SEC v. Blackburn

SEC v. Blackburn

Opinion

 [*678]  Gregg Costa, Circuit Judge:

The Securities and Exchange Commission charged these three defendants and others with selling unregistered securities and misleading investors during their operation of a penny stock company. On summary judgment, the district court found the three defendants liable on several of the Commission's claims. Among other remedies, the district court ordered disgorgement of the defendants' fraud proceeds.

This appeal presents two questions. First, was summary judgment warranted in the SEC's favor on liability? Second, was the disgorgement award "for the benefit of investors" [**2]  as Liu v. SEC, 140 S. Ct. 1936, 1949, 207 L. Ed. 2d 401 (2020), requires? This is the first time a court of appeals is being asked to decide the "awarded for victims" question since Liu was decided. Because the answer to both questions is yes, we AFFIRM.

Ronald Blackburn founded Treaty Energy Corporation in 2008. Treaty was a small oil and gas company whose shares were traded over the counter as "penny stocks." 17 C.F.R. § 240.3a51-1 (defining penny stocks); see SEC v. Kahlon, 873 F.3d 500, 502 n.1 (5th Cir. 2017) (explaining that a "penny stock" is one sold over the counter for less than $5/share). When the company was formed, Blackburn received around 400 million shares, giving him an 86.4% interest in Treaty. Though Blackburn was never a board member or an officer of Treaty—we will soon discuss the reasons  [*679]  he may not have wanted those public affiliations—he maintained significant control over the company. To cite some examples, Blackburn communicated with a foreign government on behalf of Treaty, paid the company's bills with his stock proceeds, and appointed Treaty's officers and directors.

Treaty was not Blackburn's first involvement with a penny stock company. He had previously worked at a gravel pit company that went bankrupt. During the bankruptcy, Blackburn paid over $1 million to settle the trustee's claim [**3]  that he had misappropriated company funds. And before that penny stock bankruptcy, Blackburn was convicted of four federal tax felonies.

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