No “Ministerial” Shield from Section 5: Second Circuit Affirms “Necessary Participant” Liability, Scienter by Admissions, and Disgorgement Without Unsupported Expense Offsets

Case: SEC v. Core Business One, Inc. and Robert S. Oppenheimer

Court: U.S. Court of Appeals for the Second Circuit

Date: November 3, 2025

Disposition: Affirmed (Summary Order)

Precedential status: Summary orders do not have precedential effect in the Second Circuit. They may be cited under FRAP 32.1 and Local Rule 32.1.1.

Introduction

This SEC enforcement appeal arises out of a reverse-merger penny-stock “pump-and-dump” scheme involving Everock, Inc. (later Nature’s Peak). Defendant Robert S. Oppenheimer, the CEO and sole employee of Core Business One, Inc. (CBO), acted as a consultant to Nature’s Peak and was appointed Everock’s secretary and a director after the reverse merger.

The SEC alleged that Oppenheimer and CBO participated in the unregistered distribution of restricted Everock shares and made materially false statements to the market while coordinating stock promotion. The Southern District of New York granted summary judgment for the SEC on (a) strict-liability Section 5 claims for the sale of unregistered securities and (b) fraud claims under Exchange Act Section 10(b)/Rule 10b‑5 and Securities Act Section 17(a)(2). The court imposed Tier III civil penalties, ordered disgorgement of $480,000 jointly and severally against Oppenheimer and CBO, and awarded prejudgment interest.

On appeal, Oppenheimer and CBO argued that disputes of fact precluded summary judgment, that civil penalties were time-barred (or unjustified at the Tier III level), and that disgorgement should have been reduced by purported business expenses. The Second Circuit affirmed across the board.

Summary of the Opinion

• Section 5 strict-liability violations affirmed: The court held that Oppenheimer and CBO were “necessary participants” in the unregistered distribution. Actions such as obtaining and transmitting opinion letters to remove restrictive legends, transferring shares to Zangara-controlled accounts, reviewing and approving disclosures necessary for trading, and coordinating promotional efforts were substantial factors without which the distribution would not have occurred.
• Securities fraud findings affirmed:
  • False OTC disclosure (AUDS) — October 3, 2009: The filing stated that Everock’s former CEO had returned 270 million of 300 million shares. The court concluded Oppenheimer knew the statement was false because he had just facilitated the removal of restrictions and transfer of 70 million of those shares, rendering the “return” mathematically impossible.
  • False press release — December 14, 2009: The release claimed Everock received over $200,000 from CBO; Oppenheimer later admitted the funds came from a co-defendant’s company, not CBO.
  • Scienter: No reasonable juror could find Oppenheimer lacked scienter for the Rule 10b‑5 claim; any negligence challenge under Section 17(a)(2) was waived on appeal.
• Civil penalties: Tier III penalties for the Section 5 violations were affirmed. Statute-of-limitations arguments under 28 U.S.C. § 2462 were not preserved below and were therefore forfeited. In any event, sales and Oppenheimer’s involvement continued into the limitations period, defeating any claim of plain error.
• Disgorgement and prejudgment interest: The SEC’s $480,000 disgorgement figure—based on transfers to CBO from other defendants—was a reasonable approximation. Oppenheimer’s spreadsheet of “business expenses” lacked supporting documentation and could not reduce disgorgement. Prejudgment interest of $300,859.59 and joint-and-several liability were affirmed.

