from the United States District Court for the Eastern
District of Texas
STEWART, Chief Judge, and KING and OWEN, Circuit Judges.
E. STEWART, CHIEF JUDGE.
P. Sethi sold interests in an oil and gas joint venture. He
promised investors partnerships with world-famous oil
companies and large returns. The SEC wasn't buying it-not
only did Sethi fail to register his interests as securities,
he materially misrepresented his relationships with large oil
companies. The SEC filed claims against Sethi under Section
10(b) of the Securities Exchange Act, 15 U.S.C. §
78j(b), Rule 10b-5, 17 C.F.R. § 240.10b-5, and Section
17(a) of the Securities Act, 15 U.S.C. § 77q(a). Then
the SEC filed a motion for summary judgment. The district
court granted the motion, holding that Sethi offered
securities and committed securities fraud. Sethi appeals. We
sold interests in an oil and gas drilling joint venture. He
sold these interests through his company, Sethi Petroleum,
which he founded in 2003 and manages alone. Sethi sought out
investors using a broad cold-calling campaign. With the help
of twenty salespersons, he purchased lead lists and offered
positions in his joint venture to potential investors. When a
potential investor expressed interest, Sethi would determine
whether the investor was "accredited." If so, he
would further promote the venture using two main documents: a
private placement memorandum ("PPM") and a copy of
the joint venture agreement ("JVA").
told investors that Sethi intended to raise $10 million by
selling fifty units at $200, 000 apiece. Sethi would then use
the investor funds to purchase mineral interests in an oil
and gas development in the Williston Basin in North Dakota,
South Dakota, and Montana. The PPM further specified that
Sethi would use the funds to purchase a 62.5% net working
interest in at least twenty wells, all of which would be
operated "by publicly traded and/or major oil and gas
companies," such as ExxonMobil, Hess Corporation, and
ConocoPhillips. The PPM also made clear that Sethi would not
commingle venture funds with funds from "Sethi Petroleum
or any Affiliate."
laid out the rights, duties, and obligations for the
investors and the managing venturer-Sethi Petroleum. While
the JVA purported to give the investors control over the
venture's affairs, it delegated power over the day-to-day
operations to Sethi Petroleum. The JVA also gave Sethi
Petroleum the sole power to distribute profits, execute oil
and gas agreements, hire professionals, and take and hold
property. The JVA required a majority vote of the investors
for larger actions, such as acquiring oil and gas interests.
result of his sales efforts, Sethi ended up raising over $4
million from ninety investors, which he used to purchase a
fractional working interest in eight wells from Irish Oil
& Gas, with the interests ranging from 0.15% to 2.5%.
Three different operators worked on the wells-Crescent Point
Energy U.S. Corp., Oxy USA Inc., and Slawson Exploration Co.
Six of the wells produced oil, and the operators voluntarily
cancelled two other wells.
the course of the investments, no evidence shows that a vote
or investor meeting ever occurred.
review a district court's grant of summary judgment de
novo, using the same legal standard as the district court.
Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337,
343 (5th Cir. 2007). Summary judgment is appropriate where
there is no genuine issue of material fact and the parties
are entitled to judgment as a matter of law. Id. All
reasonable inferences must be drawn in favor of the
nonmovant, but "a party cannot defeat summary judgment
with conclusory allegations, unsubstantiated assertions, or
only a scintilla of evidence." Id. (internal
quotation marks omitted).
appeal, Sethi challenges two of the district court's
decisions. First, he argues that the district court erred
when it held that interests in his drilling projects
qualified as securities. Second, he argues that the district