Tara Gold Resources Corp. v. Securities and Exchange Commission

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3083
TARA GOLD RESOURCES CORP.,
Petitioner,
v.
SECURITIES AND EXCHANGE COMMISSION,
Respondent.
Petition for Review of an Order of the
Securities and Exchange Commission
ARGUED APRIL 4, 2012—DECIDED MAY 2, 2012
Before EASTERBROOK, Chief Judge, and FLAUM and
MANION, Circuit Judges.
EASTERBROOK, Chief Judge. A corporation that wants
its shares to be traded on an exchange or through broker-
dealers that make national markets must register
the securities under §10 of the Securities Act of 1933, 15
U.S.C. §77j. See 15 U.S.C. §78l(a). (Section 78l(a) is §12(a)
of the Securities Exchange Act of 1934; the 1933 and
1934 Acts have coordinated provisions.) Section 13(a) of
the 1934 Act, 15 U.S.C. §78m(a), requires any issuer to

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2 No. 11-3083
which §12(a) applies to file periodic reports under rules
established by the Securities and Exchange Commission.
The Commission’s rules require quarterly reports plus
comprehensive annual reports; among other things, the
issuer’s financial statements must be audited.
Tara Gold Resources Corp. registered an issue of securi-
ties under §10 of the 1933 Act and persuaded some
broker-dealers to make markets in them, which brought
§§ 12(a) and 13(a) of the 1934 Act to bear. In 2002 Tara
Gold fell behind with its quarterly filings. Staff of the
SEC told it to get these reports current; Tara Gold prom-
ised to do so but did not keep its promise. After waiting
eight years, during which Tara Gold fell farther and
farther behind, the Commission opened a formal pro-
ceeding. An ALJ took evidence in the summer of 2010
and found that these reports were missing: “two
annual reports (for the calendar years ended 2008 and
2009) and eight quarterly reports (for the periods ended
March 31, June 30, and September 30, 2008; March 31,
June 30, and September 30, 2009; and March 31 and
June 30, 2010).” Tara Gold had not filed its 2007 annual
report until July 2, 2010, and told the SEC that it did
not have the ability to pay an auditor to certify more
recent financial statements—something investors surely
would want to know. The SEC revoked Tara Gold’s
registration, see §12(j), 15 U.S.C. §78l(j), and trading in
its shares came to a halt. See 1934 Act Release No. 64897,
2011 SEC LEXIS 2455 (July 18, 2011).
Tara Gold took two steps in response. First, it filed
a petition for judicial review under §25(a)(1) of the 1934

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No. 11-3083 3
Act, 15 U.S.C. §78y(a)(1). The Commission used the
approach adopted in Gateway International Holdings, Inc.,
1934 Act Release No. 53907, 2006 SEC LEXIS 1288 (May 31,
2006). Tara Gold maintains that Gateway is inconsistent
with the statute or, if valid, has been misapplied.
Second, Tara Gold filed a new registration statement
under §10 of the 1933 Act. A registration statement be-
comes effective 60 days after filing unless the Commis-
sion blocks it. The SEC did not block it—though its
staff sent Tara Gold a 12-page letter containing 48 ob-
servations, many of which flagged material deficiencies.
The Commission’s revocation decision thus lasted just
a little more than two months. Tara Gold still has not
caught up on its quarterly and annual reports, but the
SEC has not commenced a new proceeding to re-revoke
the stock’s registration.
The SEC has asked us to dismiss as moot Tara Gold’s
petition for judicial review. If we were to reverse the
Commission’s revocation order, that would restore the
securities to registered status. Because they are now
registered anyway, the Commission contends, nothing
is at stake in the litigation. Tara Gold responds that
there is a practical difference: before the Commission’s
revocation order, at least one broker-dealer made a
market in its stock. Today, however, its shares do not
trade through any market maker. To commence
trading in any newly registered stock, a broker-dealer
needs approval from the Financial Industry Regulatory
Authority. When a potential market maker sought
FINRA’s assent, it noted the many comments that the
SEC’s staff had made and asked for further informa-

