LARRY ALAN BURNS, District Judge.
The SEC filed a complaint against Schooler and Western Financial on September 4, and on September 6 it applied for a temporary restraining order. The Court entered a TRO that same day. After denying Defendants' motion to dissolve the TRO and hearing oral argument — after which the parties attempted to reach a settlement and failed — the Court must now decide whether to convert the TRO into a preliminary injunction.
As the Court explains in some detail below, it will grant the SEC's motion for a preliminary injunction, but on a more limited basis than it tentatively offered at the preliminary injunction hearing.
In the typical case, "[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). This is the standard the Defendants would have the Court apply. Not only that, but Defendants urge the Court to, in essence, stack standards. Because the SEC would have to make its case at trial by "clear and convincing evidence," Defendants argue that the SEC must now establish not only that it is likely to succeed on the merits, but that it is likely to do so by clear and convincing evidence.
The SEC is of a very different mind. It isn't, after all, the typical private litigant, but a "statutory guardian charged with safeguarding the public interest in enforcing the securities laws." SEC v. Mgmt. Dynamics, Inc., 515 F.2d 801, 808 (2d Cir.1975). Indeed, the Second Circuit in Mgmt. Dynamics called it a "crucial error" to "assum[e] that SEC enforcement actions seeking injunctions are governed by criteria identical to those which apply in private injunction suits." Id. at 808. It explained that while injunctive relief in private actions is "rooted wholly in the equity jurisdiction of the federal court," SEC suits for injunctive relief are "creatures of statute." Id. That's true. See 15 U.S.C. §§ 77t(b), 78u(d). The statutes, however, don't provide the exact standard to be applied; they merely authorize district courts to grant injunctive relief "upon a proper showing."
What is the standard, then, if not the Winter standard? According to the SEC, it need only establish: (1) a prima facie case that Defendants have violated the securities laws; and (2) a reasonable likelihood that their violations will be repeated. There is some authority for this. See SEC v. Unique Fin. Concepts, Inc., 196 F.3d 1195, 1199 n. 2 (11th Cir.1999)
The big issue in this case is whether interests in the general partnerships organized by Defendants are securities, which they must be in order to trigger the SEC's enforcement authority. If they are, Defendants are certainly on the hook for the unregistered offer and sale of securities, and, depending on the facts, they may be on the hook for securities fraud as well. At the preliminary injunction hearing, the
The basis for the Court's Order is divided into two parts. First, the Court summarizes the law on when general partnership interests qualify as securities. Here, the seminal case is Williamson v. Tucker, 645 F.2d 404, 418 (5th Cir.1981), which articulated a three-factor test for making this determination. Second, the Court applies the Williamson test to the facts of this case and determines whether the SEC has made out a prima facie case that the general partnership interests sold by Western are securities.
From the beginning, the Defendants have taken the firm position that the general partnership interests are not securities. Most recently, Defendants argued that "the case law over many decades has consistently held that there is a presumption that (1) interests in general partnerships are not securities, and (2) interests in raw land held solely for market appreciation are not securities." (Doc. No. 34 at 2-3.) That's true. See SEC v. Merchant Capital, LLC, 483 F.3d 747, 755 (11th Cir. 2007) ("A general partnership interest is presumed not to be an investment contract because a general partner typically takes an active part in managing the business and therefore does not rely solely on the efforts of others."); Shiner, 268 F.Supp.2d at 1340 ("The general rule is that units in general partnerships are not investment contracts and therefore not securities under federal law."); McConnell v. Frank Howard Allen & Co., 574 F.Supp. 781, 784 (N.D.Cal.1983) ("There is persuasive authority for the position that if an investor in a real estate syndicate expects profits to come solely from the general appreciation of property values, then the investment is not a security.").
