Securities and Exchange Commission v. Hutchison

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ) SECURITIES AND EXCHANGE ) COMMISSION, ) ) Plaintiff, ) ) Civil Case No. 22-2296 (RJL) V. ) ) BRIAN K. HUTCHISON, ) ) Defendant. ) _ _ ___ ___ __ ) MEMORANDUM OPINION /1< August~, 2026 [Dkt. #30, 32] The U.S. Securities and Exchange Commission ("SEC") filed this civil enforcement action against Brian Hutchison for making misrepresentations to investors while he was the Chief Executive Officer of RTI Surgical Holdings. The SEC's core allegation is that Hutchison intentionally or recklessly failed to disclose the company's practice of shipping customer orders early to recognize revenue in earlier quarters, thereby artificially inflating the company's quarterly revenues. The undisputed facts establish that the company did ship customer orders early to inflate revenues, Hutchison knew about the practice and the risks it caused for the company's business, and he nonetheless failed to disclose this information to RTI's investors. For these reasons and the reasons that follow, I will GRANT in part and DENY in part the SEC's motion for summary judgment and will DENY Hutchison's cross-motion for summary judgment in full. 1  BACKGROUND I. Facts The following facts are undisputed, unless otherwise indicated. 1 The SEC claims that Brian Hutchison violated multiple securities laws during all four quarters of 2015 and the first two quarters of 2016 ("Relevant Period"). 1 The parties each filed three statements or counter-statements of undisputed material facts. See Pl. SEC's Statement of Material Facts as to Which There Is No Genuine Issue [Dkt. #30-2]; Def. Hutchison's Statement of Undisputed Material Facts in Supp. of Mot. for Summ. J. [Dkt. #32-85]; Pl. SEC's Counter- Statement of Genuine Issues of Material Facts in Resp. to Def.'s Mot. for Summ. J. [Dkt. #35-1]; Def.'s Statement of Undisputed Material Facts in Opp'n to Pl. 's Mot. for Summ. J. and in Resp. to Pl. 's Statement of Material Facts to Which There Is No Genuine Issue [Dkt. #34-1 ]; Pl. 's Resp. to Def. 's Statement of Undisputed Material Facts in Opp'n to Pl. 's Mot. for Summ. J. [Dkt. #3 7-2]; Def 's Statement of Undisputed Material Facts in Further Supp. of Mot. for Summ. J. and in Reply to Pl. 's Counterstatement of Genuine Issues of Material Facts [Dkt. #36-1]. Defendant's Statement of Undisputed Material Facts in Opposition to Plaintiff's Motion for Summary Judgment [Dkt. #34-1] contains two parts. Part I is defendant Hutchison's Supplemental Statement of Undisputed Material Facts and Part II contains Plaintiff's Statement of Material Facts as to Which There Is No Genuine Issue [Dkt. #30-2] with Hutchison's responses. For ease of reference, Part II is hereinafter referred to as "PSUMF." Defendant's Statement of Undisputed Material Facts in Further Support of Summary Judgment and in Reply to Plaintiff's Counterstatement of Genuine Issues of Material Facts [Dkt. #36-1] contains Hutchison's Supplemental Statement of Undisputed Material Facts in Part I and then Hutchison's first statement of undisputed material facts with the SEC's response and Hutchison's replies in Part II. Part II of Defendant's Statement of Undisputed Material Facts [Dkt. #36-1] is hereinafter referred to as "DSUMF." The SEC responded to Hutchison's first Supplemental Statement of Undisputed Material Facts [Dkt. #34-1] in its third statement [Dkt. #3 7-2], which is hereinafter referred to as "DSSUMF." Local Civil Rule 7(h)(l) requires that the parties provide a "statement of material facts as to which the moving party contends there is no genuine issue, which shall include references to the parts of the record relied on to support the statement." The rule further states that an "opposition to such a motion shall be accompanied by a separate concise statement of genuine issues." Id. (emphasis added). It is well- established that "[a]rguments and invocations of legal authority are, of course, not facts, which alone should appear in [the parties'] Statement[s]." Wilkins v. D.C., 2019 WL 3767164, at *3 (D.D.C. Aug. 9, 2019). Defendant Hutchison's statements and counterstatements of undisputed material facts contain excessive and improper legal argumentation. See, e.g., PSUMF ,r,r 145 (purporting to "dispute" a fact despite "not disput[ing] the assertion" because it is "immaterial" for a long list of reasons), 164 (similar), 205 ("Mr. Hutchison does not dispute the assertion. But it is immaterial because RTI was not, in fact, violating the contract."). Failure to adhere to the rules governing motions for summary judgment unnecessarily complicates the Court's task in deciding such motions. 