Opinion ID: 1442955
Heading Depth: 2
Heading Rank: 4

Heading: The SEC Complaint

Text: On September 6, 2001, the SEC filed a complaint in the United States District Court for the Northern District of California alleging that Medley violated Sections 5(a) and 5(c) of the Securities Act (selling unregistered securities), and Section 15(a) of the Exchange Act (acting as a broker without registering as a broker). On May 12, 2005, the SEC filed a Motion for Partial Summary Judgment regarding Medley's liability for these violations. On June 20, 2005, the district court granted the motion in part, finding that Medley violated Section 5 when he sold unregistered shares of VirtualLender, M & A West, and Digital Bridge to the public. The district court found that Medley was an underwriter under Section 2(11) because he purchased stock from persons who were controlling personsaffiliatesof the shell companies as of the dates the transactions were agreed to. The court rejected Medley's argument that he qualified for the Rule 144(k) safe harbor because the selling shareholders were no longer affiliates on the dates they delivered securities to Medley. On October 31, 2005, the district court entered a remedies order. The district court ordered disgorgement of $1,990,750.44 [5] and prejudgment interest of $657,213.85, reflecting Medley's proceeds from the sales of stock and cash payments for his work on the mergers. The district court rejected Medley's assertion that he acted in good faith and imposed second tier civil penalties of $55,000 for each merger transaction. The district court found that the permanent injunction sought by the SEC was inappropriate, but considering Medley's scienter against the sincerity of his assurance against future violations and recognition of the wrongful nature of his conduct, imposed a five-year injunction. This timely appeal followed.