RECOMMENDED FOR FULL-TEXT PUBLICATION
                              Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                        File Name: 13a0094p.06

                 UNITED STATES COURT OF APPEALS
                                   FOR THE SIXTH CIRCUIT
                                     _________________


                                                  X
                                                   -
 UNITED STATES SECURITIES AND EXCHANGE

                             Plaintiff-Appellee, --
 COMMISSION,

                                                   -
                                                       No. 10-3546

                                                   ,
                                                    >
                                                   -
            v.

                                                   -
                                                   -
 SIERRA BROKERAGE SERVICES, INC., c/o
                                                   -
 Jeffrey A. Richardson, President, et al.,
                                   Defendants, -
                                                   -
                                                   -
                          Defendant-Appellant. -
 AARON TSAI,
                                                  N
                    Appeal from the United States District Court
                   for the Southern District of Ohio at Columbus.
               No. 2:03-cv-326—Algenon L. Marbley, District Judge.
                                    Argued: October 11, 2012
                               Decided and Filed: April 4, 2013
         Before: BATCHELDER, Chief Judge; GIBBONS, Circuit Judge; and
                        ROSENTHAL, District Judge.*

                                       _________________

                                             COUNSEL

ARGUED: Ronald E. DePetris, Southampton, New York, for Appellant. Hope Hall
Augustini, SECURITIES AND EXCHANGE COMMISSION, Washington, D.C., for
Appellee. ON BRIEF: Ronald E. DePetris, DEPETRIS & BACHRACH, LLP, New
York, New York, Matthew T. Anderson, LUPER NEIDENTHAL & LOGAN,
Columbus, Ohio, for Appellant. Hope Hall Augustini, David Lisitza, SECURITIES
AND EXCHANGE COMMISSION, Washington, D.C., for Appellee.




         *
         Honorable Lee Rosenthal, United States District Judge for the Southern District of Texas, sitting
by designation.


                                                    1
No. 10-3546         SEC v. Sierra Brokerage, et al.                                  Page 2


                                    _________________

                                        OPINION
                                    _________________

        ALICE M. BATCHELDER, Chief Judge.                 The Securities and Exchange
Commission filed this civil enforcement action against twelve Defendants, alleging that
they violated registration, disclosure, and anti-fraud provisions of federal securities law.
The SEC moved for summary judgment against the Defendants, and the Defendants
made a cross-motion for summary judgment. The district court granted the SEC’s
motion in part and denied it in part, granted permanent injunctions against the
Defendants, and denied the Defendants’ cross-motion. On appeal, Defendant-Appellant
Aaron Tsai challenges the grant of summary judgment and permanent injunction against
him. For the reasons that follow, we AFFIRM.

                                             I.

        The district court explained the “reverse merger” process that led to the SEC’s
claims against Tsai in this case:

                This case centers on Defendant Tsai’s creation of MAS
        Acquisition XI Corporation (“MAS XI”), a “shell” company that
        ultimately merged with Bluepoint and sold shares to the public on the
        Over-the-Counter Bulletin Board in March of 2000. The SEC maintains
        that the Defendants’ conduct relating to that process repeatedly violated
        the federal securities laws.
                “Shell companies,” like MAS XI, . . . are formed with the purpose
        of qualifying for public trading on the Over-the-Counter Bulletin Board
        and later being sold to a privately-held company. The private company
        is then merged into the shell. To accomplish the reverse merger, the
        public shell company exchanges its stock with the outstanding shares of
        the private company. The shareholders in control of the shell company
        transfer most of their shares to the owners of the private company.
                The public shell company often changes its name to the name
        previously used by the private company and continues the business
        activity of the formerly private company except that the company is now
        an issuer of publicly traded securities.
No. 10-3546         SEC v. Sierra Brokerage, et al.                                   Page 3


SEC v. Sierra Brokerage Servs., Inc., 

, 927 (S.D. Ohio 2009). A
reverse merger enables a private company to access public markets without undertaking
the expensive process of an initial public offering. See SEC v. Kern, 

, 146
(2d Cir. 2005). This inexpensive way to “go public” creates a market for shell
companies.