2  A. RT/ Surgical Holdings During the Relevant Period, RTI Surgical Holdings ("RTI") was a publicly-traded company that manufactured surgical implants from synthetic materials and donated human tissues. PSUMF ,r 1. RTI's Commercial division, which sold RTI's products to large distributors for resale, generated a significant amount of the company's revenue. Id. ,r 2. RTI's Commercial division sales made up 46% of the company's revenue in 2015 and 37% of the company's revenue during the first half of 2016. Id. ,r,r 5---6. Defendant Brian Hutchison ("Hutchison") was RTI's Chief Executive Officer ("CEO") and a member of its Board of Directors from 2001 to 2016. Id. ,r 29. Before becoming RTI's CEO, Hutchison spent twenty years in corporate management and finance, including as an internal auditor and accountant. Id. ,r,r 30-31. As CEO, Hutchison reviewed and signed RTI's Form 10-Q and 10-K financial statements, attended RTI's Audit Committee calls, and approved scripts for earnings calls. Id. ,r,r 38-39, 42. He participated in all ofRTI's earnings calls in 2015 and 2016. Id. ,r 35. Hutchison also "signed quarterly management representation letters to RTI's external auditors affirming that RTI's financial statements had been prepared and presented in accordance with GAAP, that he was not aware of any fraud, and that he had disclosed all deficiencies in RTI's internal control." Id. ,r 44. Hutchison, along with Rob Jordheim, RTI's Chief Financial Officer ("CFO"), was responsible for preparing RTI's public revenue guidance. Id. ,r 43. RTI provided quarterly and annual revenue guidance to investors. Id. ,r 9. Deloitte audited RTI's financial statements. See id. ,r,r 146, 156. Deloitte's engagement partner 3 later testified that he would not have signed the audit opinions for RTI if he had known what he later learned. Id. ,r 22. B. "Pulling Forward" Revenue This case is about RTI's practice of "pulling forward" revenue from future quarters to meet revenue goals for the current quarter. Like many publicly-traded companies, RTI stated publicly what it expected its quarterly and annual revenues would be. PSUMF ,r 9. Financial analysts paid attention to RTI's revenue reports and to whether RTI was able to achieve its public revenue guidance. Id. ,r 11. As a general matter, it was very important for RTI to meet its quarterly and annual revenue goals. Id. ,r 50. In RTI's Commercial division, RTI's major customers would typically place orders three months in advance of their requested delivery dates. Id. ,r 4. This practice gave RTI significant visibility into its future orders and revenues. Id. RTI typically "recognized revenue"-meaning, counted revenue towards RTI's eamings--on the day that it shipped products. Id. ,r 66. So an order shipped on December 31, 2015 would count towards Q4 2015 revenue even if the shipment arrived in 2016. "Pulling forward" revenue occurred when RTI shipped an order in an earlier quarter than originally planned in order to meet RTI's revenue guidance. Id. ,r 68. RTI regularly used "pull-forwards" to meet its revenue goals. Id. ,r 70. Sometimes RTI reached out to the customers and obtained approval for the early shipments. Id. ,r 104. Sometimes RTI sent early shipments without customer authorization and counted revenue for those shipments anyway. See, e.g., id. ,r 339. Hutchison knew that under Generally Accepted 4 Accounting Principles, or "GAAP," "RTI should not recognize revenue from a shipment if a customer had not agreed to it or approved it." Id. 1135. C. Relevant Transactions and Statements The SEC's claims concern all four quarters of 2015 and the first two quarters of 2016. RTI met or exceeded its revenue guidance for five of those six quarters, as shown below. Table 1: RTl's Quarterly Revenue Guidance and Reported Revenues During the Relevant Period Quarter Revenue Guidance Reported Revenue Outcome QI 2015 $66-67 million. $68 million. Exceeded revenue PSUMF 1221 PSUMF1222 guidance Q2 2015 $70-71 million. $71.6 million. Exceeded revenue PSUMF ,f 222 PSUMF ,r 248 guidance Q3 2015 $69-70 million. $66.5 million. Failed to meet PSUMF 1248 PSUMF 1281 revenue guidance Q4 2015 $68-69 million. $76.1 million. Exceeded revenue PSUMF ,r 321 PSUMF ,r 321 guidance 2015 $274-275 million. $282.3 million. Exceeded revenue PSUMF ,r 316 PSUMF ,r 315 guidance QI 2016 $65-66 million. $67.4 million. Exceeded revenue PSUMF ,r 381 PSUMF ,r 381 guidance Q2 2016 $66-67 million. $67.6 million. Exceeded revenue PSUMF ,r 398 PSUMF 1398 guidance Ql 2015. In February 2015, RTI's CFO informed Hutchison that RTI's quarterly revenue for Q 1 2015 was likely to be "below guidance." PSUMF 1 213. In the same email, the CFO informed Hutchison that a high percentage of revenue was coming in the last month of each quarter and that this was "not a good trend." Id. 1185, 214; SEC Ex. 16 [Dkt. #30-4]. The next day, the head of RTI's Commercial division informed Hutchison that "[w]e knew Q 1 was going to be an issue with the Q 1-15 shipments in December [2014] 5 totaling $7.4M for the commercial group." SEC Ex. 17 [Dkt. #30-4]; PSUMF ,r 215. Hutchison forwarded the email to the CFO and said "how much [is] he suggesting was shipped in December[?]" and "Seems really high." SEC Ex. 17 [Dkt. #30-4]. Despite these issues, Hutchison wrote a letter to the board in February 2015 saying that declines in the Commercial division's revenues were due to "short term inventory management on the part of the partners." SEC Ex. 119 [Dkt. #30-6]; PSUMF ,r 218. In March 2015, the CFO told Hutchison that the Commercial division was "going to try and ship more to make up some of the shortfall" in RTI's expected revenue, because "it would be nice to at least hit our guidance." PSUMF ,r 220. An RTI employee conducted an analysis that RTI "pulled forward" $5.8 million of revenue into QI 2015 from Q2. Id. if 225. On April 23, 2015, RTI issued a Form 8-K reporting quarterly revenues of $68 million for QI 2015, exceeding its revenue guidance of $66-67 million. Id. ,r,r 221-22. RTI issued a press release in which Hutchison stated, "We saw solid growth in the first quarter, exceeding our expectations and keeping us on track for the year." Id. ,r 222. In the same release, Hutchison further stated, "Based on results from the first quarter, I am confident in our ability to meet our goals for the year." Id. In an earnings call that same day, Hutchison responded to a question about what was driving growth for orthofixation, a particular product category, by saying that "Q 1 is really a continuation off of Q4. If you remember in Q4, we had really strong growth, and that's continuing into Q 1. We do expect that to moderate a little bit over the next three quarters as the ~omps get a little bit tougher, but it's just-the orders from our commercial partners 6 just keep coming in." DSSUMF ,r 5; see also PSUMF ,r 223. RTI's Form 10-Q for QI 2015 did not disclose any risks from pulling forward orders. PSUMF ,r,r 228-30. Q2 2015. In early June 2015 (the last month ofQ2), the CFO emailed Hutchison to say that "[w]e are rolling up to $69 million against guidance of $70 to $71 million." SEC Ex. 23 [Dkt. #30-4]. The CFO said this was "[o]bviously very concerning" and "[i]n addition, I don't think we have much latitude for commercial to save the day." Id.; see also PSUMF ,r 233. The CFO then projected that RTI would be able to meet its quarterly revenue number through customers agreeing to accept orders earlier than originally requested. PSUMF ,r 234. Hutchison was told in a weekly meeting that a $1.6 million order would be a "pull-in." Id. ,r 235. In June 2015, RTI decided to ship early all of the July 2015 orders from Davol, one of its major Commercial division customers. Id. ,r 239. On June 30, 2015-the last day of Q2-RTI shipped a $535,245 order to Davol that had a "Delivery Date" of July 15, 2015. Id. ,r,r 240-41. In internal correspondence, Davol employees characterized the $535,245 shipment as an "early shipment" that "was not requested by Davol Supply Chain." SEC Ex. 141 [Dkt. #30-8]. The employees stated that the early shipment "[c]learly ... benefits RTI's quarter end revenue" and "unfavorably hit[s] our inventory," and Davol resolved to "pursu[e] a discount for this early shipment." Id.; see also PSUMF ,r 242. An RTI employee agreed that the Davol shipment was "unauthorized," PSUMF ,r,r 246-47, but RTI nonetheless recognized revenue for that shipment in Q2, see id. ,r,r 251-52. 