But like any presumption, the presumption that general partnership interests aren't securities can be overcome, and therefore has limited independent force. Here's why. The securities laws define "security" to include an "investment contract." The Supreme Court, in 1946, defined an investment contract as "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party." SEC v. W.J. Howey Co., 328 U.S. 293, 298-99, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). This requirement — that profits be expected "solely" from the efforts of the promoter — "has been given a liberal reading." McConnell, 574 F.Supp. at 784. Emphasizing this point, the Ninth Circuit has even dropped the term "solely" from the investment contract test. See Burnett v. Rowzee, 2007 WL 2809769 at *4 (C.D.Cal. Sept. 26, 2007) (citing Hocking v. Dubois, 885 F.2d 1449, 1455 (9th Cir. 1989)). The question is "whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which effect the failure or success of the enterprise." SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 482 (9th Cir.1973). And most importantly, "[t]he Supreme Court has repeatedly emphasized that economic reality is to govern over form and
Indeed, "[a] scheme which sells investments to inexperienced and unknowledgeable members of the general public cannot escape the reach of the securities laws merely by labeling itself a general partnership or joint venture." Williamson, 645 F.2d at 423. See also Holden v. Hagopian, 978 F.2d 1115, 1119 n. 3 (9th Cir.1992) ("In determining whether interests are investment contracts, we focus on the economic realities of the underlying transaction and not the name it carries."). The definition of an investment contact must therefore be "flexible rather than ... static" and "capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of other on the promise of profits." Howey, 328 U.S. at 299, 66 S.Ct. 1100.
The Fifth Circuit in Williamson devised an operational test for an investment contract that's since been widely followed.
Williamson, 645 F.2d at 424. The Ninth Circuit has expressly adopted the Williamson test. See Koch v. Hawkins, 928 F.2d 1471, 1476-78 (9th Cir.1991). Under this test, it's important to recognize, the focus is on investors' expectations when they originally invest, not "what actually transpires after the investment is made, i.e., whether the investor later decides to be passive or to delegate all powers and duties to a promoter or managing partner." Id. at 1477; Holden, 978 F.2d at 1119 n. 6; Merchant Capital, 483 F.3d at 756 ("We analyze the expectations of control at the time the investment is sold, rather than at some later time after the expectations of control have developed or evolved."). This principle descends from the statement in Williamson that "[a]n investor who is offered an interest in a general partnership or joint venture should be on notice ... that his ownership rights are significant, and that the federal securities acts will not protect him from a mere failure to exercise his rights." Williamson, 645 F.2d at 422.
In applying the Williamson test, the Court must look beyond the general partnership agreements themselves, "to other documents structuring the investment, to promotional materials, to oral representations made by the promoters at the time of the investment, and to the practical possibility of the investors exercising the powers they possessed pursuant to the partnership agreement." Koch, 928 F.2d at 1478; Merchant Capital, 483 F.3d at 756 ("Consistent with Howey's focus on substance over form, we look at all the representations made by the promoter in marketing
The presence of any one Williamson factor renders an investment contract a security. Merchant Capital, 483 F.3d at 755. And while technically the factors aren't exhaustive, courts have certainly treated them as such in making the determination with which this Court is now faced. See, e.g., Merchant Capital, 483 F.3d at 757-66 (considering each Williamson factor in sequence before concluding that partnership interest was a security); Koch, 928 F.2d at 1478 (We therefore ... apply all three Williamson factors in evaluating whether the investors expected profits produced by the efforts of others so as to satisfy the third element of Howey.").
This first Williamson factor "is addressed to the legal powers afforded the investor by the formal documents without regard to the practical impossibility of the investors invoking them." Koch, 928 F.2d at 1478. If investors' powers are merely theoretical, even, their general partnership interest may still not qualify as a security on this factor. See Holden, 978 F.2d at 1119-20 ("Under the first prong of the Williamson test our inquiry is limited to an examination of the legal powers afforded the investor by the partnership agreement and other formal documents that comprised the partnership agreement or arrangement.").
In the Court's judgment the SEC's analysis of this factor misses the mark. Rather than focus on the formal documents of the general partnerships and assess the investors' power vis-a-vis that of Defendants, the SEC highlights how little control the so-called "Signatory Partners" exercised in reality, and their relative lack of sophistication. It also highlights how little the general partnerships required of the investors, which is obviously a separate question from what their formal powers were under the general partnership agreements.