        Tsai is the only Defendant on appeal, though there are other Defendants who play
significant roles in this case. Tsai has formed over 100 shell companies. No neophyte
in the world of securities, Tsai has been a registered representative of multiple brokerage
firms and has passed five exams related to the securities industry. The SEC has sued
Tsai once before, though in that case Tsai consented to the final judgment without
admitting or denying the allegations him, and the judgment came several years after the
events leading to the instant suit. See SEC v. Surgilight, Inc., Lit. Rel. No. 19169, 85
SEC Docket 391, 

(Apr. 6, 2005).

        Tsai incorporated MAS Acquisition XI Corporation (“MAS XI,” and “Bluepoint”
after the reverse merger occurred), the issuer of the stock in this case, in Indiana in 1996,
and he served as its CEO, president, and treasurer from the outset. Even though MAS
XI’s bylaws required three directors as of the date on which the bylaws took effect, Tsai
was MAS XI’s only director at that time. After its incorporation, MAS XI issued 8.5
million shares of common stock to Tsai, but he reported beneficial ownership of only
8.25 million shares to the SEC.

        To make MAS XI attractive for a reverse merger, Tsai pursued clearing the
company’s stock for trading on the Over-the-Counter Bulletin Board (“OTCBB”), a
public securities market that the National Association of Securities Dealers (“NASD”)
oversaw. To prepare MAS XI for clearance on the OTCBB, Tsai used thirty-three initial
shareholders of MAS XI (“thirty-three shareholders”). The thirty-three shareholders
consisted of two groups. Five individuals were in the first group. Tsai claimed they
were former directors of MAS XI, but admitted that three of them never actually
performed any services for MAS XI and that he could not remember whether the other
two had performed any services. In fact, the “former directors” never participated in a
No. 10-3546         SEC v. Sierra Brokerage, et al.                                   Page 4


board meeting of any kind. Notwithstanding the former directors’ lack of involvement,
Tsai had MAS XI issue a small number of shares to each of the former directors in 1997
and again in 1998 as “compensation for their services.” In 1997, Tsai also gave 50,000
shares of his own to each of the five former directors. This transfer accounts for the
250,000 shares as to which Tsai reported no beneficial ownership to the SEC.

        The second group within the thirty-three shareholders (the twenty-eight
“additional shareholders”) entered the scene after Tsai’s initial and failed attempt to have
MAS XI cleared for public trading. The NASD had rejected Tsai’s initial “Form 211”
filing—a securities listing application form that needed the NASD’s approval before
MAS XI’s stock could be quoted on the OTCBB—because MAS XI’s shares were
concentrated in the hands of only five shareholders. Following the NASD’s rejection,
Tsai accordingly transferred shares from the five former directors to the twenty-eight
additional shareholders, who were his friends or acquaintances.

        Tsai made these transfers using stock powers, which are powers of attorney over
securities, that the five former directors had signed in advance of any transfer and
perhaps as early as the time they became shareholders. In his preparations for reverse
mergers, Tsai had a practice of obtaining shareholders’ signatures on stock powers prior
to specific transfers of their stock. He did this to preempt delays that might occur if he
had to track those shareholders down and obtain their signatures months or years later.
In this case, Tsai recalled that after he obtained the former directors’ signatures he likely
went back and typed information onto the blank stock power forms. Tsai accordingly
transferred some of the former directors’ stock to the twenty-eight additional
shareholders; he admitted to deciding arbitrarily the amounts of stock each of the
additional shareholders received. It should be noted that Tsai obtained stock powers
from each of the twenty-eight additional shareholders as well. And, once Tsai held
signed stock powers, he did not need any other document to transfer the thirty-three
shareholders’ stock.

        With the total number of shareholders at thirty-three, Tsai succeeded in his
second attempt to obtain clearance for public trading from the NASD. Tsai turned to the
No. 10-3546        SEC v. Sierra Brokerage, et al.                                 Page 5


next stage of his plans: the reverse merger. Another set of entities (the “promoter
Defendants”) played a significant role in the events surrounding the reverse merger and
leading to the suit against Tsai. They include Yongzhi Yang (a business consultant),
K&J Consulting (Yang’s company, which he used to trade unregistered shares of MAS
XI which, by that time, had become Bluepoint), Michael Markow (a financial consultant
with experience in reverse mergers), Global Guarantee (Markow’s company, which he
used to trade unregistered shares of Bluepoint), Francois Goelo (who introduced Yang
to Markow, and controlled two companies that he used to trade unregistered shares of
Bluepoint), Ke Luo (who helped pay Tsai for his efforts), and M&M (Luo’s company,
which he used to trade unregistered shares of Bluepoint).

