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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 20, 2004 Decided April 9, 2004
No. 03-1062
GENE C. GEIGER,
PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT
Consolidated with
No. 03-1063
On Petitions for Review of an Order of the
Securities and Exchange Commission
Jeffrey J. Scott argued the cause and filed the briefs for
petitioner Gene C. Geiger.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
David A. Zisser argued the cause and filed the briefs for
petitioner Charles F. Kirby.
Randall W. Quinn, Assistant General Counsel, Securities
and Exchange Commission, argued the cause for respondent.
With him on the brief were Giovanni P. Prezioso, General
Counsel, Meyer Eisenberg, Deputy General Counsel, Jacob
H. Stillman, Solicitor, and Susan K. Straus, Attorney.
Before: HENDERSON, RANDOLPH, and GARLAND, Circuit
Judges.
Opinion for the Court filed by Circuit Judge RANDOLPH.
RANDOLPH, Circuit Judge: As a general rule, issuers of
securities must register their securities with the Securities
and Exchange Commission before offering or selling them to
the public. The Commission, finding that Gene C. Geiger and
Charles F. Kirby improperly sold to the public unregistered
securities, or participated in such a sale, sanctioned them for
violating § 5 of the Securities Act, 15 U.S.C. § 77e(a) & (c).1
In these petitions for judicial review, Geiger and Kirby claim
the transactions were exempt from the registration require-
ment and that the sanctions the Commission imposed were
improper.
I.
In 1995, Ron Knittle and Mary Erickson were the control-
ling shareholders and, respectively, the president and CEO,
and the secretary and treasurer, of Beneficial Capital Finan-
cial Services Corporation, then a shell corporation. That year
they changed the corporation’s name to Golden Eagle Inter-
national, Inc. The newly-named company intended to ac-
quire, develop, and operate mines. In three transactions,
nearly 3 million unregistered shares of Golden Eagle ended
up in the hands of the investing public.
The transactions consisted of three blocks of shares. The
first two blocks, totaling 633,000 shares, were nominally held
1Section 5(a) prohibits selling unregistered securities; § 5(c)
prohibits offering to sell or offering to buy unregistered securities.
3
by Kimi Hunsaker. Knittle and Erickson actually controlled
these shares. Hunsaker, a clerical employee of Golden Ea-
gle, never paid for the shares and, at least initially, did not
know they were in her name. The certificate representing
500,000 of the Hunsaker shares bore a restrictive legend
stating that the shares could not be sold without registration.
The certificate representing the remaining 133,000 Hunsaker
shares also once bore a restrictive legend, but a new, unre-
stricted certificate had been issued when Knittle and Erick-
son acquired the company.
The third block consisted of 2.3 million shares held by
David Hills, a former Golden Eagle executive. Hills’ sever-
ance agreement required him to return 2.1 million of these
shares to Golden Eagle once the company satisfied certain
obligations. The certificates representing Hills’ shares bore
restrictive legends.
A. The Kirby–Hunsaker Transaction
In June 1995, Knittle approached petitioner Gene C. Geig-
er, then a salesman at the Colorado-based brokerage firm of
Spencer Edwards, Inc. He asked Geiger to find a buyer for
the 133,000 Hunsaker shares whose certificate did not have a
restrictive legend. Geiger offered the shares to petitioner
Charles F. Kirby, the head trader at Spencer Edwards.
Kirby agreed to buy the shares for $25,000 for the account of
CKC Partners, a partnership jointly owned by Kirby and a
trust he administered on behalf of his children. When Kirby
sought to pay for the shares, Geiger told him he was ‘‘unclear
as to who the seller was or who the check was to be made out
to.’’ Kirby therefore left the payee’s line on his check blank.
Geiger later filled in the line, making the check payable to
Erickson. In short order, Kirby resold the shares to the
public for $56,000.
