SEC v. Carl Jasper

Filing

FILED OPINION (J. CLIFFORD WALLACE, DOROTHY W. NELSON and CARLOS T. BEA) AFFIRMED. Judge: CTB Authoring. FILED AND ENTERED JUDGMENT. [8177975]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff-Appellee,
v.
CARL W. JASPER,
Defendant-Appellant.





No. 10-17064
D.C. No.
5:07-cv-06122-JW
OPINION

Appeal from the United States District Court
for the Northern District of California
James Ware, Chief District Judge, Presiding
Argued and Submitted
March 13, 2012—San Francisco, California
Filed May 15, 2012
Before: J. Clifford Wallace, Dorothy W. Nelson, and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Bea

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COUNSEL
J. Scott Ballenger, Latham & Watkins, Washington, DC, for
the defendant-appellant.
Dominick V. Freda, Securities and Exchange Commission,
Washington, DC, for the plaintiff-appellee.

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OPINION
BEA, Circuit Judge:
Defendant-Appellant Carl W. Jasper is the former Chief
Financial Officer (CFO) of Maxim Integrated Products, Inc.,
a publicly-traded semiconductor company based in Silicon
Valley. Following revelations that the company had issued
backdated stock options without properly expensing them,1
the SEC instituted this civil enforcement action against Jasper, alleging that Jasper violated various provisions of the
securities laws.
The case proceeded to a seven-day jury trial; the jury found
in favor of the SEC on most counts. As a result, the district
court permanently enjoined Jasper from future violations of
the same provisions of the securities laws, barred him from
serving as an officer or director of a publicly traded company
for two years, and imposed a civil penalty of $360,000. The
court also ordered, pursuant to Section 304 of the SarbanesOxley Act of 2002 (“SOX 304”), codified at 15 U.S.C.
§ 7243, that Jasper reimburse Maxim for about $1.8 million
in bonuses and profits from the sale of Maxim stock that Jasper received during the period that he certified Maxim’s false
financial statements.
Jasper appeals on three grounds. First, he contends that the
district court made several evidentiary errors that require
reversal. Second, he contends that the SEC’s lawyers committed misconduct during the trial that requires reversal. Third,
he contends that the reimbursement order pursuant to SOX
304 violated his Seventh Amendment right to a jury trial in
civil cases. We affirm the district court in all respects.
1

We include as Section I a background on the practice of stock options
backdating.

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I.
Background on Options Backdating
The gravamen of the SEC’s complaint in this case is the
allegation that Jasper “engaged in a scheme to illegally backdate stock options granted to Maxim employees and directors,
concealing millions of dollars in expenses from investors and
significantly overstating the Company’s income.” Thus,
before turning to the facts and history of this case, we briefly
explain the practice known as stock “options backdating.”
A stock option grants the recipient “the opportunity to purchase a certain number of shares of company stock at a given
price [called the ‘exercise price’] on or after a predetermined
date.” N.M. State Inv. Council v. Ernst & Young LLP, 641
F.3d 1089, 1093 (9th Cir. 2011). The recipient may exercise
the option by purchasing stock from the company at the exercise price, and he is then free to sell the same stock at its current market price. If the option is issued at an exercise price
equal to the current market price, the option is referred to as
having been issued “at the money.” Conversely, an “in the
money” option is issued at an exercise price that is lower than
the current market price. This latter type of option is “in the
money” because it is immediately profitable: the price at
which the stock may be bought is lower than the price at
which it may be sold. Last, an “out of the money” option is
issued at an exercise price that is higher than the current market price. Perhaps needless to say, none of the options at issue
during trial were either “at the money” or “out of the money.”
During the time period relevant to this case, “at the money”
and “in the money” options were treated differently for
accounting purposes pursuant to generally accepted accounting principles (GAAP). For “in the money” options, “accounting principles require the company to record an expense for
the [option recipient’s] ‘profit,’ ” — i.e., the difference
between the exercise price and the market price of an “in the

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money” option is “treated as compensation to the option
recipient over the vesting period.” Id. This is because the
company could have sold its treasury stock at the market
price, rather than grant an option on such stock to another. If
the company does grant an option at a price below market, it
is transferring a potential company profit to the option recipient. The difference between exercise price and market price
must be added to the firm’s costs, usually as “employee compensation,” since the option recipients are usually employees.
Backdating of options occurs when the company official
responsible for administering a company’s stock option plan
monitors the price of the company stock and awards an “at the
money” stock option grant as of a certain date in the past
when the share price was lowest. Id. This “lock[s] in the largest possible gain for the option recipient” but also does not
require the company to recognize as an expense the difference
between the backdated exercise price and the market price of
the stock as of the “legitimate” date of the option’s award. Id.
This practice is therefore “akin to betting on a horse race after
the horse has already crossed the finish line.” Id. Backdating
options is “not in and of itself improper under the law or
accounting principles,” but it often leads to violations of the
securities laws because “[i]f the company does not properly
record the back-dated options, then the company’s reported
net income is overstated for each of the years the options vest,
potentially deceiving the market and investors.” Id. That is
what the jury found occurred here.
II.
We relate the facts here in the way most favorable to the
jury verdict. United States v. Hicks, 217 F.3d 1038, 1041 (9th
Cir. 2000).
A.
Maxim is a semiconductor company listed on the NASDAQ stock exchange. It is therefore required to file with the

