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Securities Regulation Keyed to Coffee
Securities and Exchange Commission v. Fehn
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- Topic: Identifies the topic of law and where this case fits within your course outline.
- Parties: Identifies the cast of characters involved in the case.
- Procedural Posture & History: Shares the case history with how lower courts have ruled on the matter.
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- Facts: What are the factual circumstances that gave rise to the civil or criminal case? What is the relationship of the Parties that are involved in the case. Review the Facts of this case here:
CTI Technical, Inc., with Wheeler as the founder and CEO, had their initial public offering of securities (IPO) tainted by violations of state and federal securities laws. A formal investigation was launched by the SEC into the IPO, and a securities attorney, Fehn, was employed to represent CTI, Wheeler, CTI’s underwriter (Stoneridge Securities), and multiple CTI officers and directors. Fehn was alerted to CTI failing to comply with specific reporting requirements of the Securities Exchange Act of 1934 (Act) during the investigation. CTI did not file Form 10-Q quarterly reports and also did not disclose that a diet product it created, one of its central products, had been banned by the FDA with the current inventory of the product being impounded. CTI’s violations in connection with the IPO were also not disclosed by CTI. Wheeler was advised by Fehn that the ban needed to be revealed by CTI but there was no need to reveal the IPO violations. The Form 10-Qs, prepared by a non-lawyer, disclosed the FDA ban, but Wheeler’s actual role in CTI was mischaracterized and the form did not disclose the possible civil liability coming from Wheeler's and CTI's prior IPO violations. The Form 10-Qs were reviewed and edited by Fehn. Fehndenied that he made substantive changes to the Form 10-Qs but the SEC retained that Fehn had deleted information that was wronglyomitted. The SEC allegedFehnof aiding and abetting violations of§§ 10(b) and 15(d) of the Act by helping in the preparation of incorrect and misleading Form 10-Qs for CTI, and it hoped to ban him for life from future securities laws violations. A judgment was entered against Fehn by the district court and entered an order banning him for life from future aiding and abetting violations. The court of appeals granted review.
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