[00:00:00] Speaker 04:
The third case for this morning is SEC versus Reven Holdings, 24-1235.

[00:00:10] Speaker 04:
Council for Appellant, if you'd make your appearance and proceed, please.

[00:00:14] Speaker 02:
Thank you, Your Honor.

[00:00:15] Speaker 02:
May it please the Court, John Schreiber of Winston and Strawn, on behalf of the appellants, Revin Holdings, Revin Pharmaceuticals, and their officers, Peter Lang, Brian Denemy, and Michael Voak, who are all here today.

[00:00:33] Speaker 02:
With the Court's permission, I'd like to reserve three minutes for rebuttal, if I may.

[00:00:37] Speaker 02:
This case is an unfortunate example, not only of the SEC overreaching,

[00:00:44] Speaker 02:
but of allowing itself to be weaponized and used as an instrument by a small group of Reven's own investors and one of its former employees.

[00:00:53] Speaker 02:
This group sought to create their own competing business in connection with which they sought to appropriate Reven's intellectual property for itself.

[00:01:02] Speaker 02:
As remarkable as that may sound, the undisputed evidence on these points, which the district court wholly ignored, is summarized with record citations at pages 13 to 15 of our opening brief.

[00:01:15] Speaker 02:
As detailed there, in furtherance of these hostile efforts, in mid-October of 2022, this group reached out to the SEC in the hope of tying up Reven and its principles in protracted litigation.

[00:01:29] Speaker 02:
It worked.

[00:01:31] Speaker 02:
Within weeks of this group reaching out to the SEC, the SEC filed an ex parte application for a TRO seeking, among other things, to enjoin Reven's principles from offering or selling securities

[00:01:45] Speaker 02:
a mandatory injunction, and to freeze all of the company's assets as well as the individual assets of the Reven principles.

[00:01:55] Speaker 02:
This was a broad asset freeze.

[00:01:57] Speaker 02:
We're not talking about blocking the transfer of a particular parcel of property.

[00:02:03] Speaker 02:
or in joining the company from selling particular assets.

[00:02:06] Speaker 02:
This was an asset freeze that applied to all assets, funds, or other property of any kind, including without limitation intellectual property, including patents and trademarks.

[00:02:20] Speaker 02:
It also applied to any and all bank, brokerage, and other financial accounts, both of the company and of the individuals.

[00:02:28] Speaker 02:
In other words,

[00:02:29] Speaker 02:
The asset freeze was intended to, and unfortunately did, shut down the company's operations entirely, as well as the lives of the individual defendants here.

[00:02:39] Speaker 03:
Counsel, can we get to some of the district court findings about misstatements?

[00:02:43] Speaker 03:
I'm going to ask you about the second group, which were the audits, the required audits before going public.

[00:02:49] Speaker 03:
Your opening brief says repeatedly that

[00:02:51] Speaker 03:
The district court essentially ignored evidence about having the prerequisite audits, but I wanted to ask about three different slide presentations that were sent investors in November and December 2021.

[00:03:04] Speaker 03:
And the district court quotes from these slides that say that the company, quote, has the minimum required two years of audited financial statements.

[00:03:12] Speaker 03:
But I don't see you really contest that finding in your briefs.

[00:03:15] Speaker 03:
Do you agree those were false statements?

[00:03:17] Speaker 02:
Two things on that, Your Honor.

[00:03:19] Speaker 02:
No, we don't.

[00:03:21] Speaker 02:
Or at least in context, I think there was testimony that the district court received, although not live.

[00:03:27] Speaker 02:
since he didn't hold a hearing.

[00:03:29] Speaker 02:
But there was testimony that put that in context, that the slides were intended to reflect what would be the case.

[00:03:35] Speaker 03:
Well, but the slides say Reven, quote, has the minimum required two years of audited financial statements.

[00:03:41] Speaker 03:
Did they have those two years of audited financial statements?

[00:03:44] Speaker 02:
They did not, Your Honor.

[00:03:45] Speaker 03:
So then you agree it's a false statement?

[00:03:46] Speaker 02:
I would agree that that literally taken was not true.

[00:03:50] Speaker 02:
I think most of what we had put forward here, again, CNTER is a major component here.

[00:03:57] Speaker 02:
It's a component both of two showings really that the SEC had to make here.

[00:04:02] Speaker 02:
They had to make a clear showing of a violation of the securities laws, which would include showing materially false and misleading statements with CNTER.

[00:04:12] Speaker 02:
Now for Section 17, negligence would be enough.

[00:04:15] Speaker 02:
For Section 10, it's not.

[00:04:16] Speaker 03:
You need more, at least recklessness, which is... But you are challenging the district court's findings in this regard and asking us to overturn those findings.

[00:04:27] Speaker 03:
But there were clear false statements made.

