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MARC J. FAGEL (Admitted to Cal. bar) MICHAEL S. DICKE (Admitted to Cal. bar) dickem@sec.gov SUSAN F. LAMARCA (Admitted to Cal. bar) lamarcas@sec.gov ROBERT L. TASHJIAN (Admitted to Cal. bar) tashjianr@sec.gov DAVID A. BERMAN (Admitted to N.Y. bar) bermand@sec.gov Attorneys for Plaintiff SECURITIES AND EXCHANGE COMMISSION 44 Montgomery Street, Suite 2800 San Francisco, California 94104 Telephone: (415) 705-2500 Facsimile: (415) 705-2501 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO SOUTHERN DIVISION SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ALTERNATE ENERGY HOLDINGS, INC., DONALD L. GILLISPIE, and JENNIFER RANSOM, Defendants, and BOSCO FINANCIAL, LLC, and ENERGY EXECUTIVE CONSULTING, LLC, Relief Defendants. PLAINTIFF SECURITIES AND EXCHANGE COMMISSIONS MEMORANDUM IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANTS ALTERNATE ENERGY HOLDINGS, INC. AND DONALD L. GILLISPIE Case No. 1:10-cv-621-EJL-REB

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Table of Contents I. INTRODUCTION ................................................................................................................... 1

II. SUMMARY OF UNDISPUTED MATERIAL FACTS ......................................................... 2 A. B. AEHI and Gillispie Raised Millions from Investors Through an Unregistered Offering .............................................................. 2 AEHI and Gillispie REPEATEDLY MADE FALSE STATEMENTs About the Status of AEHIs Funding ............................................ 5

III.

ARGUMENT ....................................................................................................................... 7 A. Summary Judgment Should be Granted on claims Where, As Here, There is No Genuine Issue For Trial ............................................................................................................. 7 AEHI and Gillispie Violated securities act section 5 .................................................. 8 1. 2. The Commission Has Met Its Prima Facie Burden ........................................ 9 AEHI and Gillispie Cannot Show That the Offering of AEHI Stock to the Public Was Exempt From the Registration Requirement ........................................................................ 10

B.

C.

AEHI and Gillispie Violated SECURITIES ACT SECTION 17(a), Exchange Act section 10(b), and rule 10b-5 thereunder.......................................................................................... 15 1. 2. Gillispie Made Material Misrepresentations Knowingly and Recklessly ............................................................................................... 16 AEHI Made Material Misrepresentations and Omissions Through Gillispie .......................................................................................... 19

IV.

CONCLUSION .................................................................................................................. 20

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Table of Authorities Cases Aaron v. SEC, 446 U.S. 680 (1980) ........................................................................................ 16, 18 Basic, Inc. v. Levinson, 485 U.S. 224 (1988)................................................................................ 17 Baxter v. Palmigiano, 425 U.S. 308 (1976) .................................................................................. 19 Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)....................................................................... 16 Franklin Supply Co. v. Tolman, 454 F.2d 1059 (9th Cir. 1972) ................................................... 20 Gebhart v. SEC, 595 F.3d 1034 (9th Cir. 2010) ..................................................................... 16, 18 Hill York Corp. v. Am. Int'l Franchises, Inc., 448 F.2d 680 (5th Cir. 1971) .................................................................................................... 13 Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990) ................................................ 16 Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702 (7th Cir. 2008) ................................. 19 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 495 U.S. 574 (1985)...................................... 7 Nationwide Life Ins. Co. v. Richards, 541 F.3d 903 (9th Cir. 2008) ............................................ 19 Premium Plus Partners L.P. v. Goldman, Sachs & Co., 648 F.3d 533 (7th Cir. 2011) ................................................................................................... 20 Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38 (2d Cir. 1978)........................................ 18 SEC v. Banner Fund Intl, 211 F.3d 602 (D.C. Cir. 2000) ............................................................. 8 SEC v. Benson, 657 F. Supp. 1122 (S.D.N.Y. 1987) .................................................................... 19 SEC v. Bonastia, 614 F.2d 908 (3rd Cir. 1980) .............................................................................. 8 SEC v. Calvo, 378 F.3d 1211 (11th Cir. 2004) ........................................................................... 8, 9 SEC v. Cavanaugh, 445 F.3d 105 (2nd Cir. 2006) ......................................................................... 8 SEC v. Colello, 139 F.3d 674 (9th Cir. 1998) ............................................................................... 19 SEC v. Credit First Fund, L.P., No. CV 05-8741 DSF, 2006 WL 4729240 (C.D. Cal. Feb. 13, 2006) .......................................................................... 13

