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Securities and Exchange Commission v. Roberts

July 10, 2007


The opinion of the court was delivered by: Emmet G. Sullivan United States District Judge


Plaintiff the Securities and Exchange Commission ("SEC") filed suit against defendant Kent Roberts for violations of the Securities and Exchange Act and rules thereunder. The United States has also filed a criminal case against Roberts based on the same underlying conduct in the Northern District of California. Defendant moves to transfer this case to the Northern District of California. In addition, the United States has moved to intervene in this case in order to request a stay of discovery, and also moves to stay discovery. Upon consideration of the motions, the responses and replies thereto, the applicable law, and the entire record, the Court concludes that the most appropriate venue for this case is the Northern District of California, and therefore defendant's motion to transfer is GRANTED and the United States' motion to intervene and stay discovery is DENIED without prejudice.


The SEC brings this civil enforcement action seeking disgorgement, civil penalties, and injunctive relief arising out of alleged violations of various provisions of the Securities and Exchange Act of 1934 ("Exchange Act"). Defendant served in various capacities as an in-house attorney at McAfee, Inc. ("McAfee") for a number of years until 2006. McAfee is a publicly traded company that manufactures computer network security and anti-virus products, and maintains its principal office in Santa Clara, California, within the Northern District. At this point, approximately 200 employees work in the Santa Clara office and 700 employees, including some in the legal and audit departments, work in the company's Plano, Texas office, which opened in January 2003. Most of the company's critical functions were moved to the Plano office in 2003. Apparently, they had been located in Santa Clara before that point. At all relevant times, defendant was employed in the legal department based in Dallas or Plano, Texas.

The SEC alleges that Roberts falsified documents relating to stock option grants awarded to himself and other executives at the company, and that he made or assisted others in making false statements in proxy statements and stock ownership reports filed with the SEC. Specifically, the SEC alleges that defendant improperly altered the grant date for options awards in 2000 and 2002 with regard to awards to himself and McAfee's then-CEO George Samenuk. The SEC also alleges that defendant filed false and misleading statements with the SEC in 2002 and 2003 with regard to these option grants as well as to another option grant to a McAfee division president.

The SEC filed its complaint in this Court on February 28, 2007. Defendant filed his answer on May 3, and soon thereafter filed his motion to transfer. The United States filed its indictment against Roberts on February 27, 2007, in the Northern District of California, which charges Roberts with two counts of mail fraud, one count of wire fraud, three counts of filing false SEC statements, and one count of falsifying records and accounts. Indictment, CR-07-100-MHP (N.D. Cal.), Def.'s Ex. A. According to the United States in its motion to intervene, the "allegations and facts at issue in the SEC's complaint and the criminal indictment are virtually identical," as they allege the same scheme to defraud and are based on the same chronology of events. Roberts made his initial appearance in the criminal case on March 1 and pleaded not guilty to all charges.


As an initial matter, defendant briefly argues that venue is not proper in this Court. Section 27 of the Exchange Act is the basis for venue in this case, which states that venue is proper in any district where the defendant "transacts business." 15 U.S.C. § 78aa. The D.C. Circuit has held that the act of filing SEC documents has a locus in the District of Columbia, and therefore that "venue for civil enforcement actions of the Commission, involving reports required to be filed in the District of Columbia, is here." SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1154 n.12 (D.C. Cir. 1978).

The federal venue transfer statute states that "[f]or the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). This section applies to special venue provisions, including the provision for securities actions. Savoy, 587 F.2d at 1153. The moving party bears the burden of showing that transfer under this statute is proper. Shenandoah Assocs. Ltd. P'ship v. Tirana, 182 F. Supp. 2d 14, 25 (D.D.C. 2001). The statute provides for a flexible and individualized analysis that "place[s] discretion in the district court to adjudicate motions for transfer according to an 'individualized, case-by-case consideration of convenience and fairness.'" Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)).

To show that transfer would be proper, the defendant must first establish that the plaintiff could have brought the action in the proposed transferee district. Lentz v. Eli Lilly & Co., 464 F. Supp. 2d 35, 36 (D.D.C. 2006). Next, the defendant must demonstrate that private- and public-interest factors weigh in favor of transfer. Id. at 37. The private-interest factors include: (1) the plaintiff's forum choice, (2) the defendant's forum choice, (3) where the claim arose, (4) the convenience of the parties, (5) the convenience of witnesses to the extent that they may be unavailable for trial in one of the fora, and (6) the ease of access to sources of proof. Id. The public interest factors include: (1) the proposed transferee district's familiarity with the governing law, (2) the relative congestion of the transferor and potential transferee courts, and (3) the local interest in adjudicating local controversies at home. Id.

With regard to the threshold question, plaintiff does not dispute that the case could have been brought in the Northern District of California. This is clear because federal courts have federal question jurisdiction over the case, 28 U.S.C. § 1331, and venue would be proper because civil cases can be brought in the same district where the accompanying criminal case is brought, 15 U.S.C. § 78aa. Thus, the Court must evaluate the various factors.

I. Private-Interest Factors

The first private factor is the plaintiff's choice of forum, which is the District of Columbia. While courts usually defer to a plaintiff's choice of forum, the court will afford "substantially less deference" to that choice when the plaintiff does not reside in the chosen forum or when the claim lacks a substantial connection to the chosen forum. Devaughn v. Inphonic, Inc., 403 F. Supp. 2d 68, 72 (D.D.C. 2005). On the other hand, the presumption in favor of a plaintiff's choice of forum is stronger in cases arising under the federal securities laws because the specific venue provision evinces Congressional intent to allow plaintiffs in securities cases the widest possible choice of forums in which to sue. Thayer/Patricof Educ. Funding, L.L.C. v. Pryor Resources, Inc., 196 F. Supp. 2d 21, 35 n.9 (D.D.C. 2002).

Plaintiff, in some sense, does reside in this district as the SEC's main office in here and the staff who have worked on this case are also located in this district. See In re Nat'l Presto Indus., Inc., 347 F.3d 662, 664 (7th Cir. 2003) (factoring in the location of the SEC's offices in evaluating proper venue). As defendant notes though, the SEC also has a regional office in the Northern District of California. Moreover, there is no substantial connection between this case and this forum. The only connection between the facts of this case and this district is that the SEC filings are formally filed in Washington, D.C. "Outside of the filings themselves, no underlying operative facts arose in the District of Columbia." SEC v. Ernst & Young, 775 F. Supp. 411, 414 (D.D.C. 1991). Being the mere destination of the SEC filings cannot be regarded as a substantial connection though, because otherwise, "every organization across the country that is required to file documents with an agency in Washington could be forced to travel here to defend against as yet unproven charges." See id. at 415. While plaintiffs in securities cases normally receive a strong presumption in favor of their forum choice, such a presumption is misplaced here because this district is unconnected to the facts of this case other than being the destination of the SEC filings, which would occur in the mine run of cases brought by the SEC. Deference to plaintiff's forum choice is ...

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