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SEC Form 10-Q quarterly reports and Form 10-K annual
reports, both of which must include audited financial statements, prepared in accordance with GAAP. See 15 U.S.C.
§ 78m. From 1999 until 2007, Jasper was Maxim’s Principal
Accounting Officer, CFO, and Vice President, and he was
responsible for Maxim’s accounting, including the accuracy
of its financial statements and internal controls. During that
time, Maxim’s CEO, Jack Gifford, served as the “interim
option committee” and had sole authority to grant stock
options to directors and non-officer employees. Approximately seventy percent of Maxim employees received stock
options when they were hired or as part of an annual review
process.
The evidence showed that, from 2000 through 2005,
Maxim employees and officers, including Jasper, regularly
backdated stock options granted to employees and directors,
and that they created false paperwork to conceal the true grant
dates for those options. For instance, for ten consecutive quarters, Maxim granted backdated options with an exercise price
equal to the lowest price of Maxim stock for each quarter.
Sheila Raymond, the manager of Maxim’s stock administration program, testified that in that time period “[t]he processes
at the company, the way the company worked was to grant
options at the lowest possible price without taking . . .
expense for it.”
In September 2006, following an internal investigation
prompted by an analyst’s report, Maxim announced that it
was unable to file timely periodic reports because of the backdating investigation. In January 2007, both Jasper and CEO
Gifford resigned. After a lengthy investigation, on September
30, 2008, Maxim announced that “[p]reviously filed financial
statements for our fiscal years ended in 1997 through 2005
. . . should no longer be relied upon,” and that earnings for
those years had to be restated. In the restated document,
known as the 2006 10-K, Maxim disclosed an $838.3 million
reduction in its pre-tax income for the period 2000-2005,

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which resulted primarily from the inclusion of $515 million
in additional pre-tax expenses incurred as a result of stockbased compensation. Of the $515 million in misstated compensation expenses, the SEC’s expert accountant testified that
Maxim’s operating income for fiscal years 2003, 2004, and
2005 alone had been overstated by a minimum of $135 million and as much as $357 million due solely to failure to recognize the true expense of unrecorded, backdated stock
options.
Jasper was the CFO of Maxim during this entire period,
and, on appeal, he does not dispute his knowledge of or
involvement in this fraudulent scheme. Perhaps that is
because the evidence is overwhelming. To take one specific
example: the record shows that in late February or early
March of 2003, when Maxim stock was over $30 per share,
Jasper sent a memorandum to CEO Gifford proposing that to
“ensur[e]” that a certain employee “stays with Maxim,” Gifford should “grant [the employee] an option now at the Oct
price so that he gets a favorable price.” The employee
received an “at the money” options grant backdated to October 9, 2002 with an exercise price of $21.35. Because of the
roughly 50% increase in the company’s stock price between
October 2002 and March 2003, the grant was immediately
profitable for the employee, and therefore truly a company
expense for employee compensation, but the difference
between $21.35 and $30.00 per share was never recorded as
a transfer of money otherwise readily available to Maxim.
Jasper signed all of Maxim’s SEC filings in that time
period. The filings all stated that Jasper had reviewed the 10K or 10-Q in question, and that the filings all “fairly present
in all material respects the financial condition, results of operations and cash flows of” the company and “do[ ] not contain
any untrue statement[s] of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading.” Jasper himself received more than $2 million

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in bonuses from 2000-2005 tied to the company’s profitability, including year-over-year growth in stock price and earnings per share.
The case proceeded to a jury trial. The jury found that Jasper: 1) committed fraud in violation of 15 U.S.C.
§§ 77q(a)(1), 78j(b), and SEC Rule 10b-5, codified at 17
C.F.R. § 240.10b-5, when he participated in a scheme to overstate Maxim’s net income by failing properly to account for
the issuance of backdated stock options; 2) aided and abetted
Maxim’s filing of materially false and misleading reports with
the Commission in violation 15 U.S.C. § 78m(a); 3) aided and
abetted Maxim’s failure to keep accurate books and records
in violation of 15 U.S.C. § 78m(b)(2)(A); 4) aided and abetted
Maxim’s failure to devise and maintain sufficient internal
accounting controls in violation of 15 U.S.C. § 78m(b)(2)(B);
5) falsified Maxim’s books and records in violation of 17
C.F.R. § 240.13b2-1; 6) made false statements or omissions to
an accountant or auditor in connection with a required audit
of Maxim’s financial statements in violation of 17 C.F.R.
§ 240.13b2-2; and 7) signed false certifications included with
Maxim’s quarterly or annual reports in violation of 17 C.F.R.
§ 240.13a-14. The jury also found Jasper not liable on three
counts.
As a result of the jury’s findings, the district court permanently enjoined Jasper from future violations of the same provisions of the securities laws, barred him from serving as an
officer or director of a publicly traded company for two years,
imposed a civil penalty of $360,000, and ordered, pursuant to
SOX 304, that Jasper reimburse Maxim for $1.8 million in
bonuses and profits from the sale of Maxim stock that Jasper
received during the period that he certified Maxim’s false
financial statements.
Jasper timely appealed.