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ii

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SEC v. Current Fin. Servs., Inc., 100 F. Supp. 2d. 1 (D.D.C. 2000) .............................................. 9 SEC v. Hughes Capital Corp., 124 F.3d 449 (3d Cir. 1997) ........................................................ 16 SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980) ....................................................................... Passim SEC v. Phan, 500 F.3d 895 (9th Cir. 2007) .................................................................................... 9 SEC v. Platforms Wireless Int'l. Corp.,617 F.3d 1072 (9th Cir. 2010) .......................................... 8 SEC v. Ralston Purina Co., 346 U.S. 119 (1953) .................................................................. Passim SEC v. Rana Research, Inc., 8 F.3d 1358 (9th Cir. 1993) ............................................................ 16 SEC v. Recile, 10 F.3d 1093 (5th Cir. 1993)............................................................................. 8, 17 TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) ....................................................... 17 W.R. Grace & Co., Inc. v. Western U.S. Indus. Inc., 608 F.2d 1214 (9th Cir. 1979) .................................................................................................. 19 Western Fed. Corp. v. Erickson, 739 F.2d 1439 (9th Cir. 1984) .................................................. 12 World Hospitality LTD. v. Wohl, 983 F.2d 650 (5th Cir. 1993) ................................................... 19 Statutes 15 U.S.C. 77c ............................................................................................................................. 15 15 U.S.C. 77d ....................................................................................................................... 10, 15 15 U.S.C. 77q ................................................................................................................... 7, 16, 19 15 U.S.C. 77e ......................................................................................................................... 7, 8 15 U.S.C. 78j.................................................................................................................... 7, 15, 19 Rules FED. R. CIV. P. 56 ............................................................................................................................ 7 Regulations 17 C.F.R. 230.501 ................................................................................................................ 10, 12 17 C.F.R. 230.502 .......................................................................................................... 11, 13, 14 SEC SUMMARY JUDGMENT MEM. iii

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17 C.F.R. 230.504 ...................................................................................................................... 11 17 C.F.R. 230.505 ...................................................................................................................... 12 17 C.F.R. 240.106-5............................................................................................................... 7, 15

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iv

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I.

INTRODUCTION The Securities and Exchange Commission (the Commission) has charged defendant

Alternate Energy Holdings, Inc. (AEHI), and its chief executive, defendant Donald Gillispie, with a far-reaching scheme to defraud the investing public in violation of the federal securities laws. Among other things, the Commission alleges that Gillispie illegally manipulated the public market price for AEHI stock to create the illusion of value for new investors, and that he concealed millions of dollars of payments to himself and defendant Jennifer Ransom. This Motion does not address all of the Commissions claims or evidence. Rather, the Commission is moving for summary judgment only on those charges that can be decided as a matter of law based on facts that are not in dispute by the parties. Specifically, the Commission is moving for summary judgment on its claims that AEHI and Gillispie conducted an illegal, unregistered stock offering, and that they repeatedly misled investors about the status of the companys funding. There is no dispute that AEHI and Gillispie sold more than $14 million of common stock to the public in an unregistered offering. AEHI has admitted that it has never registered any offering with the Commission, and the essential details of its stock sales are in the public record. On these facts alone it is clear that AEHI and Gillispie broke the law. The securities laws require that investors must be provided important information about their investments, and they protect investors in offerings, like AEHIs, that have not been registered. AEHI and Gillispie flouted these laws by offering and selling AEHI stock to hundreds of investors in Idaho and across the country without registration, without full disclosure, and without regard for whether the investors were informed or qualified. The illegal stock sales had real and detrimental consequences. In evading registration, AEHI used offering documents that contained important deceptions about the status of its SEC SUMMARY JUDGMENT MEM. 1

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fundinga critical issue for a development stage company, as AEHI has acknowledged. And beyond the offering documents, AEHI also made a number of specific claims in press releases and shareholder letters about financing deals that it had purportedly struck to fund its nuclear power plant project. These statements were also false and misleading and, thus, illegal. As Gillispie knew, AEHI never obtained one cent in funding, nor any commitment to provide it, outside of its illegal stock sales to investors. The facts showing the fraud are not in dispute. Gillispies claims about funding are announced boldly in press releases and open letters and emails, and their falsity is clear from AEHIs own financial statements and admissions in this litigation and elsewhere. While the evidence supporting this Motion is more limited than what the Commission would introduce at trial, summary judgment on these undisputed material facts would resolve the central claims alleged by the Commission in this action. Because AEHI and Gillispie violated the registration and antifraud provisions of the securities laws, and because those violations are evident based on undisputed facts and the limited evidence propounded herein, summary judgment should be granted on the claims that they violated Section 5 and Section 17(a)(2) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder. II. SUMMARY OF UNDISPUTED MATERIAL FACTS The Commission also files its Statement of Undisputed Material Facts (SUMF) pursuant to Local Rule 7.1(b)(1), as summarized below. A. AEHI AND GILLISPIE RAISED MILLIONS FROM INVESTORS THROUGH AN UNREGISTERED OFFERING

Gillispie formed AEHI and took it public in 2006 through a reverse merger involving two predecessor companies. SUMF 1. AEHI has, since its creation, been a publicly-traded

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company whose stock is quoted on the Pink Sheets. Id. During this period, Gillispie has been Chief Executive Officer and Chairman of AEHIs board of directors (SUMF 4), and the only full time senior executive of the company. SUMF 5. One director testified that the AEHI board served as an advisory committee to Gillispie, who ran the company. SUMF 5. AEHIs stated mission is to develop nuclear power plants in the United States. SUMF 3. It describes itself as a development stage company which, from inception through the end of 2010 has never earned any revenue. Id. AEHI has paid for its expensesincluding Gillispies compensationby issuing and selling common stock to the investing public. SUMF 21-23, 42. AEHI acknowledges that it has never registered any offer or sale of securities with the Commission. SUMF 29. Nevertheless, company filings show that AEHI has raised more than $14.55 million in unregistered stock sales, which it made continuously from October 2006 through the end of 2010, when this action was filed. SUMF 23. AEHI sold stock through the use of documents called private placement memoranda or PPMs. SUMF 7. These offering documents set the sale price of the stock, contained some basic information about the company, and attached a two-page investor questionnaire for purchasers to complete and return. SUMF 9-10. Gillispie updated the PPMs periodically to change the sale price or to edit the text. SUMF 8. The PPMs did not, however, contain key information like AEHIs current financial statements or its most recent filings with the Commission. SUMF 15. As described further below, the PPMs also contained false statements about the companys financing. See Part II(B), infra. AEHI solicited investors for its offering in a number of ways. First, Gillispie sent e-mail messages to large groups of associates and supporters in which he attached the latest PPM. SUMF 16. In these e-mails Gillispie highlighted that the offering price was lower than the SEC SUMMARY JUDGMENT MEM. 3