The SEC's best argument here is that the mere size of the general partnerships cuts against any claim on the part of Defendants that the investors maintained meaningful control over their investments. The court in Williamson did recognize that "one would not expect partnership interests sold to large numbers of the general public to provide any real partnership control; at some point there would be so many partners that a partnership vote would be more like a corporate vote, each partner's role having been diluted to the level of a single shareholder in a corporation." Williamson, 645 F.2d at 423. There are still a couple of problems. First, the number of investors in a general partnership has little to do with the formal powers that are given to the investors in the partnership documents. Second, Williamson also recognized that a large number of general partnership interests "might well" be evidence of an investment contract, meaning there is rigid rule with respect to partnership numbers. For example, the Ninth Circuit in Koch faced 35 general partnerships comprising a total of 160 investors, collectively operating a jojoba plantation, and it found that "[e]ven though each investor's absolute control is reduced by the voting structure, the general
Defendants emphasize that they are non-voting members of any general partnership in which they hold an interest, and that "any and all voting members have the ability to engage and direct the partnership in whatever direction they desire." (Doc. No. 21 at 11.) For example:
(Id.) The Court doesn't have good cause to doubt this — even if in practice the investors' powers are illusory. It is clear in the caselaw that, with respect to the first Williamson factor, what courts look for is a partnership agreement that plainly gives the promoter or manager a power advantage over the investors. See, e.g., Burnett, 2007 WL 2809769 at *5 (finding that an LLC membership interest was a security where operating agreement installed defendant-promoter as sole manager and gave him full authority and discretion to manage the LLC, sign documents, recommend investments, solicit money, and so forth). By contrast, where partnership acts may only be taken upon a majority vote of the partners, where the manager's role is ministerial, and where the partnership retains the power to dismiss its manager, the first Williamson factor may not be present. See, e.g., Holden, 978 F.2d at 1120. The Court in Holden reached precisely this conclusion because:
Id. The Court finds the facts of this case are closer to those of Holden than Burnett.
With this second Williamson factor, "[t]he proper inquiry is whether the partners are inexperienced or unknowledgeable `in business affairs' generally, not whether they are experienced and sophisticated in the particular industry or area in which the partnership engages they have invested." Holden, 978 F.2d at 1121; Koch, 928 F.2d at 1479.
The SEC argues that Defendants' investors are inexperienced and unknowledgeable because, among other reasons, they are members of the general public who were solicited by Defendants. There is no dispute that Defendants have a sales force, comprised of registered securities brokers and financial advisers, that pitch the general partnerships to investors. A former securities broker and financial advisor has testified that Western's securities
The SEC has also submitted the declaration of an investor who claims he didn't know, at the time of his investment, that he was becoming a partner in a venture — nor did he appreciate the technical details of the investment. (Levoy Decl. ¶¶ 8, 11, 13, 14.) The Court questions whether Levoy is the best declarant here for the SEC's purposes. He is the Director of Human Resources at the Stanford Business School, which is a high-level position at a high-level institution. One would think someone of his professional experience is at least mildly sophisticated in business affairs, even if his role at Stanford is a purely administrative one. Another investor, Rhea Olson, testified in a deposition that she was very confused as to whether her investment was in a general partnership." (Kalin Decl., Ex. 8, Olson Dep. at 52:11-16.)
While the Court certainly understands where the SEC is going here, it shares Defendants' concern that its evidence is both anecdotal and thin. The SEC points out that Defendants have organized more than 100 general partnerships, some of which are made up of hundreds of investors. That it has tracked down two who are shaky on the nature of this particular investment isn't immensely persuasive.
This last Williamson factor is the SEC's only hope of establishing a prima facie case that the general partnership interests sold by Defendants are in fact securities.
(Doc. No. 21 at 13-14; see also Tr. at 11:11-14.) "The return on the investment is solely a function of market appreciation," Defendants argue. (Doc. No. 21 at 15.) "There is no management or entrepreneurial skill that could ever have an impact on the return of investment for the GPs." (Id.) This is not a frivolous argument. Above all else, Defendants manage the general partnerships, and Williamson itself recognized that "a reliance on others does not exist merely because the partners have chosen to hire another party to manage their investment." Williamson, 645 F.2d at 423. See also Holden, 978 F.2d at 1120 (finding that, under the first Williamson factor, general partners retained substantial authority when agreement limited manager's functions to "clerical and ministerial tasks"). That the manager of the investment in this case is also the vendor doesn't make a difference. Williamson, 645 F.2d at 423.
Indeed, the easier case is one in which investors contribute to a general partnership and then a manager, at his or her discretion and with his or her expertise, does something with their money.
One thing the SEC seizes on is Defendants' role in selling the properties in which the general partnerships are invested. A former broker, for example, said in a declaration that he was trained to tell investors that Schooler "had great expertise" in "making decisions about the best time to buy and sell land." (Torres Decl. ¶¶ 5-6.) He also said "Western would decide when to sell the land, find a buyer, and negotiate a sales price." (Id. at ¶ 8.) An investor — the Stanford Business School employee — said that when he spoke with Defendants' representative, he was told that "when Western believed the time was right to sell the land, it would approach potential buyers and negotiate a sales price, then come back to its investors for final approval." (Levoy Decl. ¶ 9.) The SEC asserted in its opposition to Defendants' motion to dissolve the TRO that "the evidence in this case shows that Schooler only presents offers that will provide a positive return on the investment, as opposed to
(Kalin Decl. II, Ex. 1, Schooler Dep. at 219:11-221:5.) The Court doesn't think this testimony completely clears Schooler, but neither does it completely accept the SEC's view that it shows he doesn't present all offers to the partnership. Likewise, the deposition testimony of Roger de Bock is suggestive, but not conclusive.
