U.S. Securities and Exchange Commission v. Cell>Point, LLC et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 21-cv-01574-PAB-SBP
UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
CELL>POINT, LLC,
GREG COLIP,
TERRY COLIP,
CELL THERANOSTICS, LTD., and
CELL THERANOSTICS, INC.,1
Defendants.
ORDER
This matter is before the Court on Plaintiff’s Motion for Partial Summary
Judgment Against Defendants Cell>Point, LLC, Greg Colip, and Terry Colip [Docket No.
239].
Plaintiff United States Securities and Exchange Commission (“SEC”) filed its
motion for partial summary judgment on July 21, 2023. Docket No. 239. Defendants
Cell>Point, LLC, Greg Colip, and Terry Colip (collectively, “the defendant”) filed a
response on August 30, 2023, Docket No. 252, which was stricken by the Court for
failure to comply with the Court’s practice standards and Local Rules. Docket No. 255.
1 Throughout the period relevant to this litigation, defendants Cell Theranostics, LTD.
and Cell Theranostics, Inc. were wholly-owned subsidiaries of Cell>Point, LLC. Docket
No. 152 at 5–6, ¶¶ 17, 18.
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Defendants filed an amended response on September 8, 2023.2 Docket No. 256. The
SEC filed a reply on September 22, 2023. Docket No. 258. The SEC seeks summary
judgment against defendants on its first and fifth claims for relief. Docket No. 239 at 4.
The SEC alleges violations of § 10(b) of the Securities Exchange Act of 1934
(“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5. Docket No. 140 at 74, ¶¶ 285–
87. The SEC also alleges violations of § 17(a) of the Securities Act of 1933 (“Securities
Act”), 15 U.S.C. § 77q(a), namely § 17(a)(2) and Rule 10b-5(b). Id. at 78, ¶¶ 297–99.
I. 	BACKGROUND
A. Procedural History
The procedural background of this case has been stated at Docket Nos. 93, 138,
and 195. It will only be repeated here to the extent necessary to resolve the present
motion.
B. Undisputed Facts3
Cell>Point is a privately held radiopharmaceutical company, headquartered in
Centennial, Colorado, that purports to be developing diagnostic and therapeutic
2 Defendant Greg Colip is a licensed attorney and filed responses on behalf of himself,
Terry Colip, and Cell>Point, LLC. See Docket No. 252 at 54; Docket No. 256 at 21.
3 The following facts are undisputed unless otherwise indicated. The Court struck
defendants’ first response for failures to comply with the Court’s practice standards.
Docket No. 255 (citing Practice Standards, (Civil Cases), Chief Judge Philip A. Brimmer,
§ III.F.3.b.iv.). Federal Rule of Civil Procedure 56(c)(1)(A) requires that “[a] party
asserting that a fact . . . is genuinely disputed must support the assertion by: . . . citing
to particular parts of materials in the record, including depositions, documents,
electronically stored information, affidavits or declarations, stipulations (including those
made for purposes of the motion only), admissions, interrogatory answers, or other
materials.” Fed. R. Civ. P. 56(c)(1)(A). Local Rule 56.1 requires the inclusion of a
section of undisputed facts in motions for summary judgment. D.C.COLO.LCivR 56.1.
The Court’s practice standards provide that “[a]ny party opposing the motion for
summary judgment shall, in a section of the brief required by Rule 56.1(a) of the United
States District Court for the District of Colorado Local Rules of Practice (Civil) styled
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products. Docket No. 239 at 5, ¶¶ 1–2. Cell>Point is a pre-revenue company, and it
has never had revenue since its founding in 2001.4 Id. at 6, ¶ 3. From January 2016
through at least February 2021 (the “relevant period”), Cell>Point offered and sold notes
to investors.5 Id. at 7, ¶ 9. During the relevant period, Cell>Point offered and sold LLC
membership interests (“units”) in Cell>Point to investors. Id., ¶ 10. The sale of these
notes and units was the primary means of financing Cell>Point’s operations. Id., ¶ 11.
‘Response to Statement of Undisputed Material Facts,’ admit or deny the asserted
material facts set forth by the movant.” Practice Standards, (Civil Cases), Chief Judge
Philip A. Brimmer, § III.F.3.b.iv. The Court’s practice standards further require that
“[a]ny denial shall be accompanied by a brief factual explanation of the reason(s) for the
denial and a specific reference to material in the record supporting the denial.” Id.