7  On July 30, 2015, RTI issued a Form 8-K reporting quarterly revenues of $71.6 million for Q2 2015, exceeding its revenue guidance of $70-71 million. Id. ,r,r 248-49. RTI's Form 10-Q did not disclose the use of pull-forwards. Id. ,r,r 254-55. In the Q2 earnings call, Hutchison stated that "[ o]verall, our business model continues to work very well. We exceeded our guidance on the top and bottom line for the quarter." DSSUMF ,r 6. He said that the "[r]evenue mix shifted somewhat to commercial in the quarter, which we anticipate will reverse during the second half of [the] year." Id. Regarding RTI's spine business, Hutchison stated that "worldwide direct spine growth will accelerate in the second half of this year, but will be offset by declines in the commercial business due to timing of orders." Id. Q3 2015. In August 2015, RTI's CFO told Hutchison that RTI's expected Q3 revenue would be "$69 million exactly, which is the very low end of our guidance for Q3." PSUMF ,r 257. Hutchison characterized this information as "really unacceptable." Id. In a September 7 email to RTI executives, "Hutchison questioned whether the Commercial division 'can bail us out [this] quarter' and directed [his team] 'to do better."' Id. ,r 258. On September 29, Hutchison was informed that a Commercial division customer had refused to agree to an early shipment and called this development "[n]ot good." Id. ,r 262. In September 2015, the head ofRTI's Commercial division told Hutchison that they were planning to pull forward $6.8 million in products from Q4 into Q3. Id. ,r 263. That same month, RTI shipped a nearly $1.8 million order to Zimmer Biomet without preapproval from Zimmer. See id. ,r,r 266-68. The Zimmer Biomet representative responded by saying, "I need to understand why you approved early shipment without my 8 approval" and "[t]his has caused a lot of issues since it made my inventory levels go sky high." SEC Ex. 9 [Dkt. #30-4]. The Zimmer Biomet employee went on to say that "I have asked [RTI employee] to not ship ANYTHING early without prior approvals." Id. On September 30, 2015, without Medtronic's preapproval, RTI shipped Medtronic $259,335 of product that was not due until November. PSUMF ,r 279. On October 29, 2015, RTI issued a Form 8-K reporting quarterly revenue of $66.5 million for Q3 2015, falling short of its revenue guidance of $69-70 million. Id. ,r,r 281- 82. RTI's Form 10-Q did not disclose the use of pull-forwards. Id. ,r,r 288-89. In the Q3 earnings call, Hutchison stated that RTI was "subject to the varying ordering patterns of our large commercial distributors" and that based on "orders currently in hand and projected orders," RTI expected "the commercial business to decline in Q4." DSUMF ,r 58. In response to analysts' follow-up questions, Hutchison said that for the next quarter, "the biggest contributor is really ... the drop in commercial orders for the fourth quarter." Id. ,r 59. Hutchison noted that commercial orders "can be lumpy in the fourth quarter," adding that"[ w]e're seeing a holdback" in those orders. Id. Q4 2015. On December 8, 2015, Hutchison characterized the Commercial division as a "train wreck" and "so bad" in an internal email. PSUMF ,r 291. In November 2015, customer Zimmer Biomet agreed to convert a consignment arrangement to a one-time purchase in exchange for a 25% discount. PSUMF ,r 295. Pursuant to this agreement, Zimmer Biomet purchased products related to RTI's GTR cabling system for $7.2 million (the "GTR transaction") in December 2015. Id. ,r,r 295- 96. As of June 2015, Hutchison had been aware of plans for the transaction and knew that 9 RTI employees had suggested that the one-time purchase would help RTI meets its 2015 revenue goals. Id. ,r 292. In late December 2015, Hutchison and the CFO had a discussion about whether the GTR transaction should be disclosed, with Hutchison asking, "Do you know for sure that we do not have to disclose it?" Id. ,r 297. A partner at Deloitte-RTI's external auditor-suggested to RTI that it disclose more details about this transaction, but RTI did not make any separate disclosure. Id. ,r,r 299-300. Also in December 2015, RTI's CFO told an employee that "we need to ship whatever it takes to get to [the $]12.9 million." SEC Ex. 204 [Dkt. #30-10]; see PSUMF ,r 302. In late December, RTI sent Zimmer a shipment of goods with delivery dates in Ql 2016. PSUMF ,r,r 305-06. In early January, Zimmer emailed RTI to say that this shipment included "quite a lot of product in the last few days of the year ... that was not scheduled for delivery until March of 2016." Id. ,r 309. The Zimmer buyer said that he had not authorized the early shipment and any such authorization would have been by email. Id. ,r 311. The parties dispute whether Zimmer in fact authorized the early shipment over the phone. See id. ,r 306. On January 13, 2016, Hutchison received an email stating that "RTI's early shipments to Zimmer [] resulted in Zimmer changing policy to require advance notice of all shipments." Id. ,r 312. The email went on to say: "Effective today [Zimmer] requires a 48 hour notice for all shipment. They will not accept early shipments without prior approval .... This is in response to the December shipping schedules." SEC Ex. 35 [Dkt. #30-4]; see also PSUMF ,r 312. On February 16, 2016, RTI issued a Form 8-K reporting quarterly revenue of $76.1 million for Q4 2015, exceeding its revenue guidance of $68-69 million. Id. ,r,r 315-16. 