                            In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 06-2150
SECURITIES AND EXCHANGE COMMISSION,
                                             Plaintiff-Appellee,
                               v.

RAYMOND J. MCNAMEE,
                                         Defendant-Appellant.

                         ____________
       Appeal from the United States District Court for the
         Northern District of Illinois, Eastern Division.
           No. 05 C 4259—Milton I. Shadur, Judge.
                         ____________
  ARGUED NOVEMBER 27, 2006—DECIDED MARCH 8, 2007
                  ____________


 Before EASTERBROOK, Chief Judge, and ROVNER and
SYKES, Circuit Judges.
  EASTERBROOK, Chief Judge. Raymond McNamee took
part in a scheme to distribute shares of U.S. Wind Farm-
ing, Inc., to the public without registration under the
Securities Act of 1933. William L. Telander, who con-
trolled U.S. Wind Farming, caused it to transfer shares to
McNamee and other persons by sales that purportedly
were exempt from registration under §4(2) of the 1933
Act, 15 U.S.C. §77d(2), because they were not part of
a public distribution. See also Regulation D, 17 C.F.R.
§230.504. The recipients promptly resold these shares to
2                                               No. 06-2150

the market and gave Telander a portion of the proceeds,
demonstrating that the “non-public sale” designation
was a sham. In this transaction, McNamee and the other
intermediaries were underwriters, a term that “means any
person who has purchased from an issuer with a view to,
or offers or sells for an issuer in connection with, the
distribution of any security, or participates or has a direct
or indirect participation in any such undertaking”
(§2(a)(11), 15 U.S.C. §77b(a)(11)). The registration re-
quirement of §5, 15 U.S.C. §77e, therefore applied to all
sales until the shares came to rest in the hands of bona
fide investors and for some time thereafter, since the stock
was unseasoned. See Rule 174, 17 C.F.R. §230.174.
  The Securities and Exchange Commission sought
equitable relief, and on July 25, 2005, the district court
issued a temporary restraining order directing McNamee
and all other participants to comply with the registration
requirement. Both the TRO and the preliminary injunc-
tion that replaced it barred the defendants “from partici-
pating in an offering of penny stock, including engaging
in activities with a broker, dealer, or issuer for purposes
of issuing, trading, or inducing or attempting to induce
the purchase or sale of any penny stock. A penny stock is
any equity security that has a price of less than five
dollars, except as provided in Rule 3a51-1 under [the
Securities Exchange Act of 1934, 17 C.F.R. §240.3a51-1].”
(This language comes from the preliminary injunction; the
TRO was functionally identical.) Thus the district court
barred Telander and associates from (a) distributing
unregistered stock, if securities law calls for registration;
and (b) participating in any offering of penny stock,
registered or not.
  McNamee promptly repeated the proscribed conduct, this
time with one of his own corporations. A month before
the TRO issued, McNamee had caused Energy Finders,
Inc., a firm he controlled, to transfer more than 2.4 million
No. 06-2150                                               3

shares to Primordial Group, LLC, another firm he con-
trolled. The day after the district judge entered the TRO,
McNamee caused Primordial Group to start selling these
shares to the public. Primordial Group sold some 78,000
shares on July 26 and continued selling through August
26. In all, Primordial Group sold 403,827 shares for
$564,738.34. The Energy Finders shares were “penny
stock” and not registered under §5.
  The district court held McNamee in contempt. As a
sanction it directed him to disgorge the proceeds. The fund
will be tapped to repay investors who purchased the
stock from Primordial Group. If these investors or their
transferees cannot be located, or do not elect to sur-
render their shares in exchange for the original purchase
price, then any remaining funds will be transferred to
the Treasury; McNamee cannot receive anything back. The
order added that, if McNamee did not pay within ten days,
the amount he owes would rise $1,000 per day until full
payment had been made. This portion of the order was
stayed, however, before it took effect, so only the obliga-
tion to pay the $565,000 is at issue.
  An order holding a litigant in contempt of court is not
appealable while the litigation continues. See, e.g., Fox v.
Capital Co., 299 U.S. 105 (1936); Doyle v. London Guaran-
tee & Accident Co., 204 U.S. 599 (1907); Hayes v. Fischer,
102 U.S. 121 (1880); Powers v. Chicago Transit Authority,
846 F.2d 1139 (7th Cir. 1988). Resolution must await the
final decision in the litigation. When the disobeyed order
would be independently appealable under an exception to
the final-decision rule, then the contempt citation also
may be appealable. See Central States Pension Fund v.
Wintz Properties, Inc., 155 F.3d 868, 872-74 (7th Cir.
1998); Rimsat, Ltd. v. Hilliard, 98 F.3d 956, 963-64 (7th
Cir. 1996). We say “may be” rather than “is” because this
is an example of pendent appellate jurisdiction, and, as
4                                             No. 06-2150