(emphasis omitted). The practice standards explain that “[t]he sole purpose of these
procedures is to establish facts and determine which of them are in dispute. Legal
argument is not permitted here and should be reserved for separate portions of the
briefs.” Id., § III.F.3.b.vii (emphasis omitted). If a party “fails to properly address
another party’s assertion of fact as required by Rule 56(c), the court may . . . consider
the fact undisputed for purposes of the motion” and may “grant summary judgment if the
motion and supporting materials – including the facts considered undisputed – show
that the movant is entitled to it.” Fed. R. Civ. P. 56(e)(2)–(3); Practice Standards, (Civil
Cases), Chief Judge Philip A. Brimmer, § III.F.3.b.ix. Defendants fail to properly support
any of their factual allegations. They provide no specific citations to materials in the
record that support their denials of fact. The Court, therefore, deems admitted those
facts defendants have not properly denied. Furthermore, in their response to the
statement of undisputed material facts, defendants make extraneous factual assertions,
without proper support, and include legal argument. Docket No. 256 at 2–11, ¶¶ 1–52.
The Court will not consider these factual assertions or legal arguments.
4 Defendants dispute the claim that Cell>Point never had revenue since its founding.
Docket No. 256 at 3, ¶ 3. However, they provide no support for their assertion that
Cell>Point has received revenue from licensees HYUN IMC, Hanmi Pharmaceutical,
and United Equity Partners, Inc. id. The Court therefore will deem as admitted that
Cell>Point has never had revenue.
5 The SEC does not define what constitutes a “note.” However, the Court has already
determined that the “notes” sold to investors constituted a security. Docket No. 93 at
13; see also 15 U.S.C. § 77c; Reves v. Ernst & Young, 494 U.S. 56, 67 (1990) (an
instrument denominated a “note” is presumed to be a “security”).
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Since 2001, the company has raised at least $56 million from over 500 investors,
including at least $10 million from over 150 investors during the relevant period. Id.
Cell>Point’s founders, Greg Colip, Terry Colip, and Jerry Bryant, have been the
company’s managing members since its founding in 2001. Id. at 6, ¶ 6. Greg Colip is a
manager of Cell>Point and holds the title of CEO.6 Id., ¶ 7. Terry Colip is also a
manager and serves as the company’s CFO. Id., ¶ 8. During the relevant period, Terry
Colip was the primary contact for individuals or entities interested in investing in
Cell>Point, and he communicated with these parties by e-mail, telephone, and during
events. Id. at 8, ¶ 15. Most of the time, Terry Colip met potential investors in person
and provided a package that included a Private Placement Memorandum (“PPM”), an
investor deck,7 and other materials.8 Id., ¶ 16. Terry Colip ensured that every investor
6 Defendants confirm that Greg Colip is the CEO, but dispute that he has served as
Cell>Point’s CEO since 2001. Docket No. 256 at 3–4, ¶ 7. Rather defendants claim,
without citation, that CEO is a nominal title that was created to facilitate business
networking and is unconnected to Greg Colip’s decision-making authority. Id. Because
this denial is unsupported, the Court will deem this fact admitted.
7 The SEC does not define the term “investor deck.” The Court notes that “pitch decks”
or “investor decks” are generally “promotional PowerPoint slideshows that use both
pictures and words to explain a particular company to prospective investors.” Peters v.
Frontiere, 2023 WL 5237436, at *3 n.4 (D.N.M. Aug. 15, 2023); see also Richard
Harroch, A Guild to Investor Pitch Decks for Startup Fundraising, Forbes (June 20,
2020), https://www.forbes.com/sites/allbusiness/2020/06/20/guide-to-investor-pitch-
decks-for-startup-fundraising/ (a “pitch deck typically consists of 15–20 slides in a
PowerPoint presentation and is intended to showcase the company’s products,
technology, and team to the investors”).
8 Defendants object in part because they claim that Terry Colip provided prospective
investors with an investor deck only half of the time. Docket No. 256 at 4, ¶ 16. The
defendants do not cite any evidence in support of their objection, and therefore the
Court deems this fact to be admitted.
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received a PPM before investing. Id., ¶ 19. Terry Colip and Greg Colip were each
drafters of the PPMs.9 Id., ¶ 18.
Nearly all PPMs from November 1, 2016 to June 1, 2020 stated that “capital and
contributions from the founders and passive investors have exceeded $[amounts
ranging from $83.1 million to $91 million] with $[amounts ranging from $51 million to
$64.1 million] used for improving and clinically evaluating [Oncardia].”10 Id. at 10, ¶ 29.
