Appellate Court Finally Agrees with Judge Shoob (Mostly)

Share Article

The long running saga between the U.S. Securities and Exchange Commission and Merchant Capital, LLC has finally resulted in at least a partial victory for Merchant Capital in the Eleventh Circuit Court of Appeals in Atlanta, Georgia. In an opinion released on September 27, 2010, the appeals court finally concurred with U.S. District Judge, Marvin H. Shoob on two of the three issues raised by the SEC on appeal from Judge Shoob's most recent opinion.

The Law Office of Gregory Bartko, LLC announced today that the long running saga between the U.S. Securities and Exchange Commission and Merchant Capital, LLC has resulted in at least a partial victory for Merchant Capital in the Eleventh Circuit Court of Appeals in Atlanta, Georgia. In an opinion released on September 27, 2010, the appeals court concurred with U.S. District Judge, Marvin H. Shoob on two of the three issues raised by the SEC on appeal from Judge Shoob's most recent opinion. According to Gregory Bartko, Merchant Capital's counsel, the one remaining point of contention has been remanded back to the U.S. District Court, Northern District of Georgia, where the remainder of the case will be heard by a Federal judge other than Judge Shoob.

Back before the appeals court for the third time in almost eight years, the Eleventh Circuit Appeals panel issued a per curium opinion that affirmed Judge Shoob's determination that Merchant Capital was "merely negligent" in its capital raising activities rather than having acted with scienter, which is the requisite state of mind that constitutes intentional fraud. Bartko indicated that "this issue has been the core focus of the litigation commenced by the SEC in 2002, meaning that after eight years of litigation, the SEC has failed to establish the allegations in its original complaint that claimed Merchant Capital committed securities fraud that violated Rule 10b-5 of the Securities Exchange Act of 1934."

Although the appeals court affirmed Judge Shoob's opinion on the scienter issue, the court also affirmed Judge Shoob's ruling that the SEC had not established the need for a permanent injunction against Merchant Capital and its management and that the monetary penalties assessed against the defendants by Judge Shoob were reasonable. Bartko said that "in the face of the SEC's request for hundreds of thousands of dollars of civil monetary penalties, Judge Shoob assessed a fine of $2,000 against one of Merchant Capital's members and a fine of $6,000 against another." These findings were also affirmed by the appeals court in its opinion.

As to the remaining issue that the trial court should have assessed disgorgement against the defendants, Bartko said that "the appeals court made no bones about their dismay with Judge Shoob when he found disgorgement was unnecessary on three separate occasions." On that issue, Bartko said that "the appeals court remanded the case back to the trial court with instructions that a different judge other than Judge Shoob should make a determination on what amount of disgorgement would be appropriate in the case." Bartko also stated that "although the SEC had sought upwards of over $7.0 million dollars of disgorgement on appeal, the instructions by the court on remand to the trial court specifically indicated that… 'we express no view on the correct amount of disgorgement; a calculation of causation and figures' leaving all of those findings to a different Federal judge." SEC v. Merchant Capital, LLC; U.S. District Court Number: 02-02984 CV-MHS; Appeal Number: 09-14890-FF

Contact:
Law Office of Gregory Bartko, LLC
404-238-0550
http://www.securitieslawcounsel.com
http://www.secenforcementdefense.com
gbartko(at)securitieslawcounsel(dot)com

##

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Gregory Bartko, Esq.
Visit website