Rimsat recognized, that doctrine is shaky after Swint v.
Chambers County Commission, 514 U.S. 35, 50-51 (1995).
Whatever scope this doctrine retains does not assist
McNamee, because he not only consented to the terms of
the preliminary injunction but also expressly waived his
right to appeal from its entry. He cannot use his own
defiance to obtain appellate review of the injunction in
the teeth of that waiver.
  As it happens, however, the dispute is no longer inter-
locutory. While this appeal was pending, the district court
entered a permanent injunction. Once a final decision
takes effect, premature notices of appeal spring into
force under Fed. R. App. 4(a)(2). McNamee has filed a
further appeal (No. 07-1351) from the permanent injunc-
tion; we will deal with that appeal separately, as the
issues have little overlap with those that bear on the
contempt adjudication. McNamee tries to contest the
preliminary injunction, using arguments that might also
be deployed against the permanent injunction, but his
waiver (which he did not repeat at the permanent-injunc-
tion stage) forecloses for the time being all arguments
bearing on the propriety of equitable relief. Moreover, the
rule that even invalid injunctions must be obeyed until
stayed or reversed, see Pasadena City Board of Education
v. Spangler, 427 U.S. 424, 439 (1976); United States v.
Mine Workers, 330 U.S. 258, 293-94 (1947); Howat v.
Kansas, 258 U.S. 181, 189-90 (1922), prevents McNamee
from using any supposed defects in the injunction as
defenses to his adjudication in contempt.
  Although the district judge relied on McNamee’s viola-
tion of the penny-stock clause, a violation of the injunc-
tion’s main requirement—that all defendants refrain from
selling unregistered stock when §5 requires registra-
tion—is easy to see. Primordial Group distributed Energy
Finders’ stock to the public as an underwriter. McNamee
was himself an “issuer” for the purpose of identifying an
No. 06-2150                                                5

underwriter, given the clause of §2(a)(11) defining as an
“issuer” anyone who controls the securities’ issuer.
McNamee does not even attempt to argue that §4(2), which
allows non-public sales without registration, applies to
these events. The stock went from Energy Finders to the
public via Primordial Group, at McNamee’s direction.
None of the buyers promised to refrain from swift public
resale (a vital part of any legitimate non-public trans-
action).
  What’s more, because Primordial Group acted as under-
writer, §4(2) could not apply even if the sales had been
restricted to a handful of investors, for §4(2) covers only
“transactions by an issuer”. When an underwriter takes
part, registration is mandatory for every “distribution” of
securities—and McNamee no more argues against the
“distribution” characterization than against the conclu-
sion that the shares were distributed to “the public.” Rule
144, 17 C.F.R. §230.144, provides a safe harbor for insiders
such as McNamee who want to sell their own stock
without registration; McNamee did not try to use Rule 144
and did not come close to meeting its requirements. (Nor
is any other exemption, such as that for intra-state sales,
arguably available.) What McNamee did bears a strong
resemblance to the conduct that landed Louis Wolfson in
prison almost 40 years ago for violating §5 and played
an indirect role in costing Abe Fortas his seat on the
Supreme Court. See United States v. Wolfson, 405 F.2d
779 (2d Cir. 1968). McNamee should not have needed an
injunction to tell him that his scheme was unlawful.
  The district court likely relied on the penny-stock por-
tion of the injunction, rather than the registration portion,
because the penny-stock provision is broader: McNamee
is forbidden to offer penny stock to the public even if it
is registered (or registration is unnecessary). McNamee
surprisingly argues that the penny-stock provision is
narrower and that he did not violate its restrictions. The
6                                              No. 06-2150

