United States Securities and Exchange Commission v. Brown

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
UNITED STATES SECURITIES AND )
EXCHANGE COMMISSION, )
)
Plaintiff, )
)
v. ) Civil Action No. 09-1423 (GK)
)
ELAINE M. BROWN, et al., )
)
Defendants. )
______________________________)

MEMORANDUM OPINION

Plaintiff United States Securities and Exchange Commission

(“SEC”) brings this action against Defendants Elaine M. Brown and

Gary A. Prince1 alleging violations of the Securities Act of 1933

(“Securities Act”), 15 U.S.C. § 77a et seq, the Securities Exchange

Act of 1934 (“Exchange Act”), 15 U.S.C. § 78a et seq, and Rules

promulgated under the Exchange Act. This matter is before the Court

on Brown’s Motion for Summary Judgment [Dkt. No. 95] and Prince’s

Motion for Partial Summary Judgement [Dkt. No. 94]. Upon

consideration of the Motions, Oppositions, Replies, and the entire

record herein, and for the reasons stated below, Brown’s Motion for

Summary Judgment is granted in part and denied in part and Prince’s

1
The Complaint was originally brought against a third Defendant,
Steven R. Chamberlain. On February 18, 2010, after receiving notice
of Defendant Chamberlain’s death, the Court granted the Consent
Motion for Order Dismissing Defendant Steven R. Chamberlain as a
Party pursuant to Fed. R. Civ. P. 21. [Dkt. No. 28].
Motion for Partial Summary Judgment is granted in part and denied

in part.

I. Background

A. Factual Background2

Defendants Brown and Prince are former employees of Integral

Systems, Inc. (“Integral”), a publicly traded Maryland corporation.

Integral makes and sells satellite ground systems, including

satellite communications systems and software products for

satellite command and control.

Defendant Brown was the Chief Financial Officer and Principal

Accounting Officer of Integral from 1997 until May of 2007, and the

Vice President of Administration from 2007 until she resigned from

that position in July 2008. During her tenure with Integral, Brown

signed the company’s annual reports. Other members of Integral’s

management and the members of its Board of Directors also signed

Integral’s annual reports.

Defendant Prince was hired in 1982 by Integral to perform

part-time accounting services for the company. In 1993, Prince was

appointed Integral’s Vice President and Chief Financial Officer.

Prince resigned his position as Integral’s CFO in 1995, shortly

before pleading guilty in the Central District of California to a

conspiracy to commit securities fraud and to making false

2
Unless otherwise noted, the facts set forth herein are drawn from
parties' Statements of Material Facts Not in Dispute submitted
pursuant to Local Rule 7(h).

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statements in connection with his conduct as an officer of another

corporation. United States v. Prince, No. 95-cr-00771 (C.D. Cal.

Sept. 5, 1995).

In 1994, the United States District Court for the District of

Columbia enjoined Prince from violating the antifraud and lying-to-

auditors provisions of the Exchange Act based on the conduct

underlying his guilty plea in the Central District of California.

SEC v. Bolen, No. 93-cv-01331 (D.D.C. Aug. 18, 1994). In 1997, the

SEC issued, and Prince agreed to comply with, an Order (“1997

Order”) permanently barring Prince from appearing before the

Commission as an accountant. In re Gary A. Prince, Release No.

38,765, 64 S.E.C. Docket 2074, 1997 WL 343054 (June 24, 1997).

In 1998, Prince was re-hired by Integral. Until his

termination from Integral on March 30, 2007, Prince held various

titles, including Director of Mergers and Acquisitions, Director of

Strategic and Financial Planning, and Managing Director of

Operations. The SEC alleges that Prince had “substantial authority

and responsibilities” during this nine-year period that made him a

de facto officer of Integral in violation of its 1997 Order. It

claims that this “substantial authority and responsibilities”

included Prince’s authority to approve major contracts, attendance

at Integral’s Board of Director meetings, and evaluation of

potential mergers. Prince was a member of a policy-making group of

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senior executive officers and was compensated at levels equal to

Integral’s top-ranking officers.

In the period between 1998 and August 2006, when Integral

named Prince as an officer, Prince’s alleged status as a de facto

officer of the company was never disclosed in periodic filings with

the SEC or in proxy statements. It was not until August 2006, that

Integral filed a Form 8-K stating that Prince had been appointed

Executive Vice President and Managing Director of Operations for

the company and disclosing Prince’s violation of the securities

laws and inability to appear before the Commission as an

accountant. Integral terminated Prince in March 2007, after the

SEC’s Enforcement Division commenced the investigation that led to

this proceeding.

The SEC claims that the failure to disclose was a material

omission in violation of provisions of the Securities Act, the

Exchange Act, and related Rules. Specifically, the SEC alleges that

both Defendants (1) violated § 17(a) of the Securities Act, (2)

violated § 10(b) of the Exchange Act and Rule 10b-5, (3) aided and

abetted Integral’s violations of Exchange Act § 13(a) and Rules

12b-20 and 13a-1, (4) violated Exchange Act Rule 13a-14, and (5)

aided and abetted violations of Exchange Act § 14(a) and Rule 14a-9

by Steven Chamberlain, Integral’s former Chief Executive Officer.

Defendant Prince is also charged with violations of Exchange Act §

16(a), Rule 16a-3, and the 1997 Order.

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 B. Procedural Background

On July 30, 2009, the SEC filed this lawsuit against

Defendants Brown and Prince alleging violations of the Securities

Act, the Exchange Act, and related Rules [Dkt. No. 1]. On October

12, 2010, Defendants Brown and Prince filed Answers to the SEC’s

Complaint [Dkt. Nos. 61 and 62].

On September 28, 2009, Defendants Brown and Prince filed

Motions to Dismiss [Dkt. Nos. 13 and 14]. On September 27, 2010,

the Court granted in part and denied in part Brown’s Motion to

Dismiss and denied Prince’s Motion to Dismiss. Order [Dkt. No. 55].

On January 27, 2012, Defendant Prince filed his Motion for

Partial Summary Judgment. [Dkt. No. 94]. On March 2, 2012, the SEC

filed its Opposition to Prince’s Motion for Partial Summary

Judgment. [Dkt. No. 100]. On March 23, 2012, Prince filed his Reply

in Support of his Motion for Partial Summary Judgment. [Dkt. No.

110].

On January 27, 2012, Defendant Brown filed her Motion for

Summary Judgment. [Dkt. No. 95]. On March 5, 2012, the SEC filed

its Corrected Opposition to Brown’s Motion for Summary Judgment.

