Wells Fargo banker Peter Cannava, who continued his legal fight against the Securities and Exchange Commission even as fellow defendants settled in the 38 Studios enforcement action, has won that battle.
Rhode Island U.S. District Judge John J. McConnell, Jr. ruled Tuesday for Cannava, putting an end to the SEC’s litigation against him and effectively closing the book on the 2016 enforcement case in which he was the sole remaining defendant.
“After several years of litigation, we are very pleased that Judge McConnell ruled from the bench yesterday and dismissed all of the SEC’s claims against Mr. Cannava pursuant to our summary judgment motion,” said Brian Kelly, a partner at the law firm of Nixon Peabody who represented Cannava. “As we’ve said from the outset, Mr. Cannava is a diligent, conscientious banker who is now looking forward to putting this matter behind him.”
“It’s gratifying to see our client’s name cleared, and the decision validates that there was no evidence Mr. Cannava misled investors,” Kelly continued in a statement.
The lawsuit began when the SEC charged Wells Fargo, Cannava, and the Rhode Island Economic Development Corp. with fraud over allegedly misleading disclosures related to the bond transaction to finance a multi-player video game being developed by then-Massachusetts-based 38 Studios.
The SEC told the court that Cannava played a critical role in creating the private placement memorandum, which the commission said failed to disclose to investors that 38 Studios needed at least $75 million to produce the game and even more money to relocate to Rhode Island. The studio was receiving only $50 million of the bond proceeds.
The SEC said the deal team also failed to disclose to bond purchasers that Wells Fargo was receiving additional compensation from 38 Studios, totaling $400,000, which was directly tied to the issuance of the municipal bonds.
Cannava’s motion for summary judgment dismissing the case against him noted that he was one of many members of the deal team and that some of the expert witnesses have appeared to say in depositions that the information omitted from the placement memo might not be material. Late last year McConnell took the unusual step of sanctioning the SEC for not properly disclosing to Cannava’s team statements it obtained from witnesses.
While the transcript of McConnell’s words from the bench may not be available until later this week, the judge entered an order granting Cannava’s motion.
The RIEDC, now called the Rhode Island Commerce Corp., settled early in the case while Wells Fargo and Cannava continued litigating. In March Wells Fargo agreed, without admitting or denying the SEC’s allegations, to pay $812,500 to settle the case against the bank.
Kelly insisted from the start that Cannava would not settle. Only 36 years old when the SEC leveled its charges against him, a settlement probably would have meant an end to Cannava’s investment banking career.
Wells Fargo applauded the judgment.
“We are pleased with the judge’s decision,” said Phil Smith, an executive vice president and head of Specialized Industries at Wells Fargo. “This is the second time that a judge has ruled in favor of Peter Cannava. Peter is an exceptional investment banker and valued team member of Wells Fargo.”
The SEC declined to comment.