10 RTI announced revenues of $282.3 million for 2015 against its revenue guidance of $274- 275 million. Id. In RTI's preliminary earnings release for Q4 2015, which was filed as an attachment to a Form 8-K, Hutchison said, "We are pleased that revenues of$76.l million in the fourth quarter exceeded our guidance of $68 million to $69 million." Id. ,r 321. Hutchison also said, "In the fourth quarter, we benefitted from stronger than expected orders from certain commercial distributors. As we have mentioned in prior quarters, the commercial business is less predictable on a quarterly basis due to the timing of distributor orders." Id. On February 16, 2016, in the Q4 earnings call with investors, Hutchison said that RTI's Q4 2015 perfonnance was due to "higher-than-expected" orders and "industry consolidation." Id. ,r 322. Hutchison predicted "low double-digit declines" in RTI's Commercial business, and explained that the "primary reason for this decline is that we do not expect the benefits that we experience[ d] in 2015 from the consolidation of some of our commercial customers to continue into 2016." DSUMF ,r 65. Hutchison signed RTI's Form 10-K for 2015, which was filed with the SEC on March 7, 2016. PSUMF ,r 323. The Form 10-K did not disclose the use of pull-forwards or any of the attendant risks to RTI's future business. Id. ,r 324. Ql 2016. In January 2016, the head of RTI's Commercial division told Hutchison that one of its customers, Medtronic, was becoming less willing to accept orders due in future quarters. PSUMF ,r 327. On March 22, the CFO informed Hutchison that Medtronic had rejected RTI's offer of a 9% discount to accept a $1 million early shipment. Id. ,r 329. The CFO said that as a result, "we have no buffer" if other divisions "miss." Id. That same 11 day, Hutchison emailed RTI employees to say, "'I am told that [Commercial] have no more upside ... There is no cushion no room for error. We need to hit the guidance." Id. ,r 331. On March 17, the head of RTI's Commercial division told the CFO regarding Synthes's orders that "we are just going to ship and deal with any issues later." Id. ,r 335. On March 29, RTI shipped products to Synthes that had been scheduled for delivery in April and May 2016. Id. ,r 340. Synthes had specified that "Delivery Performance" "shall be measured by a five (5) Business Days early, zero (0) Business Days late expectation." Id. ,r 338; see also SEC Ex. 223 [Dkt. #30-10]. Synthes never provided advance permission to send the March 2016 shipment outside that window. PSUMF ,r 339. On April 1, Synthes' buyer called RTI and expressed frustration about the early shipment, which was large and unexpected. Id. ,r,r 342-43. Synthes told RTI that it did not have space to house the excess inventory but decided not to return the product since Synthes would need it at some point in the future and because the shipment included sterile products. Id. ,r,r 347- 48. On April 4, Hutchison received an email stating, "Synthes called last Friday pretty upset about the amount of product we shipped at quarter end. They are contemplating returning at least a subset of the early items." Id. ,r 360. A separate email to Hutchison stated that the value of the shipment was $1.6 million and that Synthes "indicated to [RTI] that they want to ship back the entire shipment from last week ($1.6M)." Id. ,r 361. In response, RTI offered Synthes a discount and extended payment terms. Id. ,i,r 351-52. By April 6, RTI, having received no response to its discount offer, contacted Synthes, saying, "we really need to close the books on the quarter and this is the last piece of information needed by Accounting." Id. ,r 353. On April 7, RTI closed its books for Q 1, 12 but as of April 8 Synthes had still not responded to RTI's discount offer. Id. ,r,r 354-55. Hutchison was aware that RTI had shipped product to Synthes earlier than the delivery date without its permission. Id. ,r 358. "Hutchison acknowledged that the orders to Synthes 'were shipped before they were due. So we knew there was potential we were going to have to issue credit and