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current market price. SUMF 16. Second, Gillispie encouraged recipients to forward the stock offering to friends of friends and other prospective investors, and he offered finders fees as a reward for doing so. SUMF 17-18. Third, Gillispie engaged paid helpers to solicit strangers to purchase AEHI stock in exchange for sales-based commissions. SUMF 18. Finally, AEHI advertised at least one investment orientation seminar on television, radio, and in the newspaper. SUMF 19. At the seminar, held near San Francisco in 2009, Gillispie personally touted AEHI stock, and encouraged attendees to invest. SUMF 20. AEHIs offering was not limited to individuals who met any kind of sophistication or accreditation criteria. In some instances, investors told AEHI that they had limited investing experience and resources, but AEHI and Gillispie nevertheless allowed them to invest. SUMF 27. For example, AEHI sold restricted stock to a mail carrier who said in her PPM questionnaire that she made $30,000 a year, had no idea of her net worth, and invested occasionally, and to a school teacher who said that she made $62,000 a year and had a net worth of $170,000, most of which was in a 401(k). SUMF 27. Beginning in at least 2010, investors were told that they were not required to provide any information about their background or financial condition. SUMF 28. AEHI regularly sold stock to investors who returned PPM questionnaires blank, containing nothing but a name, address, and a signed check. SUMF 26. By AEHIs own account, it sent PPMs to approximately 850 people. SUMF 21. As noted above, AEHI also offered stock through associates, paid helpers, and public seminar advertisements. AEHI has acknowledged that it engaged in approximately 1,500 transactions in its own stock. SUMF 24. As of March 31, 2011, there were at least 850 shareholders of record of AEHI stock, plus those who owned shares in street name. Id. Many of these investors are in Idaho, but they also live throughout the United States and across the globe. Id. SEC SUMMARY JUDGMENT MEM. 4

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B.

AEHI AND GILLISPIE REPEATEDLY MADE FALSE STATEMENTS ABOUT THE STATUS OF AEHIS FUNDING

AEHI has repeatedly acknowledged that funding is critical to its plans to build a nuclear power plant in Idaho. In public filings, AEHI estimated that it would cost approximately $100 million just to obtain regulatory approval for the project. SUMF 10. Thus, Gillispie has touted new prospects for funding in his solicitations of investors. SUMF 12. AEHI has also conceded that the project would not be possible if it is not able to raise the requisite funds. SUMF 13. AEHI has never obtained funding for the nuclear project. From inception through the end of 2010, AEHIs financial statements reflected no financing other than from the proceeds of its unregistered offering. SUMF 13-14. And yet, at various points during this period, AEHI announced to investors and the market that it had secured funding for its project. As described below, these statements were false. AEHI made numerous false statements about funding in its PPMs. Several PPMs claimed that AEHIs project is funded. SUMF 12. Others claimed that AEHI had funding commitments or funding arrangements. Id. One PPM claimed that AEHI had obtained $3.5 billion in funding. Id. Gillispie personally disseminated PPMs making this false claim to investors as part of the illegal offering of securities. SUMF 16. AEHI also issued numerous press releases in which it claimed to have struck specific deals to bring in large financing packages. In reality, the claimed deals did not exist. Rather, the only events to which Gillispie could refer were engagements that he signed with brokers who promised to help AEHI hunt for funds. For example, on June 26, 2007, AEHI announced to the public that it had Secure[d] $3.5 Billion in Funding for Proposed Idaho Energy Complex. SUMF 33. In fact, AEHI had merely signed an engagement letter with Cobblestone Financial Group, a real estate brokerage firm which AEHI hired to help it find a funding source. SUMF