       In December of 1999, Yang was working as a consultant for a Chinese software
company (that later became Bluepoint) that was seeking a U.S. shell for a merger. Goelo
knew Yang and introduced Yang to Markow. Tsai recalled Markow’s contacting him
to discuss the possibility of a reverse merger with Bluepoint. The collective efforts of
Goelo, Yang, and Markow paid off on January 7, 2000, when Tsai and Bluepoint’s CEO
formally agreed to a reverse merger.

       Tsai had MAS XI declare a 15-for-1 stock split. That stock split multiplied the
thirty-three shareholders’ stock to approximately 3.75 million shares. Markow, working
to facilitate the sale of the stock, told Tsai that he had arranged a group of investors
eager to buy from the thirty-three shareholders.        Tsai accordingly created stock
certificates for the thirty-three shareholders’ stock. These certificates had never been
issued in the first place; instead, the thirty-three shareholders’ ownership had only been
recorded as book entries. Tsai mailed the certificates and stock powers to Markow, who
sent each of the thirty-three shareholders $100, for a total of $3,300, regardless of how
many shares each one held. Tsai testified that most of the thirty-three shareholders
probably had no knowledge of the reverse merger or of their shares’ having been cleared
for public trading before Tsai sent their certificates and stock powers to Markow.

       Tsai received a check, written to his company MAS Capital, Inc., for $250,000
from Markow, who had received wire transfers—that together totaled approximately
No. 10-3546        SEC v. Sierra Brokerage, et al.                                  Page 6


$250,000—from Goelo, Yang, and Luo. Tsai received the $250,000 for transferring the
stock of the thirty-three shareholders, which Tsai acknowledged.

       On February 22, 2000, Markow ordered that the thirty-three shareholders’ stock
be re-certified in the names of the promoter Defendants, companies they controlled, and
their relatives and friends. Less than one month later, on March 6, 2000, Bluepoint
shares began trading on the OTCBB. The promoter Defendants publicly sold their
unregistered shares in Bluepoint.

       The SEC filed a civil enforcement action against the twelve Defendants,
including Tsai. In Count I, the SEC claimed that Tsai violated Sections 5(a) and 5(c) of
the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77e(a), (c), by trading
securities in interstate commerce without filing registration statements. In Counts VIII
and IX, the SEC alleged that Tsai failed to disclose his beneficial ownership of securities
in violation of Section 13(d) of the Securities Exchange Act of 1934 (“Exchange Act”),
15 U.S.C. § 78m(d)(1)-(2), and Rules 13d-1(a) and 13d-2(a) thereunder, 17 C.F.R.
§ 240.13d-1,-2, and that Tsai violated Section 16(a) of the Exchange Act, 15 U.S.C.
§ 78p(a), and Rule 16a-3 thereunder, 17 C.F.R. § 240.16a-3.

       The SEC moved for summary judgment against Tsai on Counts I, VIII, and IX;
Tsai made a cross-motion for summary judgment. The district court granted the SEC’s
motion for summary judgment against Tsai on all three Counts, granted a disgorgement
order against Tsai for $250,000 plus $101,987 in prejudgment interest, and permanently
enjoined Tsai from violating the registration and disclosure provisions. The court denied
Tsai’s cross-motion for summary judgment.

       On appeal, Tsai makes four arguments. First, he argues that the district court
erred by permitting the SEC to move for summary judgment on the basis of an alleged
“non-fraud-based” violation of Section 5’s registration requirements when, Tsai alleges,
the SEC’s complaint and interrogatory answers only indicate a “fraud-based” theory of
violation. Tsai argues that this shift prejudiced his defense. Second, Tsai argues that the
district court erred by holding that SEC Rule 144(k) did not apply to the sale of the
unregistered securities. Third, he argues that the district court erred by granting
No. 10-3546        SEC v. Sierra Brokerage, et al.                                  Page 7


summary judgment with respect to his reporting violations under the Exchange Act.
Finally, he argues that the district court erred in issuing the injunction. We consider and
reject each argument.