(Kalin Decl. II, Ex. 4, de Bock Dep. at 199:21-201:3.). Again, this testimony certainly suggests that Schooler played an active and discretionary role in selling the general partnerships' properties, but it's not absolutely conclusive. More telling, from the Court's perspective, is a PowerPoint slide used in seminars to solicit investors
The SEC also calls attention to investors being told that Schooler is involved with various Chambers of Commerce, the implication being that he could influence development. One former broker said in a declaration that his sales managers, in encouraging him to sell the general partnership interests, told him that Schooler "helped to promote the land by being involved in local politics regarding economic growth and development in the areas of investment." (Torres Decl. ¶ 8.) The Court is inclined to agree with Defendants that mere involvement with the Chambers of Commerce isn't nearly the kind of "unique entrepreneurial or managerial ability" on the part of a promoter-manager that can make investors in a general partnership dependent on him. Beyond this, the SEC presents no evidence that Schooler actually is cozy with local politicians and able to steer economic growth in the direction of the properties in which the general partnerships are invested.
The SEC also argues forcefully that "investors were wholly reliant on the Defendants to generate returns from their investment" and that "[o]nce the investors invested their money, it was solely the efforts of Schooler and Western that affected the failure or success of the enterprise." (Doc. No. 14.) The Defendants' response to this is that their duties are purely administrative, their only purpose being to keep the partnerships in existence. Their counsel put it this way at the preliminary injunction hearing:
(Tr. at 15:24-16:16.) Indeed, the Partnership Agreement does spell out a list of responsibilities — eleven of them, to be precise — to be assumed by Schooler and his management company EBS Land Co., "[f]or the purpose of facilitating the efficient and orderly administration of the Partnership's various clerical, administrative, and organizational needs." (Doc. No. 14-1 at ¶ 7-7.1.1.) These range from maintaining mailing addresses and general partnership records to "[m]aintenance and administration of the Partnership and LLC bank accounts" to "[p]reparing and distributing correspondences to Partners." The SEC argues that "everything from creating the GPs, to opening the GP's bank accounts, to operating the GPs, is ultimately controlled by Western." (Doc. No. 3-1 at 4.) And the SEC goes into considerable detail in describing this structure: Defendants identify Signatory Partners whose only real responsibility is to sign documents on behalf of the partnerships; Defendants' own employees act as
This is a close call. On the one hand, Williamson recognizes that a dependency relationship may exist where investors are reliant "on the managing partner's unusual experience and ability in running this particular business," and there can't be any doubt that Schooler and Western are uniquely experienced in the area of real estate syndication and partnerships. Their own promotional materials say so. (See Kalin Decl., Ex. 11 at 134; Torres Decl., Ex. A at 1-2; Torres Decl., Ex. D at 28;.) Their own sales staff were trained to say so. (See Torres Decl. ¶¶ 6-8.) Investors were told as much. (See Levoy Decl. ¶¶ 6-9.) On the other hand, Williamson is equally clear that "[t]he delegation of rights and duties — standing alone — does not give rise to the sort of dependence on others which underlies the third prong of the Howey test." Williamson, 645 F.2d at 423. It continues, "It is not enough, therefore, that partners in fact rely on others for the management of their investment; a partnership can be an investment contract only when the partners are so dependent on a particular manager that they cannot replace him or otherwise exercise ultimate control." Id. at 424. In fact, the manager in Williamson assumed far more responsibilities over the land investment than Defendants are alleged to have assumed in this case, and the court still did not find a dependency relationship:
Id. at 425. That is an important holding, and it cuts strongly against the SEC's argument here that Defendants' mere handling of the operational side of the general partnerships made investors so dependent on them that they couldn't find a replacement or exercise meaningful partnership powers themselves. This is all to say that the SEC's claim that "Western would take care of everything related to the land," even if true, doesn't on its own constitute a prima facie case that the third Williamson factor is met. (See Doc. No. 3-1 at 15.)
