By Rodney F. Tonkovic, J.D.
A petition for certiorari has been filed asking the Court to reign in a tactic used by the SEC to avoid statutes of limitations. The petitioner maintains that the Commission frequently takes portions of a continuous course of action in a way that allows it to commence an action after the limitations period has expired. The petition also raises a series of challenges to what it argues were erroneous factual findings and misapplications of properly-stated rules of law (Knight v. SEC, November 7, 2017).
From late 1999 through the summer of 2000, Internet start-up iShopNoMarkup.com disseminated a private placement offering. The Commission filed an action in 2004, claiming that iShop Chairman Anthony M. Knight and others conducted a fraudulent and unregistered securities offering scheme that defrauded over 350 investors who invested approximately $2.3 million. In 2014, the matter came before a jury, which returned a verdict in favor of the Commission, finding that Knight violated the antifraud provisions of the securities laws and the securities registration provisions of the Securities Act.
No miscarriage of justice. In September 2015, Knight sought judgment as a matter of law or a new trial asserting, among other arguments, that the Commission engaged in misconduct, witnesses were not credible, and that others besides Knight made the alleged misrepresentations. In denying Knight's motion, the court said that his submission generally consisted of unsubstantiated attacks and Knight's "own, self-serving, interpretation of the facts." The court then found that the jury's finding was neither the result of surmise nor a miscarriage of justice. Knight was then permanently enjoined from violations of the registration and antifraud provisions. He was also ordered to disgorge $2.3 million and to pay a civil monetary penalty of $330,000.
On appeal, Knight (proceeding pro se) challenged the jury's findings and the remedies imposed by the district court. Knight first claimed that the Commission's allegations were time-barred, but the court disagreed, stating that the claims did not accrue until the earliest alleged violation in September 1999. The Commission filed its action in September 2004, so its claims were not barred under the five-year limitations period in 28 U.S.C. § 2462.
Knight also raised a number of challenges to the jury's findings, all of which were rejected by the panel. Among its conclusions, the court stated that the general disclosures contained in iShop's offering memoranda could not overcome proof that the description of the security was materially inaccurate. The court also rejected Knight's defense that he reasonable relied on the advice of counsel because the jury could reasonable have found that he failed to make a complete disclosure to counsel. Knight also argued under Janus that he was not the "maker" of the statements in the offering memoranda, but there was sufficient evidence, the court said, that he was. The panel found no error in the district court’s choice of remedies and affirmed the judgment.
Cert petition. The petition for certiorari first asks the Court to consider whether the SEC can choose, piecemeal, alleged actions in a continuous course of action so as to avoid prosecution being time-barred pursuant to 28 U.S.C. Code § 2462. According to Knight, the appellate court failed to consider that iShop's actions were part of an alleged course of conduct that began before the five-year statutory period and that the Commission commenced its action after the limitations period had passed. This, the petition, states, is a frequent tactic employed by the SEC to escape statutes of limitations, with dire consequences for Knight and "countless others."
The petition then asks the Court to assess whether a series of eight judicial errors merits a reversal. Knight concedes that certiorari is rarely granted when the asserted error consists of erroneous factual findings of the misapplication of a properly-stated rule of law. But, he requests consideration due to the "sheer enormity of the erroneous factual findings and misapplications of properly stated rules of law in conjunction with an important federal question." The district court departed from the accepted and usual course of judicial proceedings, Knight says, and the appellate court sanctioned this departure. This case, Knight concludes, presents a change to review the SEC's conduct and is important to every pro se litigant targeted by the Commission.
The petition is No. 17-734.