opening he sees is the reference in the penny-stock clause
to “an offering” of securities. He may have sold Energy
Finders stock to the public, McNamee allows, but he
insists that he did not make “an offering.” He interprets
“offering” as an all-at-once transaction, as when an
underwriter puts a large bloc of shares up for sale and
does not deliver any until all buyers have placed their
orders. By dribbling stock out to the market over a month,
McNamee believes, he avoided making “an offering.” Louis
Wolfson advanced the same argument; it is no better now
than it was then. (Wolfson also rejected McNamee’s
argument that selling through brokers relieves a control
person of the need to register stock.) An “offering” may
be spread over time. So the Supreme Court held in SEC
v. Ralston Purina Co., 346 U.S. 119 (1953). McNamee
formed a plan to move securities from the issuer to the
public, where they would trade freely; that plan is a “view
to a distribution” and the process as a whole an “offering”
no matter how long it takes to accomplish.
  According to McNamee, however, reliance on advice of
counsel exculpates his conduct. The district judge re-
jected this defense, and sensibly so. First, advice of
counsel may show that a person lacked a culpable intent
and thus may defeat criminal liability, but scienter is not
required in civil-contempt proceedings. See McComb v.
Jacksonville Paper Co., 336 U.S. 187, 191 (1949). Reliance
on the advice of counsel accordingly is not a defense. See
In re Walters, 868 F.2d 665, 668-69 (4th Cir. 1989). Second,
McNamee offered nothing other than his say-so. He did
not produce any letter from a securities lawyer giving
advice that reflected knowledge of all material facts; he
did not produce any opinion letter, period. Nor did
McNamee offer the live testimony of any securities lawyer.
It isn’t possible to make out an advice-of-counsel de-
fense without producing the actual advice from an actual
No. 06-2150                                                 7

lawyer. See Markowski v. SEC, 34 F.3d 99, 104-05 (2d Cir.
1994).
  It is unsurprising that no lawyer could be found to stand
behind the “advice” that McNamee claims to have
received—that the injunction applies exclusively to future
sales of U.S. Wind Farming’s securities, leaving him free
to do as he pleases with any other securities. The injunc-
tion grew out of securities-law violations committed in the
distribution of U.S. Wind Farming’s securities, but it is
not so limited. Injunctions often are designed to fence
in wrongdoers, and this injunction’s terms are general.
The penny-stock provision of the preliminary injunction
reads in full (bracketed material in original; emphasis
added):
    IT IS HEREBY FURTHER ORDERED that Defen-
    dants and their agents, servants, employees,
    attorneys, and those persons in active concert or
    participation with them who receive actual notice
    of this Order by personal service or otherwise, and
    each of them, are preliminarily barred from partic-
    ipating in an offering of penny stock, including
    engaging in activities with a broker, dealer, or
    issuer for purposes of issuing, trading, or inducing
    or attempting to induce the purchase or sale of any
    penny stock. A penny stock is any equity security
    that has a price of less than five dollars, except as
    provided in Rule 3a51-1 under the Exchange Act
    [17 C.F.R. 240.3a51-1].
One is inclined to ask what part of “any” McNamee doesn’t
understand. No lawyer—indeed, no literate person—could
think this portion of the injunction limited to securities of
which U.S. Wind Farming is the issuer. And, quite apart
from the penny-stock portion of the injunction, no securi-
ties lawyer would have told McNamee that his conduct
satisfied §5.
8                                              No. 06-2150

