Appeal from the United States District Court for the Southern District of California Jeffrey T. Miller, District Judge, Presiding, D.C. No. 3:04-cv-02105-JM-AJB.
The opinion of the court was delivered by: Gould, Circuit Judge
Argued and Submitted June 8, 2010 -- Pasadena, California
Before: Dorothy W. Nelson and Ronald M. Gould, Circuit Judges, and David D. Dowd, Jr., Senior District Judge.*fn1
This appeal concerns a civil enforcement action filed by the Securities and Exchange Commission ("SEC"). After concluding that there were securities law violations, the district court entered a final judgment under Federal Rule of Civil Procedure 54(b) pursuant to a partial summary judgment against Platforms Wireless International Corporation ("Platforms") and William Martin ("Martin"), its former Chairman and CEO. The district court held that Martin and Platforms sold unregistered securities to the public in violation of the registration provisions of Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and that they issued a fraudulent press release in August 2000 in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. The district court ordered Platforms and Martin jointly and severally to disgorge about $1.75 million in proceeds from the sales that violated Section 5, plus almost $1 million in prejudgment interest. The court denied summary judgment on the SEC's allegations that Martin and Platforms also violated Section 10(b) and Rule 10b-5 by issuing five other press releases between May 2000 and March 2001. Martin and Platforms appeal the partial summary judgment and disgorgement order; the SEC cross-appeals the partial denial of summary judgment. We affirm the partial summary judgment and disgorgement order, and we dismiss as moot the SEC's cross-appeal.
Platforms is an Oklahoma corporation whose stock is not registered with the SEC under the Securities Act of 1933 ("Securities Act"). Since March 2000, Platforms' stock has been traded on the Pink Sheets, now known as Pink Quote, an inter-dealer electronic quotation and trading system for registered and unregistered securities.*fn2
At relevant times Platforms was working to develop a new technology, called the "ARC System," to provide cellular communications services to large geographic territories. Platforms represented that its ARC System would be a low-cost alternative to ground-based cellular antenna towers or satellites. The ARC System was to be comprised of two components: (1) a portable antenna payload, which would receive radio frequency signals from devices such as cellphones and consolidate and relay those signals to ground stations; and (2) aircraft to carry the antenna payload, either several airplanes flying in rotating shifts or an aerostat (a lighter-than-air aircraft). It is undisputed that Platforms never built or tested a completed ARC System, although by March 5, 2001, it had built and conducted limited ground-based testing on a prototype payload.
Between 1998 and January 17, 2000, William Martin owned and operated a sole proprietorship called Intermedia Video Marketing Company ("Intermedia"). During that time, Martin provided consulting services to Platforms as an employee of Intermedia, but he was otherwise unaffiliated with Platforms. Martin alleges that in exchange for those consulting services, Intermedia earned at least 17.45 million unregistered shares of Platforms stock but that those shares were not then issued to Intermedia.*fn3
Martin became the Chairman and CEO of Platforms in March 2000. Before that event, in January 2000, Martin transferred his ownership interest in Intermedia to his former wife as part of a divorce settlement. Martin remained an officer of Intermedia after the transfer and continued to take actions on behalf of Intermedia, including: (1) applying for a business Visa credit card for Intermedia; (2) executing a document that authorized Martin to transfer and sell "any and all . . . securities . . . in the name of or owned by" Intermedia; (3) keeping open and using a joint Intermedia/Platforms checking account; and (4) selling Platforms stock from a brokerage account registered to "Intermedia Video Marketing Corp.; Attn: William C. Martin." Martin executed some of the above documents in his capacity as Intermedia's "President" or "President and CEO."
In August of 2000, Platforms issued a press release declaring that Platforms "Unveils New Airborne Wireless Communications 'ZeroGravity AeroStructures.' " The press release described technical details and performance characteristics of five discrete AeroStructure models. When the press release was issued, Platforms had only a description of how the ARC System would operate and did not have prototypes built, nor even the money to build a prototype.
