United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 14-2588
                         ___________________________

                                       Ben Doud

                         lllllllllllllllllllll Plaintiff - Appellee

                                            v.

          Toy Box Development Co., LLC; Michael Erickson; Michael Morse

                      lllllllllllllllllllll Defendants - Appellants
                                       ____________

                      Appeal from United States District Court
                   for the Southern District of Iowa - Des Moines
                                   ____________

                              Submitted: April 16, 2015
                               Filed: August 18, 2015
                                   ____________

Before BYE and SMITH, Circuit Judges, and SCHILTZ,1 District Judge.
                              ____________

BYE, Circuit Judge.

      Ben Doud sued Toy Box Development Company, LLC (Toy Box) alleging Toy
Box breached an investment agreement with him by releasing escrow funds to itself
before securing the necessary capital required by the agreement. Doud also claimed

      1
      The Honorable Patrick J. Schiltz, United States District Judge for the District
of Minnesota, sitting by designation.
Toy Box's conduct violated various federal and state securities laws, and breached
fiduciary duties owed to him. The district court2 granted partial summary judgment
to Doud, and then entered a final judgment in Doud's favor after the parties resolved
the issue of damages and Doud dismissed his remaining claims. Toy Box now
appeals the district court's grant of summary judgment. We affirm.

                                           I

       Toy Box is a limited liability company organized in December 2007 for the
purpose of operating storage facility sales businesses. In early 2008, Toy Box
distributed an Offering Circular to potential investors, including Doud. The
investment offer contained an "all or nothing" clause which provided that any funds
received from investors would be held in escrow, and not released to Toy Box, unless
a minimum of $500,000 in capital was deposited by December 31, 2008. If Toy Box
did not raise minimum amount of capital by the deadline, the investment offer would
terminate and Toy Box would return the unused funds to investors.

        Doud agreed to invest in the venture. In April 2008, he executed a subscription
agreement and sent Toy Box a check for $100,000. In June 2008, Toy Box amended
its offering by lowering the minimum capital requirement from $500,000 to $350,000.
Doud agreed to the amendment.

       By July 11, 2008, Toy Box had raised $200,000 in capital, which included the
$100,000 invested by Doud. Despite not having reached the $350,000 minimum
required by the amended offering, one of Toy Box's managers authorized the release
of the escrow funds to Toy Box. Three days later, Toy Box represented to investors



      2
       The Honorable John A. Jarvey, Chief Judge, United States District Court for
the Southern District of Iowa.

                                         -2-
that it had "achieved its threshold funding level and exited escrow with $425,000 in
place."

       In 2011, Toy Box suffered substantial financial losses, which it contends were
the result of the 2008 economic crisis. Doud lost his $100,000 investment. In July
2012, Doud filed suit against Toy Box alleging the company breached the investment
agreement by releasing the escrow funds before raising the minimum amount of
capital required by the offering. Doud also alleged Toy Box's conduct violated
§ 10(b) of the Securities Exchange Act (15 U.S.C. § 78j(b)), and Rules 10b-5 (17
C.F.R. § 240.10b-5) and 10b-9 (17 C.F.R. § 240.10b-9) of the Federal Securities
Exchange Commission (SEC), as well as Section 502.509(2) of the Iowa Uniform
Securities Act.

       In answers to interrogatories filed in the litigation, Toy Box admitted it
released the escrow funds to itself before receiving the minimum amount of capital
required by its offering. Doud moved for summary judgment. The district court
granted the motion in part and denied it in part. The district court found Toy Box had
breached its agreement with Doud by releasing funds held in escrow before reaching
the minimum threshold of funding required by the investment offering. The district
court further found Toy Box's conduct violated both Rules 10b-5 and 10b-9 of the
Securities Exchange Act, specifically determining Doud had established the scienter
required to find violations of the SEC's rules. The district court also rejected Toy
Box's defense that it had broken escrow in good faith upon the advice of counsel.
Finally, the district court found Toy Box's conduct violated the Iowa Uniform
Securities Act. The district court left the issue of damages for a trial, and denied
summary judgment on Doud's claim for breach of fiduciary duties.

       Following the grant of partial summary judgment, Doud asked the district court
to set his damages at $100,000 on the claims for which summary judgment had been
granted. The district court entered an order granting Doud's request. After Doud

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dismissed his remaining claims, the district court entered a final judgment in Doud's
favor. Toy Box then filed this timely appeal.

                                            II

     We review the district court's grant of summary judgment de novo. Loomis v.
Wing Enters., Inc., 

, 634 (8th Cir. 2014).