[Dkt. No. 108]. On March 23, 2012, Brown filed her Reply in Support

of her Motion for Summary Judgment. [Dkt. No. 109]. On April 16,

2012, the SEC filed its Sur-Reply in Opposition to Brown’s Motion

for Summary Judgment. [Dkt. No. 116].

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II. Standard of Review

Under Federal Rule of Civil Procedure 56, summary judgment may

be granted “only if” the pleadings, the discovery and disclosure

materials on file, and any affidavits show that there is no genuine

issue as to any material fact and that the moving party is entitled

to judgment as a matter of law. See Fed. R. Civ. P. 56(c), as

amended Dec. 1, 2007; Arrington v. United States, 473 F.3d 329, 333

(D.C. Cir. 2006). In other words, the moving party must satisfy two

requirements: first, that there is no “genuine” factual dispute

and, second, if there is, that it is “material” to the case. “A

dispute over a material fact is ‘genuine’ if ‘the evidence is such

that a reasonable jury could return a verdict for the non-moving

party.’” Arrington, 473 F.3d at 333 (quoting Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986)). A fact is “material” if it

might affect the outcome of the case under the substantive

governing law. Liberty Lobby, 477 U.S. at 248.

As the Supreme Court stated in Celotex Corp. v. Catrett, “the

plain language of Rule 56(c) mandates the entry of summary

judgment, after adequate time for discovery and upon motion,

against a party who fails to make a showing sufficient to establish

the existence of an element essential to that party's case, and on

which that party will bear the burden of proof at trial.” 477 U.S.

317, 322 (1986). The Supreme Court has further explained,

[a]s we have emphasized, “[w]hen the moving
party has carried its burden under Rule 56(c),

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 its opponent must do more than simply show
that there is some metaphysical doubt as to
the material facts. . . . Where the record
taken as a whole could not lead a rational
trier of fact to find for the nonmoving party,
there is no ‘genuine issue for trial.’”
Matsushita Elec. Industrial Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct.
1348, 89 L.Ed.2d 538 . . . (1986) (footnote
omitted). “‘[T]he mere existence of some
alleged factual dispute between the parties
will not defeat an otherwise properly
supported motion for summary judgment; the
requirement is that there be no genuine issue
of material fact.’”

Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Liberty Lobby,

477 U.S. at 247-48) (emphasis in original).

However, the Supreme Court has also consistently emphasized

that “at the summary judgment stage, the judge’s function is

not . . . to weigh the evidence and determine the truth of the

matter, but to determine whether there is a genuine issue for

trial.” Liberty Lobby, 477 U.S. at 249. In both Liberty Lobby and

Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150

(2000), the Supreme Court cautioned that “[c]redibility

determinations, the weighing of the evidence, and the drawing of

legitimate inferences from the facts, are jury functions, not those

of a judge” deciding a motion for summary judgment. Liberty Lobby,

477 U.S. at 255.

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III. Analysis

A. Brown’s Motion for Summary Judgment

1. Brown’s Liability for Violations of Section 10(b)
and Rule 10b-5

Section 10(b) “prohibits only the making of a material

misstatement (or omission) or the commission of a manipulative

act.” Central Bank of Denver, N.A. v. First Interstate Bank of

Denver, N.A., 511 U.S. 164, 177 (1994). Primary liability under §

10(b) may be found for any person who:

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 ... use[s]
or employ[s], in connection with the purchase
or sale of any security ... 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.

15 U.S.C. § 78j. On the basis of this statute, the SEC promulgated

Rule 10b-5, which makes it unlawful for:

any person, directly or indirectly, . . . (a)
[t]o employ any device, scheme, or artifice to
defraud, (b) [t]o make any untrue statement of
a material fact or to omit to state a material
fact necessary in order to make the statements
made, in the light of the circumstances under
which they were made, not misleading, or (c)
[t]o engage in any act, practice, or course of
business which operates or would operate as a
fraud or deceit upon any person, in connection
with the purchase or sale of any security.

17 C.F.R. § 240.10b-5.

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 The SEC alleges that Brown committed fraud in her role as

Integral’s principal financial and accounting officer.

Specifically, the SEC contends that Brown made false statements in

violation of Rule 10b-5(b) by signing and certifying as true

Integral’s public filings, when in fact she knew that those filings

were false because they concealed that Prince was functioning as an

executive officer of Integral. Brown argues that the SEC’s claim

fails because, in light of the Supreme Court’s recent decision in

Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct.

2296(2011),3 it cannot establish that she was the “maker” of the

alleged omission.

The SEC further contends that the record establishes that

Brown violated Rule 10b-5(a) and (c) by substantially

participating, with Chamberlain and Prince, in a fraudulent scheme

to conceal Prince’s true status as a de facto officer. Brown argues

that the SEC’s scheme liability claim fails because the SEC has not

alleged that she is liable for anything other than Integral’s

omission of Prince.

a. Genuine Issues of Material Fact Preclude
Summary Judgment on the SEC’s Claim Against
Brown Under Rule 10b-5(b)

Brown argues that Janus requires summary judgment on the SEC’s

claim charging her with primary violations of Rule 10b-5. Brown

3
Janus was issued after this Court decided the Defendants’ Motions
to Dismiss.

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relies on the holding in Janus that one is a “maker” of a false

statement or omission for purposes of Rule 10b-5(b) only if that

person had “ultimate authority” over the statement. Janus, 131 S.

Ct. at 2302 (“[T]he maker of a statement is the person or entity

with ultimate authority over the statement, including its content

and whether and how to communicate it.”). Brown contends that, as

a matter of law, the SEC cannot establish that she was the “maker”

of the alleged omission with “ultimate authority” over its content

and whether and how to communicate it. Brown further argues that

the SEC has already determined that Integral was the “maker” of the

omission, and has already alleged in the Third Claim for Relief

that Brown merely aided and abetted Integral’s omission.

The SEC responds that Brown’s implicit contention that “there

is only one ‘ultimate authority’ over a statement and therefore,

after Janus, there can be only one ‘maker’” is not supported by

Janus or its progeny. SEC’s Opp’n to Brown’s Mot. for Summ. J. at

12. The SEC further argues that the signer of a corporate filing is

always its “maker.”

In Janus, the Supreme Court addressed a situation in which one

legal entity, Janus Capital Management, served as mutual fund

investment adviser for another legal entity, Janus Investment Fund.

The Court concluded that investment adviser Janus Capital

Management had not “made” any actionable misrepresentations or

omissions, even though plaintiffs alleged that Janus Capital

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Management had been significantly involved in preparing, but not

signing, the prospectus. The Court reasoned that “nothing on the

face of the prospectus indicate[d] that any statements” came from

the investment adviser, and “none of the statements in the

prospectuses were attributed, explicitly or implicitly, to [the

adviser].” Id. at 2305, 2305 n. 11.