That the shares Kirby sold were unregistered did not
necessarily render the transaction unlawful. The Securities
Act focuses primarily on initial offerings, rather than on
secondary transactions among members of the public. See 1
THOMAS LEE HAZEN, THE LAW OF SECURITIES REGULATION § 1.1
(4th ed. 2002); Blue Chip Stamps v. Manor Drug Stores, 421
4
U.S. 723, 752 (1975). Section 4(1) of the Act thus exempts
from registration ‘‘transactions by any person other than an
issuer, underwriter, or dealer.’’ 15 U.S.C. § 77d(1). The
exemption did not apply, the Commission decided, because
Kirby was an ‘‘underwriter.’’ Kirby had the burden of prov-
ing otherwise. SEC v. Ralston Purina, 346 U.S. 119, 126
(1953).
Section 2(11) of the Act defines ‘‘underwriter’’ as ‘‘any
person who has purchased from an issuer with a view to, or
offers or sells for an issuer in connection with, the distribu-
tion of any security, or participates TTT in any such undertak-
ing[.]’’ 15 U.S.C. § 77b(11). The term ‘‘issuer’’ includes not
only the issuing company, but also ‘‘any person directly or
indirectly controlling or controlled by the issuer.’’ Id. The
statute does not define ‘‘distribution.’’
Kirby purchased the shares from a ‘‘person TTT controlling
TTT the issuer,’’ and he intended to sell those shares to the
public, as he did. His argument is that he was not an
‘‘underwriter’’ excluded from the § 4(1) exemption because
his sale was not a ‘‘distribution’’ within the meaning of
§ 2(11). The sale was not a ‘‘distribution,’’ he claims, because
he sold only 0.5 percent of Golden Eagle’s more than 12
million shares. According to Kirby, a sale qualifies as a
‘‘distribution’’ only if it involves a ‘‘substantial’’ or ‘‘signifi-
cant’’ percentage of the issuer’s outstanding shares.
Registration of securities protects ‘‘investors by promoting
full disclosure of information thought necessary to informed
investment decisions.’’ Ralston Purina, 346 U.S. at 124. To
the purchaser of securities, the potential loss – and the need
for disclosure – is the same regardless whether the securities
represent one percent, five percent, or ten percent of the
outstanding shares. The applicability of the § 4(1) exemption
turns not on the percentage of shares involved, but ‘‘on
whether the particular class of persons affected need the
protection of the Act.’’ Id. at 125. In Ralston Purina, the
Supreme Court relied on this reasoning to reject the notion
that the term ‘‘public offering,’’ as used in another exemption
to the registration requirement, 15 U.S.C. § 77d(2), contem-
5
plated any particular quantity of stock. The same reasoning
applies to ‘‘distributions’’ under § 2(11). Every court to
consider this question has so ruled. Ackerberg v. Johnson,
892 F.2d 1328, 1337 (8th Cir. 1989); SEC v. Dolnick, 501 F.2d
1279, 1282 (7th Cir. 1974); Quinn & Co. v. SEC, 452 F.2d 943,
946 (10th Cir. 1971); Gilligan, Will & Co. v. SEC, 267 F.2d
461, 467 (2d Cir. 1959).
In arguing to the contrary, Kirby cites two opinions sup-
posedly supporting the idea that distributions must involve a
substantial percentage of the outstanding shares. The first
case, Pennaluna & Co. v. SEC, 410 F.2d 861, 865 (9th Cir.
1969), actually hurts rather than helps him. The Pennaluna
court upheld the Commission’s finding of a § 5 violation on
the basis of sales that amounted to a mere 0.25 percent of the
outstanding shares. 410 F.2d at 865, 867–68. The second
opinion, SEC v. American Beryllium & Oil Corp., 303 F.
Supp. 912 (S.D.N.Y. 1969), discussed the meaning of a regula-
tion, not the term ‘‘distribution’’ in § 2(11). 303 F. Supp. at
915 n.3.
Kirby’s alternative argument is that even if the sale violat-
ed § 5(a) of the Act, he did not violate § 5(c), which makes it
‘‘unlawful for any person TTT to offer to sell TTT any [unregis-
tered] security[.]’’ 15 U.S.C. § 77e(c). According to Kirby,
he did not ‘‘offer’’ to sell the 133,000 Hunsaker shares, but
merely accepted outstanding offers from market makers to
buy Golden Eagle shares at a particular price.2 The argu-
ment fails under common law: price quotations are ‘‘common-
ly understood as inviting an offer rather than making one[.]’’