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III.
A.

The Evidentiary Rulings

Jasper’s primary challenge on appeal is to three of the district court’s evidentiary rulings. A district court’s evidentiary
rulings should not be reversed “absent clear abuse of discretion” and “some prejudice.” Jauregui v. City of Glendale, 852
F.2d 1128, 1132 (9th Cir. 1988). The district court was within
its discretion with all three rulings.
1.
In a pre-trial motion in limine, Jasper moved to exclude any
mention of the 2006 10-K—which was actually released on
September 30, 2008, long after Jasper had resigned as CFO in
January 2007—in which Maxim restated its financial statements. The district court ruled the government could introduce the 10-K into evidence. The court said that, if properly
authenticated at trial, the 10-K would be admissible under
Federal Rule of Evidence 803(6)—the business records
exception to the hearsay rule—because it was “a report made
at or near the time of the accounting review by those with
knowledge of Maxim’s books,” and “[t]he circumstances of
its creation do not indicate that it lacks trustworthiness.”2 The
district court admitted Maxim’s 2006 10-K only after Alan
Hale, Maxim’s interim CFO during the restatement process,
laid a foundation for its admission.
On appeal, Jasper contends that it was an abuse of discretion for the district court to admit into evidence the 2006 102

The business records exception is available where the record is “(1)
made or based on information transmitted by a person with knowledge at
or near the time of the transaction; (2) made in the ordinary course of business; and (3) trustworthy, with neither the source of information nor
method or circumstances of preparation indicating a lack of trustworthiness.” United States v. Bonallo, 858 F.2d 1427, 1435 (9th Cir. 2000)
(internal citations omitted).

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K, because it was hearsay and not admissible under Rule
803(6). According to Jasper, the 2006 10-K should not have
been admitted into evidence as a business record because
“[t]he restatement is not a record of historical facts prepared
by people with personal knowledge, at or near the time of the
events, who were just doing their ordinary jobs. It is the culmination of an extraordinary two-year investigation costing
tens of millions of dollars, and represents the technical
accounting conclusions prepared many years after the facts,
by teams of outside investigators and accountants with no personal knowledge, using newly promulgated accounting guidance.” Further, the preparation of the 2006 10-K “took place
in a context of tremendous liability risk, and was explicitly
created with an eye toward pending litigation.”
[1] Jasper’s argument fails. The 2006 10-K—like virtually
all 10-Ks—was admissible as a business record so long as it
was properly authenticated, which the 10-K here was. Jasper’s
error is in arguing that the restated 10-K was introduced as
evidence of the state of mind of Jasper during the relevant
time periods. It was not. Rather, as the district court found, it
was introduced as a report made at or near the time of the
accounting review by those with knowledge of Maxim’s
books. That is, the 2006 10-K is a business record of the
accounting review itself, not of the misconduct that gave rise
to the need for the restatement. It was a review of what the
books of Maxim showed for the period of the stock options
backdating, a comparison of the exercise price to the market
price when the options were actually granted, and the consequent losses/expenses to Maxim. Thus, with regard to the
detailed accounting review, the restated 10-K assuredly was
“prepared by people with personal knowledge, at or near the
time of the events, who were just doing their ordinary jobs.”
Framed this way, admission into evidence of 10-Ks restating
prior earnings is a regular practice in the federal courts: the
vast majority of district courts to have considered this issue
have found restated financial reports to be admissible on precisely those grounds. See, e.g., In re Homestore.com, Inc., No.

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01-11115, 2011 WL 291176, at *5 (C.D. Cal. Jan. 25, 2011);
In re WorldCom, Inc. Sec. Litig., No. 02-3288, 2005 WL
375313, at *6 (S.D.N.Y. Feb. 17, 2005).
In opposition to the government’s position suggesting the
admissibility of the restated 2006 10-K, Jasper relies heavily
on a single Ninth Circuit case, Paddack v. Dave Christensen,
Inc., 745 F.2d 1254, 1258 (9th Cir. 1984). In Paddack, this
court held that a “special audit” commissioned because of
suspected impropriety in past financial reporting was inadmissible as a business record. Id. at 1256-58. The “special audit”
in Paddack was a report of a single accounting firm and the
“accountants were not requested to undertake a traditional
financial statement audit.” Id. at 1257. The Paddack court
stated that when “an accountant performs a financial statement audit in accordance with generally accepted auditing
standards to express an opinion on the fairness with which the
[financial statements] present financial position, results of
operations, and changes in financial position in conformity
with generally accepted accounting principles . . . it is it is
generally admissible as a business record of the audited entity
under Fed. R. Evid. 803(6).” Id. at 1257 n.3 (internal quotation marks and citation omitted).
[2] Paddack supports our conclusion. The record here
shows that the restated 2006 10-K was a paradigmatic “financial statement audit” and not a “special audit.” Alan Hale, the
interim CFO who was in place during the filing of the 2006
10-K, testified as follows:
Q: As a company that wanted to have its shares
publicly traded, was Maxim required to prepare this
annual report [i.e., the 2006 10-K]?
A: Yes.
Q: And as a company that wanted to have its
shares publicly traded, was Maxim required to pre-