The facts in Janus are very different from those in this case.

Janus involved two distinct legal entities, and addressed the issue

of whether statements of one could be attributed to the other to

avoid liability under Rule 10b-5. Brown’s role in the omission

attributed to her in this case is not analogous to Janus Capital

Management’s relationship to the statements issued by Janus

Investment Fund. It is undisputed here that Brown was Integral’s

principal financial and accounting officer and that, as such, she

signed the filings at issue.

As the Southern District of New York recently held, “Janus did

not [] alter the well-established rule that a corporation can act

only through its employees and agents.” In re Pfizer Inc. Sec.

Litig., No. 04 Civ. 9866, 2012 WL 983548, at *4 (S.D.N.Y March 22,

2012) (internal quotations omitted) (citations omitted); see In re

Merck & Co., Sec. Derivative & “ERISA” Litig., MDL No. 1658, 2011

WL 3444199, at *25 (D.N.J. Aug. 8, 2011); Local 703, I.B. of T.

Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp., 2011 U.S.

Dist. LEXIS 93873, at *15 (N.D. Ala. Aug. 23, 2011) (“nothing in

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Janus stands for the proposition that CEOs and CFOs [cannot] be

liable for false and misleading statements in their own company’s

financial statements, for which they signed Sarbanes-Oxley

certifications.”).

Both before and after the decision in Janus, courts have

consistently held that the signer of a corporate filing is its

“maker.” In Pfizer, the court held that because Plaintiffs alleged

that “Defendant McKinnell signed Pfizer’s public filings [] [they]

adequately allege[d] his liability, under Janus, for

misrepresentations in those filings.” 2012 WL 983548, at *4, n. 3

(emphasis added). Similarly, in In re Stillwater Capital Partners

Inc. Litig., the court held that corporate officer Hirst “signed

the documents at issue and thereby ‘made’ the alleged

misstatements.” No. 1:11-2275, 2012 WL 1416837, at *7 (S.D.N.Y.

April 23, 2012); see also Merck, 2011 WL 344199, at *25 (executive

liable for statements in company’s public filings when he signed

those filings).

Whether one is the “maker” of a false statement turns on

factual issues of scienter as well as “ultimate control” over the

statement. Such control may be evidenced by “attribution within a

statement” or “surrounding circumstances,” including the signing of

SEC filings. See Janus, 131 S. Ct. at 2302. Viewing the record in

the light most favorable to the SEC and drawing all inferences in

its favor, the Court concludes that there are adequate “surrounding

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circumstances” for the trier of fact to find that the omission at

issue was “made” by Brown. Therefore, Brown’s Motion for Summary

Judgment on the SEC’s claim against her for violations of Rule 10b-

5(b) is denied.

b. Genuine Issues of Material Fact Preclude
Summary Judgment on the SEC’s Scheme Liability
Claim Against Brown Under Rule 10b-5(a) and
(c)

Brown next argues that the SEC cannot prevail on its Rule 10b-

5(a) and (c) scheme liability claim against her because it has not

alleged that she is liable for anything other than Integral’s

omission of Prince. The SEC responds that even if Brown correctly

states the law, her argument fails because the record shows that

its scheme liability claim is not based only on the omission of

Prince’s involvement.

As the Court noted in its opinion on the Motions to Dismiss,

“to establish primary liability under Rule 10b-5(a) or (c), the

alleged conduct must be more than a reiteration of the

misrepresentations underlying the Rule 10b-5(b) misstatement

claims.” SEC v. Brown, 740 F. Supp. 2d 148, 172 (D.D.C. 2010). The

Court further noted that “[p]rimary liability may arise out of the

same set of facts under all three subsections ‘where the plaintiffs

allege both that the defendants made misrepresentations in

violation of Rule 10b-5(b), as well as that the defendants

undertook a deceptive scheme or course of conduct that went beyond

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the misrepresentations.’” Id. quoting In re Alstom SA, 406 F. Supp.

2d 433, 475 (S.D.N.Y. 2005). There is a difference between a 10b-

5(b) failure to disclose and a 10b-5(a) and (c) scheme to conceal

that failure to disclose.

The SEC points to evidence that, when construed in the light

most favorable to the SEC, could lead the trier of fact to find

that Brown took affirmative steps to conceal Prince’s status that

“went beyond the misrepresentation.” For instance, the SEC claims

that Brown not only omitted Prince’s status as a de facto officer

from public filings with the SEC, but also took steps to ensure

that internal records of the company and email communications were

consistent with Integral’s desire not to disclose Prince. While it

may be true, as Brown contends, that the SEC’s proffered evidence

reflects nothing more than “mundane events” and that her

consultations with Venable are inconsistent with a scheme to

defraud, such a determination, which necessarily requires the

weighing of the evidence, must be left for the trier of fact.

Therefore, Brown’s Motion for Summary Judgment on the SEC’s claim

against her for violations of Rule 10b-5(a) and (c) is denied.

2. Brown’s Liability for Aiding and Abetting
Integral’s Violations of Section 13(a) and Rules
12b-20 and 13a-1

Brown contends that she cannot be both primarily liable for

“making a false statement under Rule 10b-5(b) and secondarily

liable for aiding and abetting Integral’s filing of false

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statements in violation of Section 13(a). Brown argues that she is

“at worst, either secondarily liable for having aided and abetted

Integral’s omission of Mr. Prince [] or primarily liable for

omitting Mr. Prince herself,” but that she “cannot, however, be

both.” Brown’s Mot. for Summ. J. at 14, n. 7. The SEC responds that

there is nothing inconsistent about its pleading or proof.

Section 13(a) and Rule 13a-1 require that every “issuer of a

security registered pursuant to section 12 shall file with the

Commission” certain documents consistent with SEC regulations,

while Rule 12b-20 requires that any such filings not be misleading.

See 15 U.S.C. § 78m(a); 17 C.F.R. §§ 240.13a-1 and 240.12b-20

(emphasis added). Thus, the statutes do not preclude the SEC from

claiming that Brown both “made” a false statement in violation of

Rule 10b-5(b) and aided and abetted Integral, the “issuer” of the

security, with“filing” that false statement in violation of Section

13(a), Rule 12b-20 and Rule 13a-1. See SEC v. Koenig, 2007 WL

1074901, at *6-7 (N.D.Ill. April 5, 2007). Contrary to Brown’s

argument, the SEC is not required to choose between the two and

allege only one or the other violation.

Brown raises no other grounds for summary judgment on this

claim for relief. Accordingly, Brown’s Motion for Summary Judgment

on the SEC’s claim against her for violations of Section 13(a) and

Rules 12b-20 and 13a-1 is denied.