RESTATEMENT (SECOND) OF CONTRACTS § 26 cmt. c (1981). It
fails as well under the Securities Act, which is what governed
the legality of Kirby’s conduct. As used in § 5, ‘‘the term
‘offer to sell’ TTT shall include every attempt or offer to
dispose of, or solicitation of an offer to buy, a security or
interest in a security, for value.’’ 15 U.S.C. § 77b(3). There
2A market maker continuously stands ready to buy or sell
particular stocks at particular prices. See 2 THE NEW PALGRAVE
DICTIONARY OF MONEY & FINANCE (Peter Newman et al. eds., 1992).
6
is no doubt that Kirby’s sale of the shares constituted an
‘‘attempt TTT to dispose’’ of them.
Substantial evidence supports the Commission’s finding
that Kirby’s conduct was willful. True, there is no evidence
Kirby actually knew the shares were controlled by a statutory
issuer. The share certificate bore no restrictive legend, and
Geiger assured Kirby that the shares were ‘‘free-trading.’’
Kirby’s problem is that he failed to inquire sufficiently into
the circumstances of the transaction. Wonsover v. SEC, 205
F.3d 408, 415 (D.C. Cir. 2001) (citing Distribution by Broker–
Dealers of Unregistered Securities, Securities Act Rel. No.
4445, 1962 WL 69442 (Feb. 2, 1962)). ‘‘[W]hen a dealer is
offered a substantial block of a little-known security, either by
persons who appear reluctant to disclose exactly where the
securities came from, or where the surrounding circum-
stances raise a question TTT whether or not the ostensible
sellers may be merely intermediaries for controlling persons
or statutory underwriters, then searching inquiry is called
for.’’ Id. Even if, as Kirby argues, this sale was not
substantial, all the other warning signs were present. Golden
Eagle was little-known and lightly traded, and Geiger was
reluctant to disclose the true party in interest. If Kirby had
simply insisted on knowing the identity of the seller, he would
have uncovered the illegal nature of the transaction. By
giving Geiger a blank check, Kirby abandoned even the
pretense of due diligence.
B. The LaSalle–Hunsaker Transaction
In December 1995, Knittle approached Geiger again, hop-
ing to dispose of the remaining 500,000 Hunsaker shares.
Geiger offered the shares to his client Alfred Peeper. Peeper
agreed to buy the stock on behalf of LaSalle Investment Ltd.,
an Irish corporation whose trading he controlled. The terms
of the deal were extremely favorable to LaSalle: it would buy
the shares at a substantial discount, even less than the
partnership – CKC – had paid. Geiger negotiated the terms
directly with Knittle before speaking to Hunsaker.
The certificate for these shares still bore a restrictive
legend. Commission Rule 144 allows persons affiliated with
7
an issuer to sell unregistered securities without being deemed
underwriters if they meet certain conditions. See 17 C.F.R.
§ 230.144. Among the conditions is a minimum holding
period between the time the ‘‘affiliate’’ acquired the securities
and the time of the sale. 17 C.F.R. § 230.144(d). Geiger and
his partner Thomas Kaufmann submitted documents asking
the transfer agent3 to issue a new, unrestricted certificate
pursuant to Rule 144 on the basis that Hunsaker satisfied the
holding period requirement. Although the shares had been
in her name for less than the required period, her holding
period could ‘‘tack’’ onto the holding periods of the previous
‘‘owners’’ (whom Knittle and Erickson also controlled).
When Geiger contacted Hunsaker, she told him she had
never paid for the securities. This made the shares ineligible
for the Rule 144 exemption. Geiger confronted Knittle with
the information. Knittle did not deny Hunsaker’s assertion.
Instead, he instructed Geiger to withhold payment until the
matter was resolved. Nevertheless, a new, unrestricted
share certificate was deposited in LaSalle’s Spencer Edwards
account. LaSalle later sold the shares at a substantial profit.
The Commission found that Geiger violated § 5 by partici-
pating in the distribution of the 500,000 Hunsaker shares.