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pare and provide to investors financial statements
that complied with GAAP [i.e., generally accepted
accounting principles]?
A: Yes.
Thus, because the financial statements in the 2006 10-K had
to comply with GAAP, that document falls into the category
of admissible “financial statement audits” under Paddack, not
inadmissible “special audits.”
[3] We also reject Jasper’s contention that the 10-K “was
explicitly created with an eye toward pending litigation” and
therefore should have been excluded. This argument has no
limiting principle: the filing of an accurate 10-K was and continues to be a legal requirement for Maxim. In today’s
litigation-heavy climate, the filing of any 10-K can always
subject companies to legal exposure. That is why lawyers
pore over 10-Ks every year at substantial expense to shareholders. Were this court to accept Jasper’s contention, virtually every document a public company releases to the public
would be inadmissable as a business record merely because
companies are worried about litigation risks. That is not the
law under the Federal Rules of Evidence.
[4] Jasper also contends that the 2006 10-K should be
excluded as improper expert testimony under Rules 7013 and
7024 because of the accounting judgments involved. However,
3

That provision states: “If a witness is not testifying as an expert, testimony in the form of an opinion is limited to one that is: (a) rationally
based on the witness’s perception; (b) helpful to clearly understanding the
witness’s testimony or to determining a fact in issue; and (c) not based on
scientific, technical, or other specialized knowledge within the scope of
Rule 702.”
4
That provision states: “A witness who is qualified as an expert by
knowledge, skill, experience, training, or education may testify in the form
of an opinion or otherwise if: (a) the expert’s scientific, technical, or other

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even assuming the 2006 10-K contained expert opinion, it was
not an abuse of discretion for the district court to admit it
without affirmatively stating that the requirements of Rule
702 were satisfied because Rule 803(6) expressly provides for
the exclusion of a business record if the source of information
indicates a lack of trustworthiness. See United States v.
Licavoli, 604 F.2d 613, 622 (9th Cir. 1979). Also, there is
nothing in the record showing that Jasper objected to any failure to disclose the 2006 10-K’s authors under Fed. R. Civ. P.
26(a)(2)5 or was prejudiced by it. There was no plain error in
not excluding the 2006 10-K on that ground. United States v.
Sioux, 362 F.3d 1241, 1244 n. 5 (9th Cir. 2004) (plain error
review proper when defendant did not “raise the specific
objection he now presses”).
[5] Finally, Jasper contends that the 2006 10-K’s scant
probative value was substantially outweighed by the danger of
unfair prejudice under Rule 4036 because it reflects an exercise of judgment under new accounting guidance, and because
it encompasses more than just Jasper’s charged conduct.
However, the 2006 10-K is probative of the falsity of the previously filed documents and the magnitude of the corrections.
That an exhibit contains ambiguities generally goes to the
weight and not the admissibility of the evidence, United
specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles
and methods; and (d) the expert has reliably applied the principles and
methods to the facts of the case.”
5
That provision states, in relevant part, that: “a party must disclose to
the other parties the identity of any witness it may use at trial to present
evidence under Federal Rule of Evidence 702, 703, or 705.” Fed. R. Civ.
P. 26(a)(2)(A).
6
That provision states: “The court may exclude relevant evidence if its
probative value is substantially outweighed by a danger of one or more of
the following: unfair prejudice, confusing the issues, misleading the jury,
undue delay, wasting time, or needlessly presenting cumulative evidence.”

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States v. Scholl, 166 F.3d 964, 978 (9th Cir. 1999), and the
SEC’s expert testified to the amount of restated compensation
expense that was attributable to Jasper’s involvement in the
backdating scheme.
[6] For these reasons, it was not an abuse of discretion for
the district court to admit the 2006 10-K into evidence.
2.
In two particular circumstances at trial, the district court
allowed the SEC to introduce evidence of Jasper’s repeated
invocation of the Fifth Amendment and instructed the jury
that it could, but was not required to, draw an adverse inference from the invocations. The SEC introduced a videotape
of Jasper’s deposition, where Jasper repeatedly invoked the
Fifth Amendment,7 and the court also allowed the SEC to
introduce written discovery responses in which Jasper
invoked his Fifth Amendment rights an additional 150 times.
The discovery responses contained exchanges such as:
Interrogatory No. 1: From May 1, 1998 through
January 31, 2007, please describe in detail the process by which OPTION GRANTS were made at
Maxim, including, without limitation, the identification of all relevant people, documents, and COMMUNICATIONS.
7

An example of an exchange in the videotape is:
Q: Can you tell us when you first became acquainted with Maxim
Integrated Products?
A: On advice of counsel, I’m exercising my Fifth Amendment
constitutional right to decline to answer that question.
Q: And can you tell us what your responsibilities were during
your tenure at Maxim Integrated Products?
A: Yeah, on advice of counsel, I’m exercising my Fifth Amendment constitutional right to decline to answer that question.