Detailed Analysis

1) Precedents Cited and How They Shaped the Decision

• Section 5’s scope and “necessary participant” liability:
  • SEC v. Frohling (2d Cir. 2016): Restates the three Section 5 elements—absence of registration, offer/sale, and use of interstate means—and emphasizes that those who engage in steps necessary to the distribution can be liable even if they don’t pass title themselves.
  • Chinese Consolidated Benevolent Association (2d Cir. 1941): Section 5 broadly prohibits sales “irrespective of the character of the person making them,” and statutory exemptions do not protect those engaged in necessary steps of a distribution.
  • Universal Major Industries (2d Cir. 1976): Reinforces Section 5’s “directly or indirectly” language in reaching beyond the person transferring title.
  • SEC v. Sason (S.D.N.Y. 2020) and SEC v. Universal Express (S.D.N.Y. 2007): Apply a “but-for/substantial factor” test—if the sale would not have occurred without the defendant’s conduct, liability attaches.
  • SEC v. Sourlis (2d Cir. 2016): Liability for facilitating the removal of restrictions/opinion letters; analogous to Oppenheimer’s conduct.
  • SEC v. North American Research & Development Corp. (2d Cir. 1970): De minimis participation is insufficient; by contrast, Oppenheimer’s participation was extensive.
• Securities fraud standards:
  • Frohling (2d Cir. 2016): Sets out elements of Rule 10b‑5 and Section 17(a). Scienter can be shown by reckless disregard tantamount to an extreme departure from standards of ordinary care.
  • SEC v. Ginder (2d Cir. 2014): Section 17(a) requires negligence, a lower bar than scienter under Rule 10b‑5.
  • Anderson v. Liberty Lobby (U.S. 1986): Only disputes over facts that may affect the outcome prevent summary judgment; mere credibility quarrels don’t suffice where the record compels one result.
• Appellate and procedural standards:
  • McCutcheon v. Colgate-Palmolive (2d Cir. 2023): De novo review standard for summary judgment.
  • New York ex rel. Schneiderman v. Actavis (2d Cir. 2015): Arguments not raised below are forfeited on appeal.
• Disgorgement methodology and burden shifting:
  • SEC v. Razmilovic (2d Cir. 2013) and SEC v. Warde (2d Cir. 1998): The SEC must reasonably approximate ill-gotten gains; uncertainty falls on the wrongdoer who created it.
  • SEC v. Fowler (2d Cir. 2021): Defendants bear the burden to prove legitimate expenses that reduce “net profits”; unsupported assertions won’t do.

2) The Court’s Legal Reasoning

• Section 5 strict liability and “necessary participant” status:

  Defendants did not dispute that the public sales of Everock shares were unregistered. The only live question was whether Oppenheimer/CBO were “necessary participants.” The court cataloged Oppenheimer’s actions—reviewing merger documents, assuming corporate roles post-merger (secretary/director), seeking a ticker symbol, reviewing and approving financial disclosures, soliciting and transmitting opinion letters to remove restrictive legends, directing transfers to Zangara accounts, and drafting promotional materials. Those acts were integral to the distribution; they were not de minimis, and whether or not Oppenheimer viewed them as “ministerial” was immaterial because Section 5 imposes strict liability. Knowledge of illegality is not an element.

• Rejection of the “ministerial role” defense:

  The court emphasized that there is no “ministerial exception” to Section 5. Even if a participant claims no legal or corporate expertise, liability attaches where the person’s acts are substantial steps in an unregistered distribution. The defendants cited no authority insulating such conduct, and the statutory text (“directly or indirectly”) forecloses that argument.

• Fraud: falsity, materiality, and scienter:
  • False OTC disclosure (AUDS): The October 3, 2009 filing said 270 million shares had been “effectively returned” to Everock. But two months earlier Oppenheimer had helped remove restrictions on 70 million of those same shares and transfer them to Zangara-controlled accounts. The math alone (300M − 70M = 230M) made the “270M returned” statement impossible, and the record showed Oppenheimer knew it. He later facilitated more transfers, reinforcing his knowledge.
  • False press release: The December 14, 2009 release claimed Everock received $200,000+ from CBO, and quoted Oppenheimer to that effect. He admitted this was false; the money came from a co-defendant’s company. A vague deposition aside about “standards” then versus now did not create a triable issue on knowledge, especially in light of counsel’s concession below.
  • Scienter finding: Given these facts, no reasonable juror could find that Oppenheimer lacked the intent or at least reckless disregard necessary for Rule 10b‑5 liability. Any challenge to the lesser negligence standard under Section 17(a)(2) was not developed on appeal and was deemed waived.
• Civil penalties and the statute of limitations:

  The district court imposed Tier III penalties for the Section 5 violations. On appeal, defendants advanced § 2462 time-bar arguments for the first time, asserting that key acts predated the five-year period. The Second Circuit held those arguments forfeited and, in any event, noted that sales and Oppenheimer’s involvement continued into the limitations period, defeating any claim of plain error. The court declined to consider the limitations arguments raised for the first time on appeal.

  On the Tier III level itself, because the time-bar argument and the merits challenge were not preserved, the panel did not disturb the district court’s determination.

• Disgorgement and expense offsets:

  The SEC’s forensic accountant reasonably approximated ill-gotten gains at $480,000 by totaling transfers from co-defendants to CBO. The burden then shifted to defendants to show legitimate business expenses that should reduce net profits. A home-made spreadsheet with “estimated” travel and other unsupported entries was inadequate. With no reliable documentation, the court affirmed the disgorgement figure and the award of prejudgment interest, as well as joint-and-several liability for Oppenheimer and CBO.

