## Facts

- Robert Genovese owned millions of shares of Liberty Silver Corporation (Liberty), representing more than one percent of Liberty’s outstanding stock.
- Liberty issued the shares, which were unregistered securities, and the shares were held by an investment company.
- After Genovese had held the shares for more than six months but less than one year, Abraham Mirman—a broker-dealer and underwriter—assisted Genovese in selling the shares publicly.
- The public sales occurred within a three-month period and were made without an effective registration statement for the securities.
- The Securities and Exchange Commission (SEC) concluded that the sales violated § 5 of the Securities Act of 1933, which generally prohibits public sales of unregistered securities unless an exemption applies.
- Genovese and Mirman contended that SEC Rule 144 provided an exemption from § 5 for the resales.
- The SEC moved for summary judgment, arguing Rule 144 did not apply because Liberty was not a “reporting company,” so Rule 144 required a one-year holding period, which Genovese did not satisfy.
- Mirman argued Liberty was a reporting company, making the applicable Rule 144 holding period six months, which Genovese had satisfied.

## Issues

1. Whether Liberty qualified as a “reporting company” for purposes of Rule 144, such that Genovese’s holding period for the Liberty shares could be six months rather than one year.
2. Whether, given Liberty’s reporting status and Genovese’s holding period, Rule 144 exempted the public resale of the unregistered Liberty shares from Securities Act § 5.
3. Whether the SEC was entitled to summary judgment on its § 5 claim based on the undisputed facts concerning the unregistered public sales.

## Decision

- The court granted the SEC’s motion for summary judgment.
- The court determined that Rule 144 did not provide an exemption for the challenged resales because the Rule’s conditions were not satisfied.
- The court accepted the SEC’s position that Liberty was not a reporting company for Rule 144 purposes, so Genovese was required to have held the securities for at least one year.
- Because Genovese had held the shares for longer than six months but less than one year, the court concluded the Rule 144 holding-period condition was not met.
- As a result, the public sales of the unregistered Liberty shares proceeded without a valid registration statement or exemption and therefore violated Securities Act § 5.

## Legal Principles

- Securities Act § 5 generally prohibits offering or selling securities through interstate commerce unless a registration statement is in effect or the transaction is exempt.
- Once the SEC shows an unregistered offer or sale, the defendant bears the burden of proving an exemption from § 5.
- SEC Rule 144 provides a nonexclusive safe harbor for resales of restricted and control securities, but only if all applicable conditions are met.
- Under Rule 144, the required holding period depends on whether the issuer is a reporting company; for a nonreporting issuer, the holding period is longer than for a reporting issuer.
- A broker-dealer’s participation in a public distribution can trigger § 5 concerns, and the availability of Rule 144 turns on objective conditions such as issuer status and the seller’s holding period.
- Summary judgment is appropriate when the material facts are undisputed and the moving party is entitled to judgment as a matter of law.

## Conclusion

The court held that Genovese’s public resales of unregistered Liberty shares, arranged with the assistance of broker-dealer Mirman, were not protected by Rule 144 because Liberty was not a reporting company and Genovese had not met the one-year holding-period requirement; the court therefore granted summary judgment to the SEC on its Securities Act § 5 claim.


SEC v. Genovese, 2021 U.S. Dist. LEXIS 58323 (2021)