Dolphin & Bradbury, Inc. v. SEC

512 F.3d 634 (D.C. Cir. 2008)

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Nature of the Case

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Facts

D, a registered broker-dealer, served as an underwriter for the municipal bonds issued by the Dauphin County General Authority (DCGA) to finance the purchase of Forum Place, an office building in Harrisburg, Pennsylvania. The Pennsylvania Department of Transportation (PennDOT) occupied a substantial portion of Forum Place in July 1988 when the bonds were offered. The lease was scheduled to expire in November 2001. The bonds' maturity dates, ranged from 2003 to 2025. Bradbury (D) the principal in D, believed the move would probably occur around 2001 or 2002. On June 30, 1998, the Secretary of the Department of General Services told DCGA that he expected the state government to use Forum Place as temporary 'swing space' for other state employees after PennDOT moved, but he made no commitments or guarantees. DGCA informed Bradbury (D). DCGA voted to proceed with the bond offering and Forum Place acquisition. PennDOT's plans were discussed at this DCGA meeting. Bradbury (D) generally failed to disclose this information to prospective investors. Documents did not disclose that PennDOT actually planned to leave Forum Place. Financial projections provided to investors assumed the Forum Place leases would continue at the same lease rates until at least 2008. Just one day after the bond transactions closed, PennDOT's old building was imploded. Construction began on the new PennDOT building. In late 2000, PennDOT vacated most of its Forum Place space but continued to pay rent until its lease expired in November 2001. By December, 55% of Forum Place lay vacant, and bondholders forced Forum Place into receivership in 2003. P found that Bradbury (D) violated various securities laws and regulations by failing to disclose PennDOT's planned departure. Bradbury (D) appealed the finding that he acted with scienter. P found Bradbury (D) violated section 17(a) of the Securities Act of 1933, section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.