                                            II.

       This court reviews de novo an order granting summary judgment. Tysinger v.
Police Dep’t of City of Zanesville, 

, 572 (6th Cir. 2006). A court must grant
“summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). In making this determination, “the court must view the evidence in the light most
favorable to the non-moving party and draw all reasonable inferences in its favor.”

. The ultimate inquiry is “whether the evidence presents a
sufficient disagreement to require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 

, 251-52 (1986). But “the mere existence of some alleged factual dispute between
the parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.” 

“[T]he substantive law will identify which facts are material,” and “summary
judgment will not lie if the dispute about a material fact is ‘genuine,’ that is, if the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.”

the standard of review for cross-motions of summary judgment does
not differ from the standard applied when a motion is filed by only one party to the
litigation. Taft Broad. Co. v. United States, 

, 248 (6th Cir. 1991).

                                            A.

       Before presenting his other challenges, Tsai argues that the SEC’s alleged
variance from a “fraud-based” claim in its complaint to a “non-fraud-based” claim in its
motion for summary judgment prejudiced his defense because he did not seek discovery
from the NASD that he otherwise would have sought to defend against such a theory.
Tsai asserts that the SEC belatedly shifted from characterizing the thirty-three
No. 10-3546         SEC v. Sierra Brokerage, et al.                                      Page 8


shareholders as nominees to characterizing them as real owners of MAS XI stock, and
that the district court wrongly permitted that shift.

        Our reasoning in Colonial Refrigerated Transportation, Inc. v. Worsham, 

(6th Cir. 1983), provides a framework for addressing Tsai’s argument. In that
case, we explained federal pleading and when prejudicial variance should prevent
recovery:

        The function of an affirmative federal pleading, under Fed. R. Civ. P.
        8(a)(2), is to give the opposing party fair notice of the nature and basis
        or grounds for a claim, and a general indication of the type of litigation
        involved. The “theory of the pleadings” doctrine, under which a plaintiff
        must succeed on those theories that are pleaded or not at all, has been
        effectively abolished under the federal rules. . . . [T]he federal rules, and
        the decisions construing them, evince a belief that when a party has a
        valid claim, he should recover on it regardless of his counsel’s failure to
        perceive the true basis of the claim at the pleading stage . . . provided that
        such a shift in the thrust of the case does not work to the prejudice of the
        opposing party.

and internal quotation marks omitted).

        The SEC’s argument does not cause a “shift in the thrust of the case” that would
prejudice Tsai because the SEC’s initial complaint specifically identifies the legal and
factual bases for its claims. Count I of the SEC’s complaint explicitly alleges violations
of Sections 5(a) and 5(c) of the Securities Act. It then alleges that:

        From February 2000 through at least July 2000, Defendant[] Tsai . . .
        directly or indirectly made use of the means or instruments of
        transportation or communication in interstate commerce or of the mails
        to offer and sell securities through the use or medium of a prospectus or
        otherwise when no registration statement has been filed or was in effect
        as to such securities and when no exemption from registration was
        available.

By listing Sections 5(a) and (c), and by alleging facts that relate to Section 5’s elements,
the SEC alerted Tsai to the legal and factual bases for his liability. And, though the
SEC’s complaint labeled MAS XI’s shareholders as being nominees and not real owners,
it adequately identified the underlying factual issue: how to characterize Tsai’s
No. 10-3546         SEC v. Sierra Brokerage, et al.                                     Page 9


relationship to the thirty-three shareholders. Hence, the district court correctly permitted
the SEC to advance this non-fraud-based argument.

                                             B.

        The Securities Act and the required filing of registration statements under
Section 5 exist to protect investors by requiring they receive sufficient information to
make informed investment decisions. See SEC v. Ralston Purina Co., 

, 124
(1953). Sections 5(a) and 5(c) of the Securities Act together require that securities be
registered before they can be sold or offered for sale. 15 U.S.C. § 77e(a), (c); see SEC
v. Holschuh, 

, 137 (7th Cir. 1982). A party can violate the registration
requirements of Sections 5(a) and (c) of the Securities Act through even indirect
involvement in the public sale of unregistered securities. Some securities sales, though,
are exempt from registration requirements, 15 U.S.C. § 77d; SEC v. Cavanaugh, 

, 133 (2d Cir. 1998), and Tsai claims the sales of securities in this case are
exempt and that the district court inappropriately made findings of fact in its analysis.

