Reven Pharmaceutical’s Response

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IN THE UNITED STATES DISTRICT COURT  

FOR THE DISTRICT OF COLORADO

Civil Action No. 1:22-cv-03181-DDD-KLM  

UNITED STATES SECURITIES AND  

EXCHANGE COMMISSION,  

 Plaintiff,  

v.  

REVEN HOLDINGS, INC. d/b/a REVEN  

PHARMACEUTICALS, REVEN  

PHARMACEUTICALS, INC., BRIAN D.  

DENOMME, PETER B. LANGE, and MICHAEL A.  

VOLK,  

 Defendants,  

and  

REVEN, LLC, REVEN IP HOLDCO, LLC, REVEN  

ONCOLOGY LICENSING, LLC, and HEALTH  

ANALYTICS & RESEARCH SERVICES, LLC,  

 Relief Defendants.  

DEFENDANTS’ AND RELIEF DEFENDANTS’  

OPPOSITION TO PLAINTIFF’S MOTION FOR  

PRELIMINARY INJUNCTION

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TABLE OF CONTENTS  

Page(s)  

INTRODUCTION - pg 1

BACKGROUND - pg 5

LEGAL STANDARD - pg 12

ARGUMENT - pg 13

1. The SEC has not made a clear showing of misappropriation. - pg 13

1. The Reven Principals’ employment agreements and other benefits. - pg 14  
2. The SEC’s flawed analysis does not support its misappropriation

claims. - pg 16  

2. The SEC has not made a clear showing that Defendants made material

misstatements or omissions with scienter. - pg 19  

3. Legal Standard - pg 20  
4. The SEC failed to meet its burden to clearly show a violation to

justify a preliminary injunction for each of Defendants’

challenged statements - pg 22  

1. Defendants’ challenged statements as to compensation

were not material and not made with scienter. - pg 23  

2. Statements regarding preparing to take Reven public. - pg 27
3. Statements regarding use of funds. - pg 34
4. iv. Statements regarding Florida litigation. - pg 38  

3. The SEC has not made a substantial showing that any violation of the

Securities Laws is likely to recur. - pg 42  

CONCLUSION - pg 43  

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TABLE OF AUTHORITIES  

 Page(s)  

Cases  

Aaron v. SEC,  

446 U.S. 680 (1980) ................................................................................................ 12  

City of Philadelphia v. Fleming Cos, Inc.,  

264 F.3d 1245 (10th Cir. 2001) .................................................................... 4, 21, 22  

Correa v. Liberty Oilfield Servs., Inc.,  

548 F. Supp. 3d 1069 (D. Colo. 2021) ..................................................................... 22  

Dronsejko v. Thornton,  

632 F.3d 658 (10th Cir. 2011) ................................................................................ 22  

Grossman v. Novell, Inc.,  

120 F.3d 1112 (10th Cir. 1997) .................................................................. 20, 21, 22  

Indiana Pub. Ret. Sys. v. Pluralsight, Inc.,  

45 F.4th 1236 (10th Cir. 2022) ............................................................................... 21  

In re Level 3 Commc’ns, Inc. Sec. Litig.,  

667 F.3d 1331 (10th Cir. 2012) .............................................................................. 21  

SEC v. Cell>Point, LLC,  

No. 21-CV-01574-PAB-KLM, 2022 WL 444397 (D. Colo. Feb. 14,  

2022) ...................................................................................................... 12, 20, 23, 42  

SEC v. Compania Internacional Financiera S.A.,  

No. 11-cv-4904, 2011 WL 3251813 (S.D.N.Y. July 29, 2011) .......................... 13, 42  

SEC v. Cooper,  

142 F. Supp. 3d 302 (D.N.J. 2015) ................................................................... 18, 19  

SEC v. Curshen,  

372 F. App’x 872 (10th Cir. 2010) .................................................................... 12, 20  

SEC v. Goldstone,  

952 F. Supp. 2d 1060 (D.N.M. 2013) ................................................................ 20, 25  

SEC v. Haswell,  

654 F.2d 698 (10th Cir. 1981) .................................................................................. 4  

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SEC v. Scoville,  

913 F.3d 1204 (10th Cir. 2019) .......................................................................... 4, 12  

SEC v. Traffic Monsoon, LLC,  

245 F. Supp. 3d 1275 (D. Utah 2017) .................................................................... 13  

SEC v. Unifund SAL,  

910 F.2d 1028 (2d Cir. 1990) .................................................................................. 12  

Statutes  

Exchange Act Section 10(b) .................................................................................. passim

