United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 10-3505
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United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Nebraska.
Bryan S. Behrens, *
*
Appellant. *
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Submitted: June 17, 2011
Filed: July 13, 2011
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Before RILEY, Chief Judge, GRUENDER, Circuit Judge, and LIMBAUGH,1 District
Judge.
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GRUENDER, Circuit Judge.
A federal grand jury returned an indictment charging Bryan Behrens with one
count of securities fraud, six counts of mail fraud, five counts of wire fraud, and nine
counts of money laundering. Behrens initially entered a plea of not guilty but later
pled guilty, pursuant to a plea agreement, to one count of securities fraud, alleged in
the indictment to be a violation of 15 U.S.C. § 78j(b), 78ff, and 17 C.F.R. § 240.10(b)-
5 (“Rule 10b-5”).
1
The Honorable Stephen N. Limbaugh, Jr., United States District Judge for the
Eastern District of Missouri, sitting by designation.
At his sentencing hearing, Behrens asserted the “no-knowledge” provision of
§ 78ff(a), which states that “no person shall be subject to imprisonment under this
section for the violation of any rule or regulation if he proves that he had no
knowledge of such rule or regulation.” (emphases added). “This provision is an
affirmative defense to a sentence of imprisonment, and the burden to prove the
defense is on the defendant.” United States v. Reyes, 577 F.3d 1069, 1079 (9th Cir.
2009) (citing United States v. O’Hagan, 521 U.S. 642, 677 n.23 (1997)). The district
court, however, held as a matter of law that Behrens was “not entitled to the protection
of [§ 78ff(a)]” because Behrens pled guilty to a statutory offense and “the no
knowledge provision [is] inapplicable to people convicted of violating criminal
securities laws.” The district court sentenced Behrens to 60 months’ imprisonment
and ordered him to pay $6,841,921.90 in restitution.
On appeal, Behrens argues that the district court erred when it held that he
could not assert the no-knowledge defense at sentencing. We review a district court’s
interpretation of a statute de novo. United States v. Sutton, 625 F.3d 526, 528 (8th Cir.
2010). “As with any question of statutory interpretation, our analysis begins with the
plain language of the statute.” United States v. Jeanpierre, 636 F.3d 416, 425 (8th
Cir. 2011) (quoting Jimenez v. Quarterman, 555 U.S. ---, 129 S. Ct. 681, 686 (2009)).
“[I]f the intent of Congress can be clearly discerned from the statute’s language, the
judicial inquiry must end.” United States v. McAllister, 225 F.3d 982, 986 (8th Cir.
2000) (quoting United States v. S.A., 129 F.3d 995, 998 (8th Cir. 1997)).
We agree with Behrens that the district court erred when it determined that his
guilty plea to a violation § 78j(b) prevented him from asserting the no-knowledge
defense. Section 78j provides:
It shall be unlawful for any person, directly or indirectly, by the use of
any means or instrumentality of interstate commerce or of the mails, or
of any facility of any national securities exchange—
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***
(b) To use or employ, in connection with the purchase or sale of any
security registered on a national securities exchange or any
security not so registered, or any securities-based swap agreement
(as defined in section 206B of the Gramm-Leach-Bliley Act [15
U.S.C. § 78c]), any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
(emphasis added). The plain language of the statute is clear: § 78j(b) makes the
violation of a Securities and Exchange Commission (“SEC”) rule or regulation an
element of the offense. To violate the statute, Behrens must have violated an SEC rule
or regulation. See § 78j(b); see also O’Hagan, 521 U.S. at 651 (“The statute thus
proscribes (1) using any deceptive device (2) in connection with the purchase or sale
of securities, in contravention of rules prescribed by the Commission.”). Hence, the
district court sentenced Behrens to a term of imprisonment for violating a rule or
regulation of which he claimed no knowledge. See § 78ff(a).
Importantly, the Supreme Court in O’Hagan endorsed the position that the no-
knowledge defense is available to violators of § 78j(b). In that case, the Government
charged O’Hagan with ten counts of securities fraud, each in violation of § 78j(b) and
Rule 10b-5. The Supreme Court reversed the decision of our court vacating
O’Hagan’s conviction and validated the “misappropriation theory” of securities fraud
under Rule 10b-5 as within the conduct criminalized by § 78j(b).2 See O’Hagan, 521
U.S. at 651-52. The Court went on to emphasize that:
2
“The ‘misappropriation theory’ holds that a person commits fraud ‘in
connection with’ a securities transaction, and thereby violates § 10(b) and Rule 10b-5,
when he misappropriates confidential information for securities trading purposes, in
breach of a duty owed to the source of the information.” O’Hagan, 521 U.S. at 652.