Geiger argues that he is not liable for the sale because he
relied on the transfer agent’s determination that the shares
were unrestricted. The Commission called this argument
‘‘disingenuous.’’ It was generous. The transfer agent relied
on false documentation. Even if Kaufmann alone prepared
the documents, as Geiger claims, Geiger knew that Hunsaker
had not paid for the shares and thus did not qualify for the
Rule 144 exemption. In addition, Geiger – having negotiated
the entire transaction directly with Knittle – knew that
Hunsaker was not the real party in interest.
3 A transfer agent is ‘‘responsible for recording changes of owner-
ship of securities, canceling obsolete certificates, and issuing new
ones.’’ THE RANDOM HOUSE DICTIONARY OF BUSINESS TERMS 286 (Jay
N. Nisberg ed., 1988).
8
C. The LaSalle–Hills Transaction
About the same time as the last Hunsaker transaction,
Knittle and Hills separately approached Geiger to find a
buyer for the Hills shares. Geiger told Hills that before he
arranged the transaction, he would have to ‘‘work out some
details’’ with Knittle. Knittle urged Geiger to find a buyer
for the Hills stock. Geiger then informed Hills that LaSalle
would buy 666,000 of his shares for $156,000. But when Hills
delivered his certificate, Geiger told him Knittle had changed
the terms of the deal. Hills would now have to deliver all 2.3
million shares in exchange for $119,000. Hills agreed, and
the parties executed the sale on Knittle’s terms. Although
the sale closed on February 1, 1996, Geiger gave Hills a check
dated November 4, 1995. When Hills questioned the date,
Geiger assured him the check would clear. It did.
The certificates Hills delivered bore restrictive legends.
Geiger had asked an attorney to write an opinion letter for
the transfer agent stating that the restrictions could be
removed pursuant to the Commission’s Regulation S. Regu-
lation S permits the sale of unregistered securities in certain
off-shore transactions, including sales to a ‘‘non-U.S. person’’
such as LaSalle. 17 C.F.R. §§ 230.901–904. At the time, the
regulation forbade the foreign buyer from reselling the
shares within the United States for 40 days. 17 C.F.R.
§ 230.903(c)(2)(iii) (1995). The attorney’s letter, dated Febru-
ary 5, 1996, stated that the parties to the transaction certified
that the sale closed ‘‘on or about November 10, 1995.’’ Based
on that representation, the attorney concluded that the re-
stricted period ended – and new, unrestricted certificates
could issue – on or about December 20, 1995. New certifi-
cates issued, and LaSalle sold the shares at a substantial
profit.
As noted above, the sale actually closed on February 1,
1996. The attorney testified that Geiger was the one who
told him otherwise.
The Commission found that Geiger violated § 5 by partici-
pating in the sale of the Hills shares. Geiger’s first defense
is that Hills was no longer affiliated with Golden Eagle at the
9
time of the sale and, therefore, the transaction was within the
§ 4(1) exemption for sales ‘‘by a person other than an issuer,
underwriter, or dealer.’’ The Commission rejected this de-
fense on the ground that Knittle, a statutory issuer, actually
controlled the transaction. Substantial evidence supports this
finding. Geiger would not have proceeded with the sale
without Knittle’s permission, and Hills allowed Knittle to
dictate the terms of the deal. Just as important, the transac-
tion primarily benefitted Golden Eagle. The company had
already committed to repurchase Hills’ shares in fulfillment of
its obligations under his severance agreement. Hills was
determined to sell his shares because it appeared Golden
Eagle might default on that agreement. Knittle feared the
sale would ‘‘crumble the market’’ in Golden Eagle stock. The
transaction with LaSalle alleviated Knittle’s fear and relieved
the company of some of its contractual obligations. Thus,
functionally, this transaction was a public offering by Golden
Eagle to retire its debt to Hills.
Geiger objects that even if Knittle and Golden Eagle were
the real sellers, he is not liable because he did not participate
in LaSalle’s ultimate sale of the shares to the public. Geig-
er’s premise is faulty. He did not have to be involved in the
final step of the distribution to have participated in it. ‘‘The
term ‘distribution’ refers to the entire process in a public
offering through which a block of securities is dispersed and
ultimately comes to rest in the hand of the investing public.’’
