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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. st 1 GLOBAL STOCK TRANSFER, LLC; HELEN BAGLEY, Defendants/Appellants.

Appeal from the United States District Court for the District of Nevada D.C. No: 2:08-cv-00437-LRH-RJJ

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

GORDON SILVER Mark S. Dzarnoski, Esq. Nevada Bar No. 3398 Email: mdzarnoski@gordonsilver.com 3960 Howard Hughes Parkway Ninth Floor Las Vegas, Nevada 89169 Tel. (702)796-5555 FAX (702)369-2666 Attorneys for Defendants/Appellants 1 GLOBAL STOCK TRANSFER, LLC; HELEN BAGLEY
st

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TABLE OF CONTENTS I. JURISDICTIONAL STATEMENT ............................................................5

II. STATEMENT OF THE ISSUES .................................................................6 III. STATEMENTOF THE CASE .....................................................................7 IV. STATEMENT OF THE FACTS ..................................................................9 V. SUMMARY OF ARGUMENT...................................................................11 VI. STANDARD OF REVIEW .........................................................................13 VII.ARGUMENT ...............................................................................................13 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 ...................................................................13 B. The District Court Erred As A Matter Of Law In Finding That Defendants Transferred Shares To NevWest ................................................34 C. The District Court Erred As A Matter Of Law In Finding That Defendants Issued Shares Based Upon Dvoraks Opinion After Requesting Opinion From A Second Source....................................................................35 D. 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, 28 Anderson 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, 24 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) ....................................14 Bergt v. Ret Plan for Pilot Employed by MarkAr, Inc., 293 F.3d 1139, 1142 (9th Cir. 2002) ..............................................................................................................13 Calderone v. United States, 799 F.2d 254, 259 (6th Cir. 1986) ...............................14 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) ................................................14 Cordero v. Cia Mexicana De Aviacion, S.A., 681 F.2d 669, 672 (9th Cir. 1982) ....24 County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001) 14 Dewitt v. American Stock Transfer Co., supra, ................................................ 28, 29 Durang, 711 F.2d 141, 143 (9th Cir. 1983) ..............................................................14 Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009) .........24 Indema v. Dreamworks, Inc., 162 F. Supp. 2d 1129, 1141 (C.D. Cal. 2001) .........14 J&G Investments, LLC v. Fineline Properties, Inc., Slip Copy, 2007 WL 928642, ____ (N.D.Ohio, 2007) .........................................................................................17 Kaw 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) ......13 Newman v. Am. Airlines, Inc., 176 F.3d 1128 (9th Cir. 1999) .................................24 Pinter 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) .........................17 SEC v. Chinese Consol. Benev. Ass'n, Inc., 120 F.2d 738, 741 (2d Cir. 1941) .......15 SEC 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) .......................................15 SEC v. Murphy, 626 F.2d 633, 649, 650-51 (9th Cir. 1980) ....................................15 SEC v. Ramoil Management, Ltd., 2007 U.S. Dist. LEXIS 79581 ** 27-29 (S.D.N.Y. 2007)....................................................................................................25 SEC v. Rogers, 790 F.2d 1450, 1456 (9th Cir. 1986) ...............................................17 SEC v. Universal Major Corp., 546 F.2d 1044, 1045, 1046 (2d Cir. 1976) ...........26 Travis Inv. Co. v. Harwyn Pub. Corp., 288 F.Supp 519 (D.C.N.Y. 1968) .............27 Wassel v. Eglowsky, 339 F.Supp. 1330, 1348, 1367 (D.C. Md 1975).............. 11, 18
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Statutes 15 U.S.C. 77v(a) .....................................................................................................5 15 U.S.C. 77t(b) ......................................................................................................5 15 U.S.C. 77t(d)(1) .................................................................................................5 15 U.S.C. 78aa ........................................................................................................5 15 U.S.C. 78u(d)(1).................................................................................................5 15 U.S.C. 78u(d)(3)(A) ...........................................................................................5 15 U.S.C. 78u(e) .....................................................................................................5 28 U.S.C. 1291 ........................................................................................................6 Other Authorities SEC Adopted Rule 17Ad-2(a) .................................................................................20 SEC Reply, Defrees, Fiske, Voland, Alberts & Hoffman, CCH Fed.Sec.L.Rep. P78, 745 ('71-'72 Transfer Binder) .......................................................................19 Rules Nev.Rev.Stat. 104.8401 ...........................................................................................21 Nev.Rev.Stat. 104.8401(1).......................................................................................21 Nev.Rev.Stat. 104.8401(2).......................................................................................21 Nev.Rev.Stat. 104.8407 ...........................................................................................21 Regulations Securities Exchange Act of 1933 .................................................. 5, 9, 11, 15, 19, 27 Securities Exchange Act of 1933 20(b) ..................................................................5 Securities Exchange Act of 1933 20(d)(1) .............................................................5 Securities Exchange Act of 1933 22(a) ..................................................................5 Securities Exchange Act of 1934 21(d)(1) .............................................................5 Securities Exchange Act of 1934 21(d)(3)(A) ........................................................5 Securities Exchange Act of 1934 21(e) ..................................................................5 Securities Exchange Act of 1934 27 .......................................................................5 Uniform 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 1st 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 against

