Bagley Dec 2011 Transport Room

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IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Appeal No. 11-17021

SECURITIES EXCHANGE COMMISSION,

Plaintiff/Appellee,

vs.

1st

GLOBAL STOCK TRANSFER, LLC; HELEN BAGLEY,

Defendants/Appellants.

Appeal from the United States District Courtfor the District of Nevada

D.C. No: 2:08-cv-00437-LRH-RJJ

OPENING BRIEF OF APPELLANTS, MARK S. DZARNOSKI, ESQ.

GORDON SILVERMark S. Dzarnoski, Esq.

Nevada Bar No. 3398Email: [email protected]

3960 Howard Hughes ParkwayNinth Floor

Las Vegas, Nevada 89169Tel. (702)796-5555

FAX (702)369-2666

Attorneys for Defendants/Appellants1

stGLOBAL STOCK TRANSFER, LLC; HELEN BAGLEY

Case: 11-17025 12/20/2011 ID: 8007613 DktEntry: 17 Page: 1 of 45


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TABLE OF CONTENTSI. JURISDICTIONAL STATEMENT ............................................................5II. STATEMENT OF THE ISSUES ................................................................. 6III. STATEMENTOF THE CASE ..................................................................... 7IV. STATEMENT OF THE FACTS ..................................................................9

V. SUMMARY OF ARGUMENT ................................................................... 11VI. STANDARD OF REVIEW ......................................................................... 13VII.ARGUMENT ............................................................................................... 13

A.

The District Court Erred As A Matter Of Law In Finding That NoGenuine Issue Of Fact Exists Regarding Whether 1st Global And BagleyWere Both Necessary Participants And Substantial Factors In AnUnregistered Sale Of A Security ...................................................................13B. The District Court Erred As A Matter Of Law In Finding ThatDefendants Transferred Shares To NevWest ................................................34C. The District Court Erred As A Matter Of Law In Finding ThatDefendants Issued Shares Based Upon Dvoraks Opinion After RequestingOpinion From A Second Source .................................................................... 35D. Genuine Issues Of Fact Exist Regarding Disgorgement .....................36

VIII. CONCLUSION .........................................................................................39

CERTIFICATE OF COMPLIANCE PURSUANT TO FED. R. APP.P.

32(A)(7)(C) AND CIRCUIT RULE 32-1 ...................................................41

STATEMENT OF RELATED CASES PURSUANT TO CIRCUIT RULE

28-2.6 .............................................................................................................42



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TABLE OF AUTHORITIES

Cases

Ajjarapu v. AE Biofuels, Inc., F.Supp.2d ---, 2010 WL 2985609 (D.Col.,

2010)..............................................................................................................22, 28Anderson v. Aurotek, 774 F.2d 927, 930, Fed. Sec. L. Rep. P 92, 377, 3 Fed. R.

Serv.3d 177 (9th Cir. 1985) ...................................................................... 15, 17, 24Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) ....................................14Bergt v. Ret Plan for Pilot Employed by MarkAr, Inc., 293 F.3d 1139, 1142 (9th

Cir. 2002) .............................................................................................................. 13Calderone v. United States, 799 F.2d 254, 259 (6

th Cir. 1986) ...............................14Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) ................................................14Cordero v. Cia Mexicana De Aviacion, S.A., 681 F.2d 669, 672 (9

th Cir. 1982) ....24

County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9

th

Cir. 2001) 14Dewitt v. American Stock Transfer Co., supra, ................................................ 28, 29Durang, 711 F.2d 141, 143 (9

th Cir. 1983) ..............................................................14Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9

th Cir. 2009) .........24Indema v. Dreamworks, Inc., 162 F. Supp. 2d 1129, 1141 (C.D. Cal. 2001) .........14J&G Investments, LLC v. Fineline Properties, Inc., Slip Copy, 2007 WL 928642,

____ (N.D.Ohio, 2007) ......................................................................................... 17Kaw Valley State bank v. Pan American Bank of Orlando, N.A., 383 So.2d 668(Fla.App., 1980) .......................................................................................................22

Lawrence v. Dep't of Interior, 525 F.3d 916, 920 (9th Cir. 2008)...........................13

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) ...... 13Newman v. Am. Airlines, Inc., 176 F.3d 1128 (9th Cir. 1999) .................................24Pinter v. Dahl, 486 U.S. 622 (1988) ........................................................................15

Reese v.Jefferson Sch. Dist. No. 14J,, 208 F.3d 736 (9th Cir. 2000) ........................14

Rochez Bros., Inc. v. Rhoades, 527 F.2d 880, 888 (C.A.Pa. 1975) .........................17SEC v. Chinese Consol. Benev. Ass'n, Inc., 120 F.2d 738, 741 (2d Cir. 1941) .......15SEC v. Fisher, 2008 U.S. Dist. LEXIS 58477, 10, 12 (E.D. Mich. 2008) ..............25

SEC v. Holschuh, 694 F.2d 130, 140 n.14 (7th

Cir. 1982) ....................................... 15SEC v. Murphy, 626 F.2d 633, 649, 650-51 (9

th Cir. 1980) ....................................15SEC v. Ramoil Management, Ltd., 2007 U.S. Dist. LEXIS 79581 ** 27-29

(S.D.N.Y. 2007) ....................................................................................................25SEC v. Rogers, 790 F.2d 1450, 1456 (9th Cir. 1986) ...............................................17SEC v. Universal Major Corp., 546 F.2d 1044, 1045, 1046 (2d Cir. 1976) ...........26Travis Inv. Co. v. Harwyn Pub. Corp., 288 F.Supp 519 (D.C.N.Y. 1968) .............27Wassel v. Eglowsky, 339 F.Supp. 1330, 1348, 1367 (D.C. Md 1975).............. 11, 18



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Statutes15 U.S.C. 77v(a) .....................................................................................................515 U.S.C. 77t(b) ...................................................................................................... 5

15 U.S.C. 77t(d)(1) ................................................................................................. 515 U.S.C. 78aa ........................................................................................................515 U.S.C. 78u(d)(1)................................................................................................. 515 U.S.C. 78u(d)(3)(A) ...........................................................................................515 U.S.C. 78u(e) .....................................................................................................528 U.S.C. 1291 ........................................................................................................ 6

Other AuthoritiesSEC Adopted Rule 17Ad-2(a) .................................................................................20SEC Reply, Defrees, Fiske, Voland, Alberts & Hoffman, CCH Fed.Sec.L.Rep.

P78, 745 ('71-'72 Transfer Binder) .......................................................................19

RulesNev.Rev.Stat. 104.8401 ...........................................................................................21Nev.Rev.Stat. 104.8401(1) ....................................................................................... 21Nev.Rev.Stat. 104.8401(2) ....................................................................................... 21Nev.Rev.Stat. 104.8407 ...........................................................................................21

RegulationsSecurities Exchange Act of 1933 .................................................. 5, 9, 11, 15, 19, 27Securities Exchange Act of 1933 20(b) ..................................................................5Securities Exchange Act of 1933 20(d)(1) ............................................................. 5Securities Exchange Act of 1933 22(a) ..................................................................5Securities Exchange Act of 1934 21(d)(1) ............................................................. 5Securities Exchange Act of 1934 21(d)(3)(A) ........................................................5Securities Exchange Act of 1934 21(e) ..................................................................5

Securities Exchange Act of 1934 27 .......................................................................5Uniform Commercial Code, Article 8, Part 4 ..........................................................21



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CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure,

defendants 1st Global Stock Transfer, LLC and Helen Bagley, by and through

counsel, Mark S. Dzarnoski, Esq. of the law firm of Gordon Silver, hereby state

that there are no parent corporation(s) and/or publicly-held corporation(s) owning

10% or more of the corporate partys stock.