Securities Act Section 17(a)(2) .................................................................. 12, 13, 19, 20

Other Authorities  

SEC Rule 10b-5 .......................................................................................... 12, 13, 19, 20  

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INDEX OF EXHIBITS TO BRIEF  

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INTRODUCTION  

Earlier this year, the SEC persuaded this Court on an ex parte basis to enter a  temporary restraining order (ECF No. 28) that included onerous restrictions and a  wide-ranging, deleterious corporate and personal asset freeze, all premised on the  SEC’s theory that Defendants had “bilked investors out of over $8.8 million” and  “misappropriated” these funds for their own personal use (ECF No. 3 at 1). The SEC’s  premise was—and is—not only unfounded but demonstrably false.  

Indeed, as a threshold matter and as detailed in the expert declaration of Jon  Ahern of Alvarez & Marsal, a leading forensic accounting investigations expert,  Reven’s Principals were owed far more in unpaid compensation than the SEC now  accuses them of having “misappropriated.” In fact, for the three-year period on which  the SEC bases its allegations, Reven’s Principals were (combined) owed $23.25  million in compensation—significantly more than even the mistaken and inflated  amounts the SEC asserts they received. And those figures do not even account for the  Reven Principals’ decisions to defer compensation and allow Reven to reserve cash,  invest in the company, and continue to progress on the path toward commercializing  Rejuveinix (“RJX”), a life-changing technology dedicated to assisting patients with  critical limb-threatening ischemia, sepsis, and other ailments often associated with  an underlying condition of chronic inflammation.  

In the face of initial scrutiny, the SEC’s allegations of misappropriation  havealso begun to crumble in other respects. Alvarez & Marsal’s preliminary  investigation shows that roughly half of the purportedly “misappropriated” funds  were not, as the SEC represented, “for the benefit of Reven’s Principals but rather for  

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Reven business purposes.” Ex. 1, Decl. of Jon Ahern, ¶ 7. For example, the SEC’s prior  proffer to this Court incorrectly assumed that almost $4.7 million in payments to  American Express were made for the personal benefit of the Reven Principals. That  is demonstrably not the case. Contemporaneous records show “that most of the  American Express activity was for Reven business purposes, including charges by  other Reven employees (non-Reven Principals) and charges for marketing, research  [and] development, office expenses, travel, and other Reven expenses.” Id.  

What’s more, during this period, the Reven Principals continued to contribute  and devote even more of their own personal assets (on top of investor funds) toward  the continued development of RJX, in an effort to bring this life-changing drug  through clinical trials and to market, with the goal of eventually finding a profitable  exit opportunity for Reven’s shareholders. Those promising efforts were brought to a  screeching halt following the SEC’s institution of this action and the resulting TRO.  

So what happened here? The SEC, unfortunately, appears to have been led  astray by a small group of disgruntled and entrepreneurial Reven investors who,  initial discovery confirms, have (a) little, if any, first-hand knowledge of the alleged  facts on which the SEC bases its claim of misappropriation, but more troublingly, (b)  their own ulterior motives to tie up Reven and its Principals in protracted litigation  in the hope of appropriating Reven’s intellectual property and creating a competing  business. Indeed, it turns out that the SEC’s key witnesses have been coordinating  in this regard for over a year with Reven’s disgruntled former Chief Technology  Advisor, Dr. James Ervin. See Ex. 7, Decl. of Katherine Preston, Ex. I, Deposition of  

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Leah Schaatt Transcript, 142:13–21; Ex. 6, Decl. of Henk van Wyk, ¶¶ 6–11. This  group has gone so far as to repeatedly (unsuccessfully) pressure Reven’s Chief  Scientist and the inventor of RJX, Henk van Wyk, to destroy information on his  Reven-issued computer, in direct violation of this Court’s TRO. See van Wyk Decl.  ¶ 12.  

Simply put, the case the SEC put forward behind closed doors and without  adversarial scrutiny does not hold up, and in fact, bears little resemblance to reality.  Expert accounting analysis confirms that there has been no misappropriation, and  the baseless accusations to the contrary—on which this lawsuit rests and the TRO  relies—come from vague allegations by self-interested sources with clear ulterior  motives who should not be credited.  