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34. In that letter, which Gillispie signed, AEHI acknowledges and agrees that Cobblestone does not guarantee that a commitment can be obtained. Id. Asked about AEHIs June 26, 2007, press release, Cobblestones president testified that, not only was the statement false, but he told Gillispie so at the time. Id. Similarly, just six months later, on December 6, 2007, AEHI announced to the public that it had Receive[d] $150 Million Private Placement Commitment Letter for Idaho Nuclear Reactor Project. SUMF 35. Gillispie stated in the press release that the commitment provides the initial funding to launch an important project for Idaho . . . . Id. In fact, AEHI had only signed a best efforts letter agreement, this time with a firm called with Silverleaf Capital Partners. SUMF 36. Despite these earlier claims that financing was already in place, on June 5, 2009 AEHI announced to the public that it had a Signe[d] agreement with Source Capital Group to fund Idaho nuclear site. SUMF 37. Shortly after, in a September 9, 2009, letter to shareholders (posted on the companys Web site), Gillispie reiterated this claim, stating that we have a funding commitment from Source Capital for the site. SUMF 38. However, upon receiving the September 9, 2009 letter, a Source Capital official wrote to Gillispie: It was inappropriate and misleading for the company to notify its shareholders that the company has a funding commitment from Source Capital. What the company has from our firm is a commitment to raise capital for the company on a Best Efforts basis. SUMF 40. Gillispie also represented in his September 9, 2009 letter that AEHI had a large energy trust that is willing to loan us up to $5 billion for the plant construction phase. SUMF 38. Gillispie has claimed that he could not recall the name of the energy trust, but he conceded that, in any case, the loan offer was dependent on the companys first obtaining regulatory approval from the NRC, an uncertain condition that he acknowledged would take several years and many tens of millions of dollars to obtain. SUMF 39. One of AEHIs own board members was not aware of the basis for this extraordinary claim. SUMF 39. Gillispie SEC SUMMARY JUDGMENT MEM. 6

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has never withdrawn, corrected, or clarified any of these false and misleading statements about AEHIs funding. SUMF 41. Moreover, Gillispie has refused to answer questions about them in this litigation, instead invoking his Fifth Amendment privilege at his deposition and in his response to written discovery. SUMF 6. III. ARGUMENT Summary judgment should be granted as to the Commissions claims against AEHI and Gillispie for violating the registration requirements in Section 5 of the Securities Act [15 U.S.C. 77e]. Summary judgment should also be granted as the Commissions claims against AEHI and Gillispie for violating the antifraud prohibitions in Section 17(a) of the Securities Act [15 U.S.C. 77q(a)], and Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)], and Rule 10b-5 thereunder, [17 C.F.R. 240.10b-5(b)], as argued herein. A. SUMMARY JUDGMENT SHOULD BE GRANTED ON CLAIMS WHERE, AS HERE, THERE IS NO GENUINE ISSUE FOR TRIAL

Summary judgment should be granted if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). Once the moving party has identified portions of the record that show the absence of a genuine issue of material fact, the opposing party has the burden to controvert that showing. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). The opposing party cannot rely merely on allegations or denials, but must, by affidavit or otherwise, set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party. FED. R. CIV. P. 56(e). If the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial. Matsushita, 475 U.S. at 587.

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There can be no reasonable dispute about the facts at issue here. AEHI admits that it offered and sold company stock to investors without registration, and AEHI and Gillispie have repeatedly told the public in offering documents and press releases that their project had funding when, in fact, they have now conceded that AEHI has never been successful in reaching this milestone. Summary judgment is thus appropriate on the Commissions claims against AEHI and Gillispie for violating the registration requirements of the Securities Act, and for violating the antifraud provisions of the Securities Act and the Exchange Act by misleading the investing public about the status of AEHIs funding. See, e.g., SEC v. Platforms Wireless Intl Corp., 617 F.3d 1072 (9th Cir. 2010) (affirming summary judgment for the Commission on fraud charge and registration violation); SEC v. Cavanaugh, 445 F.3d 105 (2d Cir. 2006) (same); SEC v. Banner Fund Intl, 211 F.3d 602 (D.C. Cir. 2000) (same); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993) (same); SEC v. Bonastia, 614 F.2d 908 (3d Cir. 1980) (same). B. AEHI AND GILLISPIE VIOLATED SECURITIES ACT SECTION 5

Sections 5(a) and (c) of the Securities Act prohibit any person from offering or selling a security in interstate commerce unless a registration statement is in effect or there is an applicable exemption. See 15 U.S.C. 77e(a) and (c). The purpose of the registration requirements of Section 5 is to protect investors by promoting full disclosure of information thought necessary to informed investment decisions. SEC v. Ralston Purina Co., 346 U.S. 119, 124 (1953). To establish a prima facie violation of Section 5 of the Securities Act, the Commission must show that: (1) a person, directly or indirectly, sold or offered to sell securities; (2) no registration statement was filed or in effect; and (3) interstate means were used in connection with the offer or sale. See SEC v. Calvo, 378 F.3d 1211, 1214 (11th Cir. 2004); accord SEC v. Murphy, 626 F.2d 633, 640 (9th Cir. 1980).

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As to the first element against an individual, such as Gillispie, the prima facie case is met where it is shown that a person engaged in steps necessary to and was a substantial factor in an unregistered distribution. Murphy, 626 F.2d at 649-50 & 652; see also SEC v. Phan, 500 F.3d 895, 906 (9th Cir. 2007) (affirming liability of defendant who directed company attorneys to draft contract for stock sale). Section 5 does not require proof that the defendant acted intentionally or with any other mental state. Calvo, 378 F.3d at 1215; SEC v. Current Fin. Servs., Inc., 100 F. Supp. 2d. 1, 6 (D.D.C. 2000) (Scienter is not required under Section 5 of the Securities Act). Once the Commission establishes the prima facie elements of a Section 5 violation, the burden shifts to the party claiming the exemption or safe harbor from registration to show the applicability of the exemption or safe-harbor. See Ralston Purina, 346 U.S. at 126 (1953). 1. The Commission Has Met Its Prima Facie Burden