Each PPM from January 16, 2016 to April 2, 2019 stated under the section titled
“Management Compensation” that “the [founders] have contributed approximately $32.1
million in cash and units to cover clinical trials.” Id. at 11, ¶ 30. Each PPM from June 1,
2019 to June 1, 2020 stated under “Management Compensation” that “the [founders]
have contributed approximately $32.1 million to the Company booked as loans to cover
clinical trials.” Id., ¶ 31. The October 21, 2020 PPM stated under “Management
Compensation” that “the [founders] have contributed approximately $38.9 million in cash
and units to the Company booked as loans.” Id., ¶ 32.
The January 2019 investor deck stated that “$90.2 million (US) has been
contributed and raised to date from Founding Partners [and other investors]. . . . $63.1
million has been invested in our lead agent Oncardia;” that “$90.2 million (Provided by
Founding Partners, Oncologists, Radiologists, Cardiologists (including pension funds),
9 Defendants purport to clarify this fact, but provide no support for their clarification.
Docket No. 256 at 5, ¶ 18. The Court therefore deems this fact admitted and will not
consider the defendants’ clarification.
10 In its statement of undisputed facts, the SEC does not identify the diagnostic and
therapeutic products that Cell>Point is purportedly developing or that the SEC refers to
as “Oncardia.” The Court notes that the complaint states that Oncardia is a
pharmaceutical product purportedly under development by Cell>Point. Docket No. 140
at 2, ¶ 3; Docket No. 153 at 1–2, ¶ 3.
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strategic investors, [and other investors],” and that “Total Contributions by Founding
Partners – $38 million.” Id., ¶ 33. The March 2019 and May 2019 investor decks stated
that “Total Contributions by Founding Partners - $38 million.” Id., ¶ 34. The September
2019 and October 2019 investor decks stated that “Capital Raised to Date: $90.1
Million.”11 Id., ¶ 35. Terry Colip uploaded to Vimeo.com a 23-minute video showing a
November 2019 Investor Deck (with Terry Colip’s narration) soliciting investments and
showing the following slide:
Id. at 10, ¶ 27. The March 2020 investor deck stated that “Capital Raised to Date:
$104.2 Million;” and that “Contributions by Founders: $37.9 million.” Id. at 11, ¶ 36.
11 Defendants admit this fact, but add an explanation about various matters. Docket No.
256 at 6, ¶ 35. They provide no citation for their explanations. The Court will not
consider defendants’ unsupported factual assertions.
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The May 2020 investor deck stated “Capital Raised to Date: $104.2 Million.” Id., ¶ 37.
Each quarterly report for Cell>Point, from the first quarter of 2016 through the second
quarter of 2019, stated: “Contributions to date from founding and passive members
have exceeded” amounts ranging from $83.4 million to $94 million. Id. at 12, ¶ 38.
Cell>Point hired the firm Eide Bailly, LLP to audit the company’s finances for the
years 2017 through 2020. Id., ¶ 42. As of December 31, 2020, Cell>Point had raised
approximately $55,738,420 from the sale of equity to investors. Id., ¶ 40. By that same
time, Cell>Point had raised approximately $1.3 million in cash by issuing debt in the
form of notes payable. Id., ¶ 41. Cell>Point’s auditor confirmed that, to his knowledge,
Cell>Point had raised no money apart from these sales of equity and debt, which totaled
approximately $57 million.12 Id., ¶ 43. From the period beginning in May 2001, the
founding members’ contributions (cash and value of units contributed to the company)
to Cell>Point were $8,225,787.63.13 Docket No. 256 at 7, ¶ 44; Docket No. 258 at 7–8.
12 The defendants deny this fact, but cite nothing in support of their denial. Docket No.
256 at 7, ¶ 43. Defendants elsewhere admit the accuracy of the audit and the fact that
the company raised approximately $57 million through the sale of equity units and the
issuance of debt. Id., ¶¶ 40, 41, 43. The Court deems this fact to be admitted.
Defendants also assert, without citation, that the audit did not reflect additional
contributions made by Philips Medical Systems and uncompensated work performed by
the founders. Id. They provide no support for these assertions and the Court will not
consider them.
13 Although the SEC alleges that founders contributed $7,865,827.80, Docket No. 239 at
13, ¶ 44, a number the defendants dispute, defendants dispute that the value of the
founders’ contributions was $8,225,787.63. Docket No. 256 at 7, ¶ 44. In its motion,
the SEC indicates that, for purposes of the partial summary judgment motion, it will
accept as true the value of the contributions made to the company by the founders to be
$8,225,787.63. Docket No. 258 at 7–8. As such, the Court finds that it is an undisputed
fact for purposes of this motion that the founding members’ contributions to Cell>Point
totaled $8,225,787.63.