Nor does the evidence support the SEC’s fallback assertions that Defendants  made material misrepresentations or omissions to investors. As demonstrated below,  many of the purported “misstatements” the SEC identifies were accurate statements  of present fact or otherwise accurately reflected Defendants’ good-faith belief and  state of mind at the time the statements were made. Other statements that the SEC  challenges, meanwhile, are (a) more generalized, forward-looking expressions of  Defendants’ optimistic expectations for the company, which courts have routinely  held are immaterial, or (b) at most, unintentionally incomplete assertions that, in the  context of other disclosures and information that was readily available, were not the  type of information on which reasonable investors would rely.  

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Further, even if the SEC could establish any material misstatement or  omission (and it cannot), its request for an injunction would still fail because the SEC  has not clearly shown the separate element of scienter. Scienter requires a showing  of an “intent to deceive, manipulate, or defraud,” in other words, “knowing or  intentional misconduct.” City of Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245,  1261 (10th Cir. 2001). Though certain egregiously reckless conduct tantamount to  actual knowledge or intent may support scienter, courts in this circuit are “cautious  about imposing liability for securities fraud based on reckless conduct,” and simply  having “knowledge of facts that are later determined by a court to have been material,  without more, is not sufficient.” Id. at 1260. Here, any purported misstatement or  omission, in addition to being immaterial, was at most the product of simple  negligence, not deliberate fraud. The lack of any knowing or reckless violation “bears  heavily” against the SEC’s requested injunction. SEC v. Haswell, 654 F.2d 698, 699  (10th Cir. 1981).  

In short, the SEC has not made a “clear showing” that it is likely to prove its  claims of securities fraud against Defendants—far from it—let alone that there is a  substantial likelihood that such purported violations of the securities laws are likely  to recur. SEC v. Scoville, 913 F.3d 1204, 1213 (10th Cir. 2019). In the meantime, the  ex parte asset freeze that was ostensibly intended to “preserv[e] existing investor  assets,” ECF No. 3 at 2, has had the exact opposite effect—threatening Reven’s ability  to maintain its existing intellectual property and other assets, wasting valuable  patent life, and blocking Reven’s ability to move forward with critical drug trials and  

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a possible public offering, thereby decimating (not preserving) investor assets. For  these reasons and those elaborated on below, the current TRO and asset freeze should  be lifted, and the SEC’s motion for a preliminary injunction should be denied in its  entirety.  

BACKGROUND  

Reven’s History and Operations  

Reven is a group of biotechnology and pharmaceutical companies with a  singular purpose of developing pharmaceutical assets, and it has seen significant  growth over the past two decades. Reven’s corporate history extends back to at least  1999. See ECF No. 78, § 4.i. Reven’s primary focus has been developing and  commercializing a cardiovascular and anti-inflammatory intravenous drug treatment  called Rejuveinix (“RJX”). Id. § 4.a.  

The Reven structure includes multiple entities. Reven Holdings, Inc., the  parent entity, is now a Delaware corporation with its principal place of business in  Westminster, Colorado. Id. § 4.a. Reven Holdings was formed in August 2018 as a  privately held biotechnology and pharmaceutical holding company. Id. Reven, LLC is  a Delaware limited liability company formed in August 2018, also with its principal  place of business in Westminster, Colorado. Id. § 4.f. Reven, LLC is a wholly owned  subsidiary of Reven Holdings and functions as the holding company’s operating arm.  Id.1 Reven IP Holdco LLC is also a Delaware LLC with its principal place of business  in Westminster, Colorado, and holds assets. See id. § 4.g.  

1 Reven Pharmaceuticals, Inc. was a Florida corporation formed in October 1999. Id. § 4.b. In August  2018, Reven Pharmaceuticals transferred its assets, including its intellectual property relating to RJX,  

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Reven’s business operations have been mainly managed by three executives:  Peter Lange (Chief Executive Officer), Brian Denomme (President and former Chief  Operating Officer), and Michael Volk (Chief Strategy Officer and former Chief  Financial Officer).2 Id. §§ 4.c-e. All three are co-founders and members of Reven’s  Board of Directors. Id. They are also the three largest shareholders in Reven. Id. §§  4.n-o. Together, the Reven Principals have brought in thousands of investors to the  company. Each is passionate about Reven and deeply committed to its mission of  bringing potentially life-changing therapies to the public. To advance this goal, they  have consistently put the interests of the company first, often (and increasingly in  recent years) deferring their own pay so that Reven can continue to progress.  

