Case: 11-17802

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ID: 8091697

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UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT No. 11-17802 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, HAROLD P. GEWERTER, Objector-Appellant, v. CMKM DIAMONDS, INC.; 1ST GLOBAL STOCK TRANSFER LLC; HELEN BAGLEY; SERGEY RUMYANTSEV; BRIAN DVORAK, Defendants.

On Appeal from the United States District Court for the District of Nevada SECURITIES AND EXCHANGE COMMISSION’S REPLY IN SUPPORT OF ITS MOTION TO DISMISS AS MOOT RICHARD M. HUMES Associate General Counsel THOMAS J. KARR Assistant General Counsel KAREN J. SHIMP Senior Counsel Securities and Exchange Commission 100 F Street NE Washington, DC 20549-9612 Tel: 202 / 551-5007 (Ms. Shimp) Fax: 202 / 772-9263 March 6, 2012

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Gewerter’s Opposition to the SEC’s Motion to Dismiss [DE 15] makes only two affirmative arguments, neither of which is persuasive or availing in this case. Gewerter first argues that Church of Scientology v. United States, 506 U.S. 9 (1992) is controlling. As the SEC discussed in its Motion to Dismiss, the position that Church of Scientology is controlling in Perlman cases is refuted by the fact that at least twice in recent years – more than a decade after Church of Scientology was decided – this Court has noted that production in an interlocutory setting moots the appeal. See Truckstop.net LLC v. Sprint Corp., 547 F.3d 1065, 1068 (9th Cir. 2008); U.S. v. Krane, 625 F.3d 658, 573 (9th Cir. 2010). Gewerter unsuccessfully tries to distinguish these cases. Regarding Truckstop.net, Gewerter states that the Court only “held that there is no right to an interlocutory appeal where the party has the right to appeal the final judgment.” DE 15 at p. 5. Actually, the Court held that there was no right to an interlocutory appeal because “irreparable harm from the disclosure of the allegedly privileged material has already taken place when the material has been . . . disclosed.”1 The

While in Truckstop.net, the documents at issue had been inadvertently disclosed but here, the documents were intentionally disclosed after the Court refused to stay the district court’s order requiring disclosure, that is a difference without any legal distinction. In addition, as noted in the SEC’s Motion to Dismiss, in Truckstop.net the Court was presented with an interlocutory appeal pursuant to the collateral order doctrine rather than the analogous – but distinct – Perlman doctrine. The Supreme Court’s subsequent decision in Mohawk Industries, Inc. v. Carpenter, ___ U.S. ___, 130 S.Ct. 599 (2009) eliminated collateral-order based interlocutory appeals over purportedly privileged documents, but this Court held that Perlman-based challenges survive Mohawk. Krane, 625 F.3d at 572. The underlying principle of mootness in interlocutory appeals 2

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same is true in the instance case. Regarding Krane, Gewerter states “that the appeal was moot because the underlying subpoena was moot. There had been no compliance with the subject subpoena.” DE 15 at p. 5. While that is true, it misses the point. On the way to its holding, this Court noted – again, many years after Church of Scientology – that if the documents had been produced, the company “would have been deprived of the opportunity to challenge the subpoena. See Federal Ins. Co. v. Maine Yankee Atomic Power Co., 311 F.3d 79, 81 (1st Cir. 2002) (production of documents by third party renders objection moot).” Krane, 625 F.3d at 573. Thus, as the SEC detailed in its Motion to Dismiss, Gewerter’s right to appeal this otherwise interlocutory order is constrained by the concerns established in Perlman v. United States, 247 U.S. 7, 12-13 (1918). In Perlman cases, unlike in cases controlled by Church of Scientology, once “the cat is out of the bag,” the order ceases to be immediately appealable because the “choice between disclosing and standing in contempt” has already been made, and the Court of Appeals cannot restore that choice. Wilson v. O’Brien, 621 F.3d 641, 643 (7th Cir. 2010) (“The premise of an interlocutory appeal in a case such as Perlman . . . is that the holder of the information has yet to comply with the order”).

that the Court outlined in Truckstop.net thus continues to apply with full force to Perlman-based appeals. 3

