The Tenth Circuit Court of Appeals published its opinion in SEC v. Smart on Friday, April 27, 2012.
The Tenth Circuit affirmed the district court’s decision. In 2009, the SEC began investigating Petitioner, who was the sole owner of Smart Assets, for securities fraud. Petitioner appeared before the agency to provide testimony, but his counsel instructed him “to take the Fifth Amendment,” and the proceeding ended. The next day, the SEC sued Petitioner and Smart Assets, claiming Petitioner “had defrauded multiple investors because he had represented that investors’ money would be placed in low-risk financial instruments, but he then used their money to cover his and his wife’s personal expenses, pay prior investors, and engage in high-risk ventures, like hard-money lending. In the process, he commingled investor funds, fabricated account statements, refused investors’ inquiries about their money, misled investors about his affiliation with a financial-planning firm, gave promissory notes as collateral for investment funds, and gave investors bogus financial product-information sheets.” The SEC moved for summary judgment and asked the district court to draw an adverse inference against Petitioner in regard to his Fifth Amendment invocations. Petitioner sought a continuance. The district court granted summary judgment, citing Petitioner’s “failure to raise a genuine issue of fact, and it inferred from his Fifth Amendment invocation that ‘he knowingly and purposely defrauded investors.’”
On appeal, Petitioner contends that he should have been permitted to withdraw his assertion of the Fifth Amendment and have his declarations considered in opposing summary judgment. The Court disagreed, stating that the circuit has “not yet defined the parameters in a civil case for withdrawing an invocation of the Fifth Amendment privilege against self-incrimination.” However, the “circumstances of [Petitioner]’s invocation of the Fifth Amendment reveal that he was using the privilege to manipulate the litigation process. . . . Further, [Petitioner] took the Fifth during the deposition of Smart Assets after conferring with the company’s counsel. . . . Given the circumstances of this case, [the Court concluded] that the district court did not abuse its discretion in denying [Petitioner] leave to withdraw his assertion of the Fifth Amendment privilege against self-incrimination and in striking his declarations.” Additionally, Petitioner failed to provide evidence to contradict the SEC’s evidence of his frauds.