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During the relevant period, Cell>Point received approximately $10,203,477 in
investor proceeds and $11,702,361 in total deposits.14 Docket No. 239 at 14, ¶ 51.
During that same period, Cell>Point made disbursements to the founders totaling
$4,348,662. Id. As of December 31, 2020, the founders owed Cell>Point $11,074,376
for loans they had taken out from the company, with Terry Colip owing the company
$5,065,221 and Greg Colip owing $2,942,337.15 Id., ¶ 50.
II. 	LEGAL STANDARD
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when
the “movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248–50 (1986). A disputed fact is “material” if,
under the relevant substantive law, it is essential to the proper disposition of the claim.
Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001). Only disputes
over material facts can create a genuine issue for trial and preclude summary judgment.
Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is
“genuine” if the evidence is such that it might lead a reasonable jury to return a verdict
for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).
14 Defendants admit the facts in paragraph 51 of the SEC’s statement of undisputed
facts. Docket No. 256 at 9, ¶ 51. The Court will not consider other factual
representations in the defendants’ response, as they are unsupported by any citation to
the record.
15 Defendants do not dispute the amounts loaned by the company to the founders,
Docket No. 256 at 8, ¶ 50, but provide an explanation of the nature of these loans that is
not supported by citations to the evidence. The Court will not consider defendants’
unsupported assertions.
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A movant who bears the burden at trial must submit evidence to establish the
essential elements of its claim or affirmative defense. Harper v. Mancos Sch. Dist. RE-
6, 837 F. Supp. 2d 1211, 1217 (D. Colo. 2011). “Once the moving party meets this
burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for
trial on a material matter.” Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36
F.3d 1513, 1518 (10th Cir. 1994). The nonmoving party may not rest solely on the
allegations in the pleadings, but instead must designate “specific facts showing that
there is a genuine issue for trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)
(quotations omitted). “To defeat a motion for summary judgment, the nonmovant’s
evidence, including testimony, must be based on more than mere speculation,
conjecture, or surmise,” and “[u]nsubstantiated allegations carry no probative weight.”
SEC v. GenAudio Inc., 32 F.4th 902, 921 (10th Cir. 2022) (citations and alterations
omitted). When reviewing a motion for summary judgment, a court must view the
evidence in the light most favorable to the non-moving party. Bausman v. Interstate
Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001).
III. 	ANALYSIS
A. Elements of the § 10(b) and § 17(a)(2) Claims
In order to show a violation of § 10(b) of the Exchange Act, “the SEC must prove
that [defendants] made: (1) a misrepresentation or omission (2) of material fact, (3) with
scienter, (4) in connection with the purchase or sale of securities, and (5) by means of
interstate commerce.” SEC v. Smart (“Smart II”), 678 F.3d 850, 856 (10th Cir. 2012)
(citation, quotation, and brackets omitted). The requirements under § 17(a)(2) of the
Securities Act are similar; the primary “difference between § 17(a) and § 10(b) lies in the
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element of scienter.” Id. at 857. “Section 10(b) . . . require[s] the SEC to establish at
least recklessness, whereas negligence is sufficient for § 17(a)(2).” Id. (citing SEC v.
Wolfson, 539 F.3d 1249, 1256–57 (10th Cir. 2008); C.E. Carlson, Inc. v. SEC, 859 F.2d
1429, 1435 (10th Cir. 1988)). Additionally, because § 17(a)(2) declares it unlawful “to
obtain money or property by means of any untrue statement of material fact,” Smart II,
678 F.3d at 853 n.3, the SEC must prove “a causal link between the violator’s deceptive
statements and receipt of money or property.” SEC v. Mahabub, 343 F. Supp. 3d 1022,
1043 (D. Colo. 2018).
B. Misrepresentations in the PPMs and Investor Decks
The SEC alleges that defendants made repeated misrepresentations to investors
regarding the value of the capital raised by Cell>Point and the value of the investments
made by Terry and Greg Colip in Cell>Point. Docket No. 239 at 16. Defendants
repeatedly told investors through the PPMs and investor decks that the founders had
contributed over $30 million in “cash and units” to Cell>Point. Docket No. 239 at 11,
¶¶ 30–33, 35, 37. For example, each PPM from January 16, 2016 to April 2, 2019
stated that the founders had contributed approximately $32.1 million in cash and units to
cover clinical trials. Id. at 11, ¶ 30. Each PPM from June 1, 2019 to June 1, 2020
stated that the founders had contributed approximately $32.1 million to the company
“booked as loans to cover clinical trials.” Id., ¶ 31. The October 21, 2020 PPM
approximated the value of these contributions to be $38.9 million. Id., ¶ 31. The
investor decks for January 2019, March 2019, May 2019, and March 2020 all report the
contributions made by the founders to be approximately $38 million. Id., ¶¶ 33–36.