        Toy Box first contends the district court erred in granting summary judgment
on Doud's Securities Exchange Act claims. We start with Doud's Rule 10b-9 claim.
Under Section 10(b) of the Securities Exchange Act, it is "unlawful for any person
. . . [t]o use or employ, in connection with the . . . sale of any security . . . any
manipulative or deceptive device or contrivance in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors." 15 U.S.C. § 78j(b). Rule 10b-9 is one of
the rules the SEC promulgated to implement this section, which specifically addresses
the type of "all or nothing" offering at issue in this case.

      Rule 10b-9 states in relevant part:

      It shall constitute a manipulative or deception device or contrivance, as
      used in section 10(b) of the Act, for any person, directly or indirectly, in
      connection with the offer or sale of any security, to make any
      representation [t]o the effect that the security is being offered or sold on
      an "all-or-none" basis, unless the security is part of an offering or
      distribution being made on the condition that all or a specified amount
      of the consideration paid for such security will be promptly refunded to
      the purchaser unless (i) all of the securities being offered are sold at a
      specified price within a specified time, and (ii) the total amount due to
      the seller is received by him by a specified date[.]

17 C.F.R. § 240.10b-9 (internal footnote omitted).

                                          -4-
        The SEC adopted Rule 10b-9 to "ensure that those who invest in a venture
under the condition that it will not go forward unless adequately capitalized are not
at risk of losing their investment if the condition is not met." In re Nat'l P'ship Invs.
Corp., S.E.C. Release No. 7425, 

, at *4 (June 25, 1997). A violation
of Rule 10b-9 occurs when an entity's conduct consists of "improperly closing the
initial offering rather than returning the proceeds of the sales to the investors."
Howard v. S.E.C., 

, 1141 (D.C. Cir. 2004). Because Rule 10b-9 was
promulgated pursuant to Section 10(b), Doud was required to show Toy Box acted
with scienter in violating Rule 10b-9. See Aaron v. SEC, 

, 689-91
(1980). In the context of an "all or nothing" offering, "[a] knowledge of what one is
doing and the consequences of those actions suffices" to show scienter. Svalberg v.
S.E.C., 

, 184 (D.C. Cir. 1989) (quoting SEC v. Falstaff Brewing Corp.,

, 77 (D.C. Cir. 1980)).

      Here, it is undisputed Toy Box's initial and amended offerings contained "all
or nothing" provisions, and Toy Box represented the offerings as an "all or nothing"
transaction. Toy Box and its managers admitted they broke escrow before receiving
$350,000 in investor funds. Finally, after breaking escrow, Toy Box misrepresented
to investors that it had reached the minimum capital required by its offering. This
evidence is sufficient to show Toy Box violated Rule 10b-9, and acted with the
necessary scienter in doing so. See In re Nat'l P'ship Invs. Corp. 

,
at *4 (indicating scienter exists when the defendants, "each of whom was
instrumental in causing escrow to be broken for the initial phase of the offering, knew
or should have known that the final subscription did not come from a bona fide
investor").

       Toy Box acknowledges that it knew it had not received $350,000 in actual
funds, but contends it did not violate Rule 10b-9 because it had more than $350,000
in subscriptions at the time it broke escrow. But Rule 10b-9 requires sellers to have
actually received the funds prior to breaking escrow; it is not enough for the seller

                                          -5-
merely to have commitments to buy the security being sold. See Proposal to Adopt
Rule 10b-9 Under the Securities Exchange Act of 1934, S.E.C. Release No. 6864,

, at *1 (July 30, 1962) ("It is the purpose of the proposed rule to
prohibit any person from making any representation to the effect that the security is
being offered on an 'all or-none' basis unless it is clear that the amount due to the
purchaser is to be refunded to him unless all of the securities being offered are sold
and the seller receives the total amount due to him in connection with the
distribution." (emphasis added)).

       In addition, the additional subscriptions which would have vaulted Toy Box
over the $350,000 minimum even if the funds had been received were not bona fide
investments because either the Toy Box defendants themselves or their spouses or
parents had pledged the additional funding. Rule 10b-9 was specifically designed to
prohibit situations where, like here, investments are pledged through non-bona fide
nominee accounts to create the appearance that the minimum amount of capital
required by an offering has been reached. See In re: Requirements of Rules 10b-9
and 15c2-4, S.E.C. Release No. 11532, 

at *1 (July 11, 1975)
("[U]nder Rule 10b-9, an offering may not be considered 'sold' . . . unless all the
securities required to be placed are sold in bona fide transactions and are fully paid
for. It is clearly contrary to the intent and purpose of the rule to declare an offering
all sold . . . on the basis of non-bona fide sales designed to create the appearance of
a successful completion of the offering, such as purchases by the issuer through
nominee accounts or purchases by persons whom the issuer has agreed to guarantee
against loss." (emphasis added)); see also In re Nat'l P'ship, 

, at *4
(requiring funds to come from a bona fide investor).

