FILED
`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 1
`United States Court of Appeals
`Tenth Circuit
`April 26, 2022
`Christopher M. Wolpert
`UNITED STATES COURT OF APPEALS
`Clerk of Court
`
`PUBLISH
`
`TENTH CIRCUIT
`
`SECURITIES AND EXCHANGE
`COMMISSION,
`
`Plaintiff - Appellee,
`
`v.
`
`GENAUDIO INC.,
`
`Defendant - Appellant,
`
`and
`
`TAJ JERRY MAHABUB,
`
`Defendant.
`_________________________________
`
`SECURITIES AND EXCHANGE
`COMMISSION,
`
`Plaintiff - Appellee,
`
`v.
`
`TAJ JERRY MAHABUB,
`
`Defendant - Appellant,
`
`and
`
`GENAUDIO INC.,
`
`Defendant.
`
`No. 19-1454
`
`No. 19-1455
`
`

`

`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 2
`
`Appeals from the United States District Court
`for the District of Colorado
`(D.C. No. 1:15-CV-02118-WJM-SKC)
`
`David J. Aveni, Wilson Elser Moskowitz Edelman & Dicker LLP, San Diego,
`California, for Defendant-Appellant GenAudio, Inc.
`
`Andrew Bryan Holmes, Holmes, Taylor, Cowan & Jones, Los Angeles, California
`(David J. Aveni, Wilson Elser Moskowitz Edelman & Dicker LLP, San Diego,
`California, on the briefs), for Defendant-Appellant Taj Jerry Mahabub.
`
`Emily True Parise, Senior Counsel (Robert B. Stebbins, General Counsel and
`John W. Avery, Deputy Solicitor, with her on the brief), Securities and Exchange
`Commission, Washington, D.C., for Plaintiff-Appellee.
`
`Before HOLMES, KELLY, and CARSON, Circuit Judges.
`
`HOLMES, Circuit Judge.
`
`Taj Jerry Mahabub, founder and Chief Executive Officer (“CEO”) of
`
`GenAudio, Inc. (“GenAudio”)—whom we collectively refer to as
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`“Appellants”—attempted to secure a software licensing deal with a well-known
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`technology company, Apple, Inc. (“Apple”). It was Mr. Mahabub’s goal to
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`integrate GenAudio’s three-dimensional audio software—AstoundSound—into
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`Apple’s products. While Appellants were pursuing that collaboration, the
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`Securities and Exchange Commission (“SEC”) commenced an investigation into
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`Mr. Mahabub’s conduct. Mr. Mahabub was suspected of defrauding investors by
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 3
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`fabricating statements about Apple’s interest in GenAudio’s software and
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`violating registration provisions of the securities laws in connection with sales of
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`GenAudio securities.
`
`Granting summary judgment for the SEC, the district court found that Mr.
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`Mahabub defrauded investors and violated the securities laws. The court
`
`determined that Appellants were liable for knowingly or recklessly making six
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`fraudulent misstatements in connection with two offerings of GenAudio’s
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`securities in violation of the antifraud provisions of the securities laws—that is,
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`SEC Rule 10b-5 and § 10(b) of the Exchange Act.1 As to one of those statements,
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`the court also determined that Appellants violated § 17(a)(2) of the Securities
`
`Act, which also proscribes the making of certain misstatements. In addition, the
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`district court granted summary judgment in favor of the SEC on its claims that
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`GenAudio and Mr. Mahabub violated §§ 5(a) and 5(c) of the Securities Act,
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`which prohibit the offer or sale of unregistered securities. As a remedy for these
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`violations, the court ordered disgorgement of Appellants’ proceeds and imposed
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`civil penalties.
`
`Appellants now appeal from the district court’s decision, raising three
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`overarching issues before us. First, Appellants assert that the district court erred
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`in finding them liable for the six fraudulent misstatements under the securities
`
`Rule 10b-5 is coextensive in its substantive coverage with that of
`1
`§ 10(b). See, e.g., SEC v. Smart, 678 F.3d 850, 856 n.7 (10th Cir. 2012).
