The Securities and Exchange Commission brought a securities fraud action against former senior officers of iGo Corporation who allegedly engaged in fraudulent accounting practices and aided and abetted iGo’s violations of §13(a) of the Securities Exchange Act of 1934. The SEC also sought to impose liability against one former officer, Kenneth Hawk, on the grounds that he was a “control person” under § 20(a) of the Exchange Act. Hawk moved for partial summary judgment to dismiss the § 20(a) claim contending that the SEC (i) was not authorized to bring such a claim, and (ii) even if it was so authorized, could not prevail because it did not include the alleged primary wrongdoer as a party-defendant.
The court rejected both arguments. Although noting the existence of conflicting authority on the issue of whether the SEC could maintain an enforcement action under § 20(a), the court sided with the majority and concluded that the SEC could. Applying a standard statutory construction analysis, the court reasoned that because (i) § 20(a) permits any “person” to whom a controlled person is liable to obtain relief, and (ii) the SEC is included within the Exchange Act’s definition of “person,” the “plain meaning” of the statute permits the SEC to assert claims under § 20(a). With respect to Hawk’s second argument, after noting that § 20(a) makes the liability of the primary violator an element of proof, the court held that nothing in the statute mandates that such person also be included as a defendant in order for a § 20(a) claim to proceed. (SEC v. Hawk, 2007 WL 2257321 (D.Nev. Aug. 3, 2007))