The Seventh Circuit affirmed a district court’s grant of summary judgment in favor of the Securities and Exchange Commission and imposition of monetary penalties against two individual defendants in an SEC civil enforcement action.In the action, the SEC asserted that the defendants defrauded more than thirty investors out of millions of dollars by falsely representing to the investors that they would invest their funds in high-yield bank-issued securities not available or known to the general public.
Defendants argued that the district court’s grant of summary judgment was in error, asserting that scienter, an element of the SEC’s claim, involves a state of mind that can almost never be established at the summary judgment stage (and had not been established by the SEC). The Seventh Circuit disagreed.
Citing defendants’ invocation of their Fifth Amendment right against self-incrimination, the Seventh Circuit noted that a consequence of defendants’ decision not to testify in the case was that they offered no testimony to rebut the SEC’s evidence that they had acted with scienter. Because of the “mountain of circumstantial evidence . . . that the SEC presented, evidence reinforced by the inference (permissible in a civil case) of guilt from their refusal to testify,” the Seventh Circuit held that “no reasonable jury could doubt that they had acted with scienter.” Accordingly, the Seventh Circuit affirmed the district court’s grant of summary judgment to the SEC and its imposition of penalties against the defendants. (SEC v. Lyttle, 2008 WL 3114924 (7th Cir. Aug. 7, 2008))