And so on.

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Response: Mr. Jasper declines to respond personally based on his rights under the Fifth Amendment
to the United States Constitution, as described in his
General Objections above. We refer the SEC, however, to Mr. Jasper’s initial and supplemental disclosures under Federal Rule of Civil Procedure 26 and
to the documents, testimony, and other information
uncovered during discovery in this matter.
Both at the time of the evidence’s introduction and at the
close of evidence, the district court instructed the jury about
the proper way in which it could use the evidence. For
instance, following the close of evidence, the district court
instructed the jury that “in civil cases, you are permitted, but
not required, to draw the inference that the withheld information would have been unfavorable for the defendant. Any
inference you may draw should be based upon all of the facts
and circumstances in this case as you find them.”
[7] The Supreme Court has previously stated that “the
Fifth Amendment does not forbid adverse inferences against
parties to civil actions when they refuse to testify in response
to probative evidence offered against them.” Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). However, because there is
some “tension between one party’s Fifth Amendment rights
and the other party’s right to a fair proceeding,” this court has
held that there are certain limits on when a court in a civil
case may give an adverse inference instruction that accompanies a witness’s invocation of the Fifth Amendment. Doe ex
rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258, 1264-65 (9th
Cir. 2000). In Glanzer, this court stated that the tension
between the Fifth Amendment and the need for a balanced
trial in a civil case is resolved by a careful balancing of interests. Id. at 1265. The Glanzer court said that courts should
“analyz[e] each instance where the adverse inference was
drawn, or not drawn, on a case-by-case basis under the microscope of the circumstances of that particular civil litigation.
. . . In each particular circumstance, the competing interests

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of the party asserting the privilege, and the party against
whom the privilege is invoked must be carefully balanced.”
Id.
On appeal, Jasper does not object to the jury instructions,
and, for what seems to be merely illustrative purposes, he registers one specific objection to the introduction of a particular
statement of his and the accompanying adverse inference
instruction.8 Instead, Jasper criticizes the district court for supposedly “abdicat[ing] its responsibility to scrutinize the
admissibility of these invocations, and the permissible inferences from them, on a question-by-question basis applying
the multi-part test from Glanzer and Nationwide [Life Ins. Co.
v. Richards, 541 F.3d 903 (9th Cir. 2008)].” According to Jasper, “[t]his was an abuse of discretion, if that discretion was
exercised at all.”
[8] While the admission of such a large number of Fifth
Amendment invocations is unusual, we hold that the district
court was within its discretion to admit them under these circumstances. Jasper has no legal support for the proposition
that a district court must make its evidentiary rulings and tailor its adverse inference instructions on a “question-byquestion basis.” The best Jasper can do is cite this court’s
statement in Glanzer that “[t]he court must analyze ‘each
instance where the adverse inference was drawn, or not
drawn, on a case-by-case basis under the microscope of the
circumstances of that particular civil litigation.’ ” But Jasper
has no warrant for treating every individual question as an
“instance where the adverse inference was drawn” under
8

Jasper contends on appeal that Interrogatory No. 1, which is reprinted
in full above, is “so broad that it could not possibly support a properly
confined inference under Glanzer.” His point is difficult to grasp.
Decanted from the arch phrases of litigation practices, the interrogatory in
essence asks: “How were Maxim stock options given out? Tell us who
was involved, and what paper trail they left.” Why an inference could not
be properly drawn from a refusal to answer this “whodunit” question is
itself a mystery.

