and Submitted March 13, 2018 San Francisco, California
from the United States District Court for the Central
District of California, No. 8:11-cv-01962-JVS-AN James V.
Selna, District Judge, Presiding
O. Saunooke (argued), Saunooke Law Firm PA, Miramar, Florida,
A. Capute (argued), Special Counsel to the Solicitor; John B.
Capehart, Attorney; Jacob H. Stillman, Senior Advisor to the
Solicitor; John W. Avery, Deputy Solicitor; Robert B.
Stebbins, General Counsel; Securities and Exchange
Commission, Washington, D.C.; for Plaintiff-Appellee.
Before: J. Clifford Wallace, Marsha S. Berzon, and Consuelo
M. Callahan, Circuit Judges.
panel affirmed the district court's summary judgment in
favor of the Securities and Exchange Commission
("SEC") on the SEC's claims that Mitchell Stein
violated various federal securities laws.
brought a civil enforcement action against Stein, alleging
that while he acted as purported outside counsel to
co-defendant Heart Tronics, he engaged in a series of frauds
designed to inflate the company's stock price so that he
could profit from selling its securities to investors.
Concurrently with the SEC's case, the Department of
Justice brought a criminal case, charging Stein with fourteen
counts for the same fraudulent conduct; and Stein was
convicted on all counts.
panel held that Stein's criminal conviction conclusively
established all of the facts the SEC was required to prove
with respect to the specified securities fraud claims. First,
both the criminal and civil case involved the same fraudulent
scheme carried out by Stein. Second, the SEC's securities
fraud claims involved "the application of the same rule
of law" as that involved in the criminal case. Finally,
pretrial preparation and discovery related to the criminal
proceeding could "reasonably be expected" to have
embraced the issues sought to be presented in the SEC's
civil case. The panel concluded that the district court did
not err in entering summary judgment based on the preclusive
effect of Stein's conviction.
panel rejected Stein's arguments against the application
of issue preclusion. The panel held that the district court
did not abuse its discretion in denying Stein's request
for a continuance pending further discovery. Finally, the
panel held that the district court did not err in denying
Stein's motion for summary adjudication.
WALLACE, CIRCUIT JUDGE:
Stein, an attorney, appeals from the district court's
summary judgment in favor of the Securities and Exchange
Commission (SEC) on the SEC's claims that Stein violated
various federal securities laws. The district court entered
summary judgment on six of the SEC's claims on the ground
that Stein's prior criminal conviction precluded him from
contesting the allegations at issue in the civil case. We
have jurisdiction under 28 U.S.C. § 1291, and we affirm.
December 2011, the SEC brought a civil enforcement action
against Stein alleging that Stein, while acting as purported
outside counsel to co-defendant Heart Tronics, engaged in a
series of frauds designed to inflate the company's stock
price so that he could profit from selling its securities to
investors. The alleged scheme was wide ranging, but centered
on allegations that Stein concocted three false purchase
orders with fictitious companies, and used these orders as
the basis for SEC filings and press releases touting bogus
sales of Heart Tronics' "Fidelity 100"
purchase orders at issue ostensibly were agreed to during
September and October 2007. The first purchase order
reflected a sale of 180 units of the Fidelity 100 for $1.98
million. The SEC alleges that an individual later identified
as Thomas Tribou signed the purchase order and sent Heart
Tronics $50, 000 as a deposit. However, the copy of the order
that was counter-signed by the then-CEO of Heart Tronics and
returned to Tribou identified the customer as "Cardiac
Hospital Management" (CHM). The SEC maintained that CHM
was a fictitious entity not known to Tribou. The second and
third purchase orders reflected sales to a fictional Israeli
company called "IT Healthcare" for $3.3 million and
$564, 000, respectively.
went to great lengths to make the purchase orders appear
legitimate. Specifically, the SEC alleges that Stein and his
personal assistant, co-defendant Martin Carter, created
letters and documents purportedly originating from CHM and IT
Healthcare to create the appearance of communication between
Heart Tronics and its "customers." One such letter
was from a purported CHM purchasing agent named "Toni
Nonoy" asking for products to be sent to a "new
address" in Japan. Other documents were from fictitious
people supposedly affiliated with IT Healthcare confirming
sales orders and providing updated shipping instructions. The
SEC alleges that all these documents were fraudulent and that
Stein simply made up the names.
the same period in which Stein drew up the alleged fraudulent
purchase orders, he also orchestrated the dissemination of
press releases reporting the sales. The SEC alleges that
based on information provided by Stein, John Woodbury, Heart
Tronics' securities lawyer, published three press
releases touting the more than $5 million in purported sales
to CHM and IT Healthcare. The SEC also alleged that Stein
caused the fraudulent sales orders to be incorporated into
Heart Tronics' SEC filings from approximately September
2007 through August 2008.
on these and other allegations, the SEC asserted various
claims against Stein, including securities fraud in violation
of Section 10(b) of the Securities Exchange Act (Exchange
Act), Exchange Act Rule 10b-5, and Section 17(a) of the
Securities Act; aiding and abetting violations of Section
10(b) and Rule 10b-5; selling or offering for sale
unregistered securities in violation of Section 5(a) and 5(c)
of the Securities Act; falsifying books and records in
violation of Exchange Act Rule 13b2-1; knowingly falsifying
books and records in violation of Section 13(b)(5) of the
Exchange Act; and aiding and abetting Heart Tronics'
violations of the reporting, record-keeping, and internal
controls provisions of the Exchange Act (Sections 13(a),
13(b)(2)(A), and 13(b)(2)(B)) and Exchange Act Rules (Rules
13a-1, 13a-11, 13a-13, and 12b-20).
with the SEC's case against Stein, the Department of
Justice (DOJ) filed a criminal case against him in the
Southern District of Florida arising out of the same
fraudulent conduct alleged in the civil case. The
fourteen-count indictment charged Stein with three counts of
securities fraud (18 U.S.C. § 1348), three counts of
wire fraud (18 U.S.C. § 1343), three counts of mail
fraud (18 U.S.C. § 1341), one count of conspiracy to
commit mail and wire fraud (18 U.S.C. § 1349), three
counts of money laundering (18 U.S.C. § 1957), and one
count of conspiracy to obstruct justice (18 U.S.C. §
371). The DOJ eventually moved to ...