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I.

JURISDICTIONAL STATEMENT

The U.S. District Court for the District of Nevada (the District Court) had

original subject matter jurisdiction over this case pursuant to Sections 20(b),

20(d)(1), and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C.

77t(b), 77t(d)(1), & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e), and 27 of

the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C.

78u(d)(1),78u(d)(3)(A), 78u(e), & 78aa because the claims for relief were alleged

to have, directly or indirectly, made use of the means or instrumentalities of

interstate commerce, of the mails, or of the facilities of a national securities

exchange, in connection with the transactions, acts, practices, and courses of

business alleged in the complaint.

By Order issued July 25, 2011 (Appendix [APP] 589: Docket No.181), the

District Court granted the Motion by Plaintiff Securities and Exchange

Commission for Summary Judgment against various defendants including 1St

Global Stock Transfer, LLC and Helen Bagley. Also on July 25, 2011, the District

Court filed a Judgment in a Civil Case (See APP 599: Docket No. 182). On

August 1, 2011, the District Court filed its Final Judgment Of Permanent

Injunction and Other Relief Against Defendants 1st Global Stock Transfer, LLC,



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Helen Bagley, Sergey Rumyantsev and Brian Dvorak (See APP 602: Docket

No.185) (Final Judgment).

Defendant timely filed a Notice of Appeal on August 23, 2011 (See APP

609-612: Docket No. 187).

This Court has jurisdiction over this appeal pursuant to 28 U.S.C. 1291

because the Final Judgment constitutes a final decision of a District Court

disposing of all matters.

II.

STATEMENT OF THE ISSUES

Whether the District Court erred as a matter of law in finding that no

genuine issue of fact exists regarding whether 1st Global and Bagley were both

necessary participants and substantial factors in an unregistered sale of a

security.

Whether the District Court erred as a matter of law in finding that 1st Global

and Bagley transferred unrestricted certificates to defendant NevWest for the

purpose of sale to the general public.

Whether the District Court erred as a matter of law in finding that defendants

continued to remove restrictive legends from CMKM stock based on Dvoraks

unsupported opinion letters even after they requested CMKM to find another

attorney to the write opinion letters supporting removal of the restrictive legends.



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Whether the District Court erred as a matter of law in finding that no

genuine issue of fact exists regarding disgorgement.

III.

STATEMENT OF THE CASE

This case presents issues of high industry significance because the Plaintiffs

theory of liability, endorsed by the District Court, imposes liability upon transfer

agents solely for performing their ministerial duties and creates significantly higher

standards of conduct upon stock transfer agents than have heretofore been

recognized under the law.

On April 7, 2008, the SEC initiated the present civil action [See APP 1:

Docket No. 1]. This action involves what Plaintiff alleges to be a complex scheme

to illegally issue and sell stock of Defendant CMKM Diamonds, Inc. (CMKM),

a purported diamond and gold mining company, in an unregistered distribution.

1st Global Stock Transfer, LLC (1st Global) was the stock transfer agent for

CMKM. Helen Bagley (Bagley) was the owner of 1st Global.

Plaintiff alleged that CMKM and its principals made materially false and

fraudulent representations regarding why certain restricted shares of stock should

have been reissued as free trading unrestricted securities. CMKM and its

principals then obtained legal opinion letters confirming the entitlement of the

shareholders to receive unrestricted shares. Said opinion letters and supporting



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corporate resolutions were submitted to 1st Global and Bagley. In reliance upon

the opinion letters and resolutions, 1st Global and Bagley, as transfer agent for

CMKM, issued the shares as requested.

Following issuance of the shares, Plaintiff alleges that various defendants,

not including 1st Global or Bagley, manipulated CMKMs stock price and volume,

making materially false and misleading representations regarding the company

during the period from January 2003 through May 2005. Those defendants then

sold billions of the wrongfully issued free trading shares to an unsuspecting

public.

On December 23, 2010, Plaintiff filed a Motion for Summary Judgment.

[See APP 28-435: Docket No. 161]. Therein, Plaintiff argued that 1st Global and

Bagley were both a necessary participant and substantial factor in the

unregistered distribution of CMKM stock based upon their status as transfer agent

for CMKM rather than upon any independent knowledge of or knowing

participation in the fraudulent activities of CMKM and/or its principals. The

District Court found that no genuine issue of material fact existed as to 1 st Global

and Bagley being a necessary participant and substantial factor in an

unregistered distribution. (APP 589: Docket No. 181). Thereafter, the District

Court entered a Final Judgment consistent with the July 25, 2011 Order. (APP

602: Docket No. 185).



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IV.

STATEMENT OF THE FACTS

1. On April 7, 2008, the SEC initiated the present civil action againstdefendants for violation of the Securities Act of 1933 (the Securities Act), 15

U.S.C. 77(e). [APP 1-27: Docket No. 1]

2. On December 23, 2010, Plaintiff filed a Motion for SummaryJudgment. [APP 28-435: Docket No. 161].

3. On January 14, 2011, 1st Global and Bagley filed the following:a. Opposition to Motion for Summary Judgment [APP 453-478:

Docket No. 166];

b. Separate Statement of Undisputed Facts [APP 563-567: DocketNo. 170];

c. Declaration of Mark S. Dzarnoski in Support of Opposition toSummary Judgment [APP 499-558: Docket No. 168];

d. Declaration of Helen Bagley in Support of Opposition toSummary Judgment [APP 479-498: Docket No. 167 ]; and

e. Exhibit List [APP 559-562: Docket No. 169].4. On January 28, 2011, Plaintiff filed its Reply in further support of

motion by Plaintiff Securities and Exchange Commission for summary judgment



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against Defendants 1st Global Stock Transfer LLC and Helen Bagley. [APP 568-

588: Docket No. 175].

5. By Order issued July 25, 2011 (APP 589-598: Docket No.181), theDistrict Court granted the Motion by Plaintiff Securities and Exchange

Commission for Summary Judgment against various defendants including 1St

Global Stock Transfer, LLC and Helen Bagley.

6. In granting Plaintiff Motion for Summary Judgment, the Court foundas follows:

a. 1ST Global and Bagley were both necessary participants andsubstantial factors in an unregistered sale of a security.

b. 1st Global and Bagley transferred unrestricted certificates todefendant NevWest for the purpose of sale to the general public.

c. 1st Global and Bagley continued to remove restrictive legendsfrom CMKM stock based on Dvoraks unsupported opinion letters even after they

requested CMKM to find another attorney to the write opinion letters supporting

removal of the restrictive legends.

7. Also on July 25, 2011, the District Court filed a Judgment in a CivilCase. (APP 599-601: Docket No. 182).

8. On August 1, 2011, the District Court filed its Final Judgment OfPermanent Injunction and Other Relief Against Defendants 1st Global Stock



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Transfer, LLC, Helen Bagley, Sergey Rumyantsev and Brian Dvorak (APP 602-

608: Docket No.185) (Final Judgment). Among other things, the Final Judgment

included an order of disgorgement against these Defendants.

