The Ninth Circuit may perhaps be correct that these particular defendants might not have done anything wrong. They certainly didn't do nearly as much wrong as the principals.
Nonetheless, I'd be lying if I said that the scope of the underlying fraud doesn't affect me. Here's the basic scoop (from the Ninth Circuit's opinion):
"CMKM, holding itself out as a gold and diamond mining company, increased its number of shares to 800 billion. Urban Casavant and John Edwards, respectively CMKM’s CEO and director of 'post-merger matters,' then began issuing and selling shares of unrestricted stock. CMKM in fact had no legitimate operations. The company issued false press releases, operated a promotional racing team that traveled around the country, and provided investors with fake maps and videos of mineral operations in North and South America. The proceeds of the stock sales were used primarily to finance the personal lifestyles of Casavant and Edwards. As a result of the scheme, approximately 40,000 investors lost at least $64.2 million."
My gut tells me that the appropriate sentence for such conduct is . . . oh, I don't know . . . around 50 years in prison. I'm sure the guidelines call for less. And were I to actually have to sentence real people, in a real life courtroom, I would likely give 'em less than that.
But I still view the underlying facts as egregious. Deliberate and pervasive theft, of millions of dollars. You go to prison for that, in my view. For a long time.
And, I know, this is a civil case. And yes, I know, this is a civil case against players who had indisputably had a more "minor" role than the major players. Perhaps even people who were simply "doing their job" as attorneys and transfer agents and the like, and who didn't know about the fraud or actively participate in it.
But you know what? The fact that these defendants made half a million or so from this scheme (or at least that was the district court's disgorgement order), and the nature of the scheme itself, makes me more than a little suspicious. We're talking about a company you've never heard of trading OTC on the "pink sheets". A company that you know has issued 800 billion -- that's "billion" with a "b" -- shares. To say that those are red flags is an understatement. When you're making half a million dollars or so on the deal, you know what? You better keep yourself informed. You better make sure you're not helping to scam people out of millions. And while I know I'll require more before I put you in prison, if the only thing you face is disgorgement of your ill-gotten booty, well, to be honest, that's not something that completely freaks me out. Maybe if you know you're going to lose your stash you'll think twice about turning a blind eye to the millions of warning signs at confront you when you're helping to register and transfer 800 billion shares and writing 350 opinion letter telling people that everything's cool.
Could you do all of that and be entirely innocent? Yes. It's possible you could. But is it also possible that -- deep down or otherwise -- you've got a pretty good sense of what's actually going on here? And/or know enough to shut up, keep your head down, and just be happy making your many trips to the bank?
Darn tooting. To prevent that danger, if the SEC orders disgorgement, does it freak me out? No. It does not.
So I'm not saying that the panel here gets it wrong. But I'm also saying that people shouldn't help other people commit massive frauds, and if people know that any benefits from their potential involvement in such conduct may well be clawed back by the SEC, I bet they'll be more careful.
And that's not such a bad thing at all.