## Facts

- Treaty Energy Corporation was a thinly traded public oil-and-gas issuer whose insiders sold large amounts of Treaty stock without an effective registration statement.
- The SEC brought a civil enforcement action alleging, among other violations, unlawful unregistered distributions under Securities Act § 5.
- Samuel E. Whitley, Treaty’s outside securities counsel, drafted multiple attorney opinion letters stating that certain Treaty share issuances and resales were exempt from registration.
- Treaty officers and other sellers used Whitley’s opinion letters to obtain removal of restrictive legends and to complete transfers of millions of shares through the transfer agent.
- Whitley did not personally solicit investors or execute the trades; he characterized his role as providing legal advice based on client-supplied information.
- The SEC and Whitley filed cross-motions for partial summary judgment on whether Whitley was liable under § 5 for his role in the unregistered sales.

## Issues

1. Whether a securities lawyer who issues exemption opinion letters used to complete unregistered stock transfers can be liable under Securities Act § 5 as a “necessary participant” and “substantial factor,” despite not soliciting investors or passing title.
2. Whether the summary-judgment record showed any genuine dispute of material fact as to Whitley’s causal role in the unregistered distributions.

## Decision

- The court granted the SEC’s motion for partial summary judgment on its § 5 claims against Whitley and denied Whitley’s cross-motion.
- The court held Whitley could be liable under § 5 because his opinion letters were an essential precondition to the transfers and a but-for cause of the unregistered sales process.
- The court rejected the argument that the absence of direct solicitation, negotiation, or trade execution foreclosed § 5 liability.
- The court found no genuine dispute of material fact regarding Whitley’s issuance of the opinion letters, their use to effect the transfers, and the lack of registration.

## Legal Principles

- Securities Act § 5 prohibits offers or sales of securities using interstate means unless a registration statement is effective or an exemption applies; the SEC need not prove scienter.
- § 5 liability extends beyond those who pass title to persons who are “necessary participants” and “substantial factors” in the distribution.
- A professional’s conduct may satisfy the standard when it is an essential link in effectuating the unregistered sales, such that the transactions would not occur in the same manner without it.
- Reliance on client-provided facts does not defeat § 5 liability where the defendant’s acts functionally enable the unregistered distribution and the statute imposes strict liability.

## Conclusion

The court held that outside counsel’s exemption opinion letters, used to remove restrictions and complete stock transfers, made him a necessary participant and substantial factor in the unregistered sales, warranting summary judgment for the SEC on Securities Act § 5 liability.


Sec. & Exch. Comm’n v. Blackburn, No. 15-2451, 2020 WL 565551 (E.D. La. Feb. 4, 2020)