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SEC v. Pirate Investor LLC

580 F.3d 233 (2009)

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SEC v. Pirate Investor LLC

United States Court of Appeals for the Fourth Circuit
580 F.3d 233 (2009)

KS

Facts

Frank Porter Stansberry and Pirate Investor LLC (Pirate) (defendants) solicited buyers via email and ultimately sold a stock tip via email about a company called USEC, Inc. Pirate published investment newsletters, including “blasts” to its online subscribers, and Stansberry, as the editor-in-chief of Pirate, wrote and published the investment newsletters. Over 1,200 copies of the stock tip were sold. Pirate took in net proceeds of over $1 million. The tip, purported to be from a high-level company executive, explained that USEC would announce a pricing agreement on May 22, 2002. The USEC agreement was later announced on June 19, 2002. The Security and Exchange Commission (SEC) (plaintiff) brought a lawsuit against Stanberry and Pirate, alleging a violation of § 10(b) of the Securities and Exchange Act of 1934 and related SEC Rule 10b-5. The district court held that Stansberry and Pirate had violated § 10(b) and Rule 10b-5 and ordered the disgorgement of profits from the sales of the tip, imposed civil penalties, and issued an injunction against further violations. Stansberry and Pirate appealed, arguing their conduct did not violate § 10b, as the stock tip was not connected to a securities transaction because Stansberry and Pirate did not trade in USEC stock or breach a fiduciary duty related to USEC stock.

Rule of Law

Issue

Holding and Reasoning (Per curiam)

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