Defendants added this $30 million figure to the approximately $57 million raised from
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investors to represent to potential investors that Cell>Point had raised between $83.1
and $104.2 million in investment.16 Id. at 10–11, ¶¶ 29, 33, 35–37. This approximately
$100 million in total investment appeared in nearly all PPMs from November 1, 2016 to
June 1, 2020, as well as in the investor decks for January 2019, September 2019,
October 2019, March 2020, and May 2020. Id., ¶¶ 33, 35–37. Terry Colip personally
provided these PPMs and investor decks to prospective investors, id. at 8, ¶ 19, and
Terry Colip and Greg Colip were each drafters of the PPMs. Id., ¶ 18. However,
despite telling investors that the founders had contributed over $30 million in cash and
units to Cell>Point, it is an undisputed fact that the actual value of cash and
contributions made by the founders does not exceed $8,225,787.63.17 Docket No. 256
at 7, ¶ 44; Docket No. 258 at 7–8.
16 The fact that Cell>Point used the value of cash and units contributed by the founders
to calculate the total value of the contributions made to company is demonstrated by a
pie-chart incorporated in multiple investor decks. Docket No. 239 at 10, 11, ¶¶ 27, 36,
37. The pie-chart indicates that approximately thirty two percent of the $104.2 million in
“Current Investor Mix” came from the “Founders.” Id. at 10, ¶ 27.
17 The SEC’s reply brief suggests that Cell>Point may have inflated the total
contributions made by the founders by including the value of units that were “returned”
to the company. Docket No. 258 at 6 n.3. Terry and Greg Colip allegedly “returned”
some of the units the founders had given themselves at the founding of the company in
order to resell these units to potential investors. Id.; Docket No. 140 at 29, ¶¶ 103–04.
Terry and Greg Colip paid nothing for these units at the time of Cell>Point’s founding
and received nothing for their return. Docket No. 140 at 29, ¶ 103. Instead, Cell>Point
allegedly promised to pay Terry and Greg Colip the market value of these units when
the company was taken public or sold to a private buyer. Id., ¶ 104. In their answer,
defendants admit to the existence of such an arrangement. See Docket No. 153 at 24,
¶ 104. However, the Court need not review the SEC’s theory as to how defendants
arrived at the values they presented to potential investors. Nor will the Court consider
the explanation provided by defendants in their response to the statement of undisputed
material facts regarding representations made in the September 2019, October 2019,
March 2020, and May 2020 investor decks. Id. at 6 – 7, ¶¶ 35, 36. These explanations
are unsupported by citations to the record and cannot demonstrate there is a disputed
material fact that would preclude summary judgment. Rather, the undisputed facts
show that defendants represented to investors that the founders contributed over $30
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Defendants repeatedly represented to prospective investors that the founders
contributed over $30 million of capital to Cell>Point, when the actual value of the
founders’ cash and contributions was $8 million. Defendants have not shown any issue
of disputed fact that would explain the discrepancy between what they represented to
investors and what the founders actually contributed. E.E.O.C. v. C.R. England, Inc.,
644 F.3d 1028, 1037 (10th Cir. 2011) (in response to a summary judgment motion,
“unsupported conclusory allegations do not create a genuine issue of fact.”) (citation
omitted). The Court finds that there is no dispute that defendants’ statements
concerning the capital contributions of the founders in the PPMs and investor decks
were misrepresentations. See Docket No. 239 at 11, ¶¶ 30–33, 35–37. The Court also
finds that defendants’ statements to prospective investors in the PPMs and investor
decks that represented that the company had raised capital contributions ranging from
$83 to $104 million were misrepresentations, based, as they were, on
misrepresentations about the founders’ contributions. See id. at 10–11, ¶¶ 29, 33, 35–
37.
C. Materiality
“A statement or omission is only material if a reasonable investor would consider
it important in determining whether to buy or sell stock.” GenAudio Inc., 32 F.4th at 921
(citing Grossman v. Novell, Inc., 120 F.3d 1112, 1119 (10th Cir. 1997)). To determine
materiality, a court must assess the inferences a reasonable investor would draw from a
given set of facts and the significance of those inferences. Employees’ Ret. Sys. of
million in cash and units to the company and the actual value of these contributions was
$8,225,787.63.