AEHI and Gillispie violated Sections 5(a) and (c) of the Securities Act by offering and selling AEHI securities in unregistered transactions. First, there is no dispute that AEHI offered and sold its common stock to hundreds of investors.1 There can also be no reasonable dispute that Gillispie was a substantial factor in the offering. He was the Chief Executive Officer of AEHI, and he personally distributed PPMs and other solicitations to potential investors. Gillispie even appeared at the investor seminar to personally offer stock. Second, it is also undisputed that AEHI has never filed a registration statement with the Commission concerning the issuance of any AEHI securities. AEHI has admitted this fact in its discovery responses, and it is also readily apparent from the Commissions public files. Finally, AEHI and Gillispie sold

AEHI also issued and granted stock as payment for services. SUMF 22. Those transactions, too, were not registered with the Commission. SUMF 29. The Commission is limiting the instant Motion, however, to AEHIs public offering of stock for cash. SEC SUMMARY JUDGMENT MEM. 9

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securities to investors across the country and the globe, satisfying the interstate commerce element. 2. AEHI and Gillispie Cannot Show That the Offering of AEHI Stock to the Public Was Exempt From the Registration Requirement

Although it is not the Commissions burden to disprove the existence of any exemption, the record in this case makes plain that no exemption was available to AEHI. This is especially true given that, in light of the Securities Acts broad remedial purpose, exemptions from the registration provisions must be narrowly construed against the claimant. Murphy, 626 F.2d at 645. Consequently, as demonstrated below, the facts make clear that AEHI fell far short of satisfying the exemptions upon which it claimed to rely. Section 4(2) of the Securities Act excludes from the Acts registration requirements transactions by an issuer not involving any public offering. 15 U.S.C. 77d(2). In other words, this provisionwhich AEHI has cited the source for its purported exemptionapplies to so-called private sales of securities that do not involve a public distribution. Key to this exemption must be the consideration of the need of the offerees for the protections afforded by registration, particularly access to the information that would be available in a registration statement. Ralston Purina, 346 U.S. at 125-27. Based on the overarching considerations in favor of disclosure, courts have developed four factors to decide whether an offering qualifies for the exemption under Section 4(2): (1) the number of offerees; (2) the sophistication of the offerees; (3) the size and manner of the offering; and (4) the relationship of the offerees to the issuer. Murphy, 626 F.2d at 644-45 (internal citations omitted). The Commission has also promulgated rules establishing a registration exemption for qualifying private placements, which track the factors set out in Murphy; see 17 C.F.R. 230.501-508 (Regulation D). The undisputed facts show that AEHI

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and Gillispies offering failed to qualify for an exemption under Section 4(2) of the Securities Act, Regulation D, or any other provision.2 Number of Offerees: [T]he more offerees, the more likelihood that the offering is public. Murphy, 626 F.2d at 645 (internal citations omitted). Similarly, under Regulation D, exemptions are generally only available for offerings limited to 35 or fewer purchasers, unless those purchasers meet certain accreditation requirements. 17 C.F.R. 230.505-506;3 see infra (discussing accreditation). Regulation D also excludes any offering that is effected through a general solicitation or general advertising. 17 C.F.R. 230.502(c); see infra (discussing general solicitation). AEHI has acknowledged in its sworn discovery responses that it sent its offer to at least 850 individuals. AEHIs internal records show that, in reality, AEHI made offers to many more, as they engaged helpers to solicit additional investors in return for commissions. On the numbers alone, AEHIs offering failed to qualify as a private transaction that might be exempt

Although AEHI solicited investors on numerous occasions, it engaged in one single offering as defined by the securities laws. Courts use a multi-factor test to determine whether an issuer has engaged in several offerings or one, integrated offering. The factors are: (a) whether the offerings are part of a single plan of financing; (b) whether the offerings involve issuance of the same class of securities; (c) whether the offerings are made at or about the same time; (d) whether the same kind of consideration is to be received; and (e) whether the offerings are made for the same general purposes. Murphy, 626 F.2d at 645. Factors (a), (b), (d) and (e) are straightforwardAEHIs PPMs were constant over four years as to the key aspects of its offering, i.e. that it was selling common stock, in return for cash, that it purportedly sought to finance the initial stages of its nuclear project. SUMF 9. As to (c), timing, it is also clear that this was one offering, as AEHI sold stock in virtually every month from 2006 to the end of 2010. SUMF 22. Rule 504 of Regulation D provides an exemption for offerings without a limit on purchasers. 17 C.F.R. 230.504(a)(1). Rule 504 is only available, however, to offerings of less than $1 million and for issuers who are not subject to Exchange Act reporting requirements. Id. AEHIs offer exceeded $1 million. SUMF 9. In addition, AEHI became an Exchange Act reporting company in October 2008. SUMF 2. Accordingly, the Rule 504 exemption is unavailable to AEHI. SEC SUMMARY JUDGMENT MEM. 11
3

