                                                                              FILED
                            NOT FOR PUBLICATION                               OCT 31 2012

                                                                          MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                         U.S. COURT OF APPEALS



                            FOR THE NINTH CIRCUIT


SECURITIES AND EXCHANGE                          No. 11-15904
COMMISSION,
                                                 D.C. No. 3:08-cv-04238-EMC
        Plaintiff - Appellee,

  v.                                             MEMORANDUM*

RAJ P. SABHLOK,

        Defendant,

  and

MICHAEL C. PATTISON,

        Defendant - Appellant.


                   Appeal from the United States District Court
                      for the Northern District of California
                   Edward M. Chen, Magistrate Judge, Presiding

                      Argued and Submitted October 16, 2012
                            San Francisco, California

Before: TALLMAN, CALLAHAN, and HURWITZ, Circuit Judges.




        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
      1.     Substantial evidence supported the jury’s verdict that Michael

Pattison violated Section 13(b)(5) of the Exchange Act and SEC Rule 13b2-1. See

Harper v. City of Los Angeles, 533 F.3d 1010, 1021 (9th Cir. 2008); Watec Co.,

Ltd. v. Liu, 403 F.3d 645, 651 n.5 (9th Cir. 2005). As a reviewing court we do not

generally appraise the credibility of the witnesses and the weight of the evidence.

See Watec, 403 F.3d at 651 n.5.

      The jury heard sufficient evidence that Pattison regularly cherry-picked the

lowest share price of each quarter to serve as the “grant date” for employee stock

options, and that he submitted documents to E*Trade and auditors that failed to

reflect that options had been so backdated. Pattison wrote an internal controls

memo indicating that his company was not issuing stock options below fair market

value. Pattison made the same representation in his signed letter to auditors, who

testified that Pattison misled them with documents indicating that no compensation

expense was required, even though the accounting principles his company

followed required recognizing such an expense. A reasonable factfinder could

have returned a verdict of liability on this evidence. See SEC v. Todd, 642 F.3d

1207, 1216–17 (9th Cir. 2011).




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      2.     The trial court did not abuse its broad discretion when allowing

several of the SEC’s professional witnesses to give opinion testimony. See Kumho

Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999).

      Rule 701(c) of the Federal Rules of Evidence forbids only lay opinion

testimony that is “based on scientific, technical, or other specialized knowledge

within the scope of Rule 702.” Fed. R. Evid. 701(c). The SEC called several

witnesses with personal roles in reviewing the company’s finances and applicable

reporting obligations for purposes other than this litigation. Insofar as these

percipient witnesses simply recounted those roles, their testimony was not within

the scope of Rule 702.

      These witnesses also occasionally spoke about general legal and accounting

principles that related to their financial review. Even assuming that the trial court

committed error by not treating that testimony as governed by Rule 702, any error

was harmless. See United States v. Figueroa-Lopez, 125 F.3d 1241, 1245 (9th Cir.

1997); United States v. Mendoza, 244 F.3d 1037, 1046–47 (9th Cir. 2001). Even

when the district court abuses its discretion, this Court will reverse only when a

“nonconstitutional error more likely than not affected the verdict.” White v. Ford

Motor Co., 312 F.3d 998, 1006 (9th Cir. 2002), amended by 335 F.3d 833 (9th Cir.

2003). With notice of their identities and an opportunity to depose each lawyer


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and accountant who testified as percipient witnesses, Pattison has not demonstrated

that a Rule 702 hearing or the notice required by Rule 26(a)(2) of the Federal Rules

of Civil Procedure would have likely altered the verdict. Cf. Figueroa-Lopez, 125

F.3d at 1245; Mendoza, 244 F.3d at 1046–47.

      3.     The trial court did not commit reversible error when it admitted a

redacted version of a restated Form 10-K Annual Report as a business record. See

SEC v. Jasper, 678 F.3d 1116, 1124 (9th Cir. 2012). The district court did not

need to affirmatively state that the Form 10-K satisfied the requirements of Rule

702 because, by admitting the document as a business record, the court reached an

independent conclusion that the contents were trustworthy. See Jasper, 678 F.3d at

1124; Fed. R. Evid. 803(6).

      4.     The district court did not abuse its discretion when it imposed a tier-

two civil penalty. See Nat’l Wildlife Fed’n v. Nat’l Marine Fisheries Serv., 524

F.3d 917, 936 (9th Cir. 2008). Based on the jury’s verdict that Pattison acted

knowingly, it was within the district court’s discretion to apply this penalty.

      5.     Nor did the district court abuse its discretion in ordering disgorgement.

The district court has broad equity powers to order disgorgement of “ill-gotten

gains.” SEC v. First Pac. Bancorp, 142 F.3d 1186, 1991 (9th Cir. 1998). We are

satisfied the district court did not abuse its broad discretion by disgorging the


                                           4
amount that Pattison earned from backdating stock options without accurately

reporting the transaction to auditors, the very practice that led to his violations of

securities laws.

      AFFIRMED.




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