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Rhode Island v. Williams Companies, Inc., 889 F.3d 1153, 1168 (10th Cir. 2018) (citing
Basic Inc. v. Levinson, 485 U.S. 224, 236 (1988)). Here, the defendants claimed to
prospective investors that the founders made tens of millions of dollars more in capital
investment in Cell>Point than the founders in fact had made.
A reasonable investor would draw two inferences from these misrepresentations.
First, an investor would reasonably conclude that Cell>Point had more capital to use in
the development of its pharmaceutical products. Defendants acknowledge
“biotechnology is a capital-intensive business.” Docket No. 256 at 19. Defendants
estimate that the cost of developing a new drug and gaining regulatory approval to be
$2.6 billion. Id. Given the capital-intensive nature of drug development, it would be
material to an investor whether Cell>Point had tens of millions of dollars less in capital.
Second, a reasonable investor would draw an incorrect inference about the
financial stake Terry and Greg Colip had in the success of Cell>Point. It is an
undisputed fact that the value of the founders’ contributions to the company is
approximately $8 million. Docket No. 256 at 7, ¶ 44; Docket No. 258 at 7–8. However,
defendants admit that, as of December 31, 2020, Terry and Greg Colip owed the
company $5,065,221 and $2,942,377, respectively. Docket No. 239 at 14, ¶ 50. These
are significantly different circumstances than founders who have put tens of millions of
dollars of their own capital into the company and who stand to lose their investment if
the company fails. The personal financial stake the founders had in Cell>Point would
be material to a reasonable investor. See SEC v. Jankovic, 2017 WL 1067788, at *11–
12 (S.D.N.Y. Mar. 21, 2017) (“Reasonable minds could not differ as to whether the
misstatements [regarding the equity stake of the managing director] were material. The
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misstatements legitimized [the company]” and “would have been significant to a
reasonable investor considering an investment.”).18
D. Scienter
Section 10(b) “require[s] the SEC to establish [a scienter of] at least
recklessness, whereas negligence is sufficient for § 17(a)(2).” Smart II, 678 F.3d at 856
(citing Wolfson, 539 F.3d at 1256–57). Scienter is “a mental state embracing intent to
deceive, manipulate, or defraud.” In re Zagg, Inc. Sec. Litig., 797 F.3d 1194, 1200–01
(10th Cir. 2015) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319
(2007)). “[W]illful or reckless behavior satisfies the scienter requirement.” Edward J.
Mawod & Co. v. SEC, 591 F.2d 588, 596 (10th Cir. 1979). The Tenth Circuit has
defined recklessness in the securities context as “conduct that is an extreme departure
from the standards of ordinary care, and which presents a danger of misleading buyers
or sellers that is either known to the defendant or is so obvious that the actor must have
been aware of it.” GenAudio Inc., 32 F.4th at 923 (citing City of Philadelphia v. Fleming
Cos., Inc., 264 F.3d 1245, 1258 (10th Cir. 2001)). Recklessness occurs “where the
defendant [acts] with reckless indifference []to a . . . set of facts.” Edward J. Mawod &
Co., 591 F.2d at 596. If the SEC shows that the defendants acted recklessly for
purposes of its § 10(b) claim, the SEC has also shown negligence sufficient for its
§ 17(a)(2) claim. GenAudio Inc., 32 F.4th at 932 (“Thus, because we already have
18 It is undisputed that defendants made similar misrepresentations in Cell>Point’s
quarterly reports. Docket No. 239 at 9, ¶¶ 23–26. The SEC argues that the failure to
disclose in investment materials, including the quarterly reports, millions of dollars of
loans from Cell>Point to the founders was a material omission. Id. at 16–17. Because
the Court has determined that defendants’ misrepresentations in the PPMs and investor
decks were material, the Court declines to consider other theories of liability.
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determined that [the defendant] was at least reckless . . . his mental state necessarily
was sufficient for the imposition of § 17(a)(2) liability.”).
The scienter of a company’s senior management “may be attributed to the
[company] itself . . . when those senior officials were acting within the scope of their
apparent authority.” Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1106 (10th Cir.
2003). Terry Colip is the CFO of Cell>Point, and Greg Colip is the CEO. Docket No.
239 at 6, ¶¶ 7, 8. Both are managers. Id. Both took an active part in drafting the
materials presented to prospective investors and in raising investment in the company.
Id. at 8, 9, ¶¶ 18, 23. There is no evidence of any other persons making these types of
decisions for Cell>Point during the relevant period. As such, the scienter of Terry and
Greg Colip can be attributed to Cell>Point directly.