[00:04:30] Speaker 03:
So isn't that a pretty heavy lift for us to now say, well, the district court clearly abused its discretion in making these findings when

[00:04:38] Speaker 03:
There were just false statements being made by the company to the investors.

[00:04:43] Speaker 02:
Your Honor, I appreciate the question.

[00:04:45] Speaker 02:
That's only one element of one component of what the SEC had to show here.

[00:04:50] Speaker 02:
So to show a violation of the securities laws, it's a clear showing they had to make.

[00:04:56] Speaker 02:
And they have to show a materially false or misleading statement.

[00:04:59] Speaker 02:
So even if we acknowledge that is materially false and misleading, we didn't.

[00:05:02] Speaker 02:
We challenged mainly materiality.

[00:05:05] Speaker 02:
on that and looking at the total context of information available to investors.

[00:05:09] Speaker 02:
But even accepting that that is a materially false and misleading statement, the SEC also had to make a clear showing of Cienter, even just for prong one, to show a violation of the securities laws.

[00:05:21] Speaker 02:
And because the SEC sought a mandatory injunction, it had to show not only the clear violation, but that that violation was likely to recur.

[00:05:30] Speaker 02:
And there, the Cienter requirement has more teeth.

[00:05:33] Speaker 02:
Negligence is not enough.

[00:05:35] Speaker 00:
I don't follow you on that, counsel.

[00:05:37] Speaker 00:
I'm sorry.

[00:05:38] Speaker 00:
OK.

[00:05:41] Speaker 00:
They didn't have anything that they said they did.

[00:05:43] Speaker 00:
They were overpaid by about $5 million.

[00:05:47] Speaker 00:
They didn't have any financial statements.

[00:05:52] Speaker 00:
What is it that the court should have done in the face of that?

[00:05:57] Speaker 02:
Your Honor, with all due respect, the individual defendants were not overpaid.

[00:06:04] Speaker 00:
I'm sorry, the what?

[00:06:05] Speaker 02:
They were not overpaid.

[00:06:06] Speaker 02:
The unchallenged forensic accounting evidence.

[00:06:09] Speaker 00:
Well, forget the forensic evidence.

[00:06:12] Speaker 00:
What did they actually do and what had they told the people that were going to invest?

[00:06:19] Speaker 00:
Here's what we're going to pay.

[00:06:21] Speaker 00:
And in fact, they took $5 million more than that.

[00:06:25] Speaker 00:
Now, whether they were entitled to that, had the thing going on, and they've been successful.

[00:06:33] Speaker 00:
But it didn't happen that way.

[00:06:35] Speaker 00:
And they've got, oh yeah, we've got two audited financial statements.

[00:06:40] Speaker 00:
They didn't even have an auditor.

[00:06:42] Speaker 00:
They hadn't even had an auditor.

[00:06:47] Speaker 00:
So where do we go with that?

[00:06:48] Speaker 02:
Well, two separate components to that, Your Honor.

[00:06:52] Speaker 02:
The SEC's original theory here

[00:06:54] Speaker 02:
was that the individual defendants had built investors and essentially stolen $8.8 million of investors' money for their own benefit.

[00:07:05] Speaker 02:
That was conclusively rebutted through forensic accounting evidence, and the SEC did not oppose that forensic accounting evidence.

[00:07:13] Speaker 03:
Why does that matter?

[00:07:14] Speaker 03:
We're worried about what the district court's findings were.

[00:07:17] Speaker 03:
And as Judge Kelly pointed out, the district court found

[00:07:20] Speaker 03:
that what they received is different than what they told investors they received.

[00:07:23] Speaker 03:
Now, whether they could have gotten, you know, were entitled to more, sure.

[00:07:26] Speaker 03:
But you also say in your brief, well, the investors could have, you know, they could have uncovered this information themselves about what they're entitled to receive.

[00:07:35] Speaker 03:
But it doesn't change.

[00:07:36] Speaker 03:
You can't say, well, the investors, they could have uncovered the lie.

[00:07:38] Speaker 03:
It's still, but it's a lie, isn't it?

[00:07:40] Speaker 03:
That's what we're struggling with, is the district court's findings.

[00:07:43] Speaker 02:
I appreciate that, Your Honor.

[00:07:44] Speaker 02:
And let me put it this way, especially given the limited amount of time I have.

[00:07:49] Speaker 02:
We are challenging the district court's findings and asserting that there is an abuse of discretion in four respects.

[00:07:56] Speaker 02:
What we focused on here so far is really just the first one, is whether the SEC made a clear showing of a violation of the securities laws.

[00:08:04] Speaker 02:
Even if it did, you don't get to an injunction, and you surely don't get to this level of an asset freeze.

[00:08:11] Speaker 02:
There was a materially false or misleading statement or three, whatever it was.

[00:08:15] Speaker 02:
That is step one.

[00:08:17] Speaker 02:
Step two, because this is a mandatory injunction, the SEC had to go further and had to show, make a clear showing that the defendants were likely, these violations were likely to recur.

