United States District Court, D. Massachusetts
MEMORANDUM & ORDER
Nathaniel M. Gorton, United States District Judge
case arises out of a government investigation of a
pump-and-dump scheme (“the scheme”) involving
publicly-traded shares of CitySide Tickets, Inc.
(“CitySide”). Plaintiff Securities and Exchange
Commission (“the SEC” or “the
Commission”) contends that defendant Richard Weed
(“Weed” or “defendant”), an attorney,
together with two former stockbrokers, Coleman Flaherty
(“Flaherty”) and Thomas Brazil
(“Brazil”), committed securities fraud in
connection with the scheme.
before the Court were (1) the SEC's motion for partial
summary judgment on the SEC's first, second, fourth,
fifth and sixth claims for relief (Docket No. 69) and (2)
Weed's motion for partial summary judgment on the
SEC's third claim for relief (Docket No. 73). By order of
the Court (Docket No. 105) entered on May 10, 2018, the SECs
motion was allowed and Weed's motion was denied, with the
notation that an explanatory memorandum and order
(“M&O”) would follow. This is that M&O.
Background and Procedural History
and Flaherty are former stockbrokers who ran several
iterations of the pump-and-dump scheme with the assistance of
Weed. Flaherty controlled a public shell company, UpTurn. In
2009, the owner of CitySide, a sporting event ticket broker,
proposed that Flaherty make an investment in CitySide.
Flaherty counter-proposed a reverse merger as a result of
which CitySide would become a publicly-traded company after a
merger with the public shell company, UpTurn.
and Flaherty participated in the reverse merger deal and Weed
performed the legal work necessary to complete the merger. As
a result of the merger, Flaherty and Brazil held debt in
CitySide, in the form of promissory notes, which could be
converted into shares of CitySide stock. To facilitate the
reverse merger, Weed completed legal work, including 1) a
name change application with the Financial Industry
Regulatory Authority (“FINRA”), 2) the paperwork
for the reverse stock split, 3) the issuing of a controlling
share block to CitySide's owner and 4) the conversion of
the promissory notes into shares that were freely tradable
the merger, Flaherty and Brazil arranged for stock promoters
to issue favorable press releases about CitySide in order to
inflate the value of CitySide stock. Weed accomplished the
conversion of the promissory notes held by Brazil and
Flaherty into share certificates that were deposited into
brokerage firms for trading and which allowed Flaherty and
Brazil to execute sales of the certificates after the value
of the stock was inflated. In a conversation that was
recorded, Weed told Flaherty (who was cooperating with
federal law enforcement agents at the time) “the deals
are all vapor, and they cannot sustain themselves for six
order to facilitate the conversion of the notes into freely
tradable shares, Weed wrote legal opinion letters to transfer
agents of CitySide who were responsible for issuing new
securities and recording changes in ownership of securities.
In those letters, Weed opined that the transfer agent could
lawfully allow the issuance of unrestricted shares of stock
under 17 C.F.R. § 230.144. He represented to the
transfer agents that
[n]one of the persons who have elected to convert [their]
notes into common stock are affiliates of the [i]ssuer and
none of these persons have been affiliates during the
preceding three months.
recipients of the shares were, in fact, Flaherty or nominees
of Flaherty and Brazil, all affiliates of the issuing
company. Flaherty sold approximately $1.3 million of CitySide
stock after his notes were converted.
filed the civil complaint in this action on November 6, 2014
against Weed, Flaherty and Brazil alleging six violations of
the securities laws. The following month, a grand jury
returned an indictment charging Weed with criminal violations
of Section 10(b), 15 U.S.C. §§ 78j(b) & 78ff,
and Rule 10b-5, 17 C.F.R. § 240.10b-5 as well as
conspiracy, 18 U.S.C. § 371, and wire fraud, 18 U.S.C.
§ 1343. In July, 2015, this Court allowed a motion to
stay the proceedings in this civil action during the pendency
of the parallel criminal proceedings against Weed in Criminal
Action No. 14-10348-DPW.
16, 2016, after ten days of trial, a jury convicted Weed on
all nine counts of the indictment and he was subsequently
sentenced to a term of 48 months imprisonment. That
conviction was affirmed in October, 2017 by the First Circuit
Court of Appeals (“the First Circuit”) and
Weed's petition for a writ of certiorari was denied by
the United States Supreme Court in May, 2018. This Court had
previously entered a consent judgment as to Brazil and
Flaherty in October, 2016.
and Weed filed motions for partial summary judgment in March,
2018. Those motions are the subject of this memorandum.
Motions for Partial Summary Judgment
role of summary judgment is “to pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Mesnick v. Gen. Elec.
Co., 950 F.2d 816, 822 (1st Cir. 1991). The burden is on
the moving party to show, through the pleadings, discovery
and affidavits, “that there is no genuine dispute as to
any material fact and that the movant is entitled to judgment
as a matter of law.” Fed.R.Civ.P. 56(a). A fact is
material if it “might affect the outcome of the suit
under the governing law.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue
of material fact exists where the evidence with respect to
the material fact in dispute “is such that a reasonable
jury could return a verdict for the nonmoving party.”
moving party has satisfied its burden, the burden shifts to
the non-moving party to set forth specific facts showing that
there is a genuine, triable issue. Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986). The Court must view
the entire record in the light most favorable to the
non-moving party and indulge all reasonable inferences in
that party's favor. O'Connor v. Steeves, 994
F.2d 905, 907 (1st Cir. 1993). Summary judgment is
appropriate if, after viewing the record in the non-moving
party's favor, the Court determines that no genuine issue
of material fact exists and that the moving party is entitled
to judgment as a matter of law.
SEC's Motion for Partial Summary Judgment
contends that Weed is collaterally estopped from disputing
the facts that form the basis of his criminal conviction. The
Commission asserts that the factual underpinnings of those
convictions are sufficient to establish the necessary