  So far we have treated the adjudication, as the district
court did, as one in civil contempt. McNamee contests this
characterization. He contends that the remedy is criminal
rather than civil—and, if so, further proceedings are
required, for the contempt did not occur in the district
judge’s presence, and McNamee would be entitled to a trial
at which his guilt must be established beyond a reasonable
doubt. Summary judgment is not allowed in criminal
proceedings.
  McNamee calls the order to pay $565,000 punishment
for disobedience; the SEC calls it compensatory. The dif-
ference is vital.
    A contempt fine . . . is considered civil and reme-
    dial if it either “coerce[s] the defendant into com-
    pliance with the court’s order, [or] . . . compen-
    sate[s] the complainant for losses sustained.”
    United States v. Mine Workers, 330 U.S. 258, 303-
    304 (1947). Where a fine is not compensatory, it is
    civil only if the contemnor is afforded an opportu-
    nity to purge. See Penfield Co. of Cal. v. SEC, 330
    U.S. 585, 590 (1947). Thus, a “flat, unconditional
    fine” totaling even as little as $50 announced after
    a finding of contempt is criminal if the contemnor
    has no subsequent opportunity to reduce or avoid
    the fine through compliance. Id., at 588.
Mine Workers v. Bagwell, 512 U.S. 821, 829 (1994) (brack-
eted material in original). The SEC’s theory depends on
the fact that purchasers can recover their outlays from the
fund created by McNamee’s payment. Rescission—the
investor returns the security and receives the purchase
price in return—is the ordinary civil remedy for the sale of
unregistered stock. See sections 11(e) and 12(a) of the 1933
Act, 15 U.S.C. §§ 77k(e), 77l(a).
 The district court’s order differs from rescission in two
ways. First, the investors do not return their stock to the
No. 06-2150                                                     9

seller in exchange for a refund of the purchase price.
Under the district court’s order, the stock is to be can-
celled rather than restored to McNamee or Primordial
Group. If McNamee owned all of the firm’s stock, then
cancellation and return would amount to the same thing;
to the extent outside investors own equity interests,
however, cancellation dilutes McNamee’s stake in favor of
those investors who retain their shares.
  Second, McNamee’s obligation is unconditional. Instead
of reversing the transaction for investors who want their
money back, McNamee must hand over 100% of the
proceeds. To the extent that investors spurn the oppor-
tunity for rescission—as they will if Energy Finders
is trading for more than the purchase price, or they re-
sold for more than that price at any intermediate
point—McNamee’s payment becomes a flat fine.† The
investors keep the stock, while McNamee loses both the
stock and the purchase price. If one third of the investors
tender their stock for rescission, then McNamee has
effectively been ordered to pay treble damages. If only
10% tender, then McNamee has been ordered to pay ten
times the remedial amount, a sum that would be difficult
to justify even if it were described as punitive damages.
See State Farm Mutual Automobile Insurance Co. v.
Campbell, 538 U.S. 408, 425 (2003) (double-digit multipli-
ers are difficult to justify in civil litigation); cf. Phillip
Morris USA v. Williams, No. 05-1256 (U.S. Feb. 20, 2007).
  The district judge did not explain why the order provides
that the purchasers’ shares are cancelled rather than

†
  In late February 2007 Energy Finders, symbol EGYF on the
Pink Sheets, was trading for 29¢ a share, while Primordial
Group realized $1.39 per share in the public sale, so it would be
worthwhile for the buyers and their transferees to accept the
district court’s offer—unless the buyers had sold for a higher
price in the interim. But even if all buyers would find rescission
worthwhile, the tracing problem is potentially serious.
10                                           No. 06-2150

returned to McNamee, or why McNamee must disgorge
100% of the proceeds even if not a single investor decides
to return his stock in exchange for a refund of the pur-
chase price. Nor does the SEC offer an explanation; it
treats the remedy as unexceptionable because McNamee
did not pay Energy Finders for the stock. Whether he gave
value for the shares is disputed but irrelevant. The
question is not Primordial Group’s or McNamee’s tax basis
in the stock but its market value. If McNamee’s grand-
mother had given him Blackacre, with a market value of
$500,000, a federal agency could not confiscate the house
and assert that McNamee hadn’t lost anything, because he
hadn’t paid for the house to begin with. And if McNamee
had violated an injunction directing him to refrain from
selling Blackacre, then an order to surrender the $500,000
purchase price as a fine, while allowing the buyer to keep
the house, would be a criminal sanction. That McNamee
had received Blackacre by gift would not make the sting
of the penalty one cent less than $500,000. Just so with
stock.
  We think it best to remand so that the district judge
may either replace the remedy with rescission or explain
why some punitive component is called for—and, if that
component amounts to a criminal fine, offer McNamee
the procedures required before an adjudication in crim-
inal contempt.
                                VACATED AND REMANDED
No. 06-2150                                        11

A true Copy:
      Teste:

                   ________________________________
                   Clerk of the United States Court of
                     Appeals for the Seventh Circuit




               USCA-02-C-0072—3-8-07