That progress over the past several years has occurred at an astonishing rate.  By 2021, Reven had 12 patents granted in two families in the United States, with  applications made for 28 patents in five families; globally, Reven had been issued 21  patents, with 98 other applications in the filing, application, and prosecution process.  See Ex. 2, Decl. of Michael Volk, ¶ 2. Reven had completed 30+ pre-clinical animal  studies, 13 published articles, six peer-reviewed publications, and seven clinical  white papers, and developed over 50 protocols. Id. ¶ 3. The FDA had approved two  Phase 2 investigational new drug applications, the European Medicines Agency had  approved Phase 2 human trials, and Reven had completed Phase 1 human trials in  Australia and the United States for its breakthrough drug, RJX. Id. By November  

to Reven, LLC. Id. § 4.f. Reven Pharmaceuticals was administratively dissolved in September 2019.  Id. § 4.b.

2 We refer to Mr. Lange, Mr. Denomme, and Mr. Volk collectively as the “Reven Principals.”  

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2021, Phase 2 human trials were 75% completed in the U.S., and Reven had met with  dozens of investment banks and financial institutions regarding a public offering. Id. ¶ 4.  

This Case Halts Reven’s Progress in its Tracks  

Unfortunately, this action halted all of this revolutionary progress. The SEC  notified Reven of its investigation in November 2021. This litigation started on  December 9, 2022, when the SEC filed a sealed complaint seeking “emergency  enforcement” to “stop an ongoing offering fraud and misappropriation of investor  assets,” (ECF No. 1 ¶ 1) and an ex parte emergency motion for a temporary restraining  order and asset freeze (ECF No. 3).  

In its filings, the SEC attempted to persuade this Court that an emergency  TRO was necessary by mischaracterizing standard organizational choices made by  Defendants and various business-related expenses to suggest the existence of a  fraudulent scheme. The SEC also alleged that Defendants made several  misstatements in communications to investors. As demonstrated below, however,  none of these alleged misrepresentations were material, let alone made with the  requisite state of mind to support an injunction. Nor, when viewed in context with  other available information and disclosures, were these statements even inaccurate  or misleading. For instance, consistent with prior materials provided by the company,  Reven’s July 6, 2020 Private Placement Memorandum (“PPM”) explained that Reven  “extend[s] to each prospective investor . . . the opportunity, prior to its purchase of  Shares, to ask questions of and receive answers from [Reven] concerning the Offering  

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and to obtain additional information . . . in order to verify the accuracy of the  information set forth herein”; that Reven had “broad discretion in the use of proceeds”  invested; and that the PPM contained “forward-looking statements” that “involve  assumptions and describe our future plans” with “no assurance[s] that the forward

looking statements contained in this [PPM] will in fact occur.” ECF No. 7-14 at 2, 6;  ECF No. 7-15 at 13.  

Central to the SEC’s allegations was the contention that the Reven Principals  understated their compensation for three years—2019, 2020, and 2021—in the  company’s PPMs. But the SEC ignores the Reven Principals’ employment  agreements, which were available to Reven investors and detailed the specific  amount that could be earned both in base compensation and annual target bonuses.  Volk Decl., Exs. A-I. These bonuses were tied to specific metrics regarding Reven’s  progress and goals, 58 out of 59 of which the Reven Principals achieved from 2019 to  2021 (and the remaining metric was partially met). Volk Decl. ¶ 6. In reality, the  Reven Principals took significantly less compensation than they were entitled to  under their employment agreements and often contributed their own money to the  company to pay vendors and employees. Ahern Decl. ¶¶ 31-35; see also ECF No. 54,  Ex. A to Reven Entities’ Decl., at e.g., 2, 5, 8, 10. Unaware of these facts, this Court  granted the SEC’s ex parte motion and ordered a temporary restraining order and  asset freeze. ECF No. 28.  

Despite a few small modifications made to the temporary restraining order and  asset freeze (ECF Nos. 72, 74), the SEC’s actions have created punishing burdens for  

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Reven, its employees, and its shareholders. Reven’s substantial growth and once  near-complete FDA trials are languishing without progress, and much of the data  generated by Reven in previous trials will need to be duplicated. Volk Decl. ¶ 27. And  much of the experienced and knowledgeable staff that were previously devoted to  Reven’s clinical trials and development of intellectual property have departed given  Reven’s inability to raise money and pay salaries. Id. ¶ 28. Vendors have also severed  ties, and Reven has lost substantial credibility with existing investors, potential  future investors, as well as, critically, the FDA. Id. Perhaps most importantly,  Reven’s current investors and shareholders are in limbo as they watch a company  they believed in slowly suffocate.  