V.

SUMMARY OF ARGUMENT

The transfer agent may well be what the title of a law reviewarticle implies, i.e., the neglected child of the securitiesindustry.FN67 As to the transfer agent, the web of federalregulation and control which has specifically covered most

portions of the securities industry has not yet been generally soextended.FN68 No case has been cited to or located by thisCourt in which a transfer agent, in the absence of other

circumstances,FN69

has been found liable for violation of the

federal securities laws.

Wassel v. Eglowsky, 399 F.Supp. 1330, 1367 (D.C. Md 1975)[emphasis added].

Neither the District Court in its decision, nor Plaintiff in its moving papers

or reply nor counsel for Defendants in their opposition have cited toa single case

where a transfer agent has been found to have violated Section 5 of the Securities

Act of 1933 merely for performing its duty of issuing securities upon the

instruction of a corporate issuer and in reliance upon the opinions of counsel.

There is no precedent for finding a transfer agent liable for a Section 5 violation as

a necessary participant and substantial factor in an unregistered sale of a

security absent a showing of knowledge of the unlawfulness of the distribution

and/or active participation in an unlawful scheme to defraud.



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The District Court erred in granting the summary judgment because it

applied faulty reasoning regarding whether Defendants substantially participated in

an unlawful distribution and made findings unsupported by the record. Whether a

person substantially participated in an unlawful distribution is generally a question

of fact for the jury. Here, the reliance on the opinion letters of counsel should have

been considered in the analysis regarding whether Defendants substantially

participated in the unregistered transactions. Instead, the District Court considered

the opinion letters only as an affirmative defense to the matters charged.

Further, on two issues (i.e. whether Defendants delivered shares to NevWest

and whether they continued issuing free trading shares based upon the opinion of

Brian Dvorak after requesting a second opinion), the District Court issued findings

completely contrary to the record. Both the Plaintiffs and Defendants Statements

of Undisputed Facts support a contrary conclusion.

Finally, the District Court made no findings regarding Plaintiffs entitlement

to the remedy of disgorgement. Plaintiff wholly failed to provide competent

evidence regarding Defendants receipt of ill-gotten gains. Defendants presented

substantial evidence suggesting they received no such funds.



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VI.

STANDARD OF REVIEW

The Court of Appeals reviews de novo a district court's grant of a motion for

summary judgment.Bergt v. Ret. Plan for Pilots Employed by MarkAir, Inc., 293

F.3d 1139, 1142 (9th Cir.2002). De novo review means that this court views the

case from the same position as the district court. See Lawrence v. Dept of

Interior, 525 F.3d 916, 920 (9th Cir. 2008).

VII.

ARGUMENT

A. The District Court Erred As A Matter Of Law In Finding That No

Genuine Issue Of Fact Exists Regarding Whether 1st

Global And Bagley

Were Both Necessary Participants And Substantial Factors In An

Unregistered Sale Of A Security.

1. Summary Judgment Standards

Summary judgment is appropriate only when the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any material fact and that the moving

party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In assessing

a motion for summary judgment, the evidence, together with all inferences that can

reasonably be drawn therefrom, must be read in the light most favorable to the

party opposing the motion.Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475



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U.S. 574, 587 (1986); County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148,

1154 (9th Cir. 2001).

The moving party bears the burden of informing the court of the basis for its

motion, along with evidence showing the absence of any genuine issue of material

fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On those issues for which

it bears the burden of proof, the moving party must make a showing that is

sufficient for the court to hold that no reasonable trier of fact could find other than

for the moving party. Calderone v. United States, 799 F.2d 254, 259 (6th Cir.

1986); see also Idema v. Dreamworks, Inc., 162 F. Supp. 2d 1129, 1141 (C.D. Cal.

2001). To successfully rebut a motion for summary judgment, the non-moving

party must point to facts supported by the record which demonstrate a genuine

issue of material fact.Reese v. JeffersonSch. Dist. No. 14J, 208 F.3d 736 (9th Cir.

2000). A material fact is a fact that might affect the outcome of the suit under

the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

Where reasonable minds could differ on the material facts at issue, summary

judgment is not appropriate. See v. Durang, 711 F.2d 141, 143 (9th Cir. 1983). A

dispute regarding a material fact is considered genuine if the evidence is such that

a reasonable jury could return a verdict for the nonmoving party. Liberty Lobby,

477 U.S. at 248.



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2. Sufficient Evidence Was Introduced To Create A Genuine Issue

Of Fact That 1st

Global And Helen Bagley Were Not Necessary

Participants And Substantial Factors In An Unregistered Sale

Of A Security.

a. Transfer Agents Are Not Generally Considered Substantial

Participants in Securities Transactions

A defendant may be held liable under section 5 of the 1933 Act if he is

directly responsible for the distribution of unregistered securities. SEC v.

Murphy, 626 F.2d 633, 649 (9th Cir.1980). Liability for violations of Section 5

extends to those who have engaged in steps necessary to the distribution of

[unregistered] security issues. SEC v. Chinese Consol. Benev. Ass'n, Inc., 120

F.2d 738, 741 (2d Cir.1941); see also SEC v. Murphy, 626 F.2d 633, 650-51 (9th

Cir.1980). This standard, which applies to both SEC enforcement actions and

actions for damages under section 12 of the 1933 Act, requires that the defendant's

conduct be both necessary to, and a substantial factor in, the unlawful transaction.

Id. at 650-52; Anderson v. Aurotek, 774 F.2d 927, 930 (9th Cir.1985) (per

curiam)1; see also SEC v. Holschuh, 694 F.2d 130, 140 n. 14 (7th Cir.1982)

(necessary and substantial participation required for liability in SEC enforcement

actions).

1 Anderson discussed the substantial factor and necessary participant tests within the contextof a Section 12 case rather than a Section 5 case. Pinter v. Dahl, 486 U.S. 622 (1988) questionedthe applicability of such a test under Section 12 but not Section 5.



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The SEC presented its theory about the liability of Defendants quite clearly

as follows:

By removing the restrictive legends from the stock certificates,Bagley and 1st Global enabled the stock to be freely traded. As thetransfer agent who removed the restrictive legend from theunregistered stock, 1st Global and its principal, Bagley, werenecessary participants and substantial factors in the unregistereddistribution of CMKM stock made in violation of Section 5.

(APP 42:12-16)

In other words, the SEC maintained that the mere removal of a restrictive

legend and the subsequent re-issuance of free trading shares is sufficient for

imposing Section 5 liability upon a transfer agent. The District Court agreed with

this wide-ranging theory of liability finding that but for their participation in

removing the restrictive legends, there would not have been a sale of unregistered

securities because the CMKM stock would still have the restrictive legend on each

certificate. (APP 593:16-18.) The District Court further stated that defendants

participation was not de minimis. Global Stock and Bagley issued billions of

shares of CMKM stock without the restrictive legend and then transferred those

unrestricted certificates to defendant NevWest for the purpose of sale to the

general public.2 (APP 593:19-21.)