[00:08:28] Speaker 02:
That is a Cienter analysis that goes beyond the first showing.

[00:08:32] Speaker 02:
They had to show something akin to intent.

[00:08:35] Speaker 02:
Negligence is not enough.

[00:08:37] Speaker 02:
Recklessness could be enough.

[00:08:39] Speaker 00:
So we just take their word that, well, we did all these things wrong, but we're not going to do it again.

[00:08:45] Speaker 00:
Is that your position?

[00:08:47] Speaker 02:
That is the testimony.

[00:08:49] Speaker 02:
Again, we didn't have a hearing here.

[00:08:50] Speaker 02:
That's one of the issues I'll get to.

[00:08:51] Speaker 02:
But there was testimony through declarations and depositions

[00:08:55] Speaker 02:
that the district court did have the benefit of that explained in context where these statements came from, I would submit that at most they're innocent mistakes or negligence, but that does not get you to a clear showing that they're likely to recur.

[00:09:12] Speaker 02:
Again, that's a heightened showing of Cienter, but even if the SEC could make both of those showings

[00:09:18] Speaker 02:
You still have the asset freeze, and there the district court belatedly acknowledged that it would have to address the balance of hardships as well as the public interest.

[00:09:30] Speaker 04:
Well, before getting to the asset freeze and focusing on the injunction itself, sort of implicit in your two-step process is

[00:09:38] Speaker 04:
the statutory standard was, but then the Supreme Court tell us after Starbucks that for the preliminary injunction, we were supposed to be looking at the winter test, right?

[00:09:47] Speaker 02:
Yes.

[00:09:48] Speaker 04:
Okay, well, the winter test has more than two parts of it.

[00:09:52] Speaker 02:
Yeah, it's both.

[00:09:53] Speaker 02:
What do you mean both?

[00:09:55] Speaker 04:
Winter is the test that we need to look at for the injunction, right?

[00:10:00] Speaker 02:
What the SEC had to show, and I think at least as it stated the standard district court got it right,

[00:10:05] Speaker 02:
It had to make a clear showing of a securities violation as well as the likelihood that it would recur because it was mandatory.

[00:10:12] Speaker 02:
You also have to show the traditional four elements, which would include balance of hardships and the public interest.

[00:10:18] Speaker 04:
And what authority do you have for the belt and suspenders?

[00:10:21] Speaker 04:
Starbucks says that we know you don't apply what the statutory standard was.

[00:10:26] Speaker 04:
You apply the winter test.

[00:10:28] Speaker 04:
Now, they may overlap, granted, on likelihood of success on the merits.

[00:10:34] Speaker 04:
What is it?

[00:10:34] Speaker 04:
Where do you get the notion that we're now in a belt and suspenders world?

[00:10:38] Speaker 02:
That is not the reading, certainly not the reading the district court had, and it's not our reading of Starbucks that it didn't undo the clear showing analysis for the SEC.

[00:10:49] Speaker 02:
What Starbucks says is that those four traditional elements still must be shown.

[00:10:55] Speaker 04:
These traditional elements that were in the winter's test?

[00:10:57] Speaker 04:
Yes.

[00:10:58] Speaker 04:
And I thought in the footnote of the district court, it said if it needed to do

[00:11:03] Speaker 04:
this, it would do that.

[00:11:05] Speaker 04:
In other words, in the alternative, it would do the Winter's test, right?

[00:11:09] Speaker 02:
That is what the footnote in the later opinion said.

[00:11:12] Speaker 02:
You're correct about that, Your Honor.

[00:11:14] Speaker 04:
And so it is your position that if one infers from that footnote, that one had to do both?

[00:11:20] Speaker 02:
That is our position, yes.

[00:11:22] Speaker 04:
Okay, and beyond what the district court said, do you have any authority that says that?

[00:11:26] Speaker 02:
It's our reading of Starbucks is that it didn't upset that clear showing requirement, particularly for a mandatory injunction, which we have here.

[00:11:35] Speaker 02:
But if I may, the areas where we have challenged the district court, again, I mentioned there were four.

[00:11:41] Speaker 02:
So the first, is there a clear showing of a violation of securities laws?

[00:11:45] Speaker 02:
Two, is there a clear showing it's likely to recur?

[00:11:47] Speaker 02:
Third, even if the SEC made that clear showing and an injunction of some kind is appropriate

[00:11:55] Speaker 02:
It was an abusive discretion to include this asset freeze as part of it.

[00:12:00] Speaker 02:
I'd like to address that.

[00:12:02] Speaker 02:
particularly as it relates to the balance of hardships and the public interest.

[00:12:07] Speaker 02:
Here, the court needed to look at the purpose of the injunction, which the district court said was to prevent future violations of the securities laws.

[00:12:16] Speaker 02:
But here, the injunction already prohibited the revenue principles from further offering or selling securities.

