SEC v. Jasper

A trial court may properly exclude hearsay statements that are admissible under Federal Rule of Evidence 804(b)(1) where the “trial court simply considered it unfair to present a version of an unavailable witness’s testimony without an opportunity to cross-examine directly.”

Carl Jasper, former Chief Financial Officer of Maxim Integrated Products, Inc. (“Maxim”), was part of a scheme involving the backdating of stock options and fraudulent misreporting of financial statements. The district court barred Jasper for two years from working at a publicly traded company as an officer or director, imposed a civil penalty, and required Jasper to reimburse Maxim under Section 304 of the Sarbanes-Oxley Act of 2002 (“SOX 304”) for $1.8 million in bonuses and profits. On appeal Jasper argued, inter alia, that the district court committed reversible evidentiary errors, and that the reimbursement order violated Jasper’s Seventh Amendment right to jury trial. The Ninth Circuit found the district court did not abuse its discretion regarding the evidentiary rulings. First, the 2006 Form 10-K was not hearsay because it was a business record for the purpose of the accounting review and financial statement audit under Federal Rule of Evidence 803(6). Second, the admission of Jasper’s numerous Fifth Amendment invocations were admissible, because the jury received proper instructions. Third, the statements given by Timothy Ruehle, former Maxim treasurer, during the investigatory stage were inadmissible as hearsay not qualifying as “testimony” under Rule 804(b)(1), because “the SEC had no opportunity, at a point when [it] had a motive similar to its motive at trial, to cross-examine Ruehle.” Further, even where hearsay statements are admissible under Rule 804(b)(1), the trial judge still may exclude such statements after evaluating the “realties of cross-examination and the motive and interest with which one party carried out the prior examination.” As to the reimbursement order, SOX 304’s reimbursement provision is an “equitable disgorgement remedy,” which means that Jasper was not entitled to have the jury find all the necessary facts to the remedy. AFFIRMED.