take them back."' Id. ,r 359. Hutchison admitted that the back- and-forth showed that RTI's relationship with Synthes was "broken" in a "pretty severe" way. Id. ,r 365. Hutchison did not consult with RTI's controller or RTI's auditors about this transaction. Id. ,r,r 371,373,375. RTI's controller later said-with reference to the Synthes order-that "[i]f the shipment was not approved, I don't believe the revenue should have been recorded." SEC Ex. 217 [Dkt. #30-10]; see also PSUMF ,r 374. The early shipments in Ql resulted in a drop in shipments in Q2 because RTI "didn't have the orders in 3Q16 to offset." SEC Ex. 56 [Dkt. #30-5]; PSUMF if 380. On April 28, 2016, RTI issued a Form 8-K reporting quarterly revenue of $67.4 million for Ql 2016, exceeding its revenue guidance of $65-66 million. PSUMF ,r 381. That same day, Hutchison stated in an earnings call that RTI's Q 1 2016 revenues "exceed[ed] Company guidance" and that RTI's commercial business had "achieved [a] compound average annual growth rate of 7%" since 2005. Id. ,r 382. Hutchison said that "[f]or the second quarter 2016," RTI expected "declines of approximately 30% in our commercial business" because "we do not expect the benefits that we experienced in 2015 from the consolidation of some of our commercial customers to continue into 2016." DSUMF ,r 75. 13  Q2 2016. On June 21, 2016, RTI employees confirmed that "we will be shipping Zimmer July orders early without notification ... for their receipt on 6/30." PSUMF 1391. RTI then shipped a nearly $1.4 million order to Zimmer early without preapproval from Zimmer. Id. 11392-93. On July 8, RTI's Vice President of Commercial told Hutchison that RTI's internal revenue forecast should be lowered by $4 million because it was higher than forecasts provided by RTI's distributor customers. Id. ,r 394. On July 15, Hutchison was informed that lower than expected revenues for Q2 were due in part to "prior order book management." Id. ,r 396. Some RTI employees understood "order book management" to be another tenn for "early shipments." Id. ,r 127. On July 27, RTI issued a Form 8-K reporting quarterly revenue of $67.6 million for Q2 2016, exceeding its revenue guidance of$66-67 million. Id. ,r 398. In the same release, RTI reduced its overall revenue guidance for 2016 to $27 4-280 million from prior guidance of $282-290 million "[b]ased on the outlook for the commercial business for the remainder of the year." Id. Hutchison stated that there were "declines in [its] commercial business that were greater than [] anticipated because of lower orders associated with consolidation among some of [its] commercial distributors." Id. In an earnings call, Hutchison described the "primary reason" for the reduction in revenue guidance as changes in forecasts from RTI's commercial customers. Id. ,r 399. D. Hutchison's Resignation and Subsequent Investigation and Restatement In late 2016, the RTI Board-dissatisfied with Hutchison's performance-asked Hutchison to step down, and he left RTI on December 16, 2016. PSUMF 1163, 65. 14  In 2020, following an internal investigation, RTI filed an amended Form 10-K (the "2020 Restatement" or "Restatement"). Id. ,r 15. In it, RTI restated its quarterly and year- end statements for 2016, 2017, and 2018, as well as certain year-end financials for 2014 and 2015. Id. In the Restatement, RTI acknowledged that "[i]t prematurely recognized revenue for shipments that were sent 'before requested delivery dates and agreed-upon delivery windows' and 'delivered early without obtaining the customers' affirmative approval.'" Id. ,r 16. The Restatement said that certain "unapproved shipments were shipped by employees in order to generate additional revenue and resulted in shipments being pulled from a future quarter into an earlier quarter." Id. The Restatement said that there were "certain material weaknesses" in RTl's "internal control over financial reporting" as of December 31, 2018. Id. Members of RTl's subsequent management and Audit Committee agreed that the Restatement was "needed." SEC Ex. 201 [Dkt. #30-10]; SEC Ex. 202 [Dkt. #30-10]; SEC Ex. 207 [Dkt. #30-10]; SEC Ex. 224 [Dkt. #30-10]; PSUMF if 17. The Restatement "did not restate revenue from shipments that were sent early at the customer's request." PSUMF In July 2020, RTI sold parts of its operations to a third party and was renamed as Surgalign Holdings, Inc. Id. ,r 26. In 2022, Surgalign Holdings, Inc. and RTI's CFO Robert Jordheim settled charges with the SEC relating to the events during 2015 and 2016. RTI paid a $2 million penalty to the SEC, and Jordheim agreed to pay a $75,000 penalty and reimburse the company over $200,000. Id. ,r 27. In 2023, Surgalign commenced bankruptcy proceedings. Id. ,r 28. 