United States Securities and Exchange Commission, Plaintiff - Appellee
Marlon Quan; Acorn Capital Group, LLC; Stewardship Investment Advisors, LLC, Defendants - Appellants, Stewardship Credit Arbitrage Fund, LLC; Putnam Green, LLC; Livingston Acres, LLC, Defendants, ACG II, LLC, Defendant - Appellant, Florence Quan, Defendant, Nigel Chatterjee; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main; Sovereign Bank; Topwater Exclusive Fund III, LLC; Freestone Low Volatility Partners, LP; Freestone Low Volatility Qualified Partners, LP Intervenors, Gary Hansen, Receiver
October 20, 2015
[Copyrighted Material Omitted]
from United States District Court for the District of
Minnesota - Minneapolis.
United States Securities and Exchange Commission, Plaintiff -
Appellee: James Sanderson Alexander, U.S. ATTORNEY'S
OFFICE, District of Minnesota, Minneapolis, MN; John E.
Birkenheier, Charles J. Kerstetter, SECURITIES & EXCHANGE
COMMISSION, Midwest Regional Office, Chicago, IL; Jacob
Loshin, Benjamin Lawrence Schiffrin, William Kenneth Shirey,
U.S. SECURITIES & EXCHANGE COMMISSION, Office of General
Counsel, Washington, DC.
Marlon Quan, Acorn Capital Group, LLC, Stewardship Investment
Advisors, LLC, ACG II, LLC, Defendants - Appellants:
Christopher Thomas Casamassima, WILMER & HALE, Los Angeles,
CA; Bruce E. Coolidge, Laura Schwalbe, WILMER & CUTLER,
RILEY, Chief Judge, SMITH and SHEPHERD, Circuit Judges.
Quan, along with entities he controls, (collectively, Quan,
unless context dictates otherwise) appeals a judgment entered
on jury verdicts finding securities fraud. Quan challenges
the coherence of the verdicts, the accuracy of the jury
instructions, and the authority of the district
court to order disgorgement. We affirm.
Quan managed a hedge fund, Stewardship Credit Arbitrage Fund,
LLC (SCAF) and its offshore twin, Stewardship Credit
Arbitrage Fund, Ltd., through his company Stewardship
Investment Advisors, LLC (SIA). The funds invested
heavily in loans to PAC Funding, a company controlled by
Thomas Petters. The loans were meant to finance Petters's
business of buying consumer electronics wholesale and
reselling them to retail stores for a profit. The loans were
supposedly secured by the goods, accounts receivable, or the
stores' promises to pay. Unfortunately, Petters's
business was actually a massive Ponzi scheme. Petters used
the funds' money to pay off other investors and maintain
appearances, while pocketing whatever was left for himself
and his family. See generally United States v.
Petters, 663 F.3d 375, 379 (8th Cir. 2011). When the
scheme collapsed in the fall of 2008, investors in Quan's
funds (as well as Quan himself) lost a lot of money.
U.S. Securities and Exchange Commission (SEC) sued Quan for
securities fraud on two basic theories: (1) he made false
statements about what he did to protect the funds against
fraud and other risks; and (2) he concealed problems with the
funds' investments as Petters's scheme began to
unravel. The SEC alleged Quan and his companies violated
Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a);
Section 10(b) of the Securities Exchange Act, 15 U.S.C.
§ 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. §
240.10b-5; and Section 206(4) of the Investment Advisers Act,
15 U.S.C. § 80b-6(4), and Rule 206(4)-8 thereunder, 17
C.F.R. § 275.206(4)-8. The SEC also alleged Quan
personally violated Section 20(a) of the Securities Exchange
Act, 15 U.S.C. § 78t(a), and aided and abetted
SCAF's violations of Section 10(b) and Rule 10b-5 and
SIA's violations of Section 206(4) and Rule 206(4)-8. See
also 15 U.S.C. § 78t(e) (aiding-and-abetting liability).
The case went to trial and a jury found liability on every
count except the alleged violations of Section 17(a)(1) and
the allegation Quan personally aided and abetted SCAF's
violations of Section 10(b) and Rule 10b-5.
moved for judgment as a matter of law and a new trial. The
SEC moved for remedies and a final judgment. The district
court denied Quan's motions, entered injunctions against
him, and ordered him to disgorge almost $81 million in
profits, plus prejudgment interest. We have jurisdiction of
Quan's appeal. See 28 U.S.C. § 1291 (appellate
jurisdiction); Fed.R.Civ.P. 54(b) (partial final judgments).
Verdict Internal Consistency
first argues he is entitled to a new trial because the jury
contradicted itself by finding he violated Rule 10b-5 under
the Securities Exchange Act, but did not violate Section
17(a)(1) of the Securities Act or aid and abet SCAF in
violating Rule 10b-5. Before reaching Quan's argument, we
first address a threshold matter.
district court held Quan could not seek a new trial based on
alleged inconsistencies in the verdicts because he did not
ask to have the verdicts sent back to the jury before it was
discharged. The district court relied on our statement,
" If a party feels that a jury verdict is inconsistent,
it must object to the asserted inconsistency and
move for resubmission of the inconsistent verdict before the
jury is discharged or ...