The SEC has one other argument that it failed to develop explicitly. It is a straightforward application of Koch. In that case, as the Court briefly explained above, 35 general partnerships purchased 80 acres each of a jojoba plantation that was approximately 2,700 acres. Critical to the Ninth Circuit's holding that the general partnership interests were potentially securities
That's basically the situation in this case. The general partnerships don't own a discrete parcel of land all to themselves. They, along with separate general partnerships, own a fractional share of one. Schooler gave unambiguous deposition testimony on this point:
There is, of course, another side here. The Ninth Circuit in Koch was bothered by the fact that there was no "formalized mechanism in the partnership agreements for attempting to effect change on behalf of all thirty-five partnerships." Koch, 928 F.2d at 1480. The partnership agreement here, however, specifies that each general partnership will hold its interest as a co-tenant, and that while any disposition of the "master parcel" will require the mutual agreement of all co-tenants, any partner of any general partnership can contact a co-tenant general partnership "to distribute information and/or initiate a ballot vote on matters regarding the Master Parcel that are of consequence or importance to all Co-Tenants." (Doc. No. 14-1 at ¶¶ 6-6.3.2.) That, presumably, is precisely the kind of "formalized mechanism ... for attempting to effect change on behalf of all... partnerships" that the Ninth Circuit found absent in Koch. Moreover, co-tenant general partnerships are expected to honor communications from other co-tenant general partnerships as if they came from within their own. (Id. at ¶ 6.3.3.). The Court is still dubious that the co-tenancy relationship between the general partnerships invested in a single parcel of land saves Defendants here, especially if it returns to the first principle that substance matters more than form, and that the emphasis must be placed on economic realities. All signs are that with respect to the core investment — the piece of land or so-called "master parcel" — the general partners truly are dependant on Schooler and Western's managerial abilities and unable to replace him or exercise meaningful powers — at least with respect to the inter-partnership dealings that are central to the ultimate disposition of their asset. So, this is one argument the Court believes the SEC should have made more forcefully.
Where does all of this leave the Court? The question is whether the SEC has made out a prima facie case, on the third Williamson factor, that the general partnership interests at issue are securities.
A preliminary injunction is appropriate if there is a prima facie case that Defendants have violated the securities laws and a reasonable likelihood that their violations will be repeated. The Court has just concluded that a prima facie case has been made. That's the SEC's biggest hurdle. From there, almost everything else falls into place. There is little doubt that, as of this case being filed, Defendants' activities were ongoing — and indeed, substantial funds remain in many general partnerships. (See Kalin Decl. ¶ 28; Hebrank Decl. ¶¶ 4-5.) The Court therefore converts the pending TRO into a preliminary injunction.
The SEC must meet and confer with Defendants' counsel and submit a proposed preliminary injunction order to chambers within five days of the date this Order is entered. (Obviously, it will be very similar if not virtually identical to the TRO now in place.) If there are disagreements among the parties as to the contents of the order, the SEC should submit a proposed order to chambers while filing in the case docket a joint statement in which the parties' respective positions on disputed contents are explained.
Defendants have independently challenged the legitimacy of an asset freeze in this case, and the Court must address that issue.
The SEC originally argued that it "need only establish the mere possibility that assets may be dissipated" and that "[i]t is unnecessary for the Court to find that dissipation of funds is likely." (Doc. No. 3-1 at 21.) It relied on FSLIC v. Sahni, in which the Ninth Circuit did hold that where a plaintiff seeks a preliminary injunction and has shown a likelihood of success on the merits, "a possibility of dissipation of assets" is enough to support a freeze. 868 F.2d 1096 (9th Cir.1989). The Ninth Circuit overruled itself, however, in the wake of Winter, holding that "[a] party seeking an asset freeze must show a likelihood of dissipation of the claimed assets, or other inability to recover monetary damages, if relief is not granted." Johnson v. Couturier, 572 F.3d 1067, 1085 (9th Cir.2009). It explained that while Sahni rejected that standard, "because Winter requires a likelihood of irreparable harm, this aspect of the Sahni decision is overruled."
