Opinion ID: 4182911
Heading Depth: 4
Heading Rank: 1

Heading: Scienter as to the Fall 2008 Ads

Text: Substantial evidence supported the Commission’s finding that Mr. Zavanelli (and thus ZPRIM) acted with scienter in making misrepresentations of GIPS compliance in the fall 2008 ads. In short, the evidence showed that Mr. Zavanelli knew the claims of GIPS compliance in the fall 2008 ads were false but approved them anyway. See SEC v. Carriba Air, Inc., 681 F.2d 1318, 1324 (11th Cir. 1982) (holding that scienter is established when the defendant “engaged in the dissemination of a known falsehood” (quotation omitted)). The record supports a finding that Mr. Zavanelli knew exactly what was required of an ad that claimed GIPS compliance. He testified that he read the GIPS requirements, including its advertising guidelines, “[n]umerous times . . . forward and backwards.” He even described himself as “an expert” on GIPS. Beyond that, Mr. Zavanelli clearly knew how to present GIPS-compliant investment returns in advertisements because he was responsible for “ensuring that 21 Case: 16-15322 Date Filed: 06/30/2017 Page: 22 of 32 marketing materials [were] GIPS compliant.” Indeed, from January to April 2008, ZPRIM published ads that contained the GIPS-required information. Then in the fall of 2008, Mr. Zavanelli approved the new, non-compliant ads. Mr. Bauchle testified that before these ads were published, he told Mr. Zavanelli they didn’t contain the return information required by GIPS. Yet Mr. Zavanelli ran the ads anyway. Indeed, he affirmatively directed Mr. Bauchle to leave the statement that ZPRIM is GIPS-compliant in the ad, even though he knew the investment returns in the ad did not comply with the GIPS advertising guidelines. In doing so, he “engaged in the dissemination of a known falsehood.” Carriba Air, 681 F.2d at 1324 (quotation omitted). There is also a strong inference of “intent to deceive” because the omitted GIPS-required returns resulted in covering up ZPRIM’s poor investment performance. Matrixx, 563 U.S. at 48, 131 S. Ct. at 1323. There is certainly sufficient evidence to support the Commission’s finding that the petitioners knowingly made false claims of GIPS compliance in the fall 2008 ads.