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 3. Brown’s Liability for Violations of Rule 13a-14

Brown next argues that the Janus decision warrants

reconsideration of the Court’s previous decision not to dismiss the

SEC’s claim for relief under Rule 13a-14. Brown contends that Janus

makes clear that courts cannot go beyond the plain language of a

statute to create individual liability where none exists.

More specifically, Brown argues that Rule 13a-14, and Section

13(a) under which it was promulgated, governs only the conduct of

issuers. Brown contends that, “[s]ince the SEC did not allege that

Ms. Brown aided and abetted Integral’s violation of Rule 13a-14 []

summary judgment should be granted on the SEC’s Fourth Claim for

Relief” because “[a]fter Janus, individuals cannot be held

primarily liable for violating that rule since it says nothing

about individual liability.” Id. at 2.

The SEC responds that Janus has no impact on the Court’s prior

ruling. The SEC notes that Janus interpreted the word “make” as

used in Rule 10b-5(b), and that the word “make” does not appear in

Rule 13a-14. The SEC further argues that Janus does not address the

scope of Rule 13a-14 or impact in any way its statutory authority

to claim that an individual is primarily liable for a violation of

the Rule.

Brown relies upon the following language from Janus to support

her contention that reconsideration of the SEC’s claim under Rule

13a-14 is warranted:

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 Congress also has established liability in
§ 20(a) for ‘[e]very person who, directly or
indirectly, controls any person liable’ for
violations of the securities laws. First
Derivative’s theory of liability based on a
relationship of influence resembles the
liability imposed by Congress for control. To
adopt First Derivative’s theory would read
into Rule 10b-5 a theory of liability similar
to-but broader in application than-what
Congress has already created expressly
elsewhere.

Janus, 131 S. Ct. at 2304. In this passage, the Supreme Court notes

that Congress enacted Section 20(a) as a means to hold liable

entities that control any person who violates a securities law. The

Supreme Court is cautioning against expanding the narrow private

right of action under Rule 10b-5 to impose liability where Congress

already imposed liability under Section 20.

Brown has put forth no persuasive reason why this passage from

Janus, specifically limiting the scope of private rights of action

under Rule 10b-5, should be read to reach enforcement actions

brought by the SEC pursuant to Rule 13a-14. Brown also fails to

adequately address the Court’s previous conclusion that “Section

21(d)(1) authorizes the Commission to bring an action in a United

States District Court ‘to enjoin’ any ‘acts or practices

constituting a violation of any provision of this title [or] the

rules or regulations thereunder” and that “[i]n light of this

specific statutory authority, [] the SEC’s claim to enforce Rule

13a-14 states a valid cause of action.” Brown, 740 F. Supp. 2d at

165 (quoting 15 U.S.C. § 78u(d)(1)). Accordingly, the Court

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declines to reverse its previous decision, or to depart from the

majority of courts that have addressed the issue.4

Brown raises no other grounds for summary judgment on this

claim for relief. Therefore, Brown’s Motion for Summary Judgment on

the SEC’s claim against her for violations of Rule 13a-14 is

denied.

4. The SEC’s Claim for Equitable Relief Against Brown

The SEC seeks equitable remedies against Brown, including a

permanent injunction against future violations of the securities

laws and a permanent officer and director bar. Brown argues that

the SEC is not entitled to equitable relief because the alleged

violation was not “flagrant” as she repeatedly sought the advice of

outside counsel, the alleged violation involved a single omission

and not a pattern of violations, and the SEC has failed to adduce

4
As the Court previously observed, SEC claims for violations of
the certification requirement of Rule 13a-14 are routinely
permitted. Brown, 740 F. Supp. 2d at 164-165; see, e.g., SEC v.
Geswein, No. 5:10-cv-1235, 2011 WL 4541303 at *3 (N.D. Ohio Sept.
29, 2011) (“[T]he SEC has the authority to bring an enforcement
action [against officers] under Rule 13a-14.”); SEC v. Fuhlendorf,
No. C09-1292, 2011 WL 999221, at *9 (W.D. Wash. Mar. 17, 2011); SEC
v. Das, No. 8:10-cv-102, 2010 WL 4615336, at *10 (D.Neb. Nov. 4,
2010); SEC v. Stanard, No. 06-cv-7736, 2009 WL 196023, at *28
(S.D.N.Y. Jan. 27, 2009); SEC v. Brady, No. 05-cv-1416, 2006 WL
1310320, at *5 (N.D. Tex. May 12, 2006); SEC v. Sandifur, No. 05-
cv-1631C, 2006 WL 538210, at *8 (W.D. Wash. Mar. 2, 2006); but see
SEC v. Retail Pro, Inc., 673 F.Supp.2d 1108, 1143 n.8 (S.D. Cal.
2009) (citing SEC v. Black, No. 04-cv-7377, 2008 WL 4394891 (N.D.
Ill. Sept. 24, 2008) as evidence of a “conflict among courts [as]
to whether a violation of the certification requirement of Rule
13a-14 supports a separate cause of action,” which it declined to
address).

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any evidence showing a reasonable likelihood that she would commit

violations in the future. Brown’s Mot. for Summ. J. at 21-30.

The SEC responds that it is entitled to equitable relief

because “Brown engaged in a course of conduct over a six year

period that constituted substantial participation in a scheme to

defraud, including deceptive acts intended to conceal Prince’s role

at ISI” and because the record “supports a finding of a reasonable

likelihood of future violations.” SEC’s Opp’n to Brown’s Mot. for

Summ. J. at 19-20.

To obtain an injunction against Brown, the SEC must

demonstrate that there is a reasonable likelihood that she will

engage in future violations. SEC v. Savoy Indus., Inc. 587 F.2d

1149, 1168 (D.C. Cir. 1978). Under the Savoy Industries test,

courts should consider “whether a defendant’s violation was

isolated or part of a pattern, whether the violation was flagrant

and deliberate or merely technical in nature, and whether the

defendant’s business will present opportunities to violate the law

in the future.” SEC v. First City Fin., 890 F.2d 1215, 1228 (D.C.

Cir. 1989) (citing Savoy Indus., 587 F.2d at 1168). “No single

factor is determinative; instead, [] district court[s] should

determine the propensity for future violations based on the

totality of the circumstances.” Id. (citations omitted).

The SEC has failed to demonstrate that there is a reasonable

likelihood that Brown will engage in future violations of the

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securities laws. Most significantly, the SEC has neither alleged

nor adduced evidence that Brown is currently seeking employment in

securities-related positions or that she is currently or

prospectively capable of committing any securities violations. It

is undisputed that Brown has not been employed by Integral since

2008, that she does not work for a publicly traded company, and

that she has no legal reporting obligations to the SEC. Moreover,

the SEC never questioned the integrity of Integral’s financials,

Brown’s principal area of responsibility as CFO, nor did it allege

any investor losses or personal gain by Brown. There is also no

allegation that Brown engaged in repeated affirmative misconduct,

self-dealing, insider trading or financial fraud.