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from registration. See, e.g., Murphy, 626 F.2d at 645 (400 purchasers clearly suggests a public offering rather than a private placement.) And because AEHIs offering was conducted through a general solicitation, AEHI cannot meet its burden of showing otherwise. See Western Fed. Corp. v. Erickson, 739 F.2d 1439, 1442 (9th Cir. 1984) (To claim the private offering exemption, evidence of the exact number and identity of all offerees must be produced.) Sophistication of the Offerees: The private placement exemption in Section 4(2) is intended for [a]n offering to those who are shown to be able to fend for themselves. Ralston Purina, 346 U.S. at 644. As with the other factors, the burden lies with the issuer to show that each potential purchaser had the sort of business acumen necessary to qualify as sophisticated investors. Murphy, 626 F.2d at 646. Regulation D uses an accreditation standard. Investors are only accredited under the rule if they have a net worth of $1 million or they earn more than $200,000 per year (or $300,000 jointly with a spouse). 17 C.F.R. 230.501(a). Regulation D requires that all but 35 purchasers meet this accreditation requirement in order for an offering to qualify for exemption. 17 C.F.R. 230.505(b)(ii), 506(b)(ii). With large offerings like AEHIs that exceed $5 million, all purchaserseven those 35 who need not meet the technical accreditation requirementmust be reasonably believed to have such knowledge and experience in financial and business matters that [they are] capable of evaluating the merits and risks of the prospective investment. 17 C.F.R. 230.506(b)(ii). In other words, each and every investor must be sufficiently sophisticated that they are deemed not to need the extra protections that registration provides. AEHIs own records indicate that it offered and sold stock to unaccredited and unsophisticated investors. Moreover, AEHIs investor questionnaire told purchasers they need not provide information about their financial condition and investing experience. Indeed, AEHI and Gillispie showed utter indifference to investors income, net worth, and sophistication, as SEC SUMMARY JUDGMENT MEM. 12

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they sold shares regardless of whether investors provided this information. AEHI and Gillispie thus cannot have reasonably believed that the targets of their offer were sophisticated and/or accredited, as required by Section 4(2) and Regulation D. In any case, because AEHI and Gillispie did not control the scope of their offering, which was conducted in part through third party helpers and general solicitations, they cannot meet their burden of showing that all offerees were appropriate targets for solicitation under either analysis. See, e.g., SEC v. Credit First Fund, L.P., No. CV 05-8741 DSF, 2006 WL 4729240, at *12 (C.D. Cal. Feb. 13, 2006) (Without knowing the identity of the offerees, it is impossible to make individual assessments as to the offerees levels of sophistication and the manner in which they were contacted.) Size and Manner of the Offering: The smaller the size of the offering, the more probability it is private. Hill York Corp. v. Am. Intl Franchises, Inc., 448 F.2d 680, 689 (5th Cir. 1971). Consistent with this principal, under Regulation D the requirements for exemption are increasingly strict for offerings of less than $1 million (Rule 504), up to $5 million (Rule 505), and more than $5 million (Rule 506). Moreover, Regulation D provides that if an offering is made in the manner of a general solicitation or general advertising, no exemption is available, regardless of all the other factors, and even if every investor is accredited. 17 C.F.R. 230.502(c). General solicitations and advertisements under Regulation D include, but are not limited to, (1) [a]ny advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio; and (2) [a]ny seminar or meeting whose attendees have been invited by general solicitation or general advertising. Id. AEHIs public filings show that it raised more than $14 million from investors between 2006 and the end of 2010, all of which came from the sale of common stock in AEHIs unregistered offering. The volume of sales alone suggests a public offering. See, e.g., Murphy, SEC SUMMARY JUDGMENT MEM. 13

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626 F.2d at 646 (sale of $7.5 million in securities was without question a sizeable offering suggesting that it was public). AEHI also conducted its offering in the manner of a general solicitation and with general advertising, over television, radio and in person. Aside from its own solicitation of many hundreds of investors, AEHI hired helpers and promoters to solicit additional investors, and it paid them commissions based on their sales of AEHI stock. AEHI even held an investor seminars, which was the subject of its media advertisements, where Gillispie personally touted AEHI stock. Offerings conducted through these forms of general solicitation are precisely those for which the Section 4(2) exemption are not available, see Ralston Purina, 346 U.S. at 123-24 (discussing meaning of public offer), and which are specifically excluded from exemption under Regulation D. 17 C.F.R. 230.502(c). The Relationship of the Offerees to AEHI: A court may only conclude that the investors do not need the protection of the Act if all the offerees have relationships with the issuer affording them access to or disclosure of the sort of information about the issuer that registration reveals. Murphy, 626 F.2d at 647. Under Regulation D, issuers must provide investors (other than those who meet the accreditation requirements) with specified written disclosures within a reasonable time prior to sale. 17 C.F.R. 230.502(b). For companies that do not report to the Commission under the Exchange Act, which included AEHI until October 2008, this includes, at a minimum, financial statements with a recent, audited balance sheet. 17 C.F.R. 230.502(b)(2)(B) (requiring disclosure of information required by Article 8 of Regulation S-X). For Exchange Act reporting companies, this includes recent public filings. Id. AEHI had no preexisting relationship with many of its offerees, because it engaged in a general solicitation of the public and used promoters to solicit strangers. Even had AEHI limited its offering to known associates or existing shareholders (which it did not), the offering would still fail to qualify for the Section 4(2) exemption. Offerees must SEC SUMMARY JUDGMENT MEM. 14