defendants 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 Summary

Judgment. [APP 28-435: Docket No. 161]. 3. On January 14, 2011, 1st Global and Bagley filed the following: a. Docket No. 166]; b. No. 170]; c. Declaration of Mark S. Dzarnoski in Support of Opposition to Separate Statement of Undisputed Facts [APP 563-567: Docket Opposition to Motion for Summary Judgment [APP 453-478:

Summary Judgment [APP 499-558: Docket No. 168]; d. Declaration of Helen Bagley in Support of Opposition to

Summary Judgment [APP 479-498: Docket No. 167 ]; and e. 4. Exhibit List [APP 559-562: Docket No. 169].

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 568588: Docket No. 175]. 5. By Order issued July 25, 2011 (APP 589-598: 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. 6. as follows: a. 1ST Global and Bagley were both necessary participants and In granting Plaintiff Motion for Summary Judgment, the Court found

substantial factors in an unregistered sale of a security. b. 1st Global and Bagley transferred unrestricted certificates to

defendant NevWest for the purpose of sale to the general public. c. 1st Global and Bagley 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. 7. Also on July 25, 2011, the District Court filed a Judgment in a Civil

Case. (APP 599-601: Docket No. 182). 8. On August 1, 2011, the District Court filed its Final Judgment Of

Permanent Injunction and Other Relief Against Defendants 1st Global Stock

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Transfer, LLC, Helen Bagley, Sergey Rumyantsev and Brian Dvorak (APP 602608: 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 review article implies, i.e., the neglected child of the securities industry.FN67 As to the transfer agent, the web of federal regulation and control which has specifically covered most portions of the securities industry has not yet been generally so extended.FN68 No case has been cited to or located by this Court 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 to a 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. 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 See Lawrence v. Dept of

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. Jefferson Sch. 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. Transfer Agents Are Not Generally Considered Substantial Participants in Securities Transactions

a.

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).

Anderson discussed the substantial factor and necessary participant tests within the context of a Section 12 case rather than a Section 5 case. Pinter v. Dahl, 486 U.S. 622 (1988) questioned the applicability of such a test under Section 12 but not Section 5. 15

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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 the transfer agent who removed the restrictive legend from the unregistered stock, 1st Global and its principal, Bagley, were necessary participants and substantial factors in the unregistered distribution 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 1st Global and Bagley then transferred those unrestricted certificates to defendant NevWest for the purpose of sale to the general public is without evidentiary support in the record and is directly contradicted by Plaintiffs Separate Statement of Undisputed Facts #57 and #58. 16

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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 that provided in a SEC Staff Reply to an inquiry as to the duties of transfer agents in connection with removal of restrictive legends from stock certificates.

In this case, 1st Global charged a fee of a mere $15.00 per certificate cancelled or issued for its services. The "practical reality" is that a transfer agent charging $15.00 per transaction cannot be expected to perform its own legal investigation regarding the legality of issuance of shares. [See DEFENDANTS' SEPARATE STATEMENT OF UNDISPUTED FACTS ("APP 565: Fact 15)]. 18