`
`3
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 4
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`laws. Generally, Appellants explain that Mr. Mahabub’s statements to actual and
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`potential shareholders were informed by a reasonable belief regarding Apple’s
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`interest in acquiring GenAudio’s proprietary technology. Second, Appellants
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`contend that the district court erred in concluding GenAudio did not qualify for
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`two exemptions allowing its sale of unregistered securities—specifically, the
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`private-offering exemption under § 4(a)(2) of the Securities Act, and the Rule 506
`
`safe-harbor exemption of the SEC’s Regulation D. Third, Appellants challenge
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`the district court’s legal authority to impose a disgorgement order and the court’s
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`computation of the disgorgement amounts, as well as the civil penalties that the
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`court imposed on them. Exercising jurisdiction under 28 U.S.C. § 1291, we reject
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`all of Appellants’ arguments and affirm the district court’s judgment.
`
`I A
`
`Mr. Mahabub founded GenAudio in 2003 and served as its CEO and
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`Chairman of the Board from 2009 to 2012. GenAudio is a Colorado corporation
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`headquartered in Centennial, Colorado, that develops and markets software.
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`GenAudio created a “three-dimensional audio” technology, which it calls
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`AstoundSound. AstoundSound is a software-based system for processing normal
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`stereo audio to give it a “three-dimensional” effect—as if the sound is coming
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`from some other place, such as behind the listener or from far away.
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`GenAudio primarily financed itself through selling debt and equity
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`securities in private offerings, but it consistently had funding issues. To bolster
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`funding, GenAudio asked Jim Wei-Kung Mattos, a GenAudio employee, to raise
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`money, which he did, devoting much of his time to the task.
`
`In late 2006, GenAudio commenced discussions with Apple regarding
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`AstoundSound. GenAudio’s goal throughout “was to reach a licensing agreement
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`or [arrange for the] acquisition of GenAudio’s technology” so Apple could
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`integrate AstoundSound into its consumer products. Aplts.’ App., Vol. VI, at
`
`1493, ¶ 126 (Def. GenAudio’s Resp. to SEC’s Revised Mot. for Summ. J., filed
`
`Mar. 30, 2018). With this end in mind, GenAudio had talks with two separate
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`product divisions within Apple: (1) the handheld-devices division which
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`encompassed iPhones, iPods, and iPads, and (2) the Macintosh or “Mac” division.
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`On July 1, 2009, Mr. Mahabub signed Apple’s standard non-disclosure
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`agreement (“NDA”) on behalf of GenAudio. Mr. Mahabub’s primary point of
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`contact in Apple’s handheld-devices division was Victor Tiscareno, a senior audio
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`and acoustics engineer. Mr. Mahabub also met and communicated with Michael
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`Hailey, a product-market manager for the iPod, iPhone, and iPad product lines, as
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`well as Ronald Issac, a signal-processing engineer and acoustician technologist.
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`Mr. Issac was Mr. Mahabub’s point of contact in the Mac division.
`
`As talks between GenAudio and Apple continued between August 2009 and
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`February 2010, Mr. Mahabub periodically would forward to the GenAudio
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 6
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`Team—that is, the Board, employees, and contractors—email communications
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`between himself and his Apple contacts. However, Mr. Mahabub would alter the
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`original versions of these emails, so as to falsely indicate, for instance, that (1) he
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`was meeting with upper-level Apple personnel—such as Phil Schiller, Apple’s
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`senior vice president of worldwide marketing, and Tim Cook, Apple’s chief
`
`operating officer (“COO”); (2) Apple’s then-CEO Steve Jobs was being appraised
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`of GenAudio’s discussions with Apple; (3) Mr. Mahabub was scheduled to meet
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`with Mr. Jobs personally; (4) progress towards a deal with Apple had generally
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`been swift; and (5) Mr. Schiller was targeting a late 2010 rollout of
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`GenAudio-enhanced Apple products. In short, these altered emails did not reflect
`
`the reality of GenAudio’s dealings with Apple: in particular, Mr. Mahabub had
`
`not met with—and would never meet with—Mr. Jobs, Mr. Cook, or Mr. Schiller,
`
`and Apple employees never brought GenAudio to Mr. Jobs’s attention.
`
`On September 25, 2009, around the same time that Mr. Mahabub had
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`forwarded the first set of altered emails, he told the GenAudio Board that a deal
`
`with Apple was highly probable. Mr. Mahabub also hired an intellectual-property
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`(“IP”) valuation specialist to value GenAudio’s technology under several different
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`scenarios in anticipation of negotiations with Apple over a licensing agreement or
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`the acquisition of GenAudio’s technology.