In re Wonsover, Exchange Act Release No. 41123, 1999 WL
100935 at *7 n.25 (Mar. 1, 1999), aff’d, 205 F.3d 408 (D.C. Cir.
2000). See also Ackerberg v. Johnson, 892 F.2d 1328, 1335–36
(8th Cir. 1989) (Congress intended ‘‘to cover all persons who
might operate as conduits for the transfer of securities to the
public’’) (citing 1 HAZEN, THE LAW OF SECURITIES REGULATION at
§ 4.24). It is true that ‘‘not everyone in the chain of interme-
diaries between a seller of securities and the ultimate buyer is
sufficiently involved in the process to make him responsible
for an unlawful distribution[.]’’ Owen v. Kane, Securities Act
Release No. 23827, 1986 WL 626043 at *3 (Nov. 20, 1986).
But someone who played a role as crucial as Geiger’s –
finding the buyer, negotiating the terms, facilitating the
resale – cannot escape liability by avoiding direct involvement
10
in the final act. In any event, the evidence shows that Geiger
did participate in LaSalle’s resales. LaSalle could not resell
the shares back into the United States without new, unre-
stricted certificates. It was Geiger who procured those cer-
tificates by fraudulently obtaining the attorney’s opinion let-
ter.
For the first time in his reply brief, Geiger argues that
Pinter v. Dahl, 486 U.S. 622 (1988), imposes additional re-
quirements for § 5 liability. According to Geiger, Pinter
holds that he can be liable under § 5 only if he solicited a
buyer for LaSalle’s shares and received compensation for the
sale. We do not believe Pinter is on point, but even if it
were, Geiger waived the argument by failing to raise it before
the Commission and in his opening brief. See 15 U.S.C.
§ 78y(c)(1); Rollins Envtl. Servs. (NJ), Inc. v. EPA, 937 F.2d
649, 653 n.2 (D.C. Cir. 1991).
Geiger further argues that he should not be liable because
LaSalle did not actually sell the Hills shares until after the
restricted period had expired. The Commission disputes this
claim, arguing the sales occurred within the 40 days. We
need not resolve the issue. The Regulation S exemption does
not apply to transactions that, though in technical compliance,
are designed to evade the registration requirement. Offshore
Offers and Sales, Securities Act Release No. 6863, 1990 WL
311658 at *25 (Apr. 24, 1990). The Commission had good
reason to conclude that the sale of the Hills shares was such a
transaction. At the time, Peeper was not interested in hold-
ing Golden Eagle stock. He bought the shares for LaSalle at
a substantial discount and quickly resold them for a profit.
Geiger was so anxious to facilitate this quick resale that he
resorted to fraud. Peeper funneled much of LaSalle’s trading
profit back to Golden Eagle by buying Golden Eagle deben-
tures and restricted stock. This evidence supports the Com-
mission’s finding that the shares were never meant to ‘‘come
to rest abroad.’’
II.
The Commission barred Kirby and Geiger from associating
with any broker or dealer or participating in any penny stock
11
offering, with the right to reapply in five years. It ordered
Kirby to disgorge $31,352.60 in illegal profits and pay a
$200,000 civil penalty. It ordered Geiger to disgorge
$15,202.48 and pay a civil penalty of $300,000. It also ordered
both men to cease and desist from committing any § 5
violations.