Defendants argue that the SEC cannot prove scienter because the defendants
sincerely believed that the figures they presented investors in the investment materials
accurately reflected “the real value in of what has been contributed to the Company.”
Docket No. 256 at 17. However, “good faith belief is not a ‘get out of jail free card.’ It
will not insulate the defendants from liability if it is the result of reckless conduct.” SEC
v. Infinity Grp. Co., 212 F.3d 180, 193 (3d Cir. 2000). The defendants must have a
reasonable basis in fact for their beliefs and “d[o] not have license under the securities
laws to make material representations to investors that ha[ve] no foothold in reality.”
GenAudio Inc., 32 F.4th at 931.
The undisputed facts support an inference by a reasonable jury that the
defendants acted willfully or, at a minimum, acted recklessly when presenting
inaccurate numbers regarding the capital contributions of the founders to prospective
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investors. Terry and Greg Colip are managers of Cell>Point. Docket No. 239 at 6,
¶¶ 7, 8. As managers, they are aware of the company’s finances and know the value of
capital contributions made to the company. This is especially true for a pre-revenue
venture because the company’s only source of funding is through capital contributions.
Id. at 6, ¶ 3. Furthermore, Terry and Greg Colip have personal knowledge of the
amount of money they have individually contributed to the company. Id. at 13, ¶¶ 48,
49. Terry and Greg Colip have reported the founders’ contributions were approximately
$8 million. Id., ¶ 44. Terry and Greg Colip were personally responsible for the drafting
of the investment materials. Id. at 8, 9, ¶¶ 18, 23. These investment materials were
sent to prospective investors in the hopes of raising more capital for the company
through the sale of equity units – the company’s primary, if not only, source of funding.
In these materials, defendants repeatedly stated the value of the founders’ contributions
was tens of millions of dollars higher than they are admitted to be. Id. at 11, ¶¶ 30–33,
35–37. Defendants also repeatedly overstated the total value of capital contribution by
tens of millions of dollars. Id. at 10–11, ¶¶ 29, 33, 35–37.
On these facts, a reasonable jury would conclude that Terry and Greg Colip’s
misrepresentations were made willfully or recklessly, rather than by mistake or
inadvertence. Whatever mathematical or accounting formulation defendants used to
estimate the value of founder contributions to be $30 million, they knew the actual value
was $8 million. Their false representations of the founders’ contributions in the
materials sent to current and prospective investors posed a significant “danger of
misleading buyers or sellers that . . . is so obvious that [they] must have been aware of
it.” GenAudio Inc., 32 F.4th at 923. The Court finds that defendants were at least
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reckless in misrepresenting the value of the founders’ contributions to the company and
the total value of capital contributions to date, and that a reasonable jury could not find
otherwise. As such, the SEC has proven the defendants acted with the requisite
scienter necessary for summary judgment on both its § 10(b) and § 17(a)(2) claims.
E. Connection with the Purchase or Sale of Securities
The Court has already ruled that Cell>Point’s equity units and notes are
securities, such that statements made by Cell>Point during their sale constitute
statements made in connection with the purchase or sale of securities. Docket No. 93
at 13. For the first time, defendants assert in their response brief that the notes sold are
exempt from the definition of securities by § 3(a)(3) of the Securities Act because their
maturity period was less than nine months. Docket No. 256 at 19; see also 15 U.S.C.
§ 77c. The Court need not reconsider whether the notes constitute securities as it
remains undisputed that defendants’ sale of equity units constituted the sale of
securities. Therefore, the Court finds that the SEC has satisfied the element of its
§ 10(b) and § 17(a)(2) claims requiring the defendants to make misrepresentations in
connection with the sale of securities. Smart II, 678 F.3d at 856.
F. Means of Interstate Commerce
Terry Colip used email and the telephone to communicate with investors,
including sending and discussing investment materials with investors. Docket No. 239
at 8, ¶¶ 15, 17. No party contests that this fact satisfies the requirement that the
statements made by the defendants were communicated by a means of interstate
commerce. See SEC v. Smart (“Smart I”), 2011 WL 2297659, at *18 (D. Utah June 8,
2011) (ruling use of mails, the internet, and telephones was sufficient to establish the
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element of interstate commerce); Docket No. 256 at 20. As such, the Court finds that
the SEC has satisfied the element of its § 10(b) and § 17(a)(2) claims requiring the
defendants to use a means of interstate commerce. Smart II, 678 F.3d at 856.