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Glanzer. As properly instructed, the jury could have concluded that the sum total of his Fifth Amendment invocations
supported the adverse inference against him.
Our conclusion is supported by the fact that, in district
court, both parties generally treated each question-and-answer
session in which Jasper invoked the Fifth Amendment as a
single “invocation” of his Fifth Amendment rights. That is,
Jasper, the SEC, and the district court treated each round of
questioning as a single instance of his invoking the privilege,
not hundreds of instances, as he now characterizes it on
appeal.
Jasper filed an opposition to the SEC’s motion in limine
requesting that the deposition and written interrogatories be
admitted into evidence, and also his own motion seeking to
exclude the same evidence. The SEC’s motion described at
length the nature of the evidence the Commission wished to
admit, and Jasper had access to the full transcripts of both sessions. Yet in neither document does Jasper single out any particular invocation in response to a question, along with an
accompanying adverse inference, that would be improper.
Instead, Jasper simply wanted to disable the SEC from using
any of this evidence, and Jasper did not want the district court
to issue any adverse inference instructions.9 On appeal, however, he changes the level of detail, and he asks us to hold that
each question-and-response is a single invocation which must
9
The broad level of generality with which Jasper treated the Fifth
Amendment invocations is illustrated perfectly by the sub-headings on one
motion in limine in the district court. There, Jasper refers to “Jasper’s First
Invocation of the Fifth Amendment,” which was a May 2007 interview
containing many questions-and-responses, and “Jasper’s Second Invocation of the Fifth Amendment,” which was a September 2008 deposition.
Thus, Jasper’s request below that the district court require the SEC to “establish the admissibility, relevance, and reliability of each Fifth Amendment invocation,” is most naturally read as a request that the district court
look at each session, interview, or deposition in which Jasper invoked the
Fifth Amendment, not each individual question-and-response.

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be analyzed separately and, one supposes, give rise to a separate jury instructions regarding the proper adverse inference.
But he has no warrant for changing the level of generality so
dramatically on appeal.10
The district court also dealt with the evidence of invocation
of the Fifth Amendment privilege at a high level of generality,
and it instructed the jury to do the same. Before playing the
videotaped deposition, the district court instructed the jury as
follows:
Although you are permitted to draw a negative
inference from the fact that the defendant asserts his
Fifth Amendment privilege and silence in response
to questions, you’re not required to do so.
Now, because of the nature of this case, I might
interrupt the playing of the videotape after I’m satisfied that you have had an opportunity to review the
defendant and his invocation of the privilege.
In other words, we won’t just allow [the SEC] to
play it, and the point to play it just to have you hear
it repeated multiple times. But it is permissible for
them to play enough of it so that you can understand
the nature [of] the questions to which the privilege
was invoked.
[9] Thus, the district court properly considered the propriety of the Fifth Amendment invocations precisely as they
were presented to the court by both sides: as a whole, with
10

Glanzer observes that the “Fifth Amendment’s protections against
self-incrimination are invoked on a question-by-question basis.” 232 F.3d
at 1265. If so, then proper objection to proof of each invocation of the
Fifth Amendment must also be made on a question-by-question basis. As
noted, Jasper objected to proof of invocations in general: by the group, or
the session.

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inferences to be permitted as a whole based on “the nature of
the questions to which the privilege was invoked.” In these
circumstances, and in view of Jasper’s uniting his invocations
into identified groupings of questions, it was not an abuse of
discretion to treat the video and responses to interrogatories
as general “instances” of Jasper’s invocation of his Fifth
Amendment rights, and then admit them into evidence and
instruct the jury as such.11
3.
At trial, Jasper attempted to introduce into evidence hearsay statements given by Timothy R. Ruehle, the former treasurer of Maxim, as part of the early investigation of the
backdating scandal. Jasper could not call Ruehle as a witness
because by the time the parties’ took Ruehle’s deposition,
Ruehle had become “unavailable” as a witness. See Fed. R.
Evid. 804(a)(1).12 Ruehle had invoked his Fifth Amendment
right against self-incrimination; he continued to assert these
rights through the trial.
11

It is true that Jasper contended at one point below that “any adverse
inference from an invocation of the Fifth Amendment must be drawn only
with regard to a specific question.” But Jasper there did not single out any
objectionable question-and-response, along with the accompanying
adverse inference instruction. Jasper had no warrant for requesting that the
SEC justify its evidentiary admissions on a question-by-question basis
without his stating which questions, responses, and adverse inferences
would be objectionable unless so considered by the court. Under the Federal Rules of Evidence, proper objections to the admission of evidence
must “state[ ] the specific ground” of the objection. Fed. R. Evid.
103(a)(1)(B). Since Jasper objected to no particular question-and-response
in his motions in limine, it would have been logically impossible for the
district court to know any “specific ground” of Jasper’s objection to any
particular question-and-response.
12
The provision says that a “declarant is considered to be unavailable as
a witness if the declarant: is exempted from testifying about the subject
matter of the declarant’s statement because the court rules that a privilege
applies.”

