at the summary judgment stage. Medley presented evidence to the district court that he believed his sales of securities were exempt from registration requirements through the Rule 144 safe harbor. In addition to his own testimony, Medley submitted legal opinions, upon which he claims he relied, to support his argument that he acted in good faith. Even though the district court did not find Medley's evidence persuasive, this evidence does create a material issue of fact as to Medley's state of mind during the transactions and thus creates a question as to whether Medley's actions involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, 15 U.S.C. § 77t(d)(2)(B). In rejecting the evidence Medley produced to demonstrate his good faith, the district court made a credibility determination. This Court, and others, have long recognized that summary judgment is singularly inappropriate where credibility is at issue. Only after an evidentiary hearing or a full trial can these credibility issues be appropriately resolved. SEC v. Koracorp Indus., Inc., 575 F.2d 692, 699 (9th Cir.1978). The district court's assessment of Medley's credibility may ultimately be correct, but such an assessment may only be made after a full evidentiary hearing, and is inappropriate at the summary judgment stage.