[00:12:23] Speaker 02:
So that piece is good enough.

[00:12:25] Speaker 02:
If, as the district court said, the purpose of the injunction is to prevent future violations,

[00:12:30] Speaker 02:
You're covered on the first component of it.

[00:12:32] Speaker 04:
We're under an abusive discretion standard, and the court seemed incredibly receptive to hearing ways that it should modify what was initially a very broad, admittedly, stay.

[00:12:43] Speaker 04:
And you kept giving reasons how to modify it, and the court did modify it.

[00:12:48] Speaker 04:
So I guess what I'm getting at here

[00:12:51] Speaker 04:
is under an abuse of discretion standard, if you end up in a world where you're saying, well, you know, you could have done more, you could have done these other things, don't you automatically lose?

[00:13:03] Speaker 02:
No, Your Honor, and here's why.

[00:13:06] Speaker 02:
The court had to conclude that it was appropriate to issue this injunction looking at the purpose of the injunction to begin with, which is supposed to prohibit future violations.

[00:13:17] Speaker 02:
I would submit you're already covered with other aspects of the injunction.

[00:13:20] Speaker 02:
Two, the typical purpose of an asset freeze is to preserve assets.

[00:13:25] Speaker 02:
Here, I mentioned the insurgent group.

[00:13:28] Speaker 02:
They agreed with us that the asset freeze, and this was all in the record by the time the district court

[00:13:34] Speaker 02:
agreed to continue it.

[00:13:37] Speaker 02:
What the insurgent investors said is that, get my direct quotes, is that rather than preserving Reven's assets, the asset freeze is causing them to dissipate due to ongoing harm to their ability to protect their intellectual property, finalize clinical data, and eventually secure approval for their products.

[00:13:59] Speaker 02:
The asset freeze and injunction by their own terms prevent any operations by revenue, including those operations that would otherwise be necessary to preserve value.

[00:14:08] Speaker 03:
The effect of- Well, Council, this is a good argument before the District Court.

[00:14:12] Speaker 03:
I think Chief Judge Holmes' question is the District Court has shown it's open to modification.

[00:14:18] Speaker 02:
It was too late.

[00:14:19] Speaker 02:
I apologize.

[00:14:19] Speaker 02:
I didn't mean to cut you off.

[00:14:21] Speaker 02:
The harm had

[00:14:23] Speaker 03:
There was no basis to enter the- But the asset freeze order has been modified?

[00:14:26] Speaker 03:
It has.

[00:14:27] Speaker 03:
OK.

[00:14:28] Speaker 02:
But it's an abusive discretion to have entered the asset freeze to begin with.

[00:14:33] Speaker 02:
There was no basis for it.

[00:14:34] Speaker 02:
So from the outset?

[00:14:35] Speaker 02:
From the outset, that was an abusive discretion.

[00:14:38] Speaker 02:
And there was a long runway here before the court.

[00:14:42] Speaker 02:
There were seven months after the closure briefing before the court decided.

[00:14:46] Speaker 02:
Diplomatic injunction motion, plenty of time for a hearing, but the court decided not to hold one.

[00:14:50] Speaker 03:
Let's address that in the remaining time.

[00:14:51] Speaker 03:
So why was there a court order?

[00:14:53] Speaker 03:
Why did the district court abuse its discretion and not holding a hearing that you didn't ask for?

[00:14:58] Speaker 02:
We did ask for a hearing.

[00:14:59] Speaker 02:
Where?

[00:14:59] Speaker 02:
I didn't see that anywhere on the record.

[00:15:01] Speaker 02:
The court, in its initial temporary restraining order, provided for a hearing that was going to include cross-examination, directs, opening statements, and closing statements.

[00:15:09] Speaker 03:
But my reading of the record was that you then asked the court or told the court that wasn't necessary.

[00:15:14] Speaker 02:
The argument that the SEC has made there reflects a lack of understanding of district court proceedings.

[00:15:20] Speaker 02:
This came in as an ex parte application and an order.

[00:15:23] Speaker 02:
And that order, before our clients ever saw it, before we ever got hired, had a response to the preliminary injunction motion for us due in nine days and a hearing a few weeks to follow.

[00:15:34] Speaker 02:
That was not going to work, given the allegations of accounting fraud and improprieties.

[00:15:39] Speaker 02:
We needed to get expert accounting evidence to put in a proper response.

[00:15:43] Speaker 02:
And so you asked the court to put it off, to not do it, right?

[00:15:48] Speaker 02:
We needed more time to put in our brief, our written opposition.

[00:15:52] Speaker 02:
That is what would trigger a new hearing.

[00:15:54] Speaker 02:
Yes.

[00:15:54] Speaker 04:
And when did you explicitly, using the word hearing, ask the court, now we're ready, Your Honor, hold a hearing?

[00:16:03] Speaker 02:
Your Honor, the stipulation that went in that put off our original response date, which was necessary, also put off the hearing date, necessarily.