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`Furthermore, Mr. Mattos, GenAudio’s fundraiser, sent an email to
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`GenAudio’s investors that Mr. Mahabub authored and signed. That email—sent
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`on November 9, 2009—informed them that “nothing is assured yet, but as
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`shareholders you should be aware that there is a strong possibility that the
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`Company may be acquired within the next 6 months in light of our extensive
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`discussions with a global industry leader in consumer electronics.” Id., Vol. IV,
`
`at 951 (Mattos Email, dated Nov. 9, 2009). A few days later one of the recipients
`
`of this email replied to Mr. Mattos with a list of investors, and each of the listed
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`investors purchased GenAudio’s shares soon afterward.
`
`However, Mr. Mahabub’s excitement about the potential partnership was
`
`not shared during roughly the same time period by his counterparts in Apple. On
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`September 1, 2009, for instance, Mr. Mahabub emailed Mr. Isaac, his primary
`
`contact in Apple’s Mac division, writing “I hope we can get this done on the fast
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`track—potentially for inclusion in Apple’s X-Mas product rollout strategy?” Id.,
`
`Vol. VII, at 1745 (Mahabub Email, dated Sept. 1, 2009). Apparently, Mr. Isaac
`
`neither read this portion of Mr. Mahabub’s email, nor did he respond to it. And,
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`on November 28, 2009—around a couple of weeks after Mr. Mattos sent out his
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`November 9 email at Mr. Mahabub’s behest—Mr. Mahabub sent Mr. Tiscareno
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`and Mr. Hailey a lengthy email extolling the potential for an Apple-GenAudio
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`partnership, suggesting that Apple’s IP lawyers begin examining GenAudio’s
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`patents, and stating that “we hope that Apple becomes happy with us once the
`
`deal is inked and the initial products from Apple incorporating AstoundSound . . .
`
`7
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 8
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`are brought to market.” Id., Vol. IV, at 1061 (Mahabub Email, dated Nov. 28,
`
`2009).
`
`Yet, significantly, Mr. Hailey responded on December 16, 2009, clarifying
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`the deal was “not something we can execute overnight.” Id. at 1058 (Hailey
`
`Email, dated Dec. 16, 2009). Critically, Mr. Hailey explained that “[t]he business
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`side of things would come into play after we have exec buy-in on the product
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`side.” Id. (emphasis added). And in a subsequent email sent on January 5, 2010,
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`Mr. Hailey further noted that although Apple was “pretty serious about looking at
`
`audio quality across the board,” the partnership “will take time—definitely more
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`than a couple of months.” Id. at 1067–68 (Hailey Email, dated Jan. 5, 2010)
`
`(emphasis added).
`
`These Apple communications, however, did not temper Mr. Mahabub’s
`
`actions. On February 12, 2010, Mr. Mahabub forwarded an email to the
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`GenAudio Board that contained actual communications between Mr. Tiscareno
`
`and Mr. Mahabub regarding the testing of GenAudio’s technology in the newest
`
`iPad model. But Mr. Mahabub added several fabricated sentences to the original
`
`email, including a line in which Mr. Tiscareno purports to say that he and Mr.
`
`Hailey “are both confident that we can get this ok’d by the big man if we play our
`
`cards right.” Id. at 1071–72 (Mahabub Email Forwarding Altered Tiscareno
`
`Email, dated Feb. 12, 2010). In the same fabricated email, Mr. Mahabub altered
`
`Mr. Tiscareno’s communications to describe AstoundSound as “the project [Mr.
`
`8
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 9
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`Schiller] discussed for Christmas product rollout with you.” Id. at 1072. Mr.
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`Mahabub also falsely told the GenAudio Board he had a “[g]reat meeting with
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`[Mr.] Schiller yesterday” who was targeting a “Christmas rollout” and had also
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`“requested to see a copy of the [GenAudio] valuation report ASAP.” Id. at 1071.