Discovery Reveals Ulterior Motives from Key Witnesses  

Recently, Reven has also discovered that the genesis of this action may in large  part owe to the clandestine efforts of a small group of self-interested investors  (including at least two of the SEC’s principal witnesses, Leah Schaatt and Lee-Ann  Frost) who have apparently been working together with Reven’s disgruntled former  Chief Technology Officer, Jim Ervin,3 to hamstring Reven in a legal morass while  misappropriating Reven’s intellectual property in an effort to form a competing  business venture.  

3 Reven terminated Ervin’s employment in August 2020. See Volk Decl. ¶ 24. Ervin sued Reven in  February 2021 for failure to pay compensation allegedly owed to him. Id. In the fall of 2021, when  mediation proved unsuccessful, Ervin threatened to file a complaint with the SEC. Id. ¶ 25. A short  time later, Reven received notice of the SEC’s investigation. Id. Ervin’s suit against Reven is ongoing.  Id. ¶ 24.  

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In particular, testimony and documentary evidence show that, as early as May  or June 2022, Schaatt and Frost had hatched a plot to usurp Reven’s management or  intellectual property. See van Wyk Decl. ¶ 6. To that end, right after the Reven  Principals convened a Zoom call on October 6, 2022 to communicate to a small group  of Reven’s largest investors that the company was in dire financial straits, Frost sent  Schaatt a text message proposing that they “put together a good team” to “intervene.”  Preston Decl. Ex. P, Frost Text Messages, FROST_0595–98; see also Schaatt Tr. at  136:21–137:22 (testifying that she exchanged texts with Frost between October 6,  2022 and October 10, 2022). Schaatt responded suggesting that they “make a plan to  move forward,” noting that they would “need time and good legal counsel[,] [a]nd  money, of course.” Frost Texts, FROST_0597–98. Just days later, on October 15,  2022, Schaatt reached out to the SEC for the first time and after that began working  with the SEC, together with Frost, as its principal witnesses in this proceeding. See  Schaatt Tr. 126:9–128:8.  

At the same time they were working with the SEC to provide the testimony  that would form the backbone of the Commission’s ex parte application for a TRO and  asset freeze, Schaatt and Frost were actively working with Ervin to develop a  competing business venture that would ultimately become known as Veterinary  Nutraceuticals. See van Wyk Decl. ¶¶ 6–8, 10; see also Preston Decl. Ex. J, Deposition  of Lee-Ann Frost Transcript, 205:13–22. As contemplated in their earlier text  messages, Schaatt and Frost retained IP counsel to explore Veterinary  Nutraceuticals’ “freedom to operate” around Reven’s intellectual property. See  

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Schaatt Tr. at 151:3–15; Frost Tr. at 203:21–204:19. By early 2023, Ervin was actively  misappropriating Reven’s intellectual property, see Preston Decl. Exs. M–N, Schaatt  Dep. Exs. 7–8; van Wyk Decl. ¶ 11, and had attempted to recruit Reven’s Chief  Scientist, Henk van Wyk, and Reven’s Head of Quality Assurance, Mariette van Wyk,  to participate in the new venture, see van Wyk Decl. ¶¶ 7, 9. Ervin also developed a  full-blown business plan that made clear that Schaatt and Frost were to provide  “[c]apital” and “business plan review and oversight” to Veterinary Nutraceuticals in  exchange for 25% of the new venture’s “stock” and “profit split.” See Preston Decl.  Exs. M, O, Schaatt Dep. Exs. 7, 9. And as part of his pitch, Ervin even told Mr. and  Mrs. Van Wyk that Reven and its Principals would be “tied up” by the SEC’s present  enforcement action for years, unable to thwart their hostile efforts. See van Wyk Decl.  ¶ 9.  

Tellingly, at or around the time that Defendants served document and  deposition subpoenas on Schaatt and Frost, Ervin contacted Mr. and Mrs. van Wyk  and asked them to delete documents and communications related to Veterinary  Nutraceuticals from their Reven-issued laptops in direct violation of this Court’s  TRO. See van Wyk Decl. ¶ 12. Schaatt also testified that Ervin called her the day  before her deposition in this action to warn her that he was concerned that the Reven  Principals had gotten wind of Veterinary Nutraceuticals. See Schaatt Tr. at 161:3-12.  And Frost testified that she put her efforts related to Veterinary Nutraceuticals on  hold while she focused on “getting past these depositions,” but conceded that “lots can  happen after we’re finished being deposed.” See Frost Tr. at 205:23–209:4.  