15 II. Procedural History Following an investigation, the SEC filed this civil enforcement action against Hutchison, advancing ten claims for relief under the Securities Act of l 933 (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act") and rules thereunder, and the Sarbanes-Oxley Act. Compl. [Dkt. #1] ,i,i 110-48. Hutchison filed a motion to transfer venue [Dkt. #13], which I denied. See Mem. Order [Dkt. #24]. Now, both parties have moved for summary judgment. See Pl. 's Mot. for Summ. J. [Dkt. #30]; Pl. 's Mem. in Supp. of Mot. ("SEC Br.") [Dkt. #30-1]; Def.'s Mot. for Summ. J. [Dkt. #32]; Def.'s Mem. in Supp. ofMot. ("Def.'s Br.") [Dkt. #32-1]; Def.'s Opp'n to Pl.'s Mot. ("Def.'s Opp'n") [Dkt. #34]; Pl. 's Opp'n to Def.'s Mot. ("SEC Opp'n") [Dkt. #35]; Def.'s Reply in Supp. of Mot. ("Def.'s Reply") [Dkt. #36]; Pl.'s Reply in Supp. of Mot. ("SEC Reply") [Dkt. #37]. The motions are ripe for consideration. LEGAL STANDARD Summary judgment is appropriate "if 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). When deciding a motion for summary judgment, the Court "must assume the truth of all statements proffered by the non-movant except for conclusory allegations lacking any factual basis in the record." Dist. Intown Props. Ltd. P'ship. v. Dist. of Columbia, 198 F.3d 874, 878 (D.C. Cir. 1999). "When parties file cross-motions for summary judgment, each motion is considered separately, in the light most favorable to the non-moving party, and the court must determine, for each motion, whether the Rule 56 16 standard has been met." Am. Ctr.for Int'! Lab. Solidarity v. Chavez-DeRemer, 789 F. Supp. 3d 66, 80 (D.D.C. 2025). ANALYSIS I. Securities Fraud Claims (Counts I and II) The SEC claims that Hutchison violated Section I 0(b) of the Exchange Act, Rule l0b-5, and Section l 7(a) of the Securities Act. Section I 0(b) makes it unlawful to "use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of' SEC rules and regulations. 15 U.S.C. § 78j(b). In tum, Rule lOb-5 makes it unlawful for issuers of registered securities to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading ... in connection with the purchase or sale of any security." 17 C.F.R. § 240.1 0b-5(b ). To prevail on its Section 10(b) and Rule I 0b-5 claim, the SEC must show that Hutchison "(I) made a material misrepresentation or a material omission as to which he had a duty to speak ... ; (2) with scienter; (3) in connection with the purchase or sale of securities." SEC v. Familant, 910 F. Supp. 2d 83, 92 (D.D.C. 2012) (quoting SEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999)). "Rule l0b-5 encompasses only conduct already prohibited by§ I0(b)." Id. at 91 (quoting Stoneridge Inv. Partners v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008)). "Section l 7(a) of the Securities Act also prohibits securities fraud." SEC v. Kokorich, 663 F. Supp. 3d 63, 75 (D.D.C. 2023). A violation of Section l 7(a)(l) has 17 "essentially" the same elements as Rule 10b-5 except that it reqmres that the misrepresentation or omission happen "in the offer or sale, rather than in connection with the purchase or sale, of a security." SEC v. Levine, 671 F. Supp. 2d 14, 26-27 (D.D.C. 2009). Sections l 7(a)(2) and (a)(3) have the same elements except "they do not require a showing of scienter." Kokorich, 663 F. Supp. 3d at 76 (internal quotation marks omitted). "Instead, proof of negligence is sufficient to establish a violation of these provisions." Id. (internal quotation marks omitted). A. Misrepresentation or Omission The first contested element is whether Hutchison's statements were "false or misleading." Kokorich, 663 F. Supp. 3d at 76 (quoting Plymouth Cnty. Ret. Ass 'n v. Advisory Bd. Co., 370 F. Supp. 3d 60, 75-76 (D.D.C. 2019)). "A statement or omission is misleading if a reasonable investor, reading the statement fairly and in context, would be misled." Id. (quoting Plymouth, 370 F. Supp. 3d at 76). "In addition, the statement or omission must have been misleading at the time it was made; liability cannot be imposed on the basis of subsequent events." Id. (quoting Plymouth, 370 F. Supp. 3d at 76). Regarding omissions, Rule 10b-5(b) prohibits "half-truths, not pure omissions." Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. 