Kirby and Geiger complain that the sanctions are excessive
compared to other cases. See In re Wonsover, Exchange Act
Release No. 41123, 1999 WL 100935 (Mar. 1, 1999), aff’d, 205
F.3d 408 (D.C. Cir. 2000); In re Steen, Exchange Act Release
No. 40055, 1998 WL 278994 (June 2, 1998); In re Leigh,
Exchange Act Release No. 27667, 1990 WL 1104369 (Feb. 1,
1990). The Commission is not obligated to make its sanctions
uniform, so we will not compare this sanction to those im-
posed in previous cases. Butz v. Glover Livestock Comm’n
Co., 411 U.S. 182, 186–87 (1973). We must uphold the
sanction unless it is ‘‘unwarranted in law or TTT without
justification in fact TTT [.]’’ Id. at 185–86 (quoting American
Power Co. v. SEC, 329 U.S. 90, 112 (1946)). The sanctions
here satisfy that standard. Geiger’s conduct was, as the
Commission put it, egregious. It involved intentional misrep-
resentation and falsification of documents, and led to the
distribution of hundreds of thousands of unregistered securi-
ties. While Kirby’s conduct was not as bad, he ignored
obvious warning signs that the transaction was illegal. He
also has a disciplinary history, having twice been sanctioned
by the National Association of Securities Dealers.4
Both petitioners also challenge the disgorgement order,
claiming they did not profit from their respective transac-
tions. Kirby argues that he and CKC Partnership are legally
separate, and that the Commission should not have attributed
CKC’s profit to him. The evidence is otherwise. The admin-
istrative law judge found, and the Commission agreed, that
Kirby and CKC were ‘‘one and the same.’’ Kirby was part-
owner of CKC and had total control over its account. The
4Kirby objects to the consideration of his disciplinary history, but
he did not raise this objection before the Commission. See 15 U.S.C.
§ 78y(c)(1).
12
other owner, CKC Family Trust, was a trust Kirby adminis-
tered on behalf of his children. Kirby produced no evidence
to support his claim of legal separateness. He submitted no
documents showing how CKC was organized or managed, and
could not even say whether the CKC Family Trust was
irrevocable. For his part, Geiger argues there is no evidence
he ever received commissions from LaSalle’s sale of the
Golden Eagle stock. LaSalle’s Spencer Edwards account
lists a total of $62,889.45 under a column labeled ‘‘Commis-
sions.’’ The reasonable inference is that this represented
commissions LaSalle paid Spencer Edwards. Geiger’s em-
ployment arrangement entitled him to 25% of those commis-
sions. He offers no reason to think his compensation for
those trades did not conform to the usual arrangement.
Kirby also objects to the cease-and-desist order. He ar-
gues that his violation resulted from an unusual convergence
of factors, and there is no indication he is likely to repeat it.
But under Commission precedent, the existence of a violation
raises an inference that it will be repeated. See In re Trento,
Securities Act Release No. 8391, 2004 WL 329040 at *3 (Feb.
23, 2004); In re Richmark Capital Corp., Securities Act
Release No. 8333, 2003 WL 22570712 at *10 (Nov. 7, 2003).
The Commission reasonably found Kirby’s conduct ‘‘egre-
gious,’’ which justifies the inference in this case. See KMPG
v. SEC, 289 F.3d 109, 125–26 (D.C. Cir. 2002). Kirby does
little to dispel it. As the Commission noted, Kirby still thinks
he did nothing wrong, which casts doubts on his promise that
he will mend his ways. Kirby replies that SEC v. First City
Financial Corp., 890 F.2d 1215 (D.C. Cir. 1989), forbids the
Commission from considering his lack of remorse. The case
stands for no such proposition. The majority of the panel in
First City sustained the Commission’s position. Id. at 1233
(Ruth Bader Ginsburg & Edwards, JJ., concurring). In
short, the Commission’s decision to impose a cease-and-desist
order was warranted.
* * *
The Commission properly found that Kirby and Geiger
violated § 5 of the Securities Act, and the sanctions it im-
13
posed were appropriate.5 The petitions for review are de-
nied.
So ordered.
5 Kirby complains that the Commission did not dispose of his case
within a reasonable time. That claim is moot. See Sierra Club v.
Thomas, 828 F.2d 783, 795 n.81 (D.C. Cir. 1987). Geiger argues
that he did not act ‘‘wilfully’’ because Spencer Edwards’ president
and compliance officer approved the transactions. We do not see
how this proves that Geiger did not have the state of mind required
to violate § 5. See Wonsover, 205 F.3d at 413–15. Still less can we
see how it would lead to a conclusion that the Commission’s findings
lack sufficient evidentiary support.