[00:16:12] Speaker 02:
But the stipulation expressly contemplated

[00:16:14] Speaker 02:
that there would be a hearing.

[00:16:16] Speaker 02:
Obviously, that needs to be said by the court.

[00:16:18] Speaker 02:
We couldn't dictate to the court.

[00:16:19] Speaker 04:
Whoa, whoa, whoa.

[00:16:20] Speaker 04:
You are the proponent here.

[00:16:21] Speaker 04:
You're here claiming the court erred by not doing something.

[00:16:25] Speaker 04:
Where in the record did you ask it to do it?

[00:16:28] Speaker 04:
After this withdrawal, after saying, we're not ready, Your Honor, this would be too quick, where thereafter did you ask the court explicitly, I want a hearing?

[00:16:37] Speaker 02:
Your honor, the court, Sue Esponte, in the interim, issued an order that said, OK, here's the new briefing schedule.

[00:16:44] Speaker 02:
And once I get defendant's brief, I will decide.

[00:16:47] Speaker 02:
Don't ask me.

[00:16:48] Speaker 02:
I will decide whether I want a hearing, whether I want an evidentiary hearing, or whether I'll decide on the briefs.

[00:16:54] Speaker 02:
So the court put that out there.

[00:16:57] Speaker 02:
We did follow up when it took seven months for a decision.

[00:16:59] Speaker 02:
We did follow up to ask where the court was and which of these.

[00:17:02] Speaker 03:
But you didn't ask for a hearing.

[00:17:04] Speaker 03:
When I asked the question, you said, well, we did ask for one.

[00:17:07] Speaker 03:
But I haven't heard where, anywhere in the record yet, where you asked the district court to actually hold the hearing.

[00:17:12] Speaker 03:
It may have been contemplated.

[00:17:14] Speaker 03:
The district court may have said, well, I'll get back to you after I receive briefing.

[00:17:17] Speaker 03:
You sent an email to find out where the court was.

[00:17:19] Speaker 03:
But where did you say, have a hearing?

[00:17:23] Speaker 02:
Your Honor, at that point, when it was originally supposed to be a hearing and you're just putting off the scheduling of the briefing,

[00:17:30] Speaker 02:
with the presumption that a hearing would follow and the court would tell us when it was.

[00:17:33] Speaker 02:
That was the world.

[00:17:34] Speaker 02:
Talk about what world we live in.

[00:17:36] Speaker 02:
That's where we were.

[00:17:37] Speaker 02:
The court then on its own issued an order saying, I will let you know.

[00:17:42] Speaker 02:
Don't ask me.

[00:17:43] Speaker 02:
If I want a hearing, I'll tell you.

[00:17:44] Speaker 02:
Otherwise, I'll decide it on the briefs.

[00:17:47] Speaker 02:
I've had other courts that do not appreciate that when they have told parties at the district court level, I'll let you know if I want a hearing.

[00:17:53] Speaker 02:
Neither side should request it.

[00:17:55] Speaker 02:
We typically don't.

[00:17:57] Speaker 02:
Thank you, counsel.

[00:17:57] Speaker 02:
Over my time.

[00:17:58] Speaker 02:
Thank you.

[00:18:13] Speaker 01:
Good morning, Your Honors, and may it please the Court, Paul Alvarez, for the Securities and Exchange Commission.

[00:18:19] Speaker 01:
Your Honors, the district court's orders entering a preliminary injunction and asset freeze in the later order modifying that asset freeze should be affirmed because it was a reasonable exercise of its discretion in fashioning such equitable relief.

[00:18:33] Speaker 01:
Two threshold questions for you.

[00:18:35] Speaker 04:
Is the asset freeze, should we view that as a component of the preliminary injunction itself or as a standalone separate issue?

[00:18:44] Speaker 01:
I think there's a suite of powers that the court has, and I think they have two distinct purposes.

[00:18:51] Speaker 01:
And to your point about winter, I think winter, as Starbucks makes clear in the Third Circuit and the Chappelle case makes clear, that standard applies equally both to injunctions and to asset freezes.

[00:19:06] Speaker 01:
But the purposes are slightly different.

[00:19:08] Speaker 01:
The purpose of the injunction is to protect from future harm by preventing misconduct in the future.

[00:19:15] Speaker 01:
And the purpose of the asset freeze, as the district court found, is to facilitate the enforcement of any remedy if liability is determined by preventing the dissipation or the depletion of what remains of the assets.

[00:19:27] Speaker 04:
And do you agree with the principle that post winter we have a belt and suspenders situation where we have to do both the statutory standard and winters?

[00:19:38] Speaker 01:
Not at all, Your Honor.

[00:19:39] Speaker 01:
The Supreme Court made clear that in Starbucks that the winter standard governs, the four factor tests set forth in winter governs this type of injunctive relief, and that absence a clear command, quote unquote, from Congress on that issue, there is no additional element that needs to be decided.