As for substantial participation, to be sure it is a concept without precise

2 As will be set fort in more detail in Section VII.B hereof, the finding that 1 st Global and Bagleythen transferred those unrestricted certificates to defendant NevWest for the purpose of sale tothe general public is without evidentiary support in the record and is directly contradicted byPlaintiffs Separate Statement of Undisputed Facts #57 and #58.



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bounds, but one who plans a scheme, or, at the least, is a substantial motivating

factor behind it, will be held liable as a seller. SEC v. Rogers, 790 F.2d 1450,

1456 (9th Cir.1986), overruled on other grounds by Pinter v. Dahl, 486 U.S. 622

(1988). Whether ones role is pervasive enough to bring him/her within the

definitions of substantial factor and necessary participant usually involves a

question of fact for the jury.Anderson v. Aurotek, 774 F.2d 927, 930, Fed. Sec. L.

Rep. P 92,377, 3 Fed.R.Serv.3d 177 (9th Cir. 1985). There are exceptions. In

Murphy, the defendant's participation in the securities transaction was so pervasive

that the Court of Appeals found [t]he conclusion that Murphy engaged in steps

necessary to the distribution is inescapable, and therefore affirmed the grant of

summary judgment. 626 F.2d at 652.

No exception should apply here. Transfer agents simply have not

historically been treated as substantial participants in a securities transaction

merely for doing their job because their role is ministerial.

Courts uniformly have found that the actions of a transfer agent in

complying with the directives of its client are ministerial and clerical in nature.

Rochez Bros., Inc. v. Rhoades, 527 F.2d 880, 888 (C.A.Pa. 1975) "The fact that

MS&R may have performed as a transfer agent is not significant as this was purely

a ministerial act"; J&G Investments, LLC v. Fineline Properties, Inc., Slip Copy,

2007 WL 928642, ______ (N.D.Ohio, 2007) "Further, the Court finds it difficult to



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understand how or why a transfer agent like PSTC, which seems to be a mere

clerical player with respect to any securities transactions, could or would conspire

to engage in securities fraud. The Court fails to see what could possibly motivate

such alleged conduct on the part of a mere transfer agent."

Other courts have recognized the practical realities of the transfer agent

business in finding them non-culpable in securities laws violations absent some

showing of prior knowledge of improprieties prior to the issuance of shares. "In

view of all of the circumstances including the size of its fee and the practical

realities as to how much independent investigation a transfer agent can be expected

to make, Central Trust neither knew nor should have known on August 8, 1972 of

any improprieties in the transfer of Canusa stock nor was it guilty of any culpably

negligent practices in its conduct of its duties as stock transfer agent." Wassel v.

Eglowsky, 399 F.Supp. 1330, 1348 (D.C.Md., 1975).3

Indeed, in Wassel, supra., the court referenced the SEC's own policy

statements regarding the duties of transfer agents as follows:

Seemingly, the standard properly applicable to Central Trust is thatprovided in a SEC Staff Reply to an inquiry as to the duties oftransfer agents in connection with removal of restrictive legends from

stock certificates.

3 In this case, 1st Global charged a fee of a mere $15.00 per certificate cancelled or issued for itsservices. The "practical reality" is that a transfer agent charging $15.00 per transaction cannot beexpected to perform its own legal investigation regarding the legality of issuance of shares. [SeeDEFENDANTS' SEPARATE STATEMENT OF UNDISPUTED FACTS ("APP 565: Fact 15)].



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As presently drafted, neither Rule 144 nor its accompanyingrelease speak to any specific procedures to be followed by acompany and its transfer agent in connection with the removalof restrictive legends. The burden of policing the utilization ofthe exemption provided by Section 4(2) of the Securities Act of1933 and the determination of the specific means by which thisis accomplished rests ultimately with the issuer of the securitiesinvolved. Rule 144 would not alter these obligations in anyway. Consequently, the particular procedures a company and itstransfer agent may wish to adopt concerning the removal ofrestrictive legends in the context of sales pursuant to Rule 144is within the discretion of those parties and the responsibilityfor the effectiveness of those procedures lies with them. Inclosing, while the transfer agent has no greater responsibility

under Rule 144 than under the present system, it should benoted that if the agent knows or has reason to know that anillegal distribution would occur in connection with transactionspending before him, he should take appropriate steps toforestall such a distribution from taking place. (Emphasissupplied.) SEC Reply, Defrees, Fiske, Voland, Alberts &Hoffman, CCH Fed.Sec.L.Rep. P78, 745 (71-72 TransferBinder).

Id. at 1368.

Thus, the SEC's own policy statements place the burden of policing the

lifting of restrictive legends from stock certificates on the issuer of the securities

rather than the transfer agent. Only when the transfer agent "knows or has reason

to know that an illegal distribution would occur" does the SEC indicate the transfer

agent "should" take steps to forestall a distribution.



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b. Federal And State Laws Require Issuance of Shares By Transfer

Agents

Section 17A of the Securities and Exchange Act of 1934 establishes a

comprehensive federal regulatory structure applicable to transfer agents. The

congressional intent of the regulatory scheme is clearly set forth in Section

17A(a)(1) as follows: "The Congress finds that the prompt and accurate

clearance and settlement of securities transactions, including the transfer of record

ownership and the safeguarding of securities and funds related thereto, are

necessary for the protection of investors and persons facilitating transactions by

and acting on behalf of investors." Section 17A further establishes a licensing

mechanism for transfer agents. [See Section 17A(c).] Further, states are authorized

to enact legislation respecting transfer agents that are "not inconsistent with this

title and the rules and regulations thereunder." [See Section 17A(d)(4)].

Pursuant to its regulatory authority, the SEC adopted Rule 17Ad-2(a) which

requires "(e)very registered transfer agent (except when acting as an outside

registrar) shall turnaround within three business days of receipt at least 90 percent

of all routine items received for transfer during a month." While Rule 17Ad-2(a)

imposes other recordkeeping requirements and rules of conduct for transfer agents,

it does not expressly or by implication create any duty of investigation upon a

transfer agent before following the directives of its clients or shareholders thereof

in honoring requests to transfer stocks. Indeed, the regulatory structure and



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congressional intent is clearly to force transfer agents to promptly perform the

ministerial and clerical tasks of transferring record ownership of shares of stock

when requested.

Similarly, in Nevada, the duty of corporations to transfer stock was codified

with the adoption of Article 8, Part 4 of the Uniform Commercial Code. See NRS

104.8401- 8407. Under the UCC, an issuer has a duty to register a transfer of a

certificated or uncertificated security if each of several conditions are satisfied. See

NRS 104.8401(1). Furthermore, [i]f an issuer is under a duty to register a transfer

of a security, the issuer is liable to a person presenting a certificated security or an

instruction for registration or to the person's principal for loss resulting from

unreasonable delay in registration or failure or refusal to register the transfer.

NRS 104.8401(2). In addition, with the adoption of the UCC, the legislature

abrogated the common law immunity of transfer agents. Instead, [a] person acting

as authenticating trustee, transfer agent, registrar, or other agent for an issuer in the

registration of a transfer of its securities, in the issue of new security certificates or

uncertificated securities, or in the cancellation of surrendered security certificates

has the same obligation to the holder or owner of a certificated or uncertificated

security with regard to the particular functions performed as the issuer has in

regard to those functions. NRS 104.8407. Hence, where a corporation has

delegated its responsibilities with regard to stock transfers to a transfer agent, the



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transfer agent's liability to the transferee for loss resulting from unreasonable delay

in registration or failure or refusal to register the transfer is coextensive with that of

the issuer.