These circumstances do not support a finding of a reasonable

likelihood of future violations. Therefore, Brown’s Motion for

Summary Judgment on the injunctive relief and an officer director

bar sought by the SEC is granted.

5. Statute of Limitations

As neither the Exchange Act nor the Securities Act includes a

statute of limitations, Brown argues that the “catch-all” statute

of limitations in 28 U.S.C. § 2462 applies to bar all claims based

on conduct that occurred more than five years before the filing of

the Complaint. Section 2462 states that:

Except as otherwise provided by Act of
Congress, an action, suit, or proceeding for
the enforcement of any civil fine, penalty, or
forfeiture, pecuniary or otherwise, shall not

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 be entertained unless commenced within five
years from the date when the claim first
accrued if, within the same period, the
offender or the property is found within the
United States in order that proper service may
be made thereon.

28 U.S.C. § 2462. Specifically, Brown argues that she is entitled

to a judgment that all conduct before July 30, 2004 is time-barred

because the SEC has adduced no evidence to demonstrate why the

five-year statute of limitations should not apply.

The SEC contends that the record evidence supports a finding

that the five-year statute of limitations is tolled by the

discovery rule, or in the alternative, by the continuing violation

doctrine.

a. The Discovery Rule Does Not Toll the Statute
of Limitations for the SEC’s Civil Penalties
Claims

In its Opposition to Brown’s Motion for Summary Judgment, the

SEC notes that, “[w]hile this Court previously ruled that the

doctrine of fraudulent concealment was not applicable here, the

fraudulent concealment doctrine and the discovery rule are distinct

bases for extending the statute of limitations.” SEC’s Opp’n to

Brown’s Mot. for Summ. J. at 22, n. 12. The SEC then suggests that

the Court “confuse[d] the discovery rule and the doctrine of

fraudulent concealment.” Id.

The Court perceives no adequate reason to reverse its previous

decision that “the five-year statute of limitations in § 2462 is

not tolled for the civil penalties claims.” Brown, 740 F. Supp.

-21-
2d at 158. Under the discovery rule, “a cause of action accrues

when the injured party discovers-or in the exercise of due

diligence should have discovered-that it has been injured.” Nat’l

Treasury Emps. Union v. FLRA, 392 F.3d 498, 501 (D.C. Cir. 2004)

(internal quotation omitted) (emphasis added). The SEC contends

that, under the rule, its right of action did not accrue “until

January 9, 2006 when . . . the SEC had or could have had any

inkling about Prince.” SEC’s Opp’n to Brown’s Mot. for Summ. J. at

23.

However, even if the discovery rule applies here-an issue the

Court need not decide-the SEC would not benefit from the rule

because, as the Court previously held, the SEC’s Complaint “fails

to allege any facts that would establish that the SEC used due

diligence in trying to uncover Defendants’ wrongdoing from 1998 to

2005.” Brown, 740 F. Supp. 2d at 158 (emphasis added). The Court

further held that, “[m]ore problematically, the Complaint fails to

allege when the SEC discovered the claims; there are no allegations

that the SEC remained ignorant of Prince’s role at Integral up

until five years or less before filing its complaint.” Id.

The SEC did not seek to amend its Complaint, and it cannot

cure pleading defects in an opposition to a motion for summary

judgment. Calvetti v. Antcliff, 346 F. Supp. 2d 92, 107 (D.D.C.

2004); see also Arbitraje Casa de Cambio, S.A. de C.V. v. U.S.

Postal Serv., 297 F. Supp. 2d 165, 170 (D.D.C. 2003) (“It is

-22-
axiomatic that a complaint may not be amended by the briefs in

opposition to a motion to dismiss.”). Accordingly, the Court’s

holding, that the five-year statute of limitations is not tolled by

the discovery rule for the civil penalties claims, still applies.

b. Genuine Issues of Material Fact Preclude a
Final Ruling as to the Applicability of the
Continuing Violation Doctrine

Brown argues that the SEC has neither alleged, adduced nor

proffered any evidence concerning or supporting the applicability

of the continuing violation doctrine. Brown contends that “this

case is about an alleged disclosure violation based on a single

omission, not based on any patterns of continuous and affirmative

conduct” and that, therefore, she is entitled to summary judgment

on the issue. The SEC disputes Brown’s characterization of the

alleged violation, arguing that the violation in this case is a

continuing one whereby, “[t]he scheme to defraud and the deceptive

acts in furtherance occurred from 1999 through 2006.” SEC’s Opp’n

to Brown’s Mot. for Summ. J. at 25.

In ruling on Brown’s Motion to Dismiss, the Court noted that

this Circuit has not considered whether the continuing violation

doctrine applies to claims brought in the securities fraud context.

Brown, 740 F. Supp. 2d at 158. The Court further noted that

district courts in the Second and Third Circuits have indicated

great skepticism that it does. Id.; see In re Comverse Tech., Inc.

Sec. Litig., 543 F.Supp.2d 134, 155 (E.D.N.Y. 2008) (noting that

-23-
“[t]he weight of authority in [the Second Circuit] is skeptical of

the application of the continuing violations doctrine in securities

fraud cases”); In re DVI, Inc. Sec. Litigation, No. 03-cv-5336,

2005 WL 1307959, at *11 (E.D. Pa. May 31, 2005) (declining to

extend continuing violation doctrine to case brought under

securities laws) (unreported opinion); but see SEC v. Kelly, 663

F.Supp.2d 276, 287-88 (S.D.N.Y. 2009) (applying continuing

violation doctrine in case brought by SEC). The Court then deferred

ruling on whether the continuing violation doctrine applied here

pending a more fully developed factual record. Id. at 159.

The Court noted, for example, factual disputes that would bear

on its decision, including when the alleged scheme to conceal

Prince’s officer status began and when Brown’s obligation to

disclose his status arose, if she had such an obligation. Id. These

facts are in dispute. In order to determine whether or not Brown

had an obligation to disclose Prince’s status as an officer, it

will be necessary for the trier of fact to evaluate the Venable

lawyers’ credibility as to their knowledge of Prince’s role at

Integral and the nature and extent of the advice that they gave

Brown. Accordingly, Brown’s Motion for Summary Judgment on the

SEC’s claims for civil penalties based on conduct occurring before

July 30, 2004 is denied.