[00:19:59] Speaker 01:
And there is no clear command from Congress on that.

[00:20:02] Speaker 01:
And I have not heard my friend, either in the briefing or here today, identify one.

[00:20:07] Speaker 03:
I know Starbucks is somewhat hot off the press, but has any circuit court applied Starbucks to the SEC statutory authorizations?

[00:20:17] Speaker 03:
Because Starbucks is about the NLRB, and I understand how you can take the reasoning from it.

[00:20:21] Speaker 03:
But are you aware of any authority that a circuit court has looked at Starbucks in the context of SEC enforcement?

[00:20:26] Speaker 01:
The Chappelle case in the Third Circuit, which we've cited in our brief, does so.

[00:20:31] Speaker 01:
And so that would be the one I would point to.

[00:20:36] Speaker 01:
You mentioned a lot of things, Your Honors.

[00:20:39] Speaker 01:
There were a lot in your colloquy back and forth with my friend.

[00:20:43] Speaker 01:
I think it's important to remind the court of where we are and how we got here.

[00:20:52] Speaker 01:
There is this assumption in a lot of my friend's arguments that the district court, it was too little too late, even from the outset, at the issuance of the TRO, that that was effectively the death knell

[00:21:04] Speaker 01:
of the company, and that there was some sort of intent to ruin the company and the lives of the defendants.

[00:21:10] Speaker 01:
And that's not at all true.

[00:21:12] Speaker 01:
As your questions alluded to, Chief Judge Holmes, the record is replete with examples of the district court taking into account the interests of the business, the interests of the defendants.

[00:21:27] Speaker 01:
The TRO itself permits a carve-out upon a proper showing

[00:21:32] Speaker 01:
by the parties for a carve out from the TRO.

[00:21:35] Speaker 01:
I also would like to point out that once the TRO was entered into, as you mentioned, the defendants at the parties filed a joint motion to vacate the hearing, but in that joint motion, and this was at the defendants request, understandably, because they needed to get up to speed,

[00:21:51] Speaker 01:
they agreed to extend the TRO until the preliminary injunction motion was resolved.

[00:21:58] Speaker 01:
They then subsequently sought four additional extensions, which again, we're not faulting them for, but that sort of plays into the amount of time that is being considered.

[00:22:08] Speaker 01:
And then you look to the decisions themselves, which are thorough, and there's 16 appendices in this appeal alone on the issue of preliminary injunctive relief,

[00:22:18] Speaker 01:
The court considered all of that evidence.

[00:22:20] Speaker 01:
And at every turn, the court permitted the defendants and indeed asked them, please give me something specific that I can do that will help you maintain the value of the assets, allow you to continue the business moving forward.

[00:22:38] Speaker 01:
But for approximately a year, the defendants maintained simply, nope,

[00:22:41] Speaker 01:
We don't want any of that.

[00:22:44] Speaker 01:
We don't want any restrictions on our ability to do anything at all.

[00:22:47] Speaker 01:
No asset freeze should issue because we didn't violate the federal securities laws.

[00:22:51] Speaker 01:
But as you pointed out, Judge Kelly, in your questions, the evidence clearly shows that the defendants made, and you too, Judge Federica, I don't want to leave you out.

[00:23:05] Speaker 01:
The evidence clearly shows that they made misstatements of material fact to investors about three material topics, the actual compensation that the Reven principles received, Reven's readiness for an audit and the fact that they actually had

[00:23:23] Speaker 01:
audited financials, two years of audited financials that are required to go public, and then the third, the existence of the shareholder lawsuit against two of the Reven principles and Reven itself for securities fraud.

[00:23:34] Speaker 01:
Now those are all, as we cited to in our brief, as we mentioned in our brief, the evidence shows those facts are just demonstrably untrue.

[00:23:42] Speaker 01:
and provably false.

[00:23:44] Speaker 01:
They knew, as far as Sienta, my friend mentioned Sienta.

[00:23:47] Speaker 01:
This is an issue of Sienta, he says.

[00:23:49] Speaker 01:
But they knew what was true, and yet they said something completely the opposite of that.

[00:23:55] Speaker 01:
And as the district court found at, I want to get this right, the district court found in its initial order, it's unreasonable.

[00:24:05] Speaker 01:
I believe it is at one order 22, which is page 22 of the first order.

[00:24:10] Speaker 01:
We're in a full disclosure regime here in the securities industry, and it is unreasonable for investors to presume that when the defendants say something, for example, I received $5 million in compensation, but they actually received $10 million in compensation.

[00:24:30] Speaker 01:
Or for example, when they say, we have audited financials, when in fact,

[00:24:34] Speaker 01:
They don't have audited financials, and they really mean that they're going to try and get them at some point.

[00:24:40] Speaker 01:
Those things are demonstrably different than the things that they're actually saying.