Thus, both the federal and state regulatory schemes place the primary

responsibility for the transfer of shares of stock upon the issuer. However, state

law further imposes upon the transfer agent liability for its failure to transfer shares

or losses resulting from its unreasonable delay in such issuance. Cases are legion

where courts have determined transfer agents have liability for failure to issue

shares when requested to do so. See e.g. Ajjarapu v. AE Biofuels, Inc., ---

F.Supp.2d ----, 2010 WL 2985609 (D.Colo., 2010) (Cause of action under UCC is

stated where transfer agent refuses to re-issue stock without restrictive legend

when request is supported by opinion of counsel as to legality of issuance; Kaw

Valley State Bank v. Pan American Bank of Orlando, N. A., 383 So.2d 668

(Fla.App., 1980) (The District Court of Appeal held that transfer agent was

negligent in failing in a timely manner to perform its duty to transfer shares as a

stock transfer agent.)

The conundrum faced by transfer agents is clear when the SEC claims that

the mere issuance of shares by the transfer agent when authorized and directed to

do so by the client/issuer and when fully supported by the legal opinion of counsel

that such issuance would be in full compliance with federal registration



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requirements constitutes necessary and substantial assistance in the subsequent sale

of unregistered securities issued in violation of Section 5. Under such a theory, the

transfer agent is either potentially liable to the issuer and/or potential recipient of

shares for failure to transfer shares as directed or potentially liable in an SEC

enforcement action for Section 5 violations if it makes the issuance.

If such were the law, transfer agents would be required to conduct their own

due diligence and investigation as to every transfer of stock and retain their own

attorneys to provide opinions regarding the validity of every issuance requested.

Clearly, no transfer agent could satisfy the congressional mandate for the prompt

and accurate transfer of record ownership of securities nor could they possibly

accomplish a three day turnaround of at least 90% of all routine items received for

transfer during any given month. Further, the financial structure of the business of

transfer agents would be considerably changed. The simple retention of an

attorney to investigate the proposed transaction and opine as to its validity would

add thousands of dollars to every transfer of stock in a business that charges

minimum fees to effectuate what is presently a clerical and ministerial function of

cancelling one certificate, re-issuing another certificate and keeping appropriate

records of such transactions.4

4 As set forth hereinbefore, 1st Global charged CMKM only $15.00 per transaction to perform theministerial and clerical services of cancelling and issuing shares.



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c. A Transfer Agents Reasonable Reliance Upon Opinion Lettersof Counsel Is a Factor in Determining Whether the Transfer

Agent is a Substantial Participant

As set forth above, whether Defendants were substantial factors or necessary

participants in an unlawful distribution of securities is generally a question of fact

for the jury. Anderson v. Aurotek, 774 F.2d 927, 930, Fed. Sec. L. Rep. P 92,377,

3 Fed.R.Serv.3d 177 (9th

Cir. 1985). Defendants argument before the District

Court was that a transfer agents reasonable reliance upon opinion letters of

counsel in removing restrictive legends is a factor to consider in determining

whether the transfer agent is a substantial participant in an unregistered

distribution.

Summary judgment is generally an inappropriate way to decide questions

of reasonableness because the jury's unique competence in applying the reasonable

man standard is thought ordinarily to preclude summary judgment. Gorman v.

Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157(9th Cir.2009). See also, Cordero

v. Cia Mexicana De Aviacion, S.A., 681 F.2d 669, 672 (9th Cir.1982) ["it is

peculiarly within the province of the trier of fact to determine whether the

defendant's conduct was reasonable.] ; Newman v. Am. Airlines, Inc., 176 F.3d

1128 (9th Cir.1999) [reversed district court's granting of summary judgment,

relying on Cordero to hold that reasonableness must be resolved at trial.]



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The District Court failed to consider Defendants reliance upon opinion

letters in determining whether Defendants substantially participated in an unlawful

distribution. Rather, the District Court first found, as a matter of law, that 1st

Global and Bagley were both necessary participants and substantial factors in the

sale of unrestricted CMKM stock in violation Section 5 of the Securities Act

without considering any arguments regarding reliance upon the opinion of counsel.

[See Order at APP 593:15-16.] The District Court then noted that Section 5 of the

Securities Act is a strict liability statute (citations omitted) [Order at APP 593:24-

6:5]. Only then did the District Court look at the issue of attorney opinion letters

and viewed it as the defense for good faith reliance on the advice of counsel and

applied a traditional analysis to that defense. [See Order at APP 594:6-23). The

failure to submit the matter to a jury and let them consider the reasonableness of

Defendants conduct to decide whether Defendants were substantial factors and

necessary participants in an unregistered distribution is reversible error.

Attorneys who write opinion letters are necessary and substantial

participants in Section 5 violations. See SEC v. Fisher, 2008 U.S. Dist. LEXIS

58477, 10, 12 (E.D. Mich. 2008) (attorney defendant played an integral part in the

transformation of stock from restricted to freely transferable shares). See alsoSEC

v. Ramoil Management. Ltd., 2007 U.S. Dist. LEXIS 79581 ** 27-29 (S.D.N.Y.

2007) (because opinion of counsel was required as to whether shares were legally



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issued in order for shares to be registered as part of an employee benefit plan,

defendant attorney who signed opinion letter was liable for violating Section 5 as a

necessary participant in the sale of unregistered stock); SEC v. Universal Major

Industries Corp., 546 F.2d 1044, 1045-1046 (2d Cir. 1976) (affirming finding that

defendant attorney aided and abetted Section 5 violations where attorney wrote 118

letters that, although purporting to rely on another attorneys opinion letter, could

be construed to satisfy the transfer agents requirement for opinion letters in order

to issue stock, and another 88 letters that were clearly opinion letters).

Thus, the very reason attorneys writing opinion letters are deemed

necessary and substantial participants in section 5 violations is that transfer

agents will rely upon their opinions to lift restrictive legends and reissue

certificates bearing no such legend. There is no legal justification or precedent

for reaching one step below the attorney issuing the opinion to also find transfer

agents who rely upon the opinion liable for Section 5 violations. Yet, in the case

sub judice, the SEC hasn't even named one of the attorneys writing the opinion

letters as a necessary and substantial participant and has jumped straight to

asserting liability of the transfer agent relying upon the opinion of the unnamed

lawyer.

A common thread in cases involving transfer agent liability is the primary

question: did the transfer agent rely upon or refuse to rely upon an opinion of



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counsel in deciding whether to issue or not issue the shares. In Travis Inv. Co. v.