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As presently drafted, neither Rule 144 nor its accompanying release speak to any specific procedures to be followed by a company and its transfer agent in connection with the removal of restrictive legends. The burden of policing the utilization of the exemption provided by Section 4(2) of the Securities Act of 1933 and the determination of the specific means by which this is accomplished rests ultimately with the issuer of the securities involved. Rule 144 would not alter these obligations in any way. Consequently, the particular procedures a company and its transfer agent may wish to adopt concerning the removal of restrictive legends in the context of sales pursuant to Rule 144 is within the discretion of those parties and the responsibility for the effectiveness of those procedures lies with them. In closing, while the transfer agent has no greater responsibility under Rule 144 than under the present system, it should be noted that if the agent knows or has reason to know that an illegal distribution would occur in connection with transactions pending before him, he should take appropriate steps to forestall such a distribution from taking place. (Emphasis supplied.) SEC Reply, Defrees, Fiske, Voland, Alberts & Hoffman, CCH Fed.Sec.L.Rep. P78, 745 (71-72 Transfer Binder). 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.
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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

As set forth hereinbefore, 1st Global charged CMKM only $15.00 per transaction to perform the ministerial and clerical services of cancelling and issuing shares. 23

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c.

A Transfer Agents Reasonable Reliance Upon Opinion Letters of 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 593:246:5]. 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 also SEC 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

It is noteworthy that, despite conducting an extensive investigation into CMKM, the SEC never informed Bagley or 1st Global about any concerns regarding the wrongful lifting of restrictive legends from CMKM shares. [Defendants Separate Statement of Undisputed Facts (APP 566 Fact 25.)] 27

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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, in Dewitt 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. In Dewitt, the

At various times, SEC representatives audited the issuances of shares 1st Global made in reference 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 letters to CMKM and they were subsequently replaced by new opinion letters which addressed the SEC auditor's concerns. At no time did any representative of the SEC ever raise issues regarding the content of the opinion letters of Dvorak or Edwards & Angell. Nor did any SEC representative ever advise Bagley that the issuance of shares without restrictive legend based upon the opinion letters of Dvorak or Edwards & Angell might be part of a scheme to violate the registration requirements of Section 5. [Defendants Separate Statement of Undisputed Facts (APP 566 Fact 25.)] 28

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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 Regarding Substantial 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 share of CMKM stock and/or reissued certificates without a legend without first receiving the support of an opinion of counsel letter stating that certificates evidencing the newly issued shares need bear no restrictive legend. [APP 565: Separate Statement of Uniputed Facts #16] Neither Bagley nor 1st Global ever made a new issuance of shares of CMKM stock 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 relied upon in determining whether to reissue certificates without restrictive legend were written by Brian Dvorak. [APP 565: Separate Statement of Uniputed Facts #18] From approximately June 2004 forward, Bagley required CMKM to submit Dvorak's opinion letters to D. Roger Glenn of Edwards & Angell for review. From that point forward, neither Bagley nor 1st Global would reissue certificates without restrictive legend unless they had an opinion letter from Edwards & Angell. [APP 565: Separate Statement of Uniputed Facts #20] Typically, Edwards & Angell would send both the Dvorak opinion letter and their own directing Bagley and 1st Global to reissue shares without restrictive 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 opinion of Dvorak and requested "a letter to the effect that these [Dvorak's] opinions are valid." [APP 565: Separate Statement of Uniputed Facts #22] During most of 2003 and through May of 2004, but/for the receipt of opinion letters from Dvorak stating that "[Customer name] should be now be
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issued [Number] shares without restrictive legend, as fully paid and nonassessable" neither Bagley nor 1st Global would have removed restricted legends from any shares of CMKM stock and/or reissued shares without restrictive lgnd. [APP 566: Separate Statement of Uniputed Facts #26] From an after June of 2004, but/for the receipt of opinion letters from Edwards & Angell stating that "the Shares may be issued to the Shareholders in the amounts set forth above, and that the certificates evidencing the Shares need bear no restrictive legend," neither Bagley nor 1st Global would have removed restricted legends from any shares of CMKM stock and/or reissued shares without legend. [APP 566: Separate Statement of Uniputed Facts #27] e. Plaintiffs Proof Regarding Scienter Creates, At Most, Genuine Issues 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
7