G. Causal Link
For summary judgment on its § 17(a)(2) claim, the SEC must show “a causal link
between the violator’s deceptive statements and receipt of money or property.”
Mahabub, 343 F. Supp. 3d at 1043. The SEC contends that a causal link between the
defendants’ deceptive statements and the investment they received can be shown by
the ubiquity of the misrepresentations. Docket No. 239 at 24. Defendants argue that
the SEC is unable to prove a causal link between any deceptive statements and the
receipt of investor funds because the defendants made no deceptive statements.
Docket No. 256 at 20. The Court has determined that defendants did make
misrepresentations and, as such, defendants’ argument fails.
The SEC has shown a causal link between the defendants’ statements and the
investments received during the relevant period. Defendants misrepresented the value
of either the total capital contributions made to the company or the value of the capital
contributions made by the founders in every PPM and investor deck during the relevant
period. Docket No. 239 at 10–11, ¶¶ 29–33, 35–37. Often Cell>Point made both
misrepresentations in the same document. Id. at 11, ¶¶ 33, 35–37. The PPMs were
sent to every prospective investor, id. at 8, ¶ 19, and investor decks were included most
of the time. Id. at 8, ¶ 16. During the relevant period, Cell>Point received
approximately $10,203,477 in investor proceeds, and $11,702,361 in total deposits. Id.
at 14, ¶ 51. Given the consistency and pervasiveness of defendants’
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misrepresentations, the centrality of these misrepresentations to the value of the
company relied upon by investors, and the quantity of investment received during the
relevant period, the SEC has shown a causal link between the defendants’ deceptive
statements and the investment Cell>Point received. The Court finds that the SEC has
satisfied the final element of its § 17(a)(2) claim. Mahabub, 343 F. Supp. 3d at 1043.
IV. 	CONCLUSION
The SEC has shown that there are no genuine issues for trial on a material
matter with respect to its first and fifth claims for relief. The undisputed facts establish
each of the elements required for the SEC to prevail on summary judgment for both its
first claim for relief under § 10(b) of the Exchange Act and its fifth claim for relief under
§ 17(a)(2) of the Securities Act.
For the foregoing reasons, it is
ORDERED that plaintiff’s Motion for Partial Summary Judgment Against Defendants
Cell>Point, L.L.C., Greg Russel Colip, and Terry Allen Colip [Docket No. 239] as to
plaintiffs first and fifth claims for relief is GRANTED.19
19 Terry Colip has filed a notice with the Court that, on February 28, 2024, he filed for
Chapter 11 bankruptcy, Case Number 24-100043. Docket No. 285. On March 6, 2024,
the Court requested the parties to comment on the applicability of any stay to these
proceedings under 11 U.S.C. § 362(a). Docket No. 286. Each party responded.
Docket Nos. 287, 289. The filing of bankruptcy generally effectuates a stay in related
proceedings in federal district court. In re Yellow Cab Co-op. Ass’n, 132 F.3d 591, 595
(10th Cir. 1997) (citing 11 U.S.C. § 362(a)). “At the same time, so as to avoid impeding
the functioning of governmental entities when they act as creditors, the [Bankruptcy]
Code contains a number of limited exceptions. For instance, the automatic-stay
requirement does not preclude ‘governmental units’ from enforcing their ‘police and
regulatory powers’ in certain proceedings.” Lac du Flambeau Band of Lake Superior
Chippewa Indians v. Coughlin, 599 U.S. 382, 391 (2023) (quoting 11 U.S.C. § 362(b)(4)
(alterations omitted)). “Where a governmental unit is suing a debtor to prevent or stop a
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DATED March 15, 2024.
BY THE COURT:
____________________________
Philip A. Brimmer
Chief United States District Judge
violation constituting fraud . . . or attempting to fix damages for violation of such a law,
the action or proceeding is not stayed under the automatic stay.” SEC v. Miller, 808
F.3d 623, 631 (2d Cir. 2015) (alternations and citation omitted); see also In re Yellow
Cab, 132 F.3d at 597. “[I]t is well established that the governmental unit exception of §
362(b)(4) permits the entry of a money judgment against a debtor so long as the
proceeding in which such a judgment is entered is one to enforce the governmental
unit’s police or regulatory power.” SEC v. Vaughn, 2010 WL 11441819, at *2 (D.N.M.
Nov. 16, 2010) (quoting SEC v. Brennan, 230 F.3d 65, 71 (2d Cir. 2000)). As such, the
Court finds that Terry Colip’s filing for bankruptcy does not stay the proceedings in this
case. Id.
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