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Gewerter’s second argument is that his appeal is eligible for the “capable of repetition, yet evading review” exception to mootness. “That exception applies only in ‘extraordinary cases.’” West Coast Seafood Processors Ass’n v. Natural Resources Defense Council, Inc., 643 F.3d 701, 704 (9th Cir. 2011) (internal citation omitted). No such extraordinary case is presented here. “First, the ‘capable of repetition’ prong . . . requires a ‘reasonable expectation’ that the same party will confront the same controversy again.” Id. Gewerter’s argument on this point is unavailing. It may be true that he has other clients involved in SEC proceedings, but he was not subpoenaed simply because he has a client involved in an SEC proceeding. His bank records were subpoenaed because about five weeks after the SEC filed its action against Edwards et al., Edwards – who, according to the district court, engaged in “fraudulent, deceitful, and manipulative” violations of the federal securities laws – wired $25,000 from a suspicious overseas (Isle of Man) account to Gewerter’s client trust account. Edwards later failed to pay anything on the $55 million judgment entered against him, leading to the collection action and thus to Gewerter’s account. Gewerter has not alleged that he has any other clients that he reasonably expects (i) will transfer money to him from a suspicious international bank account (ii) shortly after the SEC brings an action (iii) then fail to pay an ensuing judgment (iv) such that

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collection efforts will lead to his bank account. Such a speculative possibility, even if alleged, would not constitute a “reasonable expectation.” Id. at 705. “Second, . . . [a] controversy evades review only if it is ‘inherently limited in duration such that it is likely always to become moot before federal court litigation is completed.’” Id. at 705. But the only reason this action became moot is because the Court declined to stay the underlying district court order after considering the traditional factors – whether Gewerter had shown a strong likelihood of success on the merits and a possibility of irreparable injury or that serious legal questions were raised and the balance of hardships tipped sharply in his favor.2 Had the Court not denied a stay, the appeal would not have become moot. Gewerter asserts that “stays are rarely granted, and the documents are usually produced before the appeal could be heard.” DE 15 at p. 5. He does not cite any support for this proposition. Presumably, in a more meritorious appeal the Court would grant a stay, which would preclude production and leave the Court with an active Perlman-based appeal. Thus, this type of case is not inherently so accelerated as to evade review. Lastly, Gewerter states that he is not judicially estopped from arguing that the appeal is not moot by virtue of the fact that he asserted that denial would moot

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The Court did not elaborate on its reasons for denying a stay. DE 9. 5

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the appeal at least half a dozen times in his motion for a stay. DE 15 at p. 5. As detailed in the SEC’s motion to dismiss, Gewerter did not equivocate in earlier briefing – he took the position that “‘[f]ailure to grant a stay will entirely destroy [appellants’] right [] to secure meaningful review’ by rendering their appeal ‘moot.’” DE 6 at p. ii (emphasis added). Similarly, Gewerter now would have the Court believe that there is a remedy that avoids mootness, whereas earlier he tried to persuade the Court that his “appeal would be a fruitless effort, because there would be no further point in quashing the subpoena since the harm will have already been done. Even if the SEC were required to return or destroy the documents, the information contained therein would forever been in the government’s possession . . .” DE 6 at p. 5 (emphasis added) (quoted in DE 14-1 at p. 6). Whether he is absolutely estopped as a matter of law from repudiating the central basis for his motion to dismiss or not, the Court is certainly permitted to consider his shifting rationales in determining what weight to give his assertions in opposing the SEC’s motion to dismiss.

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CONCLUSION For the foregoing reasons, the Court should dismiss this appeal as moot.

Respectfully submitted, RICHARD M. HUMES Associate General Counsel THOMAS J. KARR Assistant General Counsel /s/ KAREN J. SHIMP Senior Counsel Securities and Exchange Commission 100 F Street NE Washington, DC 20549-9612 Tel: 202 / 551-5007 (Ms. Shimp) Fax: 202 / 772-9263 March 6, 2012

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9th Circuit Case Number(s) 11-17802
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CERTIFICATE OF SERVICE When All Case Participants are Registered for the Appellate CM/ECF System
I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on (date) . Mar 6, 2012 I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system. Signature (use "s/" format)

s/ Karen J. Shimp

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