        Section 4(1) of the Securities Act, 15 U.S.C. § 77d(a)(1), provides that
Section 5’s registration requirements shall not apply to “transactions by any person other
than an . . . underwriter.” The Securities Act defines an “underwriter” as

        any person who has purchased from an issuer with a view to, or offers or
        sells for an issuer in connection with, the distribution of any security, or
        participates or has a direct or indirect participation in any such
        undertaking, or participates or has a participation in the direct or indirect
        underwriting of any such undertaking . . . .

15 U.S.C. § 77b(a)(11). Recognizing the extent of a “distribution” is key to accurately
identifying underwriters. “The term ‘distribution’ refers to the entire process in a public
offering through which a block of securities is dispersed and ultimately comes to rest in
the hand of the investing public.” Geiger v. SEC, 

, 487 (D.C. Cir. 2004)
(citation and internal quotation marks omitted).
No. 10-3546             SEC v. Sierra Brokerage, et al.                                              Page 10


         The SEC adopted Rule 1441 to help determine whether someone is engaged in
a distribution and, hence, is an underwriter: individuals who satisfy Rule 144’s safe
harbor are not underwriters for purposes of Section 4(1). 17 C.F.R. § 230.144 (2012).
The exemption that Tsai claims applies to the promoter Defendants’ sale of unregistered
securities is found in 17 C.F.R. § 230.144(k) (2000). Rule 144(k) prevents Section 5’s
registration requirements from applying to

         restricted securities sold for the account of a person who is not an
         affiliate of the issuer at the time of the sale and has not been an affiliate
         during the preceding three months, provided a period of at least two
         years has elapsed since the later of the date the securities were acquired
         from the issuer or from an affiliate of the issuer.

17 C.F.R. § 230.144(k) (2000) (emphasis added). For purposes of Rule 144(k), “[a]n
‘affiliate’ of an issuer is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with, such
issuer.” 17 C.F.R. § 230.144(a)(1) (2000).

         Acknowledging that Rule 144 does not define “control,” the Second Circuit has
found that

         Rule 405 of Regulation C establishes a definition of “affiliate” identical
         to that of Rule 144 and defines “control” as “the possession, direct or
         indirect, of the power to direct or cause the direction of the management
         and policies of a person whether through the ownership of voting
         securities, by contract, or otherwise.”

(quoting 17 C.F.R. § 230.405). In Kern, the Second Circuit
applied that definition of “control” and found that the defendants controlled the
shareholders and issuers, making the shareholders “affiliates” and ensuring that Rule
144(k)’s safe harbor did not apply. 

is instructive here.


         1
           The SEC revised Rule 144 in 2007 such that today’s Rule 144, 17 C.F.R. § 230.144 (2012), has
reserved subsection (k). See Revisions to Rules 144 and 145, 72 Fed. Reg. 71,546, 71,547 (Dec. 17, 2007)
(“Rule 144[k], as it existed before today’s amendments, permitted a non-affiliate to publicly resell
restricted securities without being subject to the above limitations if the securities had been held for two
years or more, provided that the security holder was not, and, for the three months prior to the sale, had
not been, an affiliate of the issuer.”); 

Unless we note otherwise, in this opinion we refer
to Rule 144 and 144(k) as they were in 2000.
No. 10-3546         SEC v. Sierra Brokerage, et al.                                Page 11


        In Kern, the SEC had sued the defendants for selling the unregistered securities
of companies that were created for reverse mergers. 

Second Circuit
affirmed the district court’s grant of partial summary judgment to the SEC, and held in
part that the sales did not qualify for the Rule 144(k) safe harbor. 

The Second Circuit found that the defendants had controlled two of the shell companies
and their shareholders, which placed both the shell companies and shareholders under
the defendants’ common control, making the shareholders affiliates for purposes of Rule
144(k). 

defendants had distributed the stock of the shell companies to friends and
family. 

then bought the shell companies’ shares back from the “friends
and family,” and the shares were eventually sold on the public market. 

found that what demonstrated the defendants’ control over the shareholders was
the defendants’ ability “to garner overwhelming proportions of [the shell companies’]
stock at a fraction of the price at which it was sold.” 

court noted that it
did “not intimate that such overwhelming proof of control exercised here is necessary
to satisfy the broad definition of ‘control’ for the purposes of Rule 144, but it is clearly
sufficient.” 