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have access to the extensive information that would be required in a registration statement. Ralston Purina, 346 U.S. at 125; Murphy, 626 F.2d at 647. In Ralston Purina, for example, it was not sufficient for the issuer to limit its unregistered offering to its current employees because even they, unlike company executives, did not have access to the kind of information that would be available in a registration statement. Ralston Purina, 346 U.S. at 125. AEHIs offerees were far less close to key information than the employees in Ralston Purina. AEHI failed to provide offerees with financial statements or other financial information describing how the proceeds would be used. Moreover, as described below, the materials that AEHI and Gillispie did provide were frequently false, misleading and inaccurate. For these reasons, AEHI and Gillispies offering was not exempt from the registration requirements of the Securities Act under Section 4(2), Regulation D, or any other provision.4 C. AEHI AND GILLISPIE VIOLATED SECURITIES ACT SECTION 17(a), EXCHANGE ACT SECTION 10(b), AND RULE 10b-5 THEREUNDER

Section 10(b) of the Exchange Act and Rule 10b-5 make it unlawful for any person, directly or indirectly . . . [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . . in connection with the purchase or sale of a security. 15 U.S.C. 78j(b) and 17 C.F.R. 240.10b-5(b). Where the fraud alleged involves public dissemination in a document such as a press release, annual report, investment prospectus or other such document on which an investor would presumably rely, the in connection with AEHI has also claimed that its offering is exempt from registration under Section 4(6) of the Securities Act. That provision provides an exemption for transactions involving offers or sales by an issuer solely to one or more accredited investors if certain other conditions are met. 15 U.S.C. 77d(6). By its terms, Section 4(6) is never available for offerings in which there is advertising or public solicitation. Id. Section 4(6) is also never available for offerings exceeding $5 million. 15 U.S.C. 77c(b). For the same reasons that AEHIs offering did not qualify for an exemption under Section 4(2), described above, Section 4(6) is also unavailable. SEC SUMMARY JUDGMENT MEM. 15
4

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requirement is generally met by proof of the means of dissemination and the materiality of the misrepresentation or omission. SEC v. Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir. 1993). Section 17(a)(2) of the Securities Act applies to false statements made in connection with offers and sales. That provision prohibits any person, directly or indirectly, in the offer or sale of securities, from obtaining money or property by means of untrue statements of a material fact or by omitting to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 15 U.S.C. 77q(a)(2). Violations of Exchange Act Section 10(b) and Rule 10b-5(b) require proof of scienter, meaning knowing or intentional misconduct. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 197-99 (1976). Proof of scienter may be satisfied by evidence of recklessness, which is misconduct that is so obvious that the actor must have been aware of it. Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th Cir. 1990) (citations and internal quotations omitted). Scienter may be established, therefore, by showing that the defendants knew their statements were false, or by showing that defendants were reckless as to the truth or falsity of their statements. Gebhart v. SEC, 595 F.3d 1034, 1041 (9th Cir. 2010). However, scienter need not be proven to establish violations of Securities Act Section 17(a)(2); rather, proof of negligence will suffice. Aaron v. SEC, 446 U.S. 680, 701-02 (1980). Negligence in this context consists of the failure to exercise reasonable care or competence in communicating business information. SEC v. Hughes Capital Corp., 124 F.3d 449, 453 (3d Cir. 1997). The undisputed facts demonstrate that AEHI and Gillispie knowingly or recklessly made misrepresentations of, or omitted to state, material facts in the offer and sale, and in connection with the purchase and sale, of AEHI securities. 1. Gillispie Made Material Misrepresentations Knowingly and Recklessly

Gillispie violated the antifraud provisions of the securities laws. First, he personally SEC SUMMARY JUDGMENT MEM. 16

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made and disseminated false statements about the status of AEHIs funding. These statements came in the form of a signed letter to shareholders, press releases bearing his quotations, and PPMs which Gillispie edited and personally distributed. When confronted with an example of a PPM claiming that AEHIs project is funded, Gillispie did not deny its falsity, but instead claimed in a sworn statement to this Court that the document was a forgery. SUMF 14. That claim, too, was at least misleading, as Gillispie personally used PPMs with the very same false statements to solicit investors. SUMF 16. Second, Gillispies statements were material. False and misleading statements or omissions are material where there is a substantial likelihood that a reasonable investor would consider such statement or omission important in making an investment decision or if a reasonable investor would consider the statement or omission as having significantly altered the total mix of information available. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Misrepresentations and omissions are material as a matter of law if they involve facts that are so obviously important to a [reasonable] investor, that reasonable minds cannot differ on the question of materiality. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976). The Ninth Circuit has observed that [s]urely the materiality of information [in offering documents] relating to financial condition, solvency and profitability is not subject to serious challenge. Murphy, 626 F.2d 653 (citations omitted). This includes, among other things, false statements to investors about financing arrangements. See, e.g., SEC v. Recile, 10 F.3d at 1097 (false statements that issuer had obtained long-term financing amply satisfy the materiality element of a securities fraud claim.) Gillispie has acknowledged that funding is critical to AEHIs existence. He has also acknowledged that AEHIs project will cost billions of dollars. There can be no reasonable dispute about whether funding was a material factor to be considered by investors. In fact, for a SEC SUMMARY JUDGMENT MEM. 17