`
`Later that same day, GenAudio held a board meeting. After Mr. Mahabub
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`summarized the purported discussions with Apple, the Board agreed that
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`GenAudio should prepare a new stock offering and directed Mr. Mahabub to
`
`prepare a draft private-placement memorandum (“PPM”) for the GenAudio
`
`Board’s review.
`
`The Board formally approved the offering on March 5, 2010 (the “2010
`
`Offering”). Five days later, on March 10, 2010, Mr. Mahabub emailed fifteen of
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`GenAudio’s shareholders the company’s valuation report, announcing that
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`GenAudio would include that report in the 2010 Offering materials and the 2010
`
`Offering would “go live on March 15, 2010.” Id., Vol. V, at 1108 (Mahabub
`
`Email to Shareholders, dated Mar. 10, 2010). Mr. Mahabub gave these investors
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`an opportunity—ahead of the formal offering—to buy up to 250,000 of Mr.
`
`Mahabub’s own GenAudio shares at fifty cents per share. In that same email, he
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`explained the purchase would be a bargain compared to the $3.00-per-share price
`
`intended for the 2010 Offering. Mr. Mahabub also then stated that GenAudio was
`
`“starting to discuss the business side with [Apple], and I expect to have a very
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`substantial license deal in place for their Christmas Product Rollout.” Id. at 1109.
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`9
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 10
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`The 2010 Offering included a PPM with a cover letter, dated March 15,
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`2010, that Mr. Mahabub had signed. The cover letter was aimed specifically at
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`current GenAudio shareholders “to keep [them] apprised of current
`
`developments.” Id. at 1120 (PPM Cover Letter, signed Mar. 15, 2010). In that
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`letter, Mr. Mahabub represented, among other things, that the 2010 Offering was
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`being conducted to provide “bridge capital” until GenAudio could “ink” a deal
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`with the “LCEC.”2 Id. That letter also represented that GenAudio, up to that
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`point, had met with Apple marketing and technical management more than fifteen
`
`times, and would “start the actual embedded level integration process within the
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`next 30 days”—i.e., presumably speaking of the integration of GenAudio’s
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`technology into Apple’s products. Id.
`
`The 2010 Offering lasted through August 31, 2010. GenAudio did not file
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`a registration statement for the 2010 Offering, nor did it provide an audited
`
`balance sheet to any potential investors. Regardless, the 2010 Offering yielded
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`$3.513 million from sales of 1.171 million common shares.
`
`Around a month after the start of the 2010 Offering, in April 2010, Mr.
`
`Mahabub learned of an important “upcoming” internal meeting at Apple regarding
`
`GenAudio’s technology. This was the meeting where the “buy-in” from an Apple
`
`“exec” conceivably could be secured. Mr. Mahabub understood that if an
`
`The email refers to Apple as the “LCEC”—or Large Consumer
`2
`Electronics Company—and neither party disputes that GenAudio’s investors
`generally understood that the term “LCEC” referred to Apple.
`
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`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 11
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`executive “did not give a ‘green light’ to continue with GenAudio, then
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`discussions between GenAudio and Apple’s [handheld-devices] division . . .
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`would end.” Id., Vol. VI, at 1498–99, ¶ 151.
`
`In the run-up to this crucial meeting, Mr. Tiscareno emailed Mr. Mahabub
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`about the delivery of certain demonstration hardware—concluding with the
`
`following statement, “[n]o rush at the moment” because they “[do not] have a
`
`meeting date or time yet.” Id., Vol. V, at 1233 (Tiscareno Email, dated Apr. 7,
`
`2010). Mr. Mahabub responded, and also forwarded an altered version of the
`
`correspondence to the GenAudio Team. Among other things, Mr. Mahabub
`
`deleted from Mr. Tiscareno’s email the portion about not having a meeting date or
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`time, and inserted the fabricated sentence, “Phil [Schiller] let us know earlier that
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`this [meeting] might be postponed until early next week. Apparently Steve [Jobs]
`
`is planning on going out of town with his family for the weekend.” Id. at
`
`1225–26 (Mahabub Email Forwarding Altered Tiscareno Email, dated Apr. 8,
`
`2010). To his own forwarded response, Mr. Mahabub included a line indicating
`
`that the fictitious postponement “might be better given that Steve will be relaxed
`
`from having a weekend getaway with his family.” Id.