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 B. Prince’s Motion for Partial Summary Judgment

1. Prince’s Liability for Violations of Section 10(b)
and Rule 10b-5

The SEC’s Complaint alleges that Prince drafted and prepared

the Management Discussion and Analysis section of the periodic

reports Integral was required to file with the SEC, which addressed

the company’s financial results for that period. Compl. ¶ 39.

Prince is also alleged to have created and prepared internal

quarterly financial results and forecasts which were incorporated

into the periodic reports to the SEC. Id. The SEC further alleges

that Prince reviewed, commented on, and approved Integral’s draft

annual reports and proxy statements. Id. ¶ 35. Prince argues that

these allegations fail to state a claim under Rule 10b-5(b)

because, in light of the Supreme Court’s decision in Janus, the SEC

cannot establish that he “made” any material misstatement or

omission or that he had a duty to disclose or clarify any material

omission by Integral.

In addition to its Rule 10b-5(b) claim, the SEC contends that

Prince is liable under Rule 10b-5(a) and (c) for, respectively,

employing a “device, scheme or artifice to defraud,” and engaging

in an “act, practice, or course of business which operates or would

operate as a fraud or deceit upon any person.” 17 C.F.R. §

240.10b-5. Prince argues that the SEC’s claim for scheme liability

fails because there is no evidence in the record that Prince

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engaged in any deceptive acts in connection with an alleged scheme

to defraud.

a. The SEC Concedes its Claim Against Prince
Under Rule 10b-5(b)

Prince contends that under Janus, the SEC cannot establish

that he “made” any of the alleged material misstatements or

omissions at issue. Nor, according to Prince, can the SEC establish

that he had a duty to clarify any alleged material omissions by

Integral. The SEC responds by “conced[ing] that as a result of the

Supreme Court’s decision in [Janus], the Second Claim for Relief

against Prince can no longer rest on violations of subsection Rule

10b-5(b).” SEC’s Opp’n to Prince’s Mot. for Partial Summ. J. at 2,

n. 2.

Accordingly, Prince’s Motion for Summary Judgment on the SEC’s

claim against him for violations of Rule 10b-5(b) is granted.

b. Genuine Issues of Material Fact Preclude
Summary Judgment on the SEC’s Scheme Liability
Claim Against Prince Under Rule 10b-5(a) and
(c)

Prince argues that the SEC cannot sustain its scheme liability

claim against him under Rule 10b-5(a) and (c) “by pointing to an

independent claim [i.e. a violation of Section 16(a) of the

Exchange Act] that assumes, as its premise, the disputed issue

which is at the heart of this proceeding.” Prince’s Mot. for

Partial Summ. J. at 18. Prince further contends that “the

undisputed documentary record demonstrates that Mr. Prince’s

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conduct at Integral was not concealed in any way, and was widely

known both within the company and to Integral’s outside disclosure

counsel at the Venable law firm.” Id. 16.

The SEC responds by arguing that knowledge known within

Integral is irrelevant to the issue of whether Prince purposefully

concealed from the public his status as a de facto officer of the

Company. The SEC further contends that Prince’s alleged reliance on

advice from Venable is to no avail because there are genuine issues

of material fact regarding what Venable lawyers knew and when they

knew it.

In ruling on the Defendants’ Motions to Dismiss, the Court

held that the SEC’s allegations state a claim under Rule 10b-5(a)

and (c) for scheme liability because, if the SEC was able to

establish that “Prince did act as an officer of Integral Systems

with scienter, a reasonable fact finder could conclude that his

failure to file the reports required under § 16(a) was done with

the purpose and effect of concealing his officer status from the

public.” SEC v. Brown, 740 F. Supp. 2d at 172; see In re Alsom SA,

406 F. Supp. 2d 433, 474 (S.D.N.Y. 2005) (“[S]ubsections (a) and

(c) of Rule 10b-5 encompass a wide range of activities and are not

limited to the prohibition of market manipulation.”). Therefore, as

previously held, and contrary to Prince’s argument in this Motion,

a scheme liability claim under Rule 10b-5(a) and (c) may rest upon

-27-
a violation of § 16(a).5 The question is whether there is a genuine

issue of material fact for trial on the SEC’s scheme liability

claim.

The SEC is correct that the “gist of [Prince’s] argument is

factual” as it largely depends upon what the Venable lawyers knew,

and what advice Prince received, about his conduct at Integral.

SEC’s Opp’n to Prince’s Mot. for Partial Summ. J. at 16. These

facts relate directly to Prince’s scienter, an element of the SEC’s

scheme liability claim that cannot be resolved at this stage

because the record is replete with genuine issues of material fact.

For example, the parties disagree about what information was

disclosed to Venable, when that information was disclosed to

Venable, the extent and nature of the advice given by Venable, and

whether Prince relied on that advice in good faith.

As Prince concedes, resolution of these facts turn on

credibility determinations. Prince states that, in determining

“whether Prince was a de facto officer of ISI . . . and whether

ISI’s non-disclosure thereof was appropriate . . . it will be

necessary for this Court to evaluate [the Venable] lawyers’

credibility at trial vis-a-vis the clear, contemporaneous

evidentiary record that exists as to their knowledge of and advice

5
Section 16(a) requires anyone “who is a director or an officer of
the issuer of [any equity] security” to file a statement concerning
any holdings and transactions of the issuer’s securities. 15 U.S.C.
§ 78p(a).

-28-
to their client, ISI.” Prince’s Mot. for Partial Summ. J. at 5, n.

2.

Drawing all reasonable inferences in favor of the SEC, and

avoiding credibility determinations and the weighing of evidence,

the Court concludes that, should the trier of fact find that Prince

was a de facto officer of Integral, there is a genuine dispute of

material fact over whether Prince knowingly concealed that status

from the public. Therefore Prince’s Motion for Summary Judgment on

the SEC’s claim against him for violations of Rule 10b-5(a) and (c)

is denied.

2. Prince’s Liability for Violations of the SEC’s 1997
Rule 102(e) Bar Order

The 1997 Administrative Order against Prince was issued by the

SEC pursuant to Sections 102(e) and (f) of the Commission’s Rules

of Practice. See 17 C.F.R. §§ 201.102(e), (f). The Rule 102(e) bar

order entered against Prince by the SEC on June 24, 1997 provides

that: “Prince is permanently denied the privilege of appearing or

practicing before the Commission as an accountant.” In re Gary A.

Prince, Release No. 38,765, 64 S.E.C. Docket 2074, 1997 WL 343054

(June 24, 1997). The SEC contends that Mr. Prince violated the bar

order during the period from December 30, 1998 until August 2,

2006. As a result, the SEC is asking the Court to issue a permanent

injunction commanding Prince to comply with the Commission’s 1997

Rule 102(e) bar order.

