Opinion ID: 77664
Heading Depth: 1
Heading Rank: 2

Heading: Proceedings in the district court and scope of review

Text: 22 The SEC brought this action on November 4, 2002. Merchant consented to a temporary restraining order that precluded it from selling further RLLP interests. Merchant had already received a cease and desist order from the State of California in October 2002, enjoining the sale of unregistered securities and precluding it from selling the interests in that state. 23 The SEC alleged violations of the registration and antifraud provisions of the federal securities laws, and sought injunctive relief, disgorgement, and penalties. The district court conducted an evidentiary hearing on the SEC's application for a preliminary injunction, and denied the application on May 1, 2003. After more discovery, a bench trial took place in January 2005. In November 2005, the district court denied the SEC's application for injunctive relief, disgorgement, and civil penalties, and entered judgment in favor of the defendants. It concluded that the RLLP interests were not investment contracts and therefore not securities. Alternatively, the district court concluded that the defendants had not committed securities fraud. 24 On appeal, the SEC challenges both of these determinations. The meaning of investment contract is a question of law reviewed de novo. SEC v. Unique Fin. Concepts, Inc., 196 F.3d 1195, 1198 (11th Cir.1999). We review for clear error the factual findings underlying the district court's determination that the RLLP interests were not investment contracts. See Mitchell v. Hillsborough County, 468 F.3d 1276, 1282 (11th Cir.2006). We also review the district court's findings on materiality and scienter (which underlie the securities fraud determination) for clear error. Lucas v. Fla. Power & Light Co., 765 F.2d 1039, 1040-41 (11th Cir.1985). A finding will be held clearly erroneous only when the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). 25