SEC v. Genovese

Robert Genovese (defendant) owned millions of stock shares of Liberty Silver Corporation (Liberty), which were issued by Liberty and comprised over one percent of Liberty’s outstanding stock. The shares were unregistered securities and were held by an investment company. After Genovese had owned the shares for longer than six months but less than one year, Abraham Mirman (defendant), a broker-dealer and underwriter, helped Genovese sell the shares publicly within a three-month period without registration. The Securities and Exchange Commission (SEC) (plaintiff) determined that the sale violated § 5 of the Securities Act of 1933, which generally prohibits a broker-dealer from executing a public trade of unregistered securities unless an exemption applies. Genovese and Mirman appealed, arguing that SEC Rule 144 provided them such an exemption to § 5. The SEC moved for summary judgment, arguing that Rule 144 was inapplicable because Liberty was not a reporting company, i.e., Liberty was not required to file reports with the SEC. Therefore, the SEC argued, Genovese did not satisfy Rule 144’s requirement that the shares be held for at least one year if issued by a nonreporting company. Mirman argued that Liberty was a reporting company and therefore that Genovese satisfied Rule 144’s requirement that the shares be held for at six months if issued by a reporting company.