257, 258 (2024). "Rule 10b-5(b) requires disclosure of information necessary to ensure that statements already made are clear and complete." Id. "The 'disclosure required by the securities law is measured not by literal truth, but by the ability of the material to accurately inform rather than mislead prospective buyers.' Some statements, although literally accurate, can become, through their context and manner of presentation, devices which mislead 18 investors." Karth v. Keryx Biopharmaceuticals, Inc., 2018 WL 3518497, at *4 (D. Mass. July 19, 2018) (quoting Lucia v. Prospect St. High Income Portfolio, Inc., 36 F.3d 170, 175 (1st Cir. 1994)). The undisputed facts show that Hutchison's statements were misleading in at least three ways. First, Hutchison's statements were misleading because they failed to disclose that RTI relied on pulling forward shipments to meet its revenue guidance. See SEC Br. at 27. Hutchison does not dispute that RTI regularly used pull-forwards to meet revenue goals. PSUMF ,r 70. During the Relevant Period, Hutchison stated that RTI exceeded its quarterly revenue guidance for five out of six quarters. Id. ,r,r 221, 222, 248, 281, 321, 381, 398. Hutchison made a variety of statements to investors to explain RTI's revenue trends and its ability to meet RTI's revenue guidance. See, e.g., DSSUMF ,r,r 5-6. But Hutchison never disclosed RTI's reliance on pulling forward revenue from future quarters. See PSUMF ,r 14. Hutchison's omissions were misleading because, while he "correctly identified" RTl's success in meeting its revenue goals, "he failed to provide necessary context for a reasonable investor to understand the limited nature of that success"-namely, that RTI relied on pulling forward shipments from future quarters to meet its revenue guidance. Kokorich, 663 F. Supp. 3d at 78. As the SEC points out, Item 303 of Regulation S-K requires the disclosure, in the Management's Discussion & Analysis section of Forms 10-Q and 10-K, of "any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from 19 continuing operations." 17 C.F.R. § 229.303 (2011). As discussed below, RTl's reliance on pulled-forward shipments was material to investors, and as such Hutchison had a duty to disclose that RTI was pulling forward shipments to meet revenue goals. Second, Hutchison's statements were misleading because they omitted the fact that RTI was recognizing revenue for early shipments that did not receive preapproval from customers. Hutchison does not dispute that for at least six early shipments, there was no customer preapproval, yet RTI recognized revenue for those shipments anyway. See PSUMF ,r,r 239--41, 266-68, 279, 305-07, 361-74, 391-92. UnderGAAP, RTI should not have recognized revenue from a shipment if a customer had not agreed to it or approved it, PSUMF ,r 135, so the inclusion of the six shipments in RTI's revenue numbers before customers had accepted the orders was misleading. Third, Hutchison's statements were misleading because they omitted the damage to customer relationships and risks to RTl's future business caused by sending early shipments. Pull-forwards created a "kind of never-ending cycle [of] pulling revenue from a later quarter." PSUMF ,r 92. Early shipments did not result in additional orders. Id. ,r 93. RTI at times offered customers discounts for accepting early shipments. Id. ,r,r 104-05. Hutchison understood that offering large discounts to customers was problematic because they would become accustomed to receiving them. Id. ,r 330. Specific Commercial division customers complained after receiving unauthorized early shipments, with one- Medtronic-even threatening legal action. See, e.g., PSUMF ,r,r 202, 365. Yet neither Hutchison nor RTI disclosed the use of pull-forwards or any of the associated risks to RTI's future revenues or customer relationships. 20  Hutchison's arguments in response and his affirmative arguments for summary judgment in his favor are not persuasive. First, Hutchison argues that his statements were not misleading because he "commented negatively on the Commercial Division's performance and its future revenue outlook." Def.'s Reply at 1. For one, not all of Hutchison's statements about the Commercial division were "negative." Hutchison continued to forecast that RTI would "meet our goals for the year," PSUMF ,r 222, and he emphasized RTI's positive results in exceeding its revenue guidance for five out of six quarters, see id. ,r,r 221, 222, 248, 281, 321,381, 398. For another, Hutchison's vague statements that there would be "declines" in the Commercial business due to "timing of orders