`
`At some point in April 2010, Mr. Mahabub learned that the specific date of
`
`the “exec buy-in” meeting would be sometime the following month. On April 30,
`
`2010, while attending a conference for investment bankers and broker-dealers,
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`Mr. Mahabub sent at least one investor an email announcing that the LCEC was
`
`11
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`“looking to acquire GenAudio’s tech for integration into their entire lineup of
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`product offerings . . . and we are now waiting [for the time] when we will initiate
`
`negotiations, pending the CEO[’s] [approval of] the integrated product rollout
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`strategy and the technical implementation strategy that will be presented to the
`
`CEO next week!!!” Id. at 1239 (Mahabub Email, dated Apr. 30, 2010).3 The
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`email prompted the investor to purchase 5,000 shares for a total of $15,000.
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`Again, however, Mr. Mahabub’s enthusiasm did not mirror the reality of
`
`GenAudio’s dealing with Apple. On May 5, 2010, Mr. Mahabub emailed Mr.
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`Tiscareno, offering to fly to Apple headquarters to attend the “exec buy-in”
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`meeting and to coach Mr. Tiscareno on how best to present AstoundSound. Mr.
`
`Tiscareno replied:
`
`Thanks for your offer to help us, but this is not that kind of
`demo. Michael [Hailey] and I are pitching this as a concept, and
`our proof of concept is what you developed for us. I think the
`demo and the product will speak for itself. Once we get the go
`ahead that this is a great idea, then the questions will be,
`“[W]ell, what about the other technologies, have we reviewed
`
`Mr. Mahabub subsequently contended that his reference to Apple’s
`3
`CEO—Steve Jobs—in connection with this meeting was the product of a
`reasonable misunderstanding: Mr. Tiscareno communicated with him about a
`high-ranking Apple official attending the meeting, Greg Joswiak, who went by the
`nickname, “Joz” (pronounced “Jaws”), and because he “didn’t know” that person
`and “had never heard” his name, he “understood” Mr. Tiscareno’s reference to
`“mean Steve Jobs.” Aplts.’ App., Vol. IX, at 2050, ¶ 24 (Decl. of Taj Jerry
`Mahabub); see id. at 2040 n.19 (Def. Mahabub’s Opp’n to Pl.’s Rev. Mot. for
`Summ. J., filed Mar. 30, 2018) (“[Mr.] Mahabub reasonably understood [Mr.]
`Tiscareno to be referring to ‘Jobs’—Steve Jobs. As such, if there was a mistake
`about whether it was ‘Jaws’ or ‘Jobs’, it was an honest mistake.” (citation
`omitted)).
`
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`them? etc[.]” Then we sort of start over internally to prove that
`we know what we are talking about, etc. We have to get to first
`base[.]
`
`Id. at 1222 (Tiscareno Email, dated May 5, 2010) (emphases added).
`
`That same day, May 5, 2010, the “exec buy-in” meeting took place, with
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`Mr. Tiscareno, Mr. Hailey, and Greg Joswiak, an Apple executive, in attendance.
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`Mr. Joswiak “agreed that there was value in exploring ways to enhance the
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`listening experience for people using iPods and iPhones.” Id., Vol. VII, at 1711
`
`(Michael Hailey Dep. Tr., dated Jan. 23, 2017).
`
`A day after the “exec buy-in” meeting, on May 6, 2010, Mr. Mahabub sent
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`an email to the GenAudio Team and others with a purported transcript of a phone
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`call he had supposedly just had with Mr. Tiscareno. Both the phone call itself
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`and the transcript were fabrications. According to the fake transcript, Mr.
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`Tiscareno reported to Mr. Mahabub that “the meeting could not have gone any
`
`better.” Id., Vol. IV, at 935 (Mahabub Email, dated May 6, 2010). Moreover,
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`“Steve thought the technology was so extraordinary,” but “it will take a lot of
`
`time before you and Apple get to the business side.” Id. at 935–36. This was
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`supposedly because Mr. Jobs believed the upcoming release of a new operating
`
`system version for iPhones and iPads already had many new features and
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`AstoundSound “is too good to be rolled in to a giant pool of other features.” Id.
`
`at 936. The fake transcript further noted that Mr. Tiscareno “believe[d] [Mr.