Harwyn Pub. Corp., 288 F.Supp. 519 (D.C.N.Y. 1968), Plaintiff Travis Investment

Company (plaintiff), a Colorado partnership, instituted a diversity action against

defendants Harwyn Publishing Corporation (Harwyn) and its transfer agent

Bankers Trust Company (Bankers), both New York corporations, for damages

resulting from an alleged failure to transfer shares of Class A common stock of

Harwyn (Harwyn stock). At the time Bankers was presented with shares for

transfer, both Bankers and Harwyn had been notified in written form by the S.E.C.

that shares of Harwyn stock might be presented for transfer by persons in a control

relationship with Harwyn and that any proposed transfer which might be a

wrongful transfer under the 1933 Act.5 The action was discontinued as to

Bankers before trial. Judgment was entered in favor of Harwyn after trial. The

court found that, in light of the written notice from the SEC, it was reasonable to

require "further information as to the identity of the owner and a legal opinion

from plaintiff's counsel that the shares were not being tendered by a control

group" before authorizing the transfer. Id. at 526 (emphasis added). This case

suggests that, had Harwyn and Bankers received the additional information and an

5 It is noteworthy that, despite conducting an extensive investigation into CMKM, the SEC neverinformed Bagley or 1st Global about any concerns regarding the wrongful lifting of restrictivelegends from CMKM shares. [Defendants Separate Statement of Undisputed Facts (APP 566Fact 25.)]



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opinion of counsel, the transfer agent should have issued shares notwithstanding

the notice from the SEC.6

In Ajjarapu v. AE Biofuels, Inc., --- F.Supp.2d ----, 2010 WL 2985609

(D.Colo. 2010), a corporation's former president and his wife sued the corporation

and corporation's stock transfer agent for conversion and breach of fiduciary duty

relating to defendants' refusal to reissue plaintiffs' corporate stock without a

restrictive legend. The court denied defendants' motion to dismiss. In doing so,

the court placed heavy emphasis on the fact that the transfer was refused despite

the corporation and its transfer agent being in possession of legal opinions

allowing other shareholders to receive their stock without restrictive legends and

an opinion letter from plaintiffs' private securities' lawyer stating that some of

plaintiffs' shares should be able to be reissued without a restrictive legend.

As set forth hereinbefore, inDewitt v. American Stock Transfer Co., supra.,

the court denied a motion for summary judgment filed by a transfer agent because

reasonableness of the transfer agent's actions was a question of fact. InDewitt, the

6 At various times, SEC representatives audited the issuances of shares 1st Global made inreference to CMKM. On one occasion, an SEC auditor indicated a very few opinion letters

authored by an attorney who pre-dated Dvorak were not sufficient. Bagley returned such lettersto CMKM and they were subsequently replaced by new opinion letters which addressed the SECauditor's concerns. At no time did any representative of the SEC ever raise issues regarding thecontent of the opinion letters of Dvorak or Edwards & Angell. Nor did any SEC representativeever advise Bagley that the issuance of shares without restrictive legend based upon the opinionletters of Dvorak or Edwards & Angell might be part of a scheme to violate the registrationrequirements of Section 5. [Defendants Separate Statement of Undisputed Facts (APP 566 Fact25.)]



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transfer agent refused to issue shares without being provided an opinion of counsel,

believing that the requested transfer might be in violation of securities statutes. In

footnote 5 to the opinion, the court noted as follows: "For all the present record

indicates, it appears that both defendants were genuinely interested in preventing a

transfer which, in all likelihood, required registration or an opinion of counsel

verifying the availability of an exemption from registration." Id at FN5

(emphasis added). Thus, in Dewitt the court implicitly recognized the

reasonableness of issuing shares in reliance upon an opinion of counsel even if the

transfer agent had a belief that the shares might require registration.

d. The Undisputed Facts Raise Genuine Issues RegardingSubstantial Participation

In its motion, the SEC sought summary judgment based solely upon Transfer

Agent Defendants' removal of restrictive legends from stock certificates "based on

certain purported supporting documentation, including board authorizations and

attorney opinion letters from Dvorak." [Motion at APP 42:8-11]. Thus, the SEC

itself conceded that Transfer Agent Defendants never removed a restrictive legend

from shares of CMKM prior to receiving supporting documentation from the

issuer. [See APP 73--SEC Fact 44]. The SEC further conceded that Transfer

Agent Defendants issued stock certificates without restrictive legends based upon

attorney opinion letters provided by the issuer. [See APP 73-74--SEC Fact 45, 47,

48 and 49].



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Defendants submitted their own Separate Statement of Undisputed Facts

which were not challenged by Plaintiff further supporting Defendants reliance

upon attorney opinion letters as follows:

Neither Bagley nor 1st Global ever removed a restrictive legend from a shareof CMKM stock and/or reissued certificates without a legend without firstreceiving the support of an opinion of counsel letter stating that certificatesevidencing the newly issued shares need bear no restrictive legend. [APP565: Separate Statement of Uniputed Facts #16]

Neither Bagley nor 1st Global ever made a new issuance of shares of CMKMstock without first receiving appropriate corporate resolutions authorizing

such issuance. [APP 565: Separate Statement of Uniputed Facts #17]

For most of 2003 and about half of 2004, the opinion letters Bagley reliedupon in determining whether to reissue certificates without restrictive legendwere written by Brian Dvorak. [APP 565: Separate Statement of UniputedFacts #18]

From approximately June 2004 forward, Bagley required CMKM to submitDvorak's opinion letters to D. Roger Glenn of Edwards & Angell for review.

From that point forward, neither Bagley nor 1st

Global would reissuecertificates without restrictive legend unless they had an opinion letter fromEdwards & Angell. [APP 565: Separate Statement of Uniputed Facts #20]

Typically, Edwards & Angell would send both the Dvorak opinion letter andtheir own directing Bagley and 1st Global to reissue shares withoutrestrictive legends. [APP 565: Separate Statement of Uniputed Facts #21]

After CMKM retained Edwards & Angell, Bagley even requested Edwards& Angell review earlier submitted opinions tendered to her by Dvorak.Bagley would not remove restricted legends based solely upon the opinionof Dvorak and requested "a letter to the effect that these [Dvorak's] opinionsare valid." [APP 565: Separate Statement of Uniputed Facts #22]

During most of 2003 and through May of 2004, but/for the receipt ofopinion letters from Dvorak stating that "[Customer name] should be now be



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issued [Number] shares without restrictive legend, as fully paid andnonassessable" neither Bagley nor 1st Global would have removed restrictedlegends from any shares of CMKM stock and/or reissued shares withoutrestrictive lgnd. [APP 566: Separate Statement of Uniputed Facts #26]

From an after June of 2004, but/for the receipt of opinion letters fromEdwards & Angell stating that "the Shares may be issued to the Shareholdersin the amounts set forth above, and that the certificates evidencing theShares need bear no restrictive legend," neither Bagley nor 1st Global wouldhave removed restricted legends from any shares of CMKM stock and/orreissued shares without legend. [APP 566: Separate Statement of UniputedFacts #27]

e. Plaintiffs Proof Regarding Scienter Creates, At Most, GenuineIssues of Material Fact

The SEC's instant motion sets forth only five (5) purportedly undisputed

facts demonstrating negligence or scienter on the part of these Defendants. [See

Motion at APP pg. 43-44]. The five proferred facts all raise the issue of the

reasonableness of Defendants' conduct in relying upon the opinion letters of

Dvorak that the issuance of shares were in compliance with federal registration

requirements. [APP 74--SEC Facts 46, 47, 48, 49 and 50].

The SEC apparently believes it is patently unreasonable, as a matter of law,

for Defendants to rely upon the opinion letters of Dvorak because Begley "just did

not like him." [APP 74--SEC Fact 49]. Frankly, it is hard to believe that any fact

finder would agree with the SEC that a person needs to like an attorney before

relying upon his/her work product.