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Vital to our decision that criminal liability may be sustained under the
misappropriation theory, we emphasize, are two sturdy safeguards
Congress has provided regarding scienter. To establish a criminal
violation of Rule 10b-5, the Government must prove that a person
‘willfully’ violated the provision. See 15 U.S.C. § 78ff(a). Furthermore,
a defendant may not be imprisoned for violating Rule 10b-5 if he proves
that he had no knowledge of the rule. See ibid.
Id. at 665-66 (emphasis added and footnote omitted). If the no-knowledge defense is
one of “two sturdy safeguards” available to O’Hagan, and if O’Hagan—like
Behrens—was charged with violating both § 78j(b) and Rule 10b-5, then the no-
knowledge safeguard must be available to Behrens. See id. On remand from the
Supreme Court, our court concluded that O’Hagan’s sentence could include a term of
imprisonment. United States v. O’Hagan, 139 F.3d 641, 647 (8th Cir. 1998).
However, we reached this conclusion not because O’Hagan’s conviction under
§ 78j(b) precluded him from asserting the no-knowledge defense, but because
O’Hagan offered no proof with respect to the no-knowledge defense at trial or at
sentencing. Id.
Likewise, in Reyes, the Ninth Circuit confronted a case in which defendant
Jensen was accused of “falsifying and aiding and abetting the falsification of books,
records, and accounts” in violation of a statute, 15 U.S.C. § 78m(b)(2)(A), and an
underlying SEC rule, 17 C.F.R. § 240.13b2-1. Reyes, 577 F.3d at 1074. Even though
Jensen was convicted of violating a statute and a rule or regulation, the Ninth Circuit
stated that “[t]he district court framed the question as ‘whether Jensen has satisfied her
burden of proving by a preponderance that she was unaware of a SEC rule or
regulation prohibiting the falsification of books and records.’ This was the proper
formulation.” Id. (citation omitted). While the court in Reyes affirmed the district
court’s denial of Jensen’s assertion of no knowledge of Rule 13b2-1, it did so on the
merits and did not hold categorically that Jensen could not have asserted the no-
knowledge defense because she was convicted of violating a statute.
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In the instant case, both the Government and the district court heavily relied on
United States v. Knueppel, 293 F. Supp. 2d 199 (E.D.N.Y. 2003), as persuasive
authority. In Knueppel, four defendants pled guilty to violating § 78j(b) and Rule
10b-5, and three of the defendants attempted to assert the no-knowledge defense to a
sentence of imprisonment. The court found the no-knowledge defense inapplicable
and endorsed the view that “Congress did not intend [for] the protection of the ‘no
knowledge’ clause [to] extend to persons who were charged with knowing their
conduct to be in violation of law.” Id. at 204 (quoting United States v. Sloan, 399 F.
Supp. 982, 984 (S.D.N.Y 1975)). The court also limited the applicability of the no-
knowledge provision to defendants convicted of “mere technical violation[s] of an
SEC rule or regulation.” Id. (citing Sloan, 399 F. Supp. at 984).
We find no support in the text of the statute for either of these assertions. See
§ 78ff(a). The court in Knueppel relied on two other district court opinions, Sloan and
United States v. Lilley, 291 F. Supp. 989 (S.D. Tex. 1968). Those opinions, in turn,
place great weight on various portions of legislative history of the Securities Exchange
Act of 1934. Sloan, 399 F. Supp. at 984; Lilley, 291 F. Supp. at 992-93. However,
we find this approach unpersuasive in light of the unambiguous plain language of
§ 78j(b), which requires the violation of a rule or regulation in order to establish a
violation of the statutory provision, and § 78ff(a), which draws no distinction for mere
technical violations of a rule or regulation. This court has made it clear that “we will
not look beyond the text of the statute if its plain language is unambiguous.” United
States v. Mendoza-Gonzalez, 520 F.3d 912, 916 (8th Cir. 2008), vacated on other
grounds by --- U.S. ---, 129 S. Ct. 2377 (2009). Therefore, we find Knueppel
unconvincing.
Thus, we conclude that Behrens is entitled to assert the no-knowledge defense
to imprisonment at sentencing. The Government argues that even if Behrens could
have asserted the no-knowledge defense, we may still affirm Behrens’ sentence
because he failed to show by a preponderance of the evidence that he had no
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knowledge of Rule 10b-5. However, the district court determined as a matter of law
that Behrens could not assert the no-knowledge defense and did not reach the question
whether he has met his burden of showing no knowledge. As such, we leave this
question for consideration by the district court in the first instance. See United States
v. Willett, 623 F.3d 546, 549 (8th Cir. 2010).
For the foregoing reasons, we vacate Behrens’ sentence and remand the case
to the district court for further proceedings not inconsistent with this opinion.
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