`
`Jobs] wants to explode this technology into the world, and he stated he needs
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`some time to figure out the plan and when to launch this.” Id. And in the
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`meantime, Mr. Jobs had “instructed all of us to be in a no radio period.”4 Id.
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`A couple of months later, on August 1, 2010, GenAudio sent investors a
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`letter, signed by Mr. Mahabub, that purported to report on various business
`
`developments. The letter claimed, in relevant part, that:
`
`In the very near future, it has been requested by the LCEC’s CEO
`to have a “hand-shake” meeting with myself alongside meeting
`with the LCEC’s expert in acoustic physics and others. This
`meeting will take place within the next couple of weeks. As you
`all may already know, due to our NDA with the LCEC, I am not
`at liberty to talk about any details. I can say that we are still
`moving forward with confidence and plan on carrying it through
`all the way to the end, which could result in a significant revenue
`generating license deal or the potential for acquisition of the
`technology or the company.
`
`Id., Vol. V, at 1313 (Mahabub Letter to Shareholders, dated Aug. 1, 2010).
`
`On September 23, 2010, Mr. Mahabub met with Andrew Bright, an Apple
`
`employee with a Ph.D. in acoustics—along with Mr. Tiscareno and another Apple
`
`employee. That meeting had been previously set up by Mr. Tiscareno to happen
`
`on July 7, 2010, but it was delayed until September. Mr. Mahabub had altered
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`Mr. Tiscareno’s email scheduling the ultimately postponed July meeting to state
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`that the meeting with Mr. Bright was “requested by Steve himself” and that
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`When Dell Skluzak, one of GenAudio’s prospective investors around
`4
`that time, reached out to Mr. Tiscareno on October 30, 2013, to gather any
`comments he might have on the purported transcript, Mr. Tiscareno wrote that
`Mr. Mahabub’s transcript “is pure fabrication.” Aplts.’ App., Vol. IV, at 934
`(Tiscareno Email, dated Oct. 30, 2013).
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`“Steve would like to have an initial introduction to you during this meeting, just a
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`simple handshake meeting with him.” Id. at 1304 (Mahabub Email Forwarding
`
`Altered Tiscareno Email, dated Jul. 2, 2010). However, the September meeting
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`did not go well due to an argument between Mr. Mahabub and Mr. Bright. The
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`record does not reveal the nature of the argument, however. Nevertheless,
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`Apple’s employees continued to interact with GenAudio in the ensuing
`
`months—although the SEC claims that none of the work of the two companies
`
`together during this period was “substantive.” See id., Vol. II, at 368, ¶ 96 (Pl.’s
`
`Rev. Mot. for Summ. J., filed Feb. 16, 2018).
`
`On December 8, 2010, GenAudio sent investors another letter signed by
`
`Mr. Mahabub. Among other developments, Mr. Mahabub described ongoing
`
`communications with Apple, and falsely claimed he “met with their CEO and
`
`gave him a demo of our technology, and he [i.e., the CEO] stated, ‘I really like
`
`your technology and look forward to seeing you again in the future.’” Id., Vol. V,
`
`at 1336 (Mahabub Letter to Shareholders, dated Dec. 8, 2010). Mr. Mahabub told
`
`them further: “Although they are moving very slow, we are still on [Apple’s]
`
`radar screen, and remain very optimistic for a deal in the second or third quarter
`
`of 2011.” Id.
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`But the new year did not usher in further significant developments in
`
`GenAudio’s quest for some sort of business venture with Apple. In mid-March
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`2011, Mr. Mahabub sent an email to Mr. Isaac to request broken
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`iMacs—specifically, an iMac “with a bad screen or some form of prototype that
`
`has bad parts in it”—to create a demonstration of AstoundSound. Aplts.’ App.,
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`Vol. VII, at 1702 (Mahabub Email, dated Mar. 23, 2011). Mr. Isaac replied that
`
`Mr. Mahabub should work with another Apple employee copied on the email “to
`
`sign all the necessary evaluation agreements.” Id. (Isaac Email, dated Mar. 23,
`
`2011). The record does not show whether Mr. Mahabub sought details on the
`
`nature or requirements of such evaluation agreements. Nevertheless, on March
`
`29, 2011, Mr. Mattos sent an email to GenAudio’s investors from Mr. Mahabub
`
`claiming that:
`
`[Apple and GenAudio are] going to be signing a new set of
`“evaluation and development” agreements. This will completely
`prohibit myself or any of GenAudio’s team members [from]
`disclos[ing] any further information about the LCEC, including
`even
`the abbreviation LCEC
`in any future shareholder
`correspondence. . . . After I sign the new development and
`evaluation agreements, this email would be considered a breach
`of the new agreement(s). This could damage our ability to move
`forward with the LCEC for obvious reasons. Believe me when I
`tell all of you that I wish I could disclose what is going on,
`however, the fact of the matter is I cannot.
