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Securities and Exchange Commission v. Retail Pro

June 23, 2011

SECURITIES AND EXCHANGE COMMISSION,
PLAINTIFF,
v.
RETAIL PRO, INC. (FKA ISLAND PACIFIC, INC.),
BARRY M. SCHECHTER, RAN H. FURMAN, AND HARVEY BRAUN,
DEFENDANTS.



The opinion of the court was delivered by: Hayes, Judge:

ORDER

The matter before the Court is the Motion for Directed Verdict, filed by Defendant Ran H. Furman. (ECF No. 143).

I. Background

On September 4, 2008, Plaintiff Securities and Exchange Commission ("SEC") filed a Complaint in this Court. (ECF No. 1). The Complaint alleged the following claims against Furman: (1) fraud in connection with the purchase or sale of securities pursuant to Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; (2) aiding and abetting issuer reporting violations pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. § 78t(e), and Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-1 and 13a-13 thereunder, 17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13; (3) record-keeping violations pursuant to Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A) and Rule 13b2-1 thereunder; (4) misrepresentations to accountants pursuant to Exchange Act Rule 13b2-2, 17 C.F.R. § 240.13b2-2; (5) internal control violations pursuant to Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5); and (6) false certification violations pursuant to Exchange Act Rule 13a-14, 17 C.F.R. § 240.13a-14.

Following the Court's November 18, 2009 Order granting in part and denying in part Plaintiff's motion for summary judgment (ECF. No. 47), the following claims remained to be tried against Furman: (1) Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (2) aiding and abetting Island Pacific's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and (3) Exchange Act Rule 13a-14.

On February 15, 2011, a jury trial commenced as to the SEC's remaining claims against Furman. (ECF No. 136).

On February 23, 2011, after the close of the SEC's case, Furman filed the Motion for Directed Verdict. (ECF No. 143).

On February 25, 2011, the jury returned a unanimous Verdict, finding the following: "Furman violate[d] Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder"; "Furman aid[ed] and abet[ted] one or more violations by Island Pacific of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder"; and "Furman violate[d] Rule 13a-14 promulgated under the Securities Exchange Act of 1934." (ECF No. 147 at 1-2).

On March 4, 2011, the SEC filed an opposition to the Motion for Directed Verdict and a Motion for Relief, accompanied by a proposed judgment and proposed findings of fact and conclusions of law.*fn1 (ECF Nos. 160, 161).

On March 25, 2011, Furman filed a reply in support of the Motion for Directed Verdict, and objections and responses to Plaintiff's proposed findings of fact and conclusions of law. (ECF Nos. 168, 170).

II. Contentions of the Parties

Furman contends that, pursuant to Federal Rule of Civil Procedure 50(a)(1), a directed verdict in Furman's favor should be entered as to each of the three claims against Furman at issue in the trial. With respect to the first claim, Furman contends: "Directed verdict must be granted on the SEC's 10(b) claim because there is no evidence from which a jury could conclude that Furman knew that any of his representations regarding the License or Sublicense Agreements was false or that he was reckless as to the truth or falsity of any such representation." (ECF No. 143 at 3). With respect to the second claim, Furman contends: "Directed verdict must be granted on the SEC's aiding and abetting claim because there is no evidence from which a jury could conclude that Furman had actual knowledge of any underlying violation by Island Pacific." Id. at 8. With respect to the third claim, Furman contends: "Directed verdict must be granted on the SEC's Rule 13a-14 claim because there is no evidence from which a jury could conclude that Furman's certifications were false in light of his knowledge." Id. at 9. Furman also "reaffirms his objection that Rule 13a-14 is not a separate cause of action." Id. at 10 n.6.

The SEC contends that Furman's motion should be denied because the jury's verdict is supported by substantial evidence. The SEC contends:

First, [Furman's] motion contains an incomplete and one-sided presentation of the evidence, while ignoring the substantial evidence that supports the jury's verdict, even though all inferences are to be drawn in the Commission's favor. Among other things, he ignores key emails and exhibits that evidence his scienter, as well as key admissions he himself made. Second, Furman ignores the law: In effect, he asks this Court to reweigh the evidence (giving certain of his own testimony the most weight) and also to consider the credibility of witnesses (assessing certain of his own testimony as the most credible). But, these are exclusive functions of the jury, and a court cannot ...


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