        Our review of the circumstances of this case in light of Kern persuades us that
the district court judge here properly concluded there was no genuine dispute of material
fact over whether the thirty-three shareholders were MAS XI’s affiliates. Given that the
$250,000 Tsai received motivated his transfer of the thirty-three shareholders’
stock—whether it motivated him directly by functioning as a purchase price for the stock
or indirectly by functioning as compensation for his role in the reverse merger—that
$250,000 is significantly higher than the low price of $3,300 that the thirty-three
shareholders received when Tsai transferred their shares. That differential demonstrates
Tsai’s control.

        Another fact shows Tsai’s control over the thirty-three shareholders. Unlike the
defendants in Kern, who had to purchase stock from shareholders before they could
profit from it, all Tsai had to do was employ the stock powers that the thirty-three
No. 10-3546           SEC v. Sierra Brokerage, et al.                               Page 12


shareholders had signed in advance of the reverse merger. Even if Tsai, as he claims,
acted within the bounds of what the stock powers and thirty-three shareholders
authorized him to do, that authorization does not negate his control. The district court
correctly noted that “the fact that the shareholders may have agreed, however
unwittingly, to have their shares controlled by Tsai does not alter the fact that he exerted
control over their shares.” 

. Tsai does not dispute that he
controlled the issuer, MAS XI, during the relevant time. And the promoter Defendants
both acquired and sold the affiliates’ stock in 2000, well before Rule 144(k)’s required
two-year holding period had elapsed. See 17 C.F.R. § 230.144(k) (2000).

        We hold that there is no genuine dispute with respect to the facts undergirding
the conclusion that Tsai controlled the shareholders. His control over them and MAS
XI renders the Rule 144(k) safe harbor unavailable, makes the promoter Defendants
underwriters, and ultimately means the registration requirements of Section 5 applied to
these transactions.

                                             C.

        Along with registration requirements for the sales of securities, the SEC imposes
disclosure requirements. Tsai’s appeal implicates two provisions of the Exchange Act,
and both require owners of securities to report their ownership of stock when their
holdings exceed certain thresholds. Promulgated pursuant to the Exchange Act, Rule
13d-1(a) requires that any

        person who, after acquiring directly or indirectly the beneficial
        ownership of any equity security of a class which is specified in
        paragraph (i) of this section, is directly or indirectly the beneficial owner
        of more than five percent of the class shall, within 10 days after the
        acquisition, file with the Commission, a statement containing the
        information required by Schedule 13D (§ 240.13d-101).

17 C.F.R. § 240.13d-1(a). In defining “beneficial owner,” Rule 13d-3(a) provides that a

        beneficial owner of a security includes any person who, directly or
        indirectly, through any contract, arrangement, understanding,
        relationship, or otherwise has or shares: (1) Voting power which
No. 10-3546        SEC v. Sierra Brokerage, et al.                                  Page 13


       includes the power to vote, or to direct the voting of, such security;
       and/or, (2) Investment power which includes the power to dispose, or to
       direct the disposition of, such security.

17 C.F.R. § 240.13d-3(a).

       The analysis necessary to determine whether Tsai was a beneficial owner with
“investment power” over the thirty-three shareholders’ stock resembles the analysis that
showed his control over those shareholders. Tsai did not report ownership of the
250,000 shares that the thirty-three shareholders held. Tsai explains that this omission
was because he did not own the thirty-three shareholders’ stock. But the Rule’s
definition of “beneficial owner” does not turn on the formal legality of a beneficial
owner’s relationship to shareholders; what is relevant is his power to dispose of or direct
the disposition of their stocks. Even assuming, as Tsai claims, that he fully explained
to shareholders that the stock powers would only be used in the context of a reverse
merger, that explanation did not negate his actual investment power. At the end of the
day, Tsai held stock powers that the thirty-three shareholders signed in advance; he
could and did use their shares as he saw fit. Accordingly, Tsai should have disclosed his
beneficial ownership of the shares.

