Opinion ID: 503142
Heading Depth: 2
Heading Rank: 1

Heading: Exempt Transactions--Kane's Affirmative Defense

Text: 28 Sections 4(1) and 4(3) of the Securities Act, 15 U.S.C. Sec. 77d(1) and d(3) exempt certain transactions involving unregistered securities from the provisions of sections 5(a) and 5(c) of the Act. Kane's appeal does not contest the Commission's findings that the 150,000 shares were not exempt. Rather, Kane argues that he reasonably believed that the shares were exempt and, thus, he should not have been found to have violated sections 5(a) and 5(c). 29 Once the SEC introduced evidence that Kane had violated the registration provisions, however, Kane had the burden of showing that the shares were exempt. See SEC v. Murphy, 626 F.2d 633, 641 (9th Cir.1980) (citing SEC v. Ralston Purina Co., 346 U.S. 119, 126, 73 S.Ct. 981, 985, 97 L.Ed. 1494 (1953)). Kane offered no evidence to suggest that the shares were entitled to exemption. Thus, Kane actually offered nothing by way of a section 4(1) or 4(3) defense. The reasonableness of his belief that the shares were exempt is only relevant to the willfulness of his violation of section 5, and whether or not he properly discharged his obligations to inquire into the source of the shares.