In two transactions in September 2000 and February 2001, Platforms transferred 17.45 million of the unregistered shares to Intermedia in payment for its consulting services. Three million of those shares were issued to Francois Draper, Platforms' then-Executive Vice President, Chief Operating Officer, and Chief Technology Officer. The remaining 14.45 million shares went to Benefit Consultants, a company affiliated with Charles Nelson, Platforms' Chief Financial Officer and a member of its board of directors. When the shares were issued, Intermedia executed documents transferring its "beneficial ownership" of those shares to Draper and Benefit Consultants. Platforms' General Counsel, Forrest Walworth Brown ("Brown"), issued opinion letters stating that the transfers complied with a safe harbor from Securities Act registration violations. Shortly after receiving the shares, Draper and Benefit Consultants sold them to the public.
The SEC alleges, and the defendants do not dispute, that the proceeds from Draper's and Benefit Consultants' public stock sales totaled $1,756,861. Martin testified that the shares were sold with the understanding that the money would pay for Platforms' operating expenses and other obligations, including certain employee salaries. It is not disputed that at least some of the money was thus spent.
The SEC filed this civil enforcement action in federal district court in October 2004 against Platforms, Martin, and several other Platforms officers and directors.*fn4 The SEC alleged that Platforms, Martin, and Draper violated Section 5 of the Securities Act by selling to the public the 17.45 million unregistered Platforms securities "beneficially owned" by Inter-media.*fn5 The SEC further alleged that the defendants committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 by issuing six materially misleading press releases between May 2000 and March 2001, including the August 2000 press release suggesting that a working ARC System had been developed when none in fact existed.*fn6
In a series of orders, the district court granted the SEC partial summary judgment on its Section 5 claim, and on its Section 10(b) claim based on the August 2000 press release. First, in a January 2007 order, the district court granted the SEC's motion for summary judgment on the Section 5 claim. It concluded that the SEC had established prima facie Section 5 violations by showing that unregistered securities were sold to the public without an exemption. The court further concluded that because Martin controlled Intermedia at the time of the transactions, and because the defendants did not take reasonable care to assure that Intermedia was not an underwriter, the 17.45 million in stock transfers did not qualify for a registration exemption. Then, in an April 2007 order, the district court granted in part the SEC's motion for summary judgment on the Section 10(b) claims based on four of the six press releases, including the August 2000 press release, and denied summary judgment on the two remaining press releases. In a subsequent order, the district court held Martin and Platforms jointly and severally liable for the Section 5 violations and ordered them to disgorge the total proceeds from the sales, $1,756,861, plus prejudgment interest.*fn7 Interest was calculated according to the federal tax underpayment rate set forth in 26 U.S.C. § 6621(a)(2), which is higher than the treasury-bill rate declared in 28 U.S.C. § 1961. The treasury-bill rate is the rate typically used in most cases for prejudgment interest calculation.
The defendants moved for reconsideration of the summary judgments under Federal Rules of Civil Procedure 59(e) and 60(b), alleging defects in the district court's decisions. Among these defects, the defendants alleged that the district court had used the wrong standard for "reckless" scienter under Section 10(b) and Rule 10b-5 by determining only whether the misrepresentations in the press releases were objectively unreasonable, rather than "deliberately reckless" in accord with our decision in In re Silicon Graphics Inc. Securities Litigation, 183 F.3d 970 (9th Cir. 1999). The district court granted the motion in part and ordered supplemental briefing with respect to the "deliberate recklessness" standard, but denied the reconsideration motion with respect to the other issues raised.
On April 3, 2008, the district court partially vacated its April 2007 summary judgment on the SEC's Section 10(b) claims. The district court reaffirmed, under the "deliberate recklessness" standard, summary judgment on the August 2000 press release. The district court then concluded, however, that there were genuine issues of material fact whether the defendants had acted with "deliberate recklessness" with respect to the other three press releases on which summary judgment had been previously granted.
