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Keywords

liabilityappealcorporation

defendantliabilityappealcorporation

Related Cases

S.E.C. v. U.S. Environmental, Inc., 155 F.3d 107, Fed. Sec. L. Rep. P 90,648

Facts

John Romano was a trader at Castle Securities Corporation, which participated in a scheme to manipulate the stock price of U.S. Environmental, Inc. at the direction of stock promoter Mark D'Onofrio. Romano executed trades that created the appearance of an active market for USE shares, which artificially inflated the stock price from $0.05 to approximately $5.00 per share. The SEC alleged that Romano knowingly or recklessly engaged in manipulative practices, including wash sales and matched orders, resulting in significant profits for Castle.

Romano was employed as a trader and registered representative of defendant Castle Securities Corporation (“Castle”), a securities broker-dealer. Castle agreed to participate in a scheme whereby it and other defendants, including Romano, would manipulate upward the price of the stock of U.S. Environmental, Inc. (“USE”).

Issue

Whether John Romano could be held primarily liable under § 10(b) for executing trades that he knew or was reckless in not knowing were manipulative.

Rule

Under § 10(b) of the Securities Exchange Act of 1934, it is unlawful for any person to use manipulative or deceptive devices in connection with the purchase or sale of any security. A primary violator is one who engages in the manipulative or deceptive practice, not merely one who aids and abets such violations.

Under § 10(b) of the Securities Exchange Act of 1934, it is unlawful for any person to use manipulative or deceptive devices in connection with the purchase or sale of any security.

Analysis

The court determined that Romano's actions of executing trades that he knew were manipulative constituted primary liability under § 10(b). The court rejected the district court's reasoning that Romano's lack of a manipulative purpose exempted him from liability, emphasizing that the nature of his conduct, rather than his state of mind, was the key factor in establishing primary liability.

The court determined that Romano's actions of executing trades that he knew were manipulative constituted primary liability under § 10(b).

Conclusion

The Court of Appeals vacated the district court's dismissal of the SEC's claim against Romano and remanded the case for further proceedings, affirming that Romano could be held primarily liable for his role in the market manipulation.

The Court of Appeals vacated the district court's dismissal of the SEC's claim against Romano and remanded the case for further proceedings.

Who won?

Securities and Exchange Commission (SEC) prevailed as the court found that Romano could be primarily liable for market manipulation under § 10(b).

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