SEC Claims Trial Victory—And So Does Defendant

, Legal Times


After a string of recent courtroom defeats, the U.S. Securities and Exchange Commission declared victory following a two-week securities fraud trial in Minneapolis federal court.

But the jury's findings on Tuesday weren't as clear-cut as the SEC suggested, since the verdict was mixed on whether the defendant, fund manager Marlon Quan, intentionally committed fraud. Quan’s lawyers from Wilmer Cutler Pickering Hale and Dorr said the findings cannot be reconciled.

In March 2011, the SEC charged Quan with funneling several hundred million dollars of investor money into a Ponzi scheme operated by Minnesota businessman Thomas Petters, who is now serving a 50-year prison sentence.

According to the SEC, Quan and his firms, Stewardship Investment Advisors and Acorn Capital Group, invested hedge-fund assets with Petters while pocketing more than $90 million in fees. They allegedly promised investors that their money would be safeguarded in “lockbox” accounts, then concealed Petters’ defaults from investors by concocting sham transactions.

"We’re very pleased the jury found Marlon Quan liable for securities fraud and that he will be held accountable for his deception,” SEC Enforcement Division head Andrew Ceresney said in a written statement. “Facilitators of Ponzi schemes are just as culpable and harmful to investors as those who are conducting the schemes, and we thank the jury for sending that message in its verdict."

The jury’s message, though, was mixed, said Wilmer counsel Christopher Casamassima, who tried the case with of counsel Bruce Coolidge and senior associate Laura Schwalbe.

“The SEC brought two claims against Mr. Quan for securities fraud based on identical conduct under two different securities laws that are also identical in their application to this case,” Casamassima said in an interview.

The jury found that the SEC prevailed on one claim, and while Quan came out on top on the other. 

“Because these findings cannot be reconciled, they reflect a split, nonunanimous jury,” Casamassima said. “Since unanimity is required for liability, the effect of the two inconsistent findings is that the SEC has failed to sustain its claim of securities fraud against Mr. Quan.”

The jury agreed with the SEC that Quan violated Rule 10b-5 of the Exchange Act. According to the jury instructions by U.S. District Judge Ann Montgomery, that meant the jury had to find that he either “employed a device, scheme, or artifice to defraud” or that he “made an untrue statement of material fact” or he “engaged in any act, practice, or course of business that operated as a fraud or deceit.”

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