Beware of EDGAR

Junior Johnson ran a software company called PurchasePro that was based in Las Vegas.

In 2001, PurchasePro, a publicly traded company, filed a Form 10-Q with the Securities & Exchange Commission, reporting its financial results for the first quarter of that year. The feds thought that the documents were false and misleading and contained inflated revenue figures, so they sought to indict Johnson for securities fraud.

Where did they seek venue? The Eastern District of Virginia, where the servers for the SEC’s Electronic Data Gathering, Analysis and Retrieval system are located.

Johnson wanted out of the Eastern District, conceding that venue might be proper in, say, the District of Columbia, where the SEC is located. But he wanted no part of the Eastern District, where they have the “rocket docket,” among other things.

A district judge bought the venue argument, but the 4th Circuit says that use of EDGAR makes venue permissible.

Although Johnson predicted direly that any defendant anywhere in the U.S. using EDGAR could be hauled to court in Alexandria, the 4th Circuit essentially said “Piff” to that argument: Venue might be permissible in the E.D., but not every prosecution will proceed there. And there are change-of-venue rules in the FRCrP that could help, too.

Despite those assurances, every SEC filer using EDGAR might want to be aware of U.S. v. Johnson.