`
`Id., Vol. VI, at 1387 (Mattos Email to Shareholders, dated Mar. 29, 2011)
`
`(emphasis added). GenAudio never signed any evaluation agreements or any
`
`additional NDAs. And GenAudio never commenced its desired business venture
`
`with Apple. On Apple’s side, “interest in GenAudio’s technology slowly fizzled
`
`out over time.” Id. at 1505, ¶ 182. However, no one “explained to [Mr.]
`
`Mahabub that interest in GenAudio’s technology had fizzled out and that” Apple,
`
`16
`
`

`

`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 17
`
`specifically its Mac Division, “would not be continuing to move forward with
`
`GenAudio.” Id. at ¶ 183.
`
`Despite the absence of significant progress in its dealings with Apple,
`
`GenAudio solicited equity investment (the “2011 Offering”) beginning April 2011
`
`and continuing through April 2012. Similar to the 2010 Offering, GenAudio did
`
`not file a registration statement for the 2011 Offering. GenAudio also did not
`
`provide an audited balance sheet to any prospective investors. Nevertheless, the
`
`2011 Offering still yielded $990,000.
`
`In addition to GenAudio’s two offerings, Mr. Mahabub also sold his
`
`personal GenAudio shares to investors. No registration statement was filed or
`
`otherwise in effect as to these sales. Mr. Mahabub’s sale of his personal shares
`
`between November 2009 and April 2012 yielded a total of approximately $2.6
`
`million from at least 85 investors.
`
`B
`
`In September 2015, the SEC filed its complaint, alleging that GenAudio
`
`and Mr. Mahabub violated antifraud provisions of the federal securities laws,
`
`specifically § 10(b) of the Exchange Act (15 U.S.C. § 78j(b)), Rule 10b-5 (17
`
`C.F.R. § 240.10b-5), and § 17(a) of the Securities Act (15 U.S.C. § 77q(a)). The
`
`SEC also alleged that GenAudio sold unregistered securities in violation of
`
`§§ 5(a) and (c) of the Securities Act (15 U.S.C. §§ 77e(a), 77e(c)). After
`
`discovery, the SEC moved for summary judgment on all of its claims.
`
`17
`
`

`

`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 18
`
`The district court denied the SEC’s original summary judgment motion, and
`
`the SEC submitted a revised motion for summary judgment. The district court
`
`ultimately granted summary judgment as to this motion on a subset of the SEC’s
`
`claims, and denied summary judgment on the rest. The district court identified
`
`six statements as to which “their liability-creating character is beyond reasonable
`
`dispute” and granted summary judgment against GenAudio and Mr. Mahabub for
`
`violating § 10(b) and Rule 10b-5. SEC v. Mahabub, 343 F. Supp. 3d 1022,
`
`1043–44 (D. Colo. 2018). The district court first summarized five of these
`
`statements from 2010, and why it deemed them to create liability under § 10(b)
`
`and Rule 10b-5:
`
`•
`
`•
`
`[Mr.] Mahabub’s March 10, 2010 e-mail to GenAudio
`shareholders where he claimed that GenAudio was
`“starting to discuss the business side with the LCEC,”
`which investors generally understood to be a reference to
`Apple.[5] [Mr.] Mahabub knew from [Mr.] Hailey’s
`December 16, 2009 e-mail that “[t]he business side of
`things would come into play after [Apple’s engineers
`obtained] exec buy-in on the product side.”[6] [Mr.]
`Mahabub further knew that “exec-buy-in” had not yet
`happened. Consequently, this claim regarding “business
`side” discussions with Apple was knowingly false.