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Further, the SEC states that Bagley ultimately "asked that any opinions from

Dvorak go through another attorney hired by CMKM" because Bagley "did not

feel comfortable" with Dvorak. [APP 74-- SEC Fact 49]. Far from being evidence

of unreasonableness, the request to obtain a second opinion letter from a licensed

attorney when you don't feel "comfortable" with one attorney is evidence of

imminently reasonable conduct by the transfer agent.

The fact that (1) Bagley would think it strange that CMKM had so many

shares [APP 74--SEC Fact 50]; (2) "nothing this company did made sense to [her]"

[APP 73--SEC Fact 46]; and (3) Bagley relied on attorney opinion letters rather

than questioning someone else about the number of shares outstanding [APP 73--

SEC Fact 47]7 does not render Bagley's reliance on attorney opinion letters

unreasonable and/or remotely prove, as a matter of law, either negligence,

knowledge of the scheme and/or scienter. Given that two licensed attorneys

represented that they had reviewed "such certificates, certified copies of

organizational and governance documents, certificates of good standing,

certifications of factual matters, company resolutions and other records, pertinent

documents and instruments, and have investigated such other matters of law and

fact" as they deemed necessary before rendering their opinions [See Edwards &

Angell opinion letters referenced in APP 565 -- FACT 22], it borders on the

7Who exactly the SEC thinks Bagley should have asked is unknown. Further, as stated herein, Bagley did ask forDvorak's opinion letters to be reviewed by separate counsel [APP 566 -- FACT 23] who then reissued his ownopinion letters that Bagley relied upon [APP 566 -- FACT 27].



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ridiculous to assert that a transfer agent would/should/must ignore attorney opinion

letters and commence her own independent investigation of the propriety of the

stock issuances.

Plaintiff presented no evidence to refute the following claims of Defendants:

Neither Bagley nor 1st Global ever owned, bought or sold a singleshare of CMKM in our own names or in the name of a nominee.[Defendants Separate Statement of Undisputed Facts # 5: APP 563]

No family member of Bagley's and no entity affiliated with any familymember ever owned, bought or sold a single share of CMKM in their

own names or through a nominee. [Defendants Separate Statementof Undisputed Facts # 6: APP 564]

Neither Bagley nor 1st Global ever had a legal or equitable interest inthe proceeds derived from the sale of CMKM stock owned or sold byany person or entity. [Defendants Separate Statement of UndisputedFacts # 7: APP 564]

To Bagley's knowledge, neither she nor 1st Global ever receivedproceeds from the sale of CMKM Diamonds stock by any person orentity. [Defendants Separate Statement of Undisputed Facts # 8:APP 564]

Bagley does not know the original source of any funds received by heror 1st Global from any other defendant or from any entity affiliatedwith any other defendant. [Defendants Separate Statement ofUndisputed Facts # 9: APP 564]

Except for a bona fide loan transaction with John Edwards, whichloan was fully repaid, any funds received by Bagley or 1st Global fromany other defendant or from any entity affiliated with any otherdefendant were for payment of fees for stock transfer servicesprovided to CMKM as well as other issuers unrelated to CMKM.[Defendants Separate Statement of Undisputed Facts # 10: APP 564]



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Bagley was not an officer, director or shareholder of CMKM andnever participated in any decision making process by or for CMKM.[Defendants Separate Statement of Undisputed Facts # 11: APP 564]

Bagley's sole relationship with CMKM was as managing member of1st Global which provided bona fide stock transfer services to CMKM.[Defendants Separate Statement of Undisputed Facts # 12: APP 564]

B. The District Court Erred As A Matter of Law In Finding That

Defendants Transferred Shares To NevWest.

As set forth hereinbefore, the District Court found 1st Global and Bagley to

be substantial factors and necessary participants based upon the following finding:

Global Stock and Bagley issued billions of shares of CMKM stock without the

restrictive legend and then transferred those unrestricted certificates to defendant

NevWest for the purpose of sale to the general public. (emphasis added) [APP

593:19-21]. There is absolutely no evidentiary support for this finding.

To the contrary, the only reference to transferring or delivering shares to

NevWest is found in Plaintiffs Separate Statement of Undisputed Facts #57 and

58. (APP 75).

Rumyantsev knew that Edwards hand delivered several recently issued stockcertificates in CMKM stock to NevWest. [Plaintiffs Separate Statement ofUndisputed Facts #5: APP 75]

Rumyantsev knew that Edwards was delivering to NevWest newly issuedstock certificates in CMKM stock. [Plaintiffs Separate Statement ofUndisputed Facts # 58: APP 75]

Even if it were 1st Global and Bagley who transferred the shares to NevWest

instead of Edwards, that fact would have no significance. The printing of a stock



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certificate and the delivery thereof to the shareholder or the shareholders broker is

a ministerial function.

C. The District Court Erred As A Matter of Law In Finding That

Defendants Issued Shares Based Upon Dvoraks Opinion After

Requesting Opinions From A Second Source.

As set forth previously herein, the District Court made the following finding:

Although defendants claim that they did not remove a singlerestrictive legend from CMKM stock without receiving a supportingopinion letter from counsel, the evidence before the court establishesthat defendants believed that Dvoraks opinion letters were notsupported by the law and requested CMKM to find another attorney tothe write opinion letters supporting removal of the restrictive legends.Further, after requesting a different attorney, defendants continued toremove restrictive legends from CMKM stock based on Dvoraksunsupported opinion letters. [APP 594:16-22]

There is absolutely no evidentiary support for this finding.

In or about June 2004, CMKM hired D. Roger Glenn of the law firm of

Edwards & Angell LLP as counsel.8 Also in or about June 2004, Bagley informed

CMKM that she would no longer remove restrictive legends on shares of stock

based solely upon the opinion of Dvorak. [DEF FACTS # 20, 21, 22 and 23: APP

565-566]. Upon the hiring of Edwards & Angell, Bagley stated that she would

require an opinion letter from Glenn. From that point forward, Transfer Agent

Defendants only removed restrictive legends from shares of stock when Transfer

8 According to the SEC Complaint, the scheme for which Defendants are charged occurred fromJanuary 2003 through May 2005 which included the time period where Edwards & Angell issuedopinion letters.



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Agent Defendants received an opinion letter from Edwards & Angell. [DEF

FACTS # 20, 21, 22 and 23: APP 565-566] Not only did Bagley require an

opinion letter from Edwards & Angell on a going forward basis, but, by letter

dated July 29, 2004, Bagley submitted to Edwards & Angell previously received

opinions authored by Dvorak asking for further review. [DEF FACTS # 23:APP

566]. The letter states as follows:

I would appreciate if you would review these opinions and give1st Global Stock Transfer a letter to the effect that these

opinions are valid. This was a point I made to Mr. Casavantwhen we accepted back CMKM Diamonds, that we would wantyour approval on any of Mr. Dvorak's letters.

Plaintiff has presented no evidence that 1st Global or Bagley issued

certificates based upon the opinion of Dvorak alone after CMKM hired Edwards &

Angell.

D. Genuine Issues Of Fact Exist Regarding Disgorgement

Disgorgement is an available and appropriate equitable remedy for

violations of the securities laws. SEC v. Rind, 991 F.2d 1486, 1493 (9th Cir.