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company with no revenue, operations, or regulatory approvals, funding was very likely the primary factor to be considered by investors. Nor can there be a reasonable dispute about the materiality of these statements in context. For participants in AEHIs unregistered offering, the three-page PPM was the only current information they were provided. There, on the first page, AEHI told them: The project has funding. And in the press releases, AEHIs funding claims were in big, bold headlines. Indeed there was no purpose of the press releases except to tout the purported funding deals. This is the essence of materiality. Third, Gillispie knew his claims were false. As the founder, CEO and Chairman of AEHI, a company purportedly planning to finance a multi-billion dollar nuclear power plant, Gillispie had to know the status of his companys funding. Gillispie personally negotiated the agreements with Cobblestone, Silverleaf and Source Capital, and so knew that they did not secure or commit anything. Astonishingly, Gillispies contacts at Cobblestone and Source Capital both told him that his press releases were false and misleading, and he still did not correct them. At a minimum, Gillispie acted recklessly and with utter disregard for the truth of his claims, which is itself sufficient to ground liability under the Exchange Act. See Gebhart, 595 F.3d at 1041; Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38, 47-48 (2d Cir. 1978) (recklessness where statements made without investigation and with utter disregard for whether there was a basis for the assertions.) And it can hardly be disputed that Gillispie was at least negligent, the standard of scienter under Section 17(a)(2) for untrue statements about material facts that were made, like Gillispies, in connection with an offering of securities. See Aaron 446 U.S. at 701-02. Finally, if more were needed (which it is not), Gillispies refusal to answer questions about his knowledge, by instead invoking his Fifth Amendment privilege, removes any chance that any other explanation can be offered. Parties are free to invoke the Fifth Amendment in SEC SUMMARY JUDGMENT MEM. 18

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civil cases, but the court is equally free to draw adverse inferences from their failure of proof. SEC v. Colello, 139 F.3d 674, 677 (9th Cir. 1998) (affirming summary judgment against silent party); accord Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). Where, as here, there is a substantial need for the information, there is not another less burdensome way of obtaining it, and there is independent evidence of the fact about which the party refuses to testify, adverse inference may be appropriately drawn. See Nationwide Life Ins. Co. v. Richards, 541 F.3d 903, 911-12 (9th Cir. 2008). In any event, Gillispie is now precluded from presenting evidence in opposition as to matters on which he has invoked the Fifth Amendment privilege, including his knowledge. See Nationwide Life, 541 F.3d 910 (Trial courts generally will not permit a party to invoke the privilege against self incrimination with respect to deposition questions and then later testify about the same subject matter at trial); SEC v. Benson, 657 F. Supp. 1122, 1129 (S.D.N.Y. 1987), cited in Colello, 139 F.3d at 678 (barring silent party from introducing evidence in opposition to summary judgment).5 2. AEHI Made Material Misrepresentations and Omissions Through Gillispie

Gillispies false and misleading statements in PPMs, press releases, and open letters are all attributable to AEHI, and AEHI is thus also liable under the securities laws for fraud. A corporation can act only through its officers and directors. See, e.g., World Hospitality LTD. v. Wohl, 983 F.2d 650, 652 (5th Cir. 1993). [T]he doctrines of respondeat superior and apparent authority remain applicable to suits for securities fraud. Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702, 708 (7th Cir. 2008). A CEOs knowledge in making a false statement is imputed to the company. See, e.g., W.R. Grace & Co., Inc. v. Western U.S. Indus. Inc., 608 F.2d As described above, see Part II(A) & (B), supra, there is no dispute that Gillispie used means of interstate commerce or the mails to disseminate his false statements about AEHIs funding. Thus the jurisdictional requirements of the antifraud provisions of the securities laws are satisfied as a matter of law. See 15 U.S.C. 78j(b), 17 C.F.R. 240.10b-5(b) and 15 U.S.C. 77q(a)(2). SEC SUMMARY JUDGMENT MEM. 19
5

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1214, 1218-19 (9th Cir. 1979) (finding, as a matter of law, corporation was required to answer for intentional or reckless misrepresentation of its agent); Franklin Supply Co. v. Tolman, 454 F.2d 1059, 1070 (9th Cir. 1972) (the law is clear that the knowledge of an agent is imputed to his principal particularly when he is in the executive echelon); Premium Plus Partners L.P. v. Goldman, Sachs & Co., 648 F.3d 533, 537 (7th Cir. 2011) (whether a particular employees knowledge is imputed to the employer is a question of law, not of fact). Here, there is no dispute that Gillispie spoke for AEHI. Gillispie was AEHIs founder, CEO and Chairman, and his statements were made in his capacity as such. His statements were made in AEHI offering documents, AEHI press releases, and on AEHI letterhead. If it were not Gillispie who spoke for AEHI, it would be hard to say who could, as Gillispie was the only fulltime senior executive of the company. Even an AEHI director testified that he had no knowledge about the bases of Gillispies public claims, and that he viewed the board as a mere advisory committee to Gillispie. Accordingly, Gillispies false and misleading statements are attributable to AEHI, and AEHI is liable to the same extent as Gillispie under the antifraud provisions of the Exchange Act and the Securities Act. IV. CONCLUSION For the foregoing reasons, the Commission respectfully requests that the Court grant the Commissions motion for summary judgment against AEHI and Gillispie, as argued above. Dated: June 1, 2012 Respectfully submitted,

/s/ David Berman Susan F. LaMarca Robert L. Tashjian David A. Berman Attorney for Plaintiff SECURITIES AND EXCHANGE COMMISSION

SEC SUMMARY JUDGMENT MEM.

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