`
`[Mr.] Mahabub’s statement in the same March 10, 2010
`e-mail that he “expect[ed] to have a very substantial
`license deal in place for [the LCEC’s] Christmas Product
`
`5
`
`6
`
`See Aplts.’ App., Vol. V, at 1109; id., Vol. II, at 357, ¶ 41.
`
`See Aplts.’ App., Vol. IV, at 1058.
`
`18
`
`

`

`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 19
`
`Rollout.”[7] This statement is merely an extension of [Mr.]
`Mahabub’s fabrication in a February 12, 2010 forwarded
`e-mail to the GenAudio board in which [Mr.] Mahabub
`altered [Mr.] Tiscareno’s words to make it appear that
`[Mr.] Mahabub had recently discussed a “Christmas
`product rollout” with Phil Schiller.[8] Thus, in his March
`10, 2010 e-mail to shareholders, [Mr.] Mahabub had no
`truthful basis to make a Christmas product rollout
`prediction. Couching the statement in terms of an
`expectation, rather than a certainty, does not take it out of
`the realm of falsity: “[C]autionary language does not
`protect material misrepresentations or omissions when
`defendants knew they were false when made.”[9]
`
`letter
`[Mr.] Mahabub’s March 15, 2010 cover
`accompanying the 2010 Offering materials, which stated
`that the offering was “being conducted to provide bridge
`capital until we can ‘ink’ a deal with . . . the ‘LCEC.’”[10]
` [Mr.] Mahabub had no reasonable basis to expect that a
`deal with Apple was imminent enough that the 2010
`Offering could be “bridge capital.”
`
`[Mr.] Mahabub’s April 30, 2010 e-mail to an investor
`stating that the LCEC was “looking to acquire GenAudio’s
`tech for integration into their entire lineup of product
`offerings . . . and we are now waiting [for the time] when
`we will
`initiate negotiations, pending
`the CEO[’s]
`[approval of] the integrated product rollout strategy and
`the
`technical
`implementation strategy
`that will be
`
`•
`
`•
`
`7
`
`8
`
`See Aplts.’ App., Vol. V, at 1109.
`
`See Aplts.’ App., Vol. IV, at 1070–73.
`
`In re Prudential Sec. Inc. Ltd. P’ships Litig., 930 F. Supp. 68, 72
`9
`(S.D.N.Y. 1996).
`
`10
`
`See Aplts.’ App., Vol. V, at 1120.
`
`19
`
`

`

`Appellate Case: 19-1454 Document: 010110675766 Date Filed: 04/26/2022 Page: 20
`
`presented to the CEO next week!!!”[11] The Court may
`assume without deciding
`that
`the “Jobs”/“Joz”
`misunderstanding (a) actually happened and (b) created a
`mistaken but
`reasonable misimpression
`in
`[Mr.]
`Mahabub’s mind about the attendees at the upcoming
`“exec buy-in” meeting.[12] Even so, [Mr.] Mahabub had no
`reasonable basis to claim that the upcoming meeting would
`encompass an “integrated product rollout strategy and [a]
`technical implementation strategy.”
`
`•
`
`[Mr.] Mahabub’s August 1, 2010 investor letter claiming
`that Steve Jobs had requested “a ‘hand-shake’ meeting”
`with [Mr.] Mahabub “[i]n the very near future.”[13] This
`was a blatant lie.
`
`Id. (alterations, with the exception of those involving honorifics, in original)
`
`(footnotes added) (citations omitted).
`
`Aside from those five 2010 statements, the district court also found that
`
`Mr. Mahabub’s March 29, 2011, email to shareholders stating that he would sign
`
`“evaluation agreements” with Apple “teased shareholders,” indicating “that these
`
`new agreements would completely prohibit mentioning the LCEC in future
`
`correspondence, including the upcoming 2011 Offering.” Id. at 1044–45. “For
`
`good measure,” the district court narrated, Mr. Mahabub told the shareholders,
`
`“[b]elieve me when I tell all of you that I wish I could disclose what is going on,
`
`11
`
`See Aplts.’ App., Vol. V, at 1239.
`
`The SEC claims that no one told Mr. Mahabub that the “exec buy-in
`12
`meeting” would include Apple’s CEO, Mr. Jobs. Mr. Mahabub counters