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Jasper contended that Ruehle’s earlier sworn testimony,
taken in the course of a fact-gathering investigation by the
SEC, would help exculpate Jasper. For instance, Jasper points
to the following exchange that he contends would have bolstered his case:
Q: Do you know whether Maxim ever did grant in
the money options? . . .
A: Right. I’m not aware of any time where, under
the [options] plan, options were granted with an
exercise price less than market price on grant date,
no.13
Jasper contends this and other statements by Ruehle were
admissible under Federal Rule of Evidence 804(b)(1), which
excepts from the hearsay prohibition testimony “given as a
witness at a trial, hearing, or lawful deposition” if the testimony “is now offered against a party who had . . . an opportunity and similar motive to develop it by direct, cross-, or
redirect examination.”14
13

This indeed seems a very careful statement. Did Ruehle mean as
“grant date” the date 1) Maxim’s books reflected the grant made (the
backdated date), or 2) the actual grant date? Of course, the jury did not
have the opportunity to decide.
14
Careful readers may be asking whether Ruehle’s prior sworn testimony during the SEC fact-finding investigation counts as testimony
“given at a trial, hearing, or lawful deposition,” which is the only kind of
testimony potentially admissible under Rule 804. The district court
flagged this issue when it stated that it “didn’t know the circumstances as
to whether [Ruehle] actually appeared before the Commission and gave
sworn testimony to it or whether it was under other circumstances, but in
any event he made statements that I’m told are sworn testimony.” But the
district court did not exclude Ruehle’s statements on the basis that they
were not “testimony” under the meaning of Rule 804, and neither party
addresses that issue on appeal. Thus, we express no opinion as to whether
that, too, would have been a proper basis for exclusion.

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The SEC objected to the admission of Ruehle’s testimony
on the ground that it was inadmissible hearsay, and the district
court found the testimony inadmissible for two reasons. First,
the court ruled that “during the investigatory stage of the proceedings, as opposed to the accusatory stage of the proceedings, which is what the trial is, the motive is different.”
Further, “it was actually the SEC who sought to depose Mr.
Ruehle in the litigation at which he invoked his Fifth Amendment privilege and refused to answer any of the questions that
he was asked before.” Second, in light of Ruehle’s subsequent
blanket invocation of the Fifth Amendment, the district court
expressed concern that Ruehle’s testimony was too unreliable
to be admitted without the opportunity for cross-examination
by the SEC. “Credibility is so important to this process,” said
the district court, “that it can sometimes go just to the completeness of testimony and not necessarily the incorrectness of
it.”
[10] The district court’s exclusion of this testimony was
not an abuse of discretion. Jasper does not directly address the
district court’s statement that the SEC had no opportunity, at
a point when the SEC had a motive similar to its motive at
trial, to cross-examine Ruehle. Instead, Jasper simply asserts
that “the SEC had every opportunity and motive to crossexamine Ruehle during its own interview process.” But that
assertion does nothing to contest the district court’s conclusion regarding the difference in the nature of the SEC’s motivation during an early investigation, at which open-ended
questions are typically asked without expectation the witness
will be needed at trial, and its motivation at an adverse witness deposition, when battle lines have already been drawn
and necessary witnesses identified.
[11] Moreover, the district court’s finding that Ruehle’s
statements were unreliable in light of his subsequent invocation of the Fifth Amendment was not clearly erroneous, and
was thus another permissible reason to exclude the sworn
interrogation. Where hearsay statements would have been

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admissible under Fed. R. Evid. 804(b)(1), the rule at issue
here, our court noted that exclusion would still be proper if
the “trial court simply considered it unfair to present a version
of an unavailable witness’ testimony without an opportunity
to cross-examine directly.” United States v. Lester, 749 F.2d
1288, 1301 (9th Cir. 1984). Under this rule especially, admission of evidence “is a matter for the trial judge’s discretion,
to be exercised on the basis of his evaluation of the realities
of cross-examination and the motive and interest with which
[one party] carried out the prior examination.” Id. That is
exactly what the district court did here, and we therefore
affirm its decision.
B.

Attorney Misconduct

Next, Jasper contends that a new trial is warranted because
attorney misconduct permeated the proceedings. This contention also fails.
[12] To receive a new trial because of attorney misconduct
in the civil context, defendants must meet a high standard:
“the moving party must demonstrate adverse counsel’s misconduct . . . ‘substantially interfered’ with the moving party’s
interest.” Cal. Sansome Co. v. U.S. Gypsum, 55 F.3d 1402,
1405 (9th Cir. 1995). Further, “[t]o warrant reversal on
grounds of attorney misconduct, the flavor of misconduct
must sufficiently permeate an entire proceeding to provide
conviction that the jury was influenced by passion and prejudice in reaching its verdict.” Kehr v. Smith Barney, Harris
Upham & Co., Inc., 736 F.2d 1283, 1286 (9th Cir. 1984)
(internal quotation marks and citation omitted).
Jasper contends that statements made by the SEC on three
issues in its closing argument were improper. We need not
address each in turn, since, to prevail, Jasper would need to
show the kind of pervasive misconduct that would “permeate
an entire proceeding.” He has not done so.

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[13] In its decision denying Jasper’s motion for a new trial,
the district court summarized the reason that the misconduct
claim fails:
The Court finds that the SEC’s conduct of which
Defendant complains essentially amounts to a small
number of isolated statements in lengthy closing and
rebuttal arguments. The fact that the verdict was not
in favor of the SEC on all of its claims demonstrates
that the jury carefully weighed the evidence before
it and did not merely presume Defendant’s liability.
Thus, even assuming the SEC committed misconduct during the trial, it was not of the kind or quality
that would permeate the entire proceedings and taint
the jury’s verdict.
We have reviewed the claimed instances of attorney misconduct, and we agree with the district court’s reasoning. No
more need be said on the matter.
C.

