Sec. & Exch. Comm'n v. Sethi

Facts

1. 3 Materially false statement or misleading half-truth satisfied conceded

   Under Rule 10b-5, a defendant makes a misrepresentation when "the information disclosed, understood as a whole, would mislead a reasonable potential investor."

2. 3 Materially false statement or misleading half-truth satisfied conceded

   The script also claimed that the venture was "working DIRECTLY with these major companies."

3. 3 Materially false statement or misleading half-truth satisfied conceded

   One investor declared that Sethi told him that "Sethi Petroleum was partnering with Exxon Mobil and other major oil companies to drill and operate."

4. 3 Materially false statement or misleading half-truth satisfied conceded

   Nor does the record show that the venture ever partnered with Exxon Mobil, Conoco Phillips, or a similar company.

5. 3 Materially false statement or misleading half-truth satisfied conceded

   And while Oxy USA is a subsidiary of Occidental Petroleum, a major oil company, Sethi offers no evidence about whether and to what extent Occidental Petroleum was involved in the well operation.

6. 3 Materially false statement or misleading half-truth satisfied conceded

   The district court correctly concluded that these facts constitute a misstatement.

7. 5 Importance to a reasonable investor satisfied conceded

   The defendant's misrepresentation is material "if there is a substantial likelihood that a reasonable investor would consider the information important in making a decision to invest."

8. 5 Importance to a reasonable investor satisfied conceded

   Nevertheless, he repeatedly represented that he had relationships with several major oil companies, and he used these representations as a tool to entice investors.

9. 5 Importance to a reasonable investor satisfied conceded

   In sum, the district court correctly found that Sethi made material misstatements to investors when he knowingly misrepresented his relationships with major oil companies.

10. 6 Intent to deceive, manipulate, or defraud satisfied conceded

    To prove scienter, the SEC need only prove that the defendant acted with severe recklessness.

11. 6 Intent to deceive, manipulate, or defraud satisfied conceded

    These facts also establish scienter.

12. 6 Intent to deceive, manipulate, or defraud satisfied conceded

    Sethi knew that he did not have relationships with the listed companies, and Sethi does not dispute that the venture never partnered with a major oil company.

13. 6 Intent to deceive, manipulate, or defraud satisfied conceded

    By touting his relationships with major oil companies, Sethi created a "danger of misleading buyers" into believing that his venture would be well-managed and their investments would be in the hands of the most successful drillers in the world.

14. 6 Intent to deceive, manipulate, or defraud satisfied conceded

    Nowhere in the record do we find any sign that Sethi relied on statements by his consultants, or that consultants ever made statements about Sethi Petroleum's relationships with major oil companies.