-29-
 a. The 1997 Order Is Valid

Prince argues, as a threshold matter, that there is virtually

“no guidance from the SEC or precedent” that articulates a clear

standard as to when a Rule 102(e) proceeding is triggered and that,

therefore, “it is not surprising that academic commentators have

observed that Rules 102(e) and (f) ‘suffer[] from a fatal lack of

clarity.’”6 Prince’s Mot. for Partial Summ. J. at 20. The SEC

disputes this contention, arguing that any deficiency with the Rule

102(e) standard “was resolved long ago.” SEC’s Opp’n to Prince’s

Mot. for Partial Summ. J. at 19.

Prince’s assertion that Rule 102(e) is deficient runs contrary

to this Circuit’s position that the Rule “clearly sets out the

standard for when an accountant is deemed to have engaged in

‘improper professional conduct.’” Marrie v. S.E.C., 374 F.3d 1196,

1203 (D.C. Cir. 2004) (providing an extensive background on the

dialogue between the D.C. Circuit and the SEC that led to the 1998

amendment of Rule 102(e)).7 Therefore, the question is not whether

6
Rule 102(e) provides the SEC may “deny, temporarily or
permanently, the privilege of appearing or practicing before [the
Commission] in any way to any person who is found by the Commission
... to have engaged in unethical or improper professional conduct.”
17 C.F.R. § 201.102(e). Rule 102(f) provides that “practicing
before the Commission includes but shall not be limited to . . .
[t]he preparation of any statement, opinion, or other paper by any
attorney, accountant, engineer, or other professional or expert”
that is filed with the Commission with the consent of the person
who prepared it. 17 C.F.R. § 201.102(f).
7
Tellingly, Prince relies exclusively on law review articles,
(continued...)

-30-
the 1997 Order pursuant to Rule 102(e) is valid, but rather,

whether Prince violated that Order by practicing before the

Commission as an accountant at Integral.

b. The SEC’s Interpretation of Its 1997 Order
Pursuant to Rules 102(e) and (f) Is Entitled
to Deference

The parties dispute the meaning of “practicing before the

Commission as an accountant” used in the 1997 Order pursuant to

Rules 102(e) and (f). Prince argues that, even if the 1997 Order is

deemed valid, an “analysis of the limited guidance on the issue -

including the very same authority relied upon by the SEC and its

expert - makes plain that the functions performed by Mr. Prince at

ISI did not constitute practicing before the Commission as an

accountant within the meaning of Rules 102(e) and (f).” Prince’s

Mot. for Partial Summ. J. at 20-21. Prince contends that the

decision principally relied upon by the SEC and its experts to

conclude that Prince violated the 1997 Order, namely In re Robert

W. Armstrong III, Release No. 34-51920, 85 S.E.C. Docket 2321, 2005

WL 1498425 (June 24, 2005), rests on facts that are distinguishable

from this case and ultimately support a finding that he did not

practice before the Commission.

More specifically, Prince contends that, unlike here,

Armstrong involves an individual who “computed the figures and

7
(...continued)
published between 1984 and 1999, to support his argument.

-31-
provided the data” for public filings containing false, inaccurate,

or misleading statements or financial information. Id. at 21-22.

Prince argues, based on disputed facts, that the instant case is

distinguishable because he did not compute figures or provide data

for public filings while at Integral, and because the SEC has not

alleged that any of Integral’s public filings contained any false,

inaccurate or misleading information. Prince asserts that, “[w]hile

it is true that [he] reviewed ISI’s public filings and sometimes

provided comments on the filings, Commission precedent (and common

sense) require that individuals play a much more direct and

expansive role in preparing public filings in order to find that

such involvement constitutes practicing before the Commission.” Id.

at 23.

In response, the SEC argues that it is clear that Prince

violated the 1997 Order because “Rule 102(f) encompasses all those

who ‘participate in the preparation of’ a document filed with the

Commission, even if the individual did not sign the document, is

not identified in the document, and did not have final

responsibility for the document.” SEC’s Opp’n to Prince’s Mot. for

Partial Summ. J. at 20. The SEC relies on Armstrong to support its

position that individuals are “practicing before the commission” if

they create, compile, or edit information or data included in

filings with the Commission; and that Rule 102(e) is not limited to

-32-
instances where conduct is fraudulent or unlawful. Id. at 20-22,

24-25.

In Armstrong, the SEC reversed an Administrative Law Judge’s

decision which held that Robert Armstrong8 engaged in securities

fraud, but that he was not subject to discipline under Rule 102(e)

because he was not ‘practicing before the Commission’ within the

meaning of Rule 102(f). The Commission ruled that Armstrong had in

fact practiced accounting before the Commission.

In analyzing Rule 102(f), the Commission in Armstrong stated

that “[t]he text of the Rule does not specify that a person must

sign a document filed with the Commission. Moreover, the term

‘preparation’ of a document is, we believe, sufficiently broad to

encompass the preparation of data to be included in a document

filed with the Commission, at least where, as here, the data was

prepared for the express purpose of being included in such a

document.” Armstrong, 2005 WL 1498425 at *11. Relying on this broad

reading of Rule 102(f), the Commission reasoned that:

The law judge's holding would allow
accountants to escape discipline under Rule
102(e) simply by instructing someone else to
draft, sign, and file fraudulent documents.
The Rule, however, recognizes that financial
statements often incorporate information
created, compiled, or edited by accountants
who are not responsible for signing or filing
the financial statements. Thus, practicing

8
Armstrong was the vice president and controller of a subsidiary
of a public company whose financial results were reported with
those of its parent company. Armstrong, 2005 WL 1498425 at *2-3.

-33-
 before the Commission includes computing the
figures and supplying the data incorporated
into Commission filings and consenting to
their incorporation.

Armstrong, 2005 WL 1498425 at *11 (emphasis added). The Commission

concluded that “[t]he reliability of the disclosure process” would

be impaired if incompetent or unethical accountants were permitted

“to participate in the preparation of financial statements

certified and filed with the Commission.” Id.

Thus, while Prince is correct that the Commission found that

Armstrong practiced before it because he “computed the figures and

provided the data,” and consented to their inclusion in filings

with the Commission, the SEC is also correct that Armstrong clearly

established that an individual may also be found to have

“practic[ed] before the Commission” if he or she “participate[d] in

the preparation of” financial statements filed with the Commission

by, for example, “creat[ing],” “compil[ing]” or “edit[ing]”

information or data incorporated into those documents and

consenting to their incorporation. See Id.

Prince’s argument that the 1997 Order prohibits only

fraudulent or inaccurate accounting finds no support in the

language of the 1997 Order, the underlying Rule, or in Armstrong.

