## Facts

- CTI Technical, Inc. conducted an initial public offering that prompted a formal SEC investigation based on alleged securities-law violations.
- H. Thomas Fehn, a California securities attorney, represented CTI, its CEO/founder Wheeler, the underwriter, and several officers and directors during the investigation.
- Fehn learned CTI had not complied with Exchange Act periodic reporting duties, including failing to file required Form 10‑Q reports.
- CTI also failed to disclose that a primary product had been banned by the FDA and its inventory impounded.
- CTI’s reports further omitted information about prior IPO-related misconduct and potential civil liability for CTI and Wheeler.
- Fehn advised that the FDA ban had to be disclosed, but advised it was unnecessary to disclose the earlier IPO violations and related potential liability.
- CTI personnel prepared draft Form 10‑Qs that disclosed the FDA ban but mischaracterized Wheeler’s role and omitted material information about the IPO-related exposure.
- Fehn reviewed and edited three Form 10‑Qs and submitted them to the SEC; the district court found he knew, or was reckless in not knowing, that they were false and misleading.
- The SEC brought a civil enforcement action alleging Fehn aided and abetted CTI’s violations of Exchange Act § 10(b) and Rule 10b‑5, and § 15(d) and related periodic-reporting rules.

## Issues

1. Whether *Central Bank*’s rejection of private aiding-and-abetting liability under § 10(b) bars SEC injunctive actions alleging aiding and abetting.
2. Whether the evidence supported findings that Fehn aided and abetted violations of § 10(b), § 15(d), and related rules by drafting, editing, and filing misleading Form 10‑Qs.
3. Whether the district court abused its discretion by entering a permanent injunction against future aiding and abetting of securities-law violations.

## Decision

- The Ninth Circuit affirmed the judgment and permanent injunction.
- The court held that PSLRA § 104 expressly authorizes SEC injunctive actions for aiding and abetting, foreclosing extension of *Central Bank* to bar the SEC’s claim.
- The court upheld the finding that Fehn provided substantial assistance by participating in preparation and filing of periodic reports containing material misstatements and omissions, with at least reckless awareness of their misleading nature.
- The court held the permanent injunction was not an abuse of discretion given the seriousness and repetition of the misconduct and the reasonable likelihood of future violations.

## Legal Principles

- PSLRA § 104 authorizes the SEC to seek injunctive relief against persons who aid and abet specified securities-law violations; *Central Bank* does not eliminate the SEC’s aiding-and-abetting enforcement authority in such actions.
- Aiding-and-abetting liability in SEC enforcement may be established where a defendant substantially assists a primary violation and does so with knowledge or recklessness regarding the underlying misstatements or omissions.
- An attorney may be liable for aiding and abetting when the attorney drafts, edits, or submits Exchange Act reports that the attorney knows, or is reckless in not knowing, are materially false or misleading.
- Permanent injunctions in SEC actions are reviewed for abuse of discretion and may issue where the record supports a reasonable likelihood of future violations and the remedy serves the public interest in truthful disclosure.

## Conclusion

The Ninth Circuit held that Congress, through PSLRA § 104, preserved the SEC’s power to pursue aiding-and-abetting theories for injunctive relief, and it affirmed findings that a securities attorney aided and abetted antifraud and reporting violations by helping prepare and file misleading periodic reports, justifying a permanent injunction.


SEC v. Fehn, 97 F.3d 1276 (9th Cir. 1996), cert. denied, 522 U.S. 813 (1997)