[00:24:44] Speaker 01:
The truth is completely different from what they've actually said.

[00:24:47] Speaker 01:
And what matters is what they say, not what they know secretly.

[00:24:52] Speaker 01:
And so all of this is to say that the district court thought about the interests of the defendants, thought about it at every turn,

[00:25:02] Speaker 01:
And gave them opportunities to come and seek a carve out and we know that the court took those things seriously because on I think six or seven occasions the court granted carve outs often either the same day or the day after the carve out was requested to allow the defendants to maintain their business.

[00:25:22] Speaker 01:
to pay for intellectual property assets to be maintained.

[00:25:26] Speaker 01:
So the court really took into account both the defendant's interests and the interests of the investors who were harmed to ensure that the judgment of the value of what remained of the assets

[00:25:37] Speaker 04:
could be maintained to satisfy... But as to the public interest factor, let's say of winter, I don't see any contesting, and perhaps you don't, but can test the notion that bringing RJX to market would have at least conceivably been good for the public, right?

[00:25:57] Speaker 01:
I don't necessarily know whether that would be good for the public or not.

[00:26:02] Speaker 01:
I'm not a biopharmaceutical expert.

[00:26:05] Speaker 01:
I don't think that they were as close as they're perhaps claiming to be.

[00:26:08] Speaker 01:
If they're at phase two of clinical trial, that's completely different than phase three.

[00:26:13] Speaker 01:
So the idea, as the district court found,

[00:26:16] Speaker 01:
Getting through phase two would require tens of millions of dollars of money, and even success at that point is not guaranteed.

[00:26:25] Speaker 01:
And the court has to take into account the possible likelihood of the success of that effort.

[00:26:31] Speaker 04:
And the court also has to take into account- Well, this goes to the death knell issue.

[00:26:35] Speaker 04:
I mean, if it is conceivable that, in fact, they're producing a product that could have benefit to the public, and they need to get through the clinical trials,

[00:26:43] Speaker 04:
If an asset freeze has the impact of creating a death knell for them, then that weighs against the public interest, does it not?

[00:26:52] Speaker 04:
That's the point I'm making.

[00:26:54] Speaker 01:
It could, but I think we also have to remember, Your Honor, that at the time the asset freeze, the original TRO was entered into, they had approximately $200,000 in the bank.

[00:27:05] Speaker 01:
So it's simply, as the court found, it's not realistic.

[00:27:10] Speaker 01:
Given that condition, as the court found it, I think it's at the second order, page 18, resuming the clinical trials and normal business operations, while that may have been their preference, it simply wasn't realistic given the undisputed fact that they were in dire financial straits.

[00:27:27] Speaker 01:
So really what we have here, Your Honors, in assessing the public interest, I think it's important to keep this in mind,

[00:27:33] Speaker 01:
is that the defendants wanted to be able to do a lot of things, but they were financially incapable of doing it.

[00:27:40] Speaker 01:
The evidence clearly showed that they had for a period of years engaged in multiple acts in different areas of securities fraud and obtained millions of dollars in doing so.

[00:27:54] Speaker 01:
And so they simply didn't have the ability to do what they wanted to do.

[00:28:00] Speaker 01:
And then they became intractable and said, we don't want to offer you anything, even though the court asked.

[00:28:06] Speaker 01:
Please give me a specific plan.

[00:28:09] Speaker 01:
Help me, help you.

[00:28:10] Speaker 01:
They, for approximately a year, refused to do so.

[00:28:15] Speaker 01:
And in assessing the public interest, you have to take that into account as well.

[00:28:26] Speaker 01:
Unless the court has any further questions,

[00:28:34] Speaker 01:
We would ask, can I ask actually one more?

[00:28:36] Speaker 03:
I'm going back to the Starbucks and the four factors, traditional factors for preliminary injunction.

[00:28:42] Speaker 03:
I know you said that the district court acknowledged, you said, you know, those don't apply, but even if they did, I would apply them in this manner.

[00:28:49] Speaker 03:
Why wouldn't it be prudent for us to remand back to the district court and say, hey, Starbucks has now come out.

[00:28:55] Speaker 03:
As a matter of law, the test you applied has changed.

[00:28:58] Speaker 03:
So we want you to go back and do this in the first instance.

[00:29:01] Speaker 01:
Because I think if you look at the original order and the revised order, and before I answer this question, I'd like to point out we brought Starbucks to the district court's attention.

[00:29:11] Speaker 01:
The defendants certainly didn't.

[00:29:12] Speaker 01:
And so we're asking the court to really take another look at this and consider it.

[00:29:17] Speaker 01:
And the court went out of its way to do so.

[00:29:20] Speaker 01:
But I think if you look at the first two orders,

[00:29:22] Speaker 01:
I think it's clear that the analysis under Starbucks would come out exactly the same way.

[00:29:28] Speaker 01:
And really the way Starbucks is formulated is really asking the district court to consider a lot of different factors.