       SEC Rule 16a-3, 17 C.F.R. § 240.16a-3, also promulgated pursuant to the
Exchange Act, has a “beneficial ownership” reporting requirement similar to that of Rule
13d-1. Determining who is a “beneficial owner” under this Rule means identifying

       any person who, directly or indirectly, through any contract,
       arrangement, understanding, relationship or otherwise, has or shares a
       direct or indirect pecuniary interest in the equity securities, subject to the
       following: (i) The term pecuniary interest in any class of equity
       securities shall mean the opportunity, directly or indirectly, to profit or
       share in any profit derived from a transaction in the subject securities.

17 C.F.R. § 240.16a-1(a)(2) (emphasis added).

       Given the breadth of the definition of “pecuniary interest,” it is futile for Tsai to
contend that he did not have an opportunity to share indirectly in a profit derived from
a transaction in the thirty-three shareholders’ securities. Tsai asserts that he could not
No. 10-3546            SEC v. Sierra Brokerage, et al.                                            Page 14


have had a pecuniary interest at the time the thirty-three shareholders received the stock
because that interest would have been too speculative. But, in fact, Tsai’s opportunity
for profit through the ultimate sale of the stock after a reverse merger existed at the time
the thirty-three shareholders acquired the stock and signed the stock powers. Indeed, the
stock of MAS XI—a shell corporation—had little or no value but for the possibility of
a reverse merger.

         And even if the $250,000 Tsai received is characterized as a fee for Tsai’s
services in the reverse merger rather than as a direct payment for the thirty-three
shareholders’ stock, that sum is still evidence that Tsai capitalized indirectly on an
opportunity to share in profit derived from a transaction involving the thirty-three
shareholders’ stock. Tsai’s argument that the shareholders received economic benefit
ignores that the definition of “pecuniary interest” includes the opportunity to share in
any profit derived from that transaction. The $3,300 the shareholders received from
Markow for their shares does not, therefore, negate Tsai’s ability to profit and,
accordingly, his obligation to report his ownership.

                                                    D.

         The district court permanently enjoined Tsai from violating registration
requirements of the Securities Act and reporting requirements of the Exchange Act.2
Tsai’s arguments on appeal do not address the injunction as it applies to the Exchange
Act and, hence, he has waived any challenge to that aspect of the injunction. United
States v. Sandridge, 

, 1035-36 (6th Cir. 2004).

         This Court reviews for abuse of discretion the district court’s granting an
injunction. SEC v. Youmans, 

, 415 (6th Cir. 1984). The district court here


         2
           As we note below, this is not Tsai’s first injunction, see SEC v. Surgilight, Inc., Lit. Rel. No.
19169, 85 SEC Docket 391, 

(Apr. 6, 2005), although that 2005 injunction differs
significantly from the one now under our consideration. The 2005 injunction arose in an entirely separate
case and was issued in another jurisdiction. 

with Tsai’s consent and without his
“admitting or denying the [SEC’s] allegations.” 

injunction was narrower than the
injunction here, which prohibits Tsai from violating disclosure requirements under “Sections 13(d)(1) and
16(a) of the Exchange Act [15 U.S.C. §§ 78m(d)(1) and 78p(a)] and Rules 13d-1 and 16a-3 thereunder [17
C.F.R. §§ 240.13d-1(a) and 240.16a-3]” in addition to prohibiting his violation of registration
requirements. 

(alterations in original).
No. 10-3546        SEC v. Sierra Brokerage, et al.                                Page 15


abused its discretion if it “relie[d] on erroneous findings of fact, applie[d] the wrong
legal standard, misapplie[d] the correct legal standard when reaching a conclusion, or
ma[de] a clear error of judgment.” Pipefitters Local 636 Ins. Fund v. BCBS of Mich.,

, 629 (6th Cir. 2011) (citation and internal quotation marks omitted).

       A permanent injunction is appropriate where the SEC has shown “a reasonable
and substantial likelihood that [Tsai], if not enjoined, would violate the securities laws
in the future.” 

. The Sixth Circuit has identified seven factors
that are relevant to determining whether there is a reasonable and substantial likelihood
of future violations:

       (1) the egregiousness of the violations; (2) the isolated or repeated nature
       of the violations; (3) the degree of scienter involved; (4) the sincerity of
       the defendant’s assurances, if any, against future violations; (5) the
       defendant’s recognition of the wrongful nature of his conduct; (6) the
       likelihood that the defendant’s occupation will present opportunities (or
       lack thereof) for future violations; and (7) the defendant’s age and health.