3) Practical and Doctrinal Impact

Although a non-precedential summary order, the decision is a clear signal on several recurring issues in SEC enforcement, particularly around reverse mergers, penny-stock distributions, and the role of consultants and promoters:

• “Ministerial” is not a defense to Section 5: Individuals who coordinate opinion letters, transfer logistics, listing prerequisites, and promotional efforts can be “necessary participants.” Consultants and executives should assume personal exposure if they substantially enable an unregistered distribution, regardless of whether they transfer title.
• Opinion letters and transfer agents: Soliciting and transmitting opinion letters to remove restrictive legends is a high-risk touchpoint. As in Frohling and Sourlis, facilitating this step can create Section 5 exposure, and for lawyers and transfer agents, potential separate liabilities.
• Summary judgment on scienter is viable with admissions and circumstantial math: The panel’s treatment of the AUDS misstatement demonstrates how chronology and share-count arithmetic can conclusively establish knowledge or recklessness.
• Preserve statute-of-limitations defenses: § 2462 must be raised in the district court. The panel’s note that sales and involvement continued into the limitations period underscores that “ongoing” conduct can keep penalties in play.
• Disgorgement requires documentation for expense offsets: Post-Fowler, defendants must prove legitimate costs with reliable records. “Estimates” and unsupported spreadsheets will not reduce disgorgement.
• Public statements matter: OTC disclosure filings and press releases are treated as market-facing representations; inaccuracies tied to capital-raising and trading can support fraud findings.

Complex Concepts Simplified

• Reverse merger: A private company becomes public by merging with a publicly traded shell, bypassing a traditional IPO. Here, Nature’s Peak merged into Everock.
• Restricted stock: Shares acquired in unregistered transactions cannot be freely resold unless registered or exempt; they typically carry “restrictive legends” that transfer agents remove only upon proper legal opinion.
• Section 5 “necessary participant” liability: Even if you don’t sell the shares yourself, you can be liable if your actions are substantial steps that enable the unregistered distribution (for example, procuring and using opinion letters to remove restrictions and arranging transfers).
• Scienter vs. negligence: Rule 10b‑5 requires intent to deceive or recklessness; Section 17(a)(2) requires only negligence. The court found scienter based on the implausibility of the share-return claim and Oppenheimer’s admissions.
• Tier III civil penalties: The highest level of statutory civil penalties, generally reserved for egregious violations involving fraud or a significant risk of substantial losses. The defendants’ challenge was forfeited on appeal.
• Disgorgement and expense offsets: The SEC must reasonably approximate ill-gotten gains; defendants then must prove legitimate business expenses to reduce “net profits.” Documentation is essential.
• Summary Order (non-precedential): In the Second Circuit, a summary order decides the case but does not create binding precedent. It can be cited for its persuasive reasoning.

Key Takeaways

• Coordinating removal of restrictive legends, organizing share transfers, preparing disclosures to list or trade a stock, and drafting promotional materials can render a person a “necessary participant” under Section 5’s strict-liability regime.
• There is no “ministerial role” safe harbor; the statute’s “directly or indirectly” language captures substantial enablers of unregistered distributions.
• On the fraud claims, straightforward arithmetic and timing (e.g., a prior 70 million-share transfer) can cement scienter at summary judgment when a later filing asserts impossibilities.
• Penalties and defenses must be preserved: raise § 2462 arguments in the trial court or risk forfeiture; ongoing sales and involvement can undermine limitations defenses.
• To reduce disgorgement, defendants must substantiate legitimate expenses with reliable records. Unsupported spreadsheets won’t suffice.

Conclusion

In affirming summary judgment against Oppenheimer and CBO, the Second Circuit underscores three enforcement pillars: (1) Section 5’s reach to those who substantially enable unregistered distributions, irrespective of title transfer or claimed “ministerial” status; (2) the viability of proving scienter through a combination of admissions and inescapable circumstantial facts; and (3) the SEC’s disgorgement framework that places the burden on defendants to prove legitimate expense offsets with competent evidence. Although non-precedential, this decision offers a clear, practical roadmap for how the court evaluates reverse-merger distribution schemes, tackles limitations defenses raised too late, and scrutinizes claims of expense offsets. For consultants, executives, and promoters operating around restrictive legends, transfer agents, and market communications, the message is emphatic: involvement that makes a distribution possible carries real liability, and unsupported papering after the fact will not unwind that exposure.