District Judge Rebuffs SEC and Appeals Court Recommendations

Just because a business fails does not mean fraud was committed, a U.S. District Court judge ruled recently--even though the SEC and the 11th Circuit disagree in this case.

In June, Senior Judge Marvin H. Shoob of the Northern District of Georgia again dismissed a securities fraud case brought by the SEC. The commission alleged that the principals in Merchant Capital defrauded 350 investors of more than $20 million. Judge Shoob's ruling came despite the 11th Circuit's strong suggestion that the defendants deserved punishment when it reversed part of Judge Shoob's original decision, vacated other parts and remanded part back to him to reconsider.

Good Faith

Despite this 11th Circuit admonishment, Judge Shoob again found for the defendants. In one of several references to the defendants' good faith efforts in managing the partnerships, he wrote, "Defendants attempted in good faith to structure the RLLPs so that the partnership interests would not be deemed securities.

"Even though the court of appeals determined that they failed in this regard, as discussed above, the evidence shows that defendants were not acting with an intent to deceive or with severe recklessness."

Contributing Author

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Amy I. Stickel

Amy I. Stickel has extensive experience covering the legal, financial and pharmaceutical industries as a writer and editor. A past managing editor of Corporate Legal Times and...

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