SEC v. Quinlan, 373 F. App’x 581, 585-86 (6th Cir. 2010) (quoting 

) (internal quotation marks omitted). No single factor is determinative. 

.

       We first note that the district court rightly applied the test of “whether the SEC
had shown a reasonable and substantial likelihood” that Tsai would violate securities
laws in the future. 

did mislabel the test when it said that the SEC
needed to show only a “‘reasonable likelihood’” of future violations. Sierra, 608 F.
Supp. 2d at 971 (quoting 

). But that error is harmless because
the district court still rigorously applied the seven factors from Youmans as the
“reasonable and substantial likelihood” test requires. See 

.

       As part of its analysis of the Youmans factors, the district court found as
persuasive and discussed Tsai’s failure to provide sincere assurances that he will not
offend in the future, his failure to recognize the wrongful nature of his conduct, his line
of employment, and his failure to argue that his age and health preclude future violations.
Tsai, however, focuses his attack against the injunction on the district court’s scienter
No. 10-3546             SEC v. Sierra Brokerage, et al.                                              Page 16


finding.3 The inquiry under the scienter factor involves a continuum, and entails asking
about the degree to which scienter exists. 

; Quinlan, 373 F.
App’x at 585. The district court found that the attendant circumstances suggest that Tsai
acted recklessly in committing his violations. Those attendant circumstances include his
experience in the industry and his substantial education concerning the very regulations
he violated. They also include Tsai’s alleged lie, made in his NASD Form 211 filing,
about transferring shares to five former director shareholders as “compensation for
services” when those directors never, in fact, provided such services and apparently
served only as honorary directors.

         Tsai does not challenge the court’s scienter finding to the extent it rests on his
industry experience and education, but argues that the district court made an
inappropriate finding of fact by concluding that he lied in his Form 211 application. Tsai
claims that the five former directors served as honorary directors and were properly
listed on Form 211. Tsai’s argument that the district court made an inappropriate finding
of fact here could have merit—it is possible Tsai’s characterization of the directors, even
if incomplete, was not a lie. But Tsai’s failure to challenge the court’s findings with
respect to his industry experience and education means the court did not abuse its
discretion in finding he had at least some degree of scienter.

         More importantly, even if Tsai’s challenges to the district court’s scienter finding
were entirely well-grounded and Tsai lacked any degree of scienter, he would not be able
to show the district court abused its discretion in granting an injunction. The absence
of scienter alone does not determine whether an injunction is appropriate. See 

(noting that “courts have taken care to stress that no one factor is


         3
           Tsai also challenges the district court’s focus under the second factor—“the isolated or repeated
nature of the violations”—on Tsai’s involvement in another case in which a shell company was used to
facilitate a reverse merger. See Surgilight, 85 SEC Docket 391. That case left Tsai enjoined from
violating the registration requirements of Sections 5(a) and 5(c) of the Securities Act. 

that the 2005 injunction was issued after, and so did not apply to, Tsai’s actions that led to the current
litigation. But the existence of any injunction at all is part of Tsai’s history and, under the second factor,
is evidence that he is a repeat violator and at least suggests the possibility of his violating securities laws
in the future. Hence, the 2005 injunction tends to support the district court’s decision to issue an
injunction, a decision also in accord with the Seventh Circuit’s pronouncement that “Tsai and his
corporations take the law . . . entirely too lightly.” MAS Capital, Inc. v. Biodelivery Sciences Int’l, Inc.,

, 833-34 (7th Cir. 2008).
No. 10-3546        SEC v. Sierra Brokerage, et al.                                Page 17


determinative”). Indeed, had the district court refused to grant the injunction based
solely on a finding that Tsai did not have scienter, it would have abused its discretion by
making that single factor determinative. 

that the “district court
abused its discretion by focusing exclusively on the change of occupation factor”).

       In light of all the Youmans factors, the district court did not abuse its discretion
by enjoining Tsai from violating registration and disclosure requirements.

                                           III.

       For the foregoing reasons, we AFFIRM the district court’s granting summary
judgment and a permanent injunction against Tsai.