The SEC's fallback position is that Sahni has only been overruled to the extent
Has the SEC shown, then, that Defendants are likely to dissipate their own assets, along with those of the general partnerships? In its original brief, it doesn't try to make that showing. (See Doc. No. 3-1 at 21-22.) It did file a supplemental pleading, though, in which it argued that the evidence it has submitted does satisfy a "likelihood" standard. (Doc. No. 23.) But here is what that evidence reduces to: Beverly Schuler and Alice Jacobson, both Western employees, are secretaries for the general partnerships and have signature authority for their bank accounts, and Schooler has been using Western's funds "to pay hush money to complaining investors." (Id. at 2.) As Defendants' counsel suggested at the preliminary injunction hearing, this is some spin in this. That "hush money" went to an investor who wasn't satisfied with his investment. (See Kalin Decl., Ex. 4, de Bock Dep. at 88:23-92:4.) There is a "hush" subtext to the partial reimbursement — the request came with a threat to disclose and the partial reimbursement came with a nondisclosure agreement — but the less cynical interpretation is simply that Defendants gave an unsatisfied customer some of his money back. And it certainly doesn't make great sense to freeze Defendants' assets so they can't do that.
The point of an asset freeze is to prevent their dissipation and waste so they will be available for disgorgement. SEC v. Hickey, 322 F.3d 1123, 1132 (9th Cir.2003); Rafkind v. Chase Manhattan Bank, 1992 WL 380291 at *1 (S.D.N.Y. Dec. 7, 1992). The Court is hesitant to find that threat in this case for several reasons. First, the Court has explicitly avoided staking its preliminary injunction on the SEC's allegations of fraud, and it is really where fraud is found that an asset freeze has the most traction. See, e.g., Fidelity Nat. Title Ins. Co. v. Castle, 2011 WL 5882878 at *6 (N.D.Cal. Nov. 23, 2011). All the Court has found here, by contrast, is that the SEC has made out a prima facie case that the general partnership interests Western sells are securities. Second, the SEC has offered no evidence that Defendants are sheltering or hiding money, or shuffling it around nefariously, and the SEC has been openly monitoring them for over a year.
In spite of the above, Defendants are willing to stipulate to a continued freeze of the assets of the general partnerships, overseen by the appointed receiver. They are also willing to consent to Schooler's and Western's own assets, which are now frozen, being monitored to address the SEC's concerns about money that has passed straight from the general partnerships to Western. This seems reasonable to the Court, especially in light of its conclusion that the SEC's argument for any kind of asset freeze is tenuous to begin with. The Court will take guidance from Millennium Telecard, and direct the receiver to meet and confer with the parties and submit a proposal by which he will remain receiver of the general partnerships but transition into a monitor role with respect to Defendants' assets. The freeze and receivership of Defendants' assets will not be lifted until the Court approves the receiver's proposal. The Court would ask that the receiver submit this proposal within two weeks of the date this Order is entered.
Moreover, district courts in California have deviated from the two-part Unique Fin. Concepts standard. See, e.g., SEC v. Small Bus. Capital Corp., Case No. 12-CV-3237, Doc. No. 34 (N.D.Cal. July 10, 2012) (granting injunctive where good cause existed to believe defendants violated the securities laws and the SEC demonstrated a probability of success on the merits); SEC v. Private Equity Mgmt., Case No. 9-CV-2901, Doc. No. 246, 2009 WL 2488044 (C.D.Cal. Aug. 4, 2009) (granting injunctive relief where good cause existed to believe defendants violated the securities laws, SEC demonstrated a probability of success on the merits, and good cause existed to believe defendants would continue to violate the securities laws "to the immediate and irreparable loss and damage to investors and to the general public"); SEC v. Learn Waterhouse, Case No. 4-CV-2037, Doc. No. 29 (S.D.Cal. Nov. 1, 2004) (same). The problem is that the courts in these cases simply entered proposed orders with boilerplate language that were submitted by the SEC, and in at least one case the preliminary injunction was not contested. These cases are therefore not useful guides here.
A different standard from the one the Court will apply prevails in the Second Circuit. There, "injunctions sought by the SEC do not require a showing of irreparable harm or the unavailability of remedies at law. Rather, the SEC need only make a substantial showing of likelihood of success as to both a current violation and the risk of repetition." Smith v. SEC, 653 F.3d 121, 127-28 (2d Cir.2011) (internal quotations omitted).
While Defendants urge the Court to apply the Winter standard, they haven't identified a single SEC enforcement action seeking injunctive relief that imported it. In fact, they cite Mgmt. Dynamics, which the court in Unique Fin. Concepts relied on in coming up with the two-part standard for injunctive relief that the Court will follow here. See Unique Fin. Concepts, 196 F.3d at 1199 n. 2 (citing Mgmt. Dynamics, 515 F.2d at 806-07).
