Argued: October 19, 2016
by defendant attorney from a November 25, 2015 final judgment
of the United States District Court for the Southern District
of New York, Miriam G. Cedarbaum, Judge, granting
plaintiff Securities and Exchange Commission's motion for
summary judgment in this enforcement action, holding
defendant liable for securities laws violations (§§
5 and 17(a) of the Securities Act of 1933, 15 U.S.C.
§§ 77e, 77q(a); § 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5
thereunder, 17 C.F.R. § 240.10b-5) in connection with
false opinion letters he wrote or approved to enable
impermissible public offerings of unregistered shares of
stock of defendant Greenstone Holdings, Inc.; ordering him to
pay a total of $204, 161.86 as a civil penalty, disgorgement,
and prejudgment interest; and permanently barring him from
participating in certain stock offerings. Defendant contends
principally that the district court erred in ruling that
there was no genuine issue to be tried as to his knowledge of
the falsity of the letters.
A. CAPUTE, Special Counsel to the Solicitor, Washington, D.C.
(Anne K. Small, General Counsel, Michael A. Conley, Deputy
General Counsel, Jacob H. Stillman, Solicitor, Securities and
Exchange Commission, Washington, D.C., on the brief), for
B. FROHLING, pro se, Jersey City, New Jersey,
Before: KEARSE, POOLER, and DRONEY, Circuit Judges.
KEARSE, Circuit Judge
appeal, which was reinstated following a remand for final
resolution of pending claims, see SEC v. Frohling,
614 F.App'x 14 (2d Cir. 2015),
defendant-cross-claimant-cross-defendant-appellant John B.
Frohling pro se appeals from a November 25, 2015
Superseding Final Judgment of the United States District
Court for the Southern District of New York, Miriam G.
Cedarbaum, Judge, in this enforcement action brought
by the Securities and Exchange Commission ("SEC")
in connection with public offerings of unregistered shares of
stock of defendant Greenstone Holdings, Inc.
("Greenstone"). The district court granted a motion
by the SEC for summary judgment on issues of liability,
holding Frohling--who as Greenstone's securities counsel
in 2006-2008 wrote, approved, or concurred in 11 opinion
letters relating to all of the relevant offerings--liable for
violating § 17(a) of the Securities Act of 1933
("Securities Act"), 15 U.S.C. § 77q(a); §
5 of the Securities Act, 15 U.S.C. § 77e; and §
10(b) of the Securities Exchange Act of 1934 ("Exchange
Act"), 15 U.S.C. § 78j(b), and Rule 10b-5
thereunder, 17 C.F.R. § 240.10b-5. The Superseding Final
Judgment orders Frohling to pay a total of $204, 161.86 as a
civil penalty, disgorgement, and prejudgment interest, and
permanently bars him from participating in so-called
"penny stock" offerings, i.e., offerings
of "any equity security that has a price of less than
five dollars, except as provided in Rule 3a51-1 under the
Exchange Act, " Superseding Final Judgment at 4.
appeal, Frohling contends principally that he had no
knowledge that the opinion letters he issued, approved, or
concurred in were false, nor any knowledge of facts to alert
him that the opinion letters were false, and that the
district court erred in ruling that there was no genuine
issue to be tried as to his knowledge. For the reasons that
follow, we find no basis for reversal. We assume the
parties' familiarity with the underlying facts and
procedural history of the case.
5 of the Securities Act makes it unlawful, directly or
indirectly, to publicly offer or sell unregistered stock,
see 15 U.S.C. § 77e, unless the offering is
covered by an exemption. The stock certificate for
unregistered shares not covered by an
exemption--"restricted" stock--normally bears a
legend stating that the shares have not been registered and
cannot lawfully be sold until they are registered. The
pertinent exemption in this case, as it existed at the
relevant time, allowed stock to be issued without the
restricted-stock legend if the recipients were persons
unaffiliated with the stock's issuer at the time of the
sale or during the preceding three months, and if at least
two years had elapsed since the shares were owned by the
issuer or a person affiliated with the issuer, see
SEC Rule 144(k), 17 C.F.R. § 230.144(k) (2005)
("Rule 144(k) exemption"). The two-year requirement
was satisfied if unaffiliated persons acquired the shares in
exchange for "consideration consisting solely
of other securities of the same issuer" that had been
received at least two years earlier, as the shares were
deemed to have been acquired from the issuer at the time the
surrendered securities had been acquired. Id. §
230.144(d)(3)(ii) (2005) (emphasis added). "To state a
cause of action under Section 5, one must show '(1) lack
of a [required] registration statement as to the subject
securities; (2) the offer or sale of the securities; and (3)
the use of interstate transportation or communication and the
mails in connection with the offer or sale.'"
SEC v. Cavanagh, 445 F.3d 105, 111 n.13 (2d Cir.
2006) (quoting Europe & Overseas Commodity Traders,
S.A. v. Banque Paribas London, 147 F.3d 118, 124 n.4 (2d
Cir. 1998)). A person not directly engaged in transferring
title of the security can be held liable under § 5 if he
or she "engaged in steps necessary to the distribution
of [unregistered] security issues." SEC v. Chinese
Consolidated Benevolent Ass'n, 120 F.2d 738, 741 (2d
10(b) of the Exchange Act and Rule 10b-5, which prohibit
fraud in the purchase or sale of a security, are violated if
a person has "'(1) made a material misrepresentation
or a material omission as to which he had a duty to speak, or
used a fraudulent device; (2) with scienter; (3) in
connection with the purchase or sale of
securities.'" SEC v. Pentagon Capital Management
PLC, 725 F.3d 279, 285 (2d Cir. 2013) (quoting SEC
v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir.
1999)), cert. denied, 134 S.Ct. 2896 (2014). A false
statement was made with the requisite scienter if it was made
with the "intent to deceive, manipulate, or
defraud." SEC v. Obus, 693 F.3d 276, 286 (2d
Cir. 2012) (internal quotation marks omitted).
"[S]cienter may be established through a showing of
reckless disregard for the truth, that is, conduct which is
highly unreasonable and which represents an extreme departure
from the standards of ordinary care." Id.
(internal quotation marks omitted).
elements of a claim under § 17(a) of the Securities Act,
which prohibits fraud in the "offer or sale" of a
security, 15 U.S.C. § 77q(a), are "[e]ssentially
the same" as the elements of claims under § 10(b)
and Rule 10b-5. SEC v. Monarch Funding Corp., 192
F.3d at 308.
judgment may be granted "if the movant shows that there
is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). A genuine dispute exists when the
evidence is such that, if the party against whom summary
judgment is sought is given the benefit of all permissible
inferences and all credibility assessments, a rational
factfinder could resolve all material factual issues in favor
of that party. See, e.g., Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary
judgment is appropriate when "there can be but one
reasonable conclusion as to the verdict, " id.
at 250, i.e., "it is quite clear what the truth
is, " Poller v. Columbia Broadcasting System,
Inc., 368 U.S. 464, 467 (1962) (internal quotation marks
omitted), and no rational factfinder could find in favor of
the nonmovant. We review the district court's grant of