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4 No. 11-3083
tion. Instead of supplying what FINRA wanted, Tara
Gold has pursued this litigation.
Tara Gold believes that, if we were to set aside the
SEC’s revocation decision, FINRA would no longer be
interested in the comments the SEC’s staff made
following Tara Gold’s new registration statement, and
its shares would start trading again. But whether litiga-
tion is moot depends on whether the judicial branch
can afford relief. The only relief Tara Gold seeks
is against the SEC. The Financial Industry Regulatory
Authority is not a party to this proceeding. Nothing
we could do would oblige FINRA to allow trading to
resume. Nothing we could do would expunge the staff’s
comment letter, let alone the SEC’s opinion; a judicial
decision would affect only the agency’s order. Nor
could a judicial decision in this case prevent FINRA
from thinking, as it evidently did, that Tara Gold’s
failure to come current in its filings renders it inappro-
priate for broker-dealers to make a public market in
Tara Gold’s securities. Tara Gold has not cited any deci-
sion, by any court, holding that a case or controversy
continues even after the effect of a revocation order
has been undone by the stock’s re-registration. We
do not see a good reason to create such a precedent.
Courts sometimes say that the collateral consequences
of a decision prevent mootness. See, e.g., Carafas v.
LaVallee, 391 U.S. 234 (1968); Pollard v. United States, 352
U.S. 354 (1957). This is why a court will review a
criminal conviction even after the defendant has
finished serving the sentence: the judgment of conviction

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No. 11-3083 5
has legal effects, such as preventing a felon from voting
or serving on a jury. But with the single exception of
a challenge to a criminal conviction, collateral conse-
quences are not presumed; they must be established
by proof. See Spencer v. Kemna, 523 U.S. 1, 7–14 (1998);
Lane v. Williams, 455 U.S. 624 (1982). And Spencer adds
that adverse practical consequences don’t suffice.
Spencer served his sentence, was released on parole,
and was returned to prison following a conclusion that
he had violated the conditions of parole. Before a court
could resolve his challenge to that decision, his sen-
tence expired and he was released again. He acknow-
ledged that parole revocation lacks legal consequences
such as inability to vote, but he maintained that, if he
got into trouble once more, judges and parole officials
would look askance at a person whose parole has been
revoked—just as Tara Gold contends that FINRA looks
askance at issuers whose registration has been revoked
(even after the shares have been re-registered) and
have received adverse comments from the SEC’s
staff. The Supreme Court deemed this inadequate to
preserve a live controversy, 523 U.S. at 14–16, even
though Spencer already had got into trouble again and
was serving a new sentence, from which he would eventu-
ally seek release on parole. The Justices observed that
the treatment of the prior revocation was a matter of
discretion rather than legal entitlement.
One of Spencer’s problems was that, even if a court
had found a legal flaw in the parole revocation, the facts
underlying the revocation would remain and could

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6 No. 11-3083
influence how future judges and parole officials assessed
his prospects for release. Just the same is true here. Sup-
pose we were to agree with Tara Gold that the SEC
made a legal error in Gateway. That would not change
the fact that Tara Gold was (and remains) behind
in filing reports. Both FINRA and potential market
makers could, and should, consider that fact when de-
ciding whether to allow public markets in Tara Gold’s
stock. Nothing this court could do would affect the pro-
priety of basing future action on the admitted fact of
Tara Gold’s long-term failure to fulfil its legal duties.
Nor could this court do anything about the existence
of the 48-point letter the SEC’s staff wrote. The judicial
arsenal does not include a writ of erasure that blots
documents from existence. Broker-dealers and FINRA
may, and should, consider the staff’s points when
deciding what to do.
Spencer and Lane hold that the effects of old sanctions
on how public officials exercise their discretion in the
future are not the sort of “collateral consequences”
that create an ongoing case or controversy under
Article III, when the old sanction has expired of its
own force. The SEC’s revocation expired when Tara
Gold re-registered its securities. What potential market
makers and FINRA make of these events is a matter
for their discretion. We therefore dismiss the petition for
review as moot.
5-2-12

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