SOX 304

In addition to paying a civil fine, Jasper was ordered to
reimburse Maxim for $1.8 million in bonuses and profits from
the sale of Maxim stock that Jasper received during the period
that he certified Maxim’s false financial statements. This
reimbursement was ordered pursuant to a provision known as
“SOX 304.” SOX 304 was passed in 2002 as part of the
Sarbanes-Oxley Act, and it is codified at 15 U.S.C. § 7243.
SOX 304 provides, in relevant part:
If an issuer is required to prepare an accounting
restatement due to the material noncompliance of the
issuer, as a result of misconduct, with any financial
reporting requirement under the securities laws, the
chief executive officer and chief financial officer of
the issuer shall reimburse the issuer for—

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(1) any bonus or other incentive-based or equitybased compensation received by that person from the
issuer during the 12-month period following the first
public issuance or filing with the Commission
(whichever first occurs) of the financial document
embodying such financial reporting requirement; and
(2) any profits realized from the sale of securities of
the issuer during that 12-month period.
The district court found that Maxim was required to restate
financial statements originally issued in September 2002,
2003, 2004, and 2005 because of its material noncompliance
with securities reporting requirements, and ordered that Jasper
reimburse Maxim the bonuses Jasper earned during the 1-year
period following each of those misstated reports according to
SOX 304.15 Jasper contends that the jury’s verdict was not
specific enough to support this finding because “the jury was
never asked to consider whether Maxim was ‘required’ to
restate its financials ‘as a result of misconduct.’ ” To prevail
on this argument, Jasper must establish that the remedy of
reimbursement is a “legal” rather than an “equitable” remedy,
since Jasper himself recognizes that he has a right to a jury
trial only on any claim for relief seeking traditionally legal, as
opposed to equitable, remedies. SEC v. Rind, 991 F.2d 1486,
1493 (9th Cir. 1993). Jasper notes that “[f]orfeiture and penalties are legal remedies, as compared to equitable remedies like
restitution, disgorgement, and injunctions.”
Ninth Circuit law is clear that the reimbursement provision
of SOX 304 is considered an equitable disgorgement remedy
and not a legal penalty. Thus, Jasper is not entitled to have a
jury find all of the facts necessary to support the reimbursement.
15

SOX 304 does not apply to conduct that occurred before 2002.

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[14] In In re Digimarc Corp. Derivative Litig., 549 F.3d
1223 (9th Cir. 2008), we addressed the question whether SOX
304 creates a private right of action. Id. at 1231. The court
undertook a detailed analysis of the nature of the provision by
examining not only the legislative intent of SOX 304 but also
how SOX 304 fits into the legislative scheme of SarbanesOxley as a whole. Id. In holding that SOX 304 did not create
a private right of action, the court examined the nature of the
remedy available in SOX 304 and said that it “require[s] noncompliant directors and officers to reimburse the issuer by
disgorging the profits of their noncompliance.” Id. at 1232
(emphasis added). The court then explicitly noted that “disgorgement remedies are equitable.” Id. at 1233. Finally, the
court contrasted SOX 304 with other equitable provisions of
Sarbanes-Oxley and stated that “we cannot find in Congress’
silence in section 304 an intent to create a private right of
action where it was not silent in creating such a right to similar equitable remedies in other sections of the same Act.” Id.
(emphasis added).16
[15] Because Jasper had no right to have a jury find all
predicate facts to the remedy of disgorgement, the finding that
Maxim was indeed “required” to restate those four earnings
reports because of “misconduct” is viable whether or not it is
characterized as having been made by the judge or upon the
advice of a jury.
***
16

The discussion of the remedy of SOX 304 was not mere “dictum” in
the Digimarc case, as Jasper contends it was. Rather, the comparison
between SOX 304 and other specifically equitable provisions of SarbanesOxley was crucial to the court’s holding that SOX 304 created no private
right of action. We are bound by the language in the Digimarc case. Jasper
points us instead to a district court case from the Northern District of
Texas which found that the remedy in SOX 304 was a legal one, see SEC
v. Microtune, Inc., 783 F. Supp. 2d 867 (N.D. Tex. 2011), but it goes without saying which of those two authorities we must follow.

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Jasper was the CFO of a public company that was forced
to restate hundreds of millions of dollars of its earnings, spanning nearly a decade, because Maxim regularly failed to
record as compensation expenses stock options profits to
option recipients. On appeal, Jasper does not challenge his
involvement in this scheme in any way. He objects only to the
procedures by which he was tried. Jasper, no less than anyone
else, is of course entitled to be tried fairly. But, on reviewing
the record, we conclude that Jasper received a full and fair
civil trial in this enforcement action. A jury of his peers found
against him on most counts, and the district court entered
judgment against him. We leave that judgment in place.
AFFIRMED.