The Tenth Circuit affirmed the grant of summary judgment in favor of the Securities and Exchange Commission in an enforcement action against a consultant and his consulting firm alleging violation of, among other provisions, Section 10(b) of the Securities and Exchange Act and Rule 10b-5 relating to material misstatements and omissions in a public company’s SEC filings. The alleged fraud concerned the non-disclosure in SEC filings of (i) a stock sale agreement between the company and an offshore “boiler room” which allowed the boiler room to retain 70% of the sales proceeds, and (ii) the consultant’s right to a finder’s fee equal to 10% of the proceeds received by the company from the sales made by the boiler room.

In granting summary judgment to the SEC, the District Court ruled that the defendants could be held liable as primary violators of Section 10(b) and Rule 10b-5. On appeal, defendants argued that the ruling was mistaken because the SEC had only shown that the company, but not also the defendants, made the material misstatements or omissions underlying the SEC’s claims.

In affirming the District Court’s decision, the Tenth Circuit stated that the relevant question was whether the consultant, as a secondary actor (i.e., someone who did not sign or certify the filings), could fairly be said to have “made” the misrepresentations and whether he knew or should have known that such statements would reach investors. After rejecting a “brightline” requirement that misstatements be expressly “attributed” to a secondary actor for such an actor to be held primarily liable, the Tenth Circuit ruled that because (i) the consultant played an integral role in preparing the filings in issue, (ii) the documents were filed as drafted by the consultant, and (iii) the consultant was hired for the very purpose of preparing the filings and knew that they would be available to investors, the consultant could fairly be said to have caused the company to make the misstatements, and thus, could properly be held primarily liable. (S.E.C. v. Wolfson, No. 06-4035, 2008 WL 4053027 (10th Cir. Sept. 2, 2008))