1993). In contrast to damages, which are designed to compensate fraud victims,

disgorgement forces a defendant to surrender his unjust enrichment. See SEC v.

Rind, 991 F.2d at 1493. Plaintiff is required to present evidence of a reasonable

approximation of the defendants ill-gotten gains. SEC v. Platforms Wireless

International Corp., 617 F.3d 1072, 1096 (9th Cir. 2010).



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In its Order, the District Court made no findings regarding the Plaintiffs

right to disgorgement. The sole evidence produced by the SEC upon which they

claim an entitlement to disgorgement is the Declaration of Nina Y. Yamamoto.

The extent of Yamamoto's testimony is that Defendants "received $302,500 from

other Defendants in this action." [See Yamamoto Declaration at paragraph 20:

APP 259.] Yamamoto does not attempt to trace the $302,500 received "from other

Defendants" to any proceeds from the sale of CMKM shares and/or any activities

whatsoever related to CMKM.

Further, Exhibit 13 to the Yamamoto Declaration [APP 390-391] is a

spreadsheet identifying the "Payor's Bank Account" for each transaction whereby

either Bagley or 1st Global received funds "from other Defendants." The payors

are identified as follows: KRKA, LLC; T & T Equity, LLC, 71st Holding, LLC,

Part-time Management, Inc. and Diamond Quality, Inc. None of those entities are

other defendants in this action.

It appears from Yamamoto's Declaration that one or more of the signatories

to the bank accounts of such payors are a defendant in this case. However, there is

no analysis done as to the relationship of these entities to the defendants who are

signatories. Nor is there an analysis provided to suggest that any of these entities

ever owned CMKM shares and/or had proceeds from the sale of CMKM stock



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and/or, if so, whether the accounts had proceeds from the sale of CMKM stock at

the time the payments to Defendants were made.

To say the least, Plaintiff is required to, and has failed to, demonstrate that

Defendants received any ill-gotten gains at all. To create an issue of fact on

Plaintiffs entitlement to disgorgement, Defendants presented the following:

Neither Bagley nor 1st Global ever owned, bought or sold a single shareof CMKM in our own names or in the name of a nominee. [DefendantsSeparate Statement of Undisputed Facts # 5: APP 563]

No family member of Bagley's and no entity affiliated with any familymember ever owned, bought or sold a single share of CMKM in theirown names or through a nominee. [Defendants Separate Statement ofUndisputed Facts # 6: APP 564]

Neither Bagley nor 1st Global ever had a legal or equitable interest in theproceeds derived from the sale of CMKM stock owned or sold by anyperson or entity. [Defendants Separate Statement of Undisputed Facts #7: APP 564]

To Bagley's knowledge, neither she nor 1st Global ever receivedproceeds from the sale of CMKM Diamonds stock by any person orentity. [Defendants Separate Statement of Undisputed Facts # 8: APP564]

Bagley does not know the original source of any funds received by her or1st Global from any other defendant or from any entity affiliated withany other defendant. [Defendants Separate Statement of UndisputedFacts # 9: APP 564]

Except for a bona fide loan transaction with John Edwards, which loanwas fully repaid, any funds received by Bagley or 1st Global from anyother defendant or from any entity affiliated with any other defendantwere for payment of fees for stock transfer services provided to CMKMas well as other issuers unrelated to CMKM. [Defendants SeparateStatement of Undisputed Facts # 10]



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Needless to say, if the funds received by Defendants did not derive from the

alleged misconduct, they cannot be considered "ill-gotten gains." Further, if

Defendants did nothing other than provide ministerial and clerical services as a

transfer agent to CMKM, the SEC is not entitled to disgorgement even if the funds

received were somehow related to misconduct of other defendants any more than it

would be entitled to disgorgement of funds paid to the electric company.

VIII.

CONCLUSION

Defendants clearly brought forward sufficient evidence to allow the issue of

whether Defendants substantially participated in an unlawful distribution of

securities to go to a jury. The District Court imposed liability upon Defendants

based solely on the ministerial and clerical acts of a transfer agent issuing shares in

reliance upon representations of the corporate issuer supported by attorney opinion

letters.

To the extent the District Court based its decision upon findings of conduct

in excess of the performance of ministerial functions, it erred. Finally, the District

Court ordered disgorgement without performing any analysis or making any

findings supporting Plaintiffs entitlement to such relief.



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For the above and foregoing reasons, this Court should reverse the District

Courts granting of summary judgment.

DATED: December 20, 2011.

GORDON SILVER

/s/ Mark S. DzarnoskiMARK S. DZARNOSKI, ESQ.



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CERTIFICATE OF COMPLIANCE PURSUANT TO

FED. R. APP. P. 32(a)(7)(C) AND CIRCUIT RULE 32-1

Pursuant to Fed. R. App. P. 32(a)(7)(C) and Ninth Circuit Rule 32-1, the

attached OPENING BRIEF OF APPELLANTS is proportionally spaced, has a

typeface of 14 points or more, and contains 9,619 words, excluding the parts of the

Brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).


GORDON SILVER




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STATEMENT OF RELATED CASES

PURSUANT TO CIRCUIT RULE 28-2.6

Brian Dvorak has filed an appeal with this Court (Appeal No. 11-17025).

Pursuant to DktEntry: 9, the matter is consolidated with 11-17021.


GORDON SILVER




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PROOF OF SERVICE

I am employed in the County of Clark, State of Nevada. I am over the age

of 18 and not a party to the within action. My business address is 3960 Howard

Hughes Pkwy, 9th Floor, Las Vegas, Nevada 89169.

On December 20, 2011, I served the AMENDEDOPENING BRIEF OF

APPELLANTS on the interested parties in this action by placing a true and

correct copy of each document(s) thereof, enclosed in a sealed envelope addressed

as follows:

Blaine T. Welsh, Esq.US District CourtChief Civil Division333 Las Vegas Blvd. SouthLas Vegas, NV 89101Email: [email protected]

Harold P. Gewerter, Esq.Attorney at Law2705 Airport DriveLas Vegas, NV 89032Email: [email protected]

James L. Edwards, Esq.Parker & Edwards1481 W. Warm Springs Road #135Henderson, NV 89014

Email: [email protected]

John M. McCoy, III, Esq.Regional Trial CounselSecurities and Exchange Commission5670 Wilshire Boulevard, 11th FloorLos Angeles, California 90036-3648Email: [email protected]

John Wesley Hall, Jr., Esq.Law Offices of John Wesley Hall, Jr.,P.A.1202 Main St., Suite 210Little Rock, AR 72202-5057Email: [email protected]

Karen Lynn Matteson, Esq.Securities and Exchange Commission5670 Wilshire Boulevard, 11th Floor

Los Angeles, California 90036-3648Email: [email protected]



45/45

Leslie A. Hakala, Esq.Securities and Exchange Commission5670 Wilshire Boulevard, 11th FloorLos Angeles, California 90036-3648Email: [email protected]

Molly M. White, Esq.Securities and Exchange Commission5670 Wilshire Boulevard, 11th FloorLos Angeles, California 90036-3648Email: [email protected]

/s/ Anna DangAnna Dang, an employee ofGordon Silver


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