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From Securities Regulation Daily, July 29, 2013

Appeals court upholds most of judgment against infoUSA exec

By Anne Sherry, J.D.

An Eighth Circuit panel affirmed most of a district court’s findings and conclusions against former infoUSA CFO Stormy Dean. However, the court vacated the conclusion of the U.S. District Court for the District of Nebraska that Dean violated Exchange Act Section 13(b)(5) and the court’s finding that he acted in bad faith. The appeals court remanded the case for reconsideration of civil penalties and for all further proceedings consistent with its opinion, but affirmed the case in all other respects (SEC v. Das, July 29, 2013, Shepherd, B.).

Background. The SEC brought an enforcement action against infoUSA’s former CFOs Rajnish Das and Stormy Dean in connection with infoUSA’s reimbursements of expenses incurred by its CEO, Vinod Gupta. The charges against Dean were securities fraud, soliciting false proxy statements, falsifying books and records, certifying false reports, deceiving auditors, aiding and abetting false SEC filings, and aiding and abetting false books and records. After a 10-day trial, a jury found that Dean violated various securities laws, and the district court imposed several civil penalties. On appeal, Dean argued that there was insufficient evidence to support the jury’s findings, that the district court erred by admitting the testimony of the SEC’s expert witness, that the district court abused its discretion in instructing the jury, and that the district court erred by finding that he acted in bad faith toward infoUSA’s shareholders.

Procedural issues. The appellate court held that Dean could not challenge the sufficiency of the evidence against him because he failed to file a Rule 50(b) motion after the jury returned its verdict. Furthermore, the district court did not abuse its discretion by admitting the testimony of the SEC’s expert, whose methodology did not misconstrue a legal issue or alter the legal standard Dean was required to apply as CFO, or in instructing the jury.

Section 13(b)(5). The SEC requested that the appellate court vacate the district court’s judgment regarding the Exchange Act Section 13(b)(5) claim. That section requires a finding that any violation of that provision be made knowingly., and the instruction contained conflicting standards as to state of mind. Accordingly, it was unclear whether the jury made the necessary finding, and the appeals court vacated the judgment and memorandum and order to the extent they relate to Section 13(b)(5). The court left it to the district court’s discretion whether to retain the civil penalties awarded or reconsider them.

Bad faith finding. The appellate court also agreed with Dean’s contention that the district court should not have found bad faith. Whether Dean acted in bad faith was not an issue before the jury, neither the SEC nor infoUSA raised the issue, and the finding was unnecessary to a final resolution. The panel thus vacated the district court’s finding of bad faith toward infoUSA shareholders.

The case is No. 12-2780.

Attorneys: Nicholas Bronni for SEC. David A. Zisser (Davis & Graham) for Stormy L. Dean.

Companies: infoUSA, Inc.

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