[00:29:38] Speaker 01:
And so the Supreme Court has said, well, yeah, there's this two

[00:29:41] Speaker 01:
element test, but we'd like you to show your work a little bit more, District Court.

[00:29:45] Speaker 01:
And I think the District Court's thorough order certainly does that here.

[00:29:49] Speaker 01:
I don't think there's any question about the likelihood of success element, nor is there one about the irreparable harm.

[00:29:57] Speaker 01:
And again, the evidence both in the orders themselves and just procedurally

[00:30:03] Speaker 01:
The granting of the carve-outs and things like that shows that the court was considering at every step the balance of the equities to ensure that there was money left to satisfy a judgment while ensuring that the defendants could, to the best of their abilities, with whatever limited resources they had left.

[00:30:24] Speaker 01:
maintain their business.

[00:30:26] Speaker 04:
Let me understand one thing.

[00:30:28] Speaker 04:
In terms of these efforts the court did to do carve-outs, just sort of procedurally, as I understand it, on appeal here is that the preliminary junction itself

[00:30:44] Speaker 04:
And the order that the court entered saying, we're not going to relieve you entirely of the stay, but I'll go along with these specific things, those two things.

[00:30:55] Speaker 04:
Well, within the interim period, there were a lot of activities by the district court, at least as I understand it, this notion of, well, give me this carve out, give me this carve out, most of which the court did.

[00:31:08] Speaker 04:
I think all of it.

[00:31:09] Speaker 01:
All of it.

[00:31:09] Speaker 01:
Yes, absolutely.

[00:31:10] Speaker 04:
promptly, what role should that stuff play in what we're doing now?

[00:31:17] Speaker 01:
Well, I think you have to look at, I think you have to, it certainly can play a role.

[00:31:25] Speaker 01:
You can look at that and see whether or not there is that, I think it's additional evidence that the court was taking into account the interest in balancing

[00:31:35] Speaker 01:
the equities here, right?

[00:31:36] Speaker 01:
And trying to make sure that it gave good attentiveness to the defendant's interests.

[00:31:44] Speaker 04:
But I mean, they were act subsequent to the actual orders that are on appeal, which is, I mean, to the order... Well, to one of the orders, right.

[00:31:52] Speaker 04:
To one, to the preliminary injunction order.

[00:31:54] Speaker 04:
Right.

[00:31:54] Speaker 04:
So, I mean, that has to be dealt with on... Well, maybe it doesn't have to be dealt with on its face.

[00:31:59] Speaker 04:
I'm just asking.

[00:32:00] Speaker 04:
That's what I'm asking.

[00:32:02] Speaker 01:
Yeah, I mean, it's tricky, right?

[00:32:03] Speaker 01:
Because procedurally, we're sort of in an odd spot.

[00:32:08] Speaker 01:
We have this order that imposed the injunction and asset freeze.

[00:32:14] Speaker 01:
Then we have the subsequent procedural carve-outs and things like that.

[00:32:19] Speaker 01:
And then we have this order modifying.

[00:32:21] Speaker 04:
Yes, and I can, at risk of trying to put words in your mouth, let me throw out something and have you respond to it.

[00:32:29] Speaker 04:
At least one argument I could think of would be the question becomes whether the initial order actually contemplated or allowed for, did not preclude this interstitial stuff in terms of the carve-out.

[00:32:43] Speaker 04:
And if that's true, then in viewing the order itself, we can be informed by the carve-outs.

[00:32:51] Speaker 01:
Yes, I think that's exactly right.

[00:32:52] Speaker 01:
And I think if you look at the TRO, even the TRO envisioned carve-outs.

[00:32:57] Speaker 01:
The court said in the original TRO, and I want to make sure I get that exactly right, the TRO at 10 appendix

[00:33:10] Speaker 01:
1467, even at the TRO phase, the court granted numerous carve-outs and baked in carve-outs to the original TRO.

[00:33:22] Speaker 01:
And I think the defendants were proceeding on that.

[00:33:27] Speaker 01:
before the preliminary injunction was issued when they were seeking carve-outs as well.

[00:33:32] Speaker 01:
So yes, I think you can, as you said, Chief Judge Holmes, there is room in the original order for such carve-outs and that the court then subsequently permitted those carve-outs.

[00:33:45] Speaker 01:
additional evidence that you can consider in assessing whether the analysis was an abuse of discretion, and we would maintain that that was well within the Court's discretion to do so.

[00:33:55] Speaker 01:
I see my time is up.

[00:33:57] Speaker 01:
Unless the Court has further questions, we would ask that the Court affirm.

[00:33:59] Speaker 01:
Thank you very much, Your Honor.

[00:34:02] Speaker 04:
Very fine arguments.

[00:34:03] Speaker 04:
Case is submitted.

[00:34:04] Speaker 04:
As I noted, we will take a recess, brief