The SEC was left with a summary judgment on its Section 5 claim and one of its six Section 10(b) claims. The SEC then moved for entry of final judgment under Federal Rule of Civil Procedure 54(b), indicating its satisfaction with the relief awarded and its intent to abandon the remaining Section 10(b) claims if the judgment was affirmed on appeal. The district court granted the SEC's motion, finding "no just reason for further delay."
Martin and Platforms timely appealed, and the SEC timely cross-appealed. Martin and Platforms challenge the summary judgments on the Section 5 claim and the Section 10(b) claim based on the August 2000 press release, the disgorgement order, the calculation of prejudgment interest, and the denial of their motion for reconsideration. The SEC by its cross-appeal challenges the denial of summary judgment on the remaining five press releases.
 Platforms questions the propriety of the district court's Rule 54(b) judgment resting on the underlying partial summary judgment. Rule 54(b) permits a district court to enter judgment on "fewer than all" claims or parties where there is "no just reason for delay." Fed. R. Civ. P. 54(b); Am. States Ins. Co. v. Dastar Corp., 318 F.3d 881, 889-90 (9th Cir. 2003). A properly entered Rule 54(b) judgment is a "final" appealable judgment for purposes of 28 U.S.C. § 1291. Id.
Reviewing the propriety of a district court's Rule 54(b) certification is a two-step process. AmerisourceBergen Corp. v. Dialysist W., Inc., 465 F.3d 946, 954 (9th Cir. 2006). In the first step, we review de novo "such factors as the interrelationship of the claims so as to prevent piecemeal appeals." Id. (quotation marks omitted). "The second step . . . requires an assessment of the equities [under] the 'substantial deference' standard, reversing the district court['s Rule 54(b) certification] only if we find the district court's conclusions clearly unreasonable." Id. Analyzing a Rule 54(b) judgment requires a "pragmatic approach" with focus "on severability and efficient judicial administration." Cont'l Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1525 (9th Cir. 1987).
 We conclude that the district court properly entered a Rule 54(b) final judgment on the Section 5 and Section 10(b) claims on which it granted summary judgment.*fn8 The SEC expressly indicated to the district court that it was satisfied with the partial summary judgment and the relief it received, and that it did not wish to pursue its remaining Section 10(b) claims. Moreover, as noted above, all other defendants in the matter have settled with the SEC. The Rule 54(b) judgment therefore ended all litigation in the case, and it will not "inevitably come back to this court on the same set of facts." Wood v. GCC Bend, LLC, 422 F.3d 873, 879 (9th Cir. 2005). In light of the above, the district court's decision was neither "clearly unreasonable" nor inequitable. The district court's judgment is final pursuant to 28 U.S.C. § 1291, and we have jurisdiction to review the issues raised by Martin and Platforms on direct appeal.
We now consider the defendants' challenge to the district court's grant of partial summary judgment on the SEC's Section 5 and Section 10(b) claims. We review summary judgments de novo, construing the evidence in the light most favorable to the nonmoving party. SEC v. Talbot, 530 F.3d 1085, 1090 (9th Cir. 2008).
 Sections 5(a) and (c) of the Securities Act, 15 U.S.C. §§ 77e(a), (c), make it unlawful to offer or sell a security in interstate commerce if a registration statement has not been filed as to that security, unless the transaction qualifies for an exemption from registration. The district court held, and the parties do not dispute, that the chain of transactions leading to the sale to the public of 17.45 million unregistered Platforms securities was a prima facie violation of Section 5. The parties dispute only whether the transactions qualified for an exemption from the registration requirement.