The Order issued against Prince unambiguously “denied [him] the

privilege of appearing or practicing before the Commission as an

accountant.” Nothing in the Order or the Rule suggests that he

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could continue to practice before the SEC so long as he did not

engage in fraud.

The Commission’s interpretation in Armstrong of “practicing

before the Commission” is consistent with the language of Rule

102(f). Prince points to no past practices or pronouncements that

are inconsistent with this interpretation. Consequently, it is

reasonable, especially in view of the purpose of Rule 102(e),9 to

accord deference to the Commission’s interpretation of it.10 See

Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945)

(holding that an agency’s interpretation of one of its own

regulations “becomes of controlling weight unless it is plainly

erroneous or inconsistent with the regulation.”); see also Drake v.

FAA, 291 F.3d 59, 67 (D.C. Cir. 2002) (“Recent decisions of this

court make it clear that we owe deference to an agency’s

interpretation advanced during litigation regarding the meaning of

an ambiguous regulation, if the position is not inconsistent with

9
Rule 102(e) “is directed at protecting the integrity of the
Commission’s own processes, as well as the confidence of the
investing public in the integrity of the financial reporting
process.” Marrie v. S.E.C., 374 F.3d 1196, 1200 (D.C. Cir. 2004).
10
The SEC also argues that “practicing before the Commission” as
an accountant encompasses those who merely “review” a financial
statement or related disclosure filed with the SEC. SEC’s Opp’n to
Prince’s Mot. for Partial Summ. J. at 23. The Court need not
address the merits of this position because as discussed, infra,
the record is replete with genuine issues of material fact under
Armstrong as to whether Prince practiced before the Commission as
an accountant.

-35-
the agency’s prior statements and actions regarding the disputed

regulation.”).

c. There Are Genuine Disputes of Material Fact as
to Whether Prince Practiced Accounting Before
the Commission.

Prince admits that he reviewed and “sometimes provided

comments” on Intergral’s financial filings, but denies that his

comments were anything more than “limited, prose-style drafting.”

Prince’s Mot. for Partial Summ. J. at 22-23. Prince states that he

“never provided any of the numbers or financial figures for

inclusion in the filings; never made any substantive accounting

judgments in connection with preparation of the filings; and never

played any role in determining the appropriateness or accuracy of

ISI’s financial records set forth in the filings.” Id. at 23.

Relying on the expert testimony submitted by Professor Jonathan

Macey, Prince further contends that, to the extent that he dealt

with Integral’s financial statements and related disclosures, he

did so as a corporate manager, not as an accountant.11

11
Prince also argues that there is no evidentiary basis to support
the SEC’s charge that Prince knowingly failed to comply with the
1997 Order because “at every turn Mr. Prince, Mr. Chamberlain and
the ISI Board of Directors consulted with Venable and took steps to
ensure that Mr. Prince’s job function complied with both the letter
and the spirit of the 1997 Rule 102(e) bar order.” Id. at 27.
However, as discussed supra at Part III.B.1.b, there are genuine
issues of material fact regarding, for example, what information
was disclosed to Venable, when that information was disclosed to
Venable, the extent and nature of the advice given by Venable, and
whether Prince relied on that advice in good faith.

-36-
 The SEC responds that “Prince was undoubtedly the dominant

figure at ISI with respect to the company’s financial statements

and disclosures” and that he “generat[ed] figures and data that

became part of ISI’s financial filings and also [made] accounting

judgments that affected the accuracy and completeness of those

filings.” SEC’s Opp’n to Prince’s Mot. for Partial Summ. J. at 28-

29. The SEC then points to evidence that it contends establishes

that Prince participated directly and substantively in the

preparation of Integrated’s filings, including numerous 10Q’s and

10-K’s. Id. at 29-33.

With respect to Prince’s contention that he acted as a

corporate manager and not as an accountant, the SEC relies on the

conclusions of its own expert, Mr. Lynn Turner, who submitted a

detailed report rebutting Professor Macey’s testimony. Id. at 25-

28.

Thus, it is clear that the SEC has raised genuine issues of

material fact as to whether Prince’s participation in the

preparation of SEC filings while at Integral constitutes

“practicing before the Commission” as defined in Armstrong. The

SEC, for example, points to evidence suggesting that Prince

calculated figures incorporated into the 10-K for FY 2001, made

numerous edits and recommendations to the 10-K for FY 2002, and

took the lead in preparing the 10-K for FY 2004 and the 10-Q for

-37-
the quarter ending December 31, 2004. See SEC’s Opp’n to Prince’s

Mot. for Partial Summ. J. at 5-13, 28-33.

While it may be true, as Prince contends and purports to

establish through the testimony of his fact witnesses and experts,

that the SEC is mischaracterizing and taking out of context

evidence in the record, such a weighing of the evidence is not

appropriate at this stage and must be left for the trier of fact.

Whether Prince’s role at Integral was more akin to a corporate

manager than an accountant requires a fact-specific inquiry and

expert credibility determinations that are inappropriate for

summary judgment. Therefore, Prince’s Motion for Summary Judgment

on the SEC’s claim against him for violations of the 1997 Rule

102(e) bar order is denied.

3. The SEC’s Claim for Injunctive Relief Against
Prince

Prince contends that there is no evidence to support the

notion that there is a reasonable likelihood that he will violate

the 1997 Order in the future, and that therefore, the permanent

injunction the SEC seeks must be rejected. However, that assessment

necessarily requires an evaluation of material factual issues that

are in dispute. For example, the SEC points to evidence suggesting

that Prince is currently “solicit[ing] business by claiming to have

been involved in the preparation of financial statements for more

than 100 companies,” and claims that it will present evidence

showing that Prince is a recidivist who has engaged in several

-38-
securities violations throughout his career. See SEC’s Opp’n to

Prince’s Mot. for Partial Summ. J. at 35-36. Prince disputes the

sufficiency of the SEC’s proffered evidence, arguing that

injunctive relief is “simply not justified as a matter of law.”

Prince’s Mot. for Partial Summ. J. at 38.

Whether or not the SEC’s evidence is sufficient to meet its

burden requires the Court to hear and weigh the evidence, which is

properly done at trial. Therefore, Prince’s Motion for Summary

Judgment on the injunctive relief sought by the SEC is denied.

IV. CONCLUSION

For the reasons set forth above, Brown’s Motion for Summary

Judgment is granted in part and denied in part and Defendant

Prince’s Motion for Partial Summary Judgment is granted in part and

denied in part. An Order will accompany this Memorandum Opinion.

/s/
July 19, 2012 Gladys Kessler
United States District Judge

Copies to: attorneys on record via ECF

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