      Based on this record, the district court properly determined the investment offer
was an "all or nothing" agreement under Rule 10b-9, and that Toy Box violated Rule
10b-9 by breaking escrow without having received $350,000 in bona fide
investments.

                                          -6-
       Moving next to Doud's Rule 10b-5 claim, the evidence he marshaled to prove
Toy Box violated Rule 10b-9 also suffices to show Toy Box violated Rule 10b-5's
more general prohibition against securities fraud and misrepresentations. See Abbott
v. Equity Grp., Inc., 

, 629 n.56 (5th Cir. 1993) (noting a violation of Rule
10b-9 "is often coterminous with" a violation of Rule 10b-5). By breaking escrow
without having received the necessary minimum funding, Toy Box knowingly
employed a manipulative or deceptive device or contrivance in connection with a sale
of security and misrepresented the circumstances under which Doud's funds would
be released from escrow. In addition, Toy Box never informed Doud of the
misrepresentation, and instead advised Doud that Toy Box had raised $425,000 when
it knew that statement was false. Finally, Doud eventually lost his investment
because Toy Box was not adequately capitalized. For the reasons stated by the
district court, we agree this conduct justified granting summary judgment on Doud's
Rule 10b-5 claim. See Ferris, Baker Watts, Inc. v. Ernst & Young, LLP, 

, 853-54 (8th Cir. 2005) (setting forth the elements of a Rule 10b-5 claim).3

       Relying upon the same arguments it advanced to challenge the district court's
rulings with respect to Doud federal law claims, Toy Box next contends the district
court erred in granting summary judgment on Doud's claim under the Iowa Uniform
Securities Act which, similar to Rule 10b-5, prohibits misrepresentations or omissions
of material facts in connection with the sale of securities.4


      3
        On appeal, Toy Box does not claim as a defense that it broke escrow in good
faith upon the advice of counsel, so we need not address that issue.
      4
       More specifically, the relevant section of the Iowa Uniform Securities Act
provides:

      A person is liable to the purchaser if the person sells a security in
      violation of section 502.301 or, by means of an untrue statement of a
      material fact or an omission to state a material fact necessary in order to
      make the statement made, in light of the circumstances under which it

                                         -7-
     The district court determined Doud was required to prove the following four
elements to prove a violation of Iowa Code § 502.509(2):

      (1) that the defendant sold a security; (2) that the defendant used a
      misleading or untrue material fact or omission in making that sale; (3)
      that the purchaser did not know the statement or omission was untrue or
      misleading; and (4) had the purchaser exercised reasonable care [he]
      would not have uncovered the falsity of the material misstatement or
      omission.

Addendum at 61.

       Toy Box contended in the district court that Doud failed to show evidence of
scienter. In response, Doud argued in the district court and now on appeal that the
Iowa Uniform Securities Act uses language identical to language found in Section 17
of the Federal Securities Act of 1933 and that – unlike claims under Rules 10b-5 and
10b-9 – proof of scienter is not required under Section 17 of the 1933 Act. See

; see also Foster v. Alex, 

, 1245 (Ill. App. Ct.
1991) (relying upon Aaron to conclude proof of scienter is not required to prove a
violation of the Illinois Securities Act).

       We have already addressed and rejected Toy Box's contention that Doud failed
to prove scienter for purposes of his Rule 10b-9 and 10b-5 claims. This renders
irrelevant Toy Box's sole challenge to the district court's grant of summary judgment
on Doud's state security law claim. Doud proved the necessary scienter even if we


      is made, not misleading, the purchaser not knowing the untruth or
      omission and the seller not sustaining the burden of proof that the seller
      did not know and, in the exercise of reasonable care, could not have
      known of the untruth or omission.

Iowa Code § 502.509(2).

                                         -8-
assumed the Iowa Uniform Securities Act required proof of scienter. As a
consequence, we need not address at this time whether the Iowa Uniform Securities
Act requires proof of scienter.

        Finally, Toy Box contends the district court erred in granting summary
judgment on Doud's breach of contract claim. To prove his breach of contract claim,
Doud was required to show: "(1) the existence of a contract; (2) the terms and
conditions of the contract; (3) that [he] has performed all the terms and conditions
required under the contract; (4) the defendant's breach of the contract in some
particular way; and (5) that [he] has suffered damages as a result of the breach."
Molo Oil Co. v. River City Ford Truck Sales, Inc., 

, 224 (Iowa 1998).
Doud proved Toy Box's offerings contained an express promise not to break escrow
until it had reached $350,000 in subscription proceeds, and that Toy Box breached
the agreement by breaking escrow before receiving the necessary funds required by
the offering. In addition, Doud lost his investment as a result of Toy Box's breach.
Based on these facts, the district court did not err in granting summary judgment on
Doud's breach of contract claim.

                                        III

      We affirm the judgment of the district court.
                      ______________________________




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