Who exactly the SEC thinks Bagley should have asked is unknown. Further, as stated herein, Bagley did ask for Dvorak's opinion letters to be reviewed by separate counsel [APP 566 -- FACT 23] who then reissued his own opinion 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 single share 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 family member ever owned, bought or sold a single share of CMKM in their own names or through a nominee. [Defendants Separate Statement of Undisputed Facts # 6: APP 564] Neither Bagley nor 1st Global ever had a legal or equitable interest in the proceeds derived from the sale of CMKM stock owned or sold by any person or entity. [Defendants Separate Statement of Undisputed Facts # 7: APP 564] To Bagley's knowledge, neither she nor 1st Global ever received proceeds from the sale of CMKM Diamonds stock by any person or entity. [Defendants Separate Statement of Undisputed Facts # 8: APP 564] Bagley does not know the original source of any funds received by her or 1st Global from any other defendant or from any entity affiliated with any other defendant. [Defendants Separate Statement of Undisputed Facts # 9: APP 564] Except for a bona fide loan transaction with John Edwards, which loan was fully repaid, any funds received by Bagley or 1st Global from any other defendant or from any entity affiliated with any other defendant were for payment of fees for stock transfer services provided 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 and never 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 of 1st 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 stock certificates in CMKM stock to NevWest. [Plaintiffs Separate Statement of Undisputed Facts #5: APP 75] Rumyantsev knew that Edwards was delivering to NevWest newly issued stock certificates in CMKM stock. [Plaintiffs Separate Statement of Undisputed 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 single restrictive legend from CMKM stock without receiving a supporting opinion letter from counsel, the evidence before the court establishes that defendants believed that Dvoraks opinion letters were not supported by the law and requested CMKM to find another attorney to the write opinion letters supporting removal of the restrictive legends. Further, after requesting a different attorney, defendants continued to remove restrictive legends from CMKM stock based on Dvoraks unsupported 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

According to the SEC Complaint, the scheme for which Defendants are charged occurred from January 2003 through May 2005 which included the time period where Edwards & Angell issued opinion letters. 35

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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 give 1st Global Stock Transfer a letter to the effect that these opinions are valid. This was a point I made to Mr. Casavant when we accepted back CMKM Diamonds, that we would want your 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 share 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 family member ever owned, bought or sold a single share of CMKM in their own names or through a nominee. [Defendants Separate Statement of Undisputed Facts # 6: APP 564] Neither Bagley nor 1st Global ever had a legal or equitable interest in the proceeds derived from the sale of CMKM stock owned or sold by any person or entity. [Defendants Separate Statement of Undisputed Facts # 7: APP 564] To Bagley's knowledge, neither she nor 1st Global ever received proceeds from the sale of CMKM Diamonds stock by any person or entity. [Defendants Separate Statement of Undisputed Facts # 8: APP 564] Bagley does not know the original source of any funds received by her or 1st Global from any other defendant or from any entity affiliated with any other defendant. [Defendants Separate Statement of Undisputed Facts # 9: APP 564] Except for a bona fide loan transaction with John Edwards, which loan was fully repaid, any funds received by Bagley or 1st Global from any other defendant or from any entity affiliated with any other defendant were for payment of fees for stock transfer services provided to CMKM as well as other issuers unrelated to CMKM. [Defendants Separate Statement 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. Dzarnoski MARK 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). DATED: December 20, 2011. GORDON SILVER

/s/ Mark S. Dzarnoski MARK S. DZARNOSKI, ESQ.

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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. DATED: December 20, 2011. GORDON SILVER

/s/ Mark S. Dzarnoski MARK S. DZARNOSKI, ESQ.

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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 AMENDED OPENING 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 Court Chief Civil Division 333 Las Vegas Blvd. South Las Vegas, NV 89101 Email: Blaine.Welsh@usdoj.gov Harold P. Gewerter, Esq. Attorney at Law 2705 Airport Drive Las Vegas, NV 89032 Email: Harold@gewerterlaw.com James L. Edwards, Esq. Parker & Edwards 1481 W. Warm Springs Road #135 Henderson, NV 89014 Email: ecf@beckeylaw.com John M. McCoy, III, Esq. Regional Trial Counsel Securities and Exchange Commission 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036-3648 Email: mccoyj@sec.gov John Wesley Hall, Jr., Esq. Law Offices of John Wesley Hall, Jr., P.A. 1202 Main St., Suite 210 Little Rock, AR 72202-5057 Email: tjl@forhall.com Karen Lynn Matteson, Esq. Securities and Exchange Commission 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036-3648 Email: mattesonk@sec.gov

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Leslie A. Hakala, Esq. Securities and Exchange Commission 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036-3648 Email: hakalal@sec.gov

Molly M. White, Esq. Securities and Exchange Commission 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036-3648 Email: whitem@sec.gov

/s/ Anna Dang Anna Dang, an employee of Gordon Silver