The registration requirement arose with the 1933 Securities Act. It was designed to be a principal statutory tool for protecting the public. The mischief aimed at was rampant fraud in the sale of securities to the financially unsophisticated public. See Securities Act of 1933, Pub. L. No. 73-22, pmbl., 48 Stat. 74, 74 (1933) (stating that the purpose of the Act is "to prevent frauds in the sale" of securities); 1 Thomas Lee Hazen, The Law of Securities Regulation 34 (6th ed. 2009). By imposing a registration requirement, Congress put the burden on companies issuing securities to inform truthfully the public about themselves and the securities being issued. A.C. Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38, 40 (1941); Milton H. Cohen, "Truth in Securities" Revisited, 79 Harv. L. Rev. 1340, 1345 (1966). Companies that have registered securities under the Securities Act must also abide a regime of regular reporting of material information established in the Securities Exchange Act of 1934. See 15 U.S.C. §§ 78l, 78m, 78o(d).
Most securities litigation in modern times focuses not on registration, but rather on whether disclosures by companies were accurate or, to the contrary, withheld or misstated information. See, e.g., Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148 (2008); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007); Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005); Gustafson v. Alloyd Co., 513 U.S. 561 (1995); Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U.S. 286 (1993); Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991); Basic Inc. v. Levinson, 485 U.S. 224 (1988); Schreiber v. Burlington N., Inc., 472 U.S. 1 (1985); Herman & MacLean v. Huddleston, 459 U.S. 375 (1983); Siracusano v. Matrixx Initiatives, Inc., 585 F.3d 1167 (9th Cir. 2009); Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009); S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008); Lipton v. Pathogenesis Corp., 284 F.3d 1027 (9th Cir. 2002). When a company fails entirely to register its securities and nonetheless proceeds to sell them generally to the public, however, the entire system of mandatory public disclosure is evaded to public detriment.
In reviewing the Section 5 claim here, we note that the "Supreme Court has long instructed that securities law places emphasis on economic reality and disregards form for substance." SEC v. M & A W., Inc., 538 F.3d 1043, 1053 (9th Cir. 2008). We are concerned with whether in substance Platforms issued its securities to the public without a registration or exemption.
 "Once the SEC introduces evidence that a defendant has violated the registration provisions, the defendant then has the burden of proof in showing entitlement to an exemption." SEC v. Murphy, 626 F.2d 633, 641 (9th Cir. 1980) (citing SEC v. Ralston Purina Co., 346 U.S. 119, 126 (1953)). Exemptions from registration provisions are construed narrowly "in order to further the purpose of the Act: To provide full and fair disclosure of the character of the securities, and to prevent frauds in the sale thereof." Id. (quoting Securities Act of 1933, ch. 38, Tit. 1, 48 Stat. 74 (1933)) (punctuation omitted).
The defendants allege that two registration exemptions are applicable in this case. First, they argue that there is a genuine issue of material fact whether the transfer of ownership from Intermedia to Draper and Benefit Consultants qualified for an exemption under Securities Act Section 4(1), 15 U.S.C. § 77d(1), because, the defendants' argument runs, Intermedia was not an "affiliate" of Platforms as defined in 17 C.F.R. § 230.144(a)(1). Second, they argue that even if Intermedia was an affiliate of Platforms, there is a genuine issue of material fact whether the issuance of shares by Platforms qualified for an exemption under Securities Act Section 4(2), 15 U.S.C. § 77d(2), because they took reasonable care to assure that Intermedia was not an underwriter. See 17 C.F.R. § 230.502(d). We address each exemption in turn.
 Section 4(1) of the Securities Act exempts from registration "transactions by any person other than an issuer, underwriter, or dealer." 15 U.S.C. § 77d(1). Because Platforms was an "issuer," its issuance of shares cannot qualify for this exemption. See 15 U.S.C. § 77b(a)(4) (defining "issuer" as "every person who issues or proposes to issue any security"). It is undisputed, however, that Intermedia, Draper, and Benefit Consultants were not "issuers" or "dealers." See id. §§ 77b(a)(4), 77b(a)(12) (defining "dealer" as "any person who engages . . . as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading" in securities). The transfer of ...