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 This further undermines the SEC’s allegations and underscores that the  excessive relief previously granted was unwarranted.4 

LEGAL STANDARD  

To obtain the requested preliminary injunction, the SEC must make a “clear  showing” that a violation of the securities laws has occurred and a “substantial  showing that the violation is likely to occur again.” SEC v. Cell>Point, LLC, 2022 WL  444397, at *5 (D. Colo. Feb. 14, 2022). When the SEC seeks an injunction that will  “alter the status quo,” the agency “must meet a heightened burden” and “make a  strong showing both with regard to the likelihood of success on the merits and with  regard to the balance of the harms.” Scoville, 913 F.3d 1204 at 1214; see also SEC v.  Unifund SAL, 910 F.2d 1028, 1039 (2d Cir. 1990) (“[A] district court, exercising its  equitable discretion, should bear in mind the nature of the preliminary relief the  Commission is seeking, and should require a more substantial showing of likelihood  of success, both as to violation and risk of recurrence, whenever the relief sought is  more than preservation of the status quo.”).  

In assessing the risk of any recurrence of an alleged securities violation, “the  degree of scienter ‘bears heavily’ on the decision.” SEC v. Curshen, 372 F. App’x 872,  882 (10th Cir. 2010) (quoting SEC v. Pros Int’l, Inc., 994 F.2d 767, 769 (10th Cir.  1993)). Thus, “[a] knowing violation of §§ 10(b) or 17(a)(1) will justify an injunction  more readily than a negligent violation of § 17(a)(2) or (3).” Id.; see also Aaron v. SEC,  446 U.S. 680, 701 (1980) (“As the Commission recognizes, a district court may  

4 Additional facts related to each of the SEC’s individual contentions are set forth in the Argument  section below.  

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consider scienter or lack of it as one of the aggravating or mitigating factors to be  taken into account in exercising its equitable discretion in deciding whether or not to  grant injunctive relief. And the proper exercise of equitable discretion is necessary to  ensure a nice adjustment and reconciliation between the public interest and private  needs.”). In making this determination, courts should also consider the hardships  resulting from an asset freeze and appreciate that “[t]he reputational and economic  harm of suffering a preliminary injunction, especially on charges of fraud, can also be  severe.” SEC v. Compania Internacional Financiera S.A., 2011 WL 3251813, at *10  (S.D.N.Y. July 29, 2011); see also SEC v. Traffic Monsoon, LLC, 245 F. Supp. 3d 1275,  1297 (D. Utah 2017) (stating the preliminary injunction would be “particularly  burdensome” to the defendant’s business operations and “would certainly harm the  continuing viability of the enterprise”).  

Here, as demonstrated below, the SEC cannot meet its burden to obtain the  requested preliminary injunction. Accordingly, the SEC’s motion should be denied,  and the TRO and asset freeze should be lifted.  

ARGUMENT  

I. The SEC has not made a clear showing of misappropriation.  The SEC alleges that Defendants violated Section 10(b), Rule10b-5, and  Section 17(a)(1) and (3) by (1) making false and misleading statements to prospective  investors and (2) engaging in deceptive conduct, including misappropriating investor  funds. We begin with the latter because the SEC’s allegations and request for an  injunction largely hinge on the flawed assertion that Defendants “misappropriated at  least $8.8 million in investor funds.” ECF No. 3 at 1, 11–12, 35–36; see also ECF No.  

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28 at 3, 11. The SEC alleges that Defendants “misappropriated” funds through  various means, including making payments directly to their personal bank accounts,  paying personal credit cards, and transferring funds to other entities controlled by  the Reven Principals. See ECF No. 3 at 1, 11-12, 35-36. But the SEC’s allegations do  not withstand scrutiny.  

A. The SEC ignores the Reven Principals’ employment  

agreements and other benefit allowances.  

Although the SEC chose to ignore many of these facts, the evidence now before  the Court confirms that the Reven Principals used funds appropriately, consistent  with what was approved by Reven’s Board of Directors, and in line with corporate  formalities.  

Between 2019 and 2021, Reven paid many business expenses using personal  American Express cards owned by Mr. Volk and Mr. Denomme; Mr. Volk’s card also  had several “sub-account” holders to simplify its use by other Reven personnel. See  Ahern Decl. ¶ 15-16. Several employees—not just Mr. Volk or the other Reven  Principals—had access to these cards and used them in the ordinary course of Reven’s  operations. Id. Defendants’ independent accounting expert, Jon Ahern, analyzed  Reven’s bookkeeping records and performed sampling to validate these facts. Id. ¶¶  10-16.  

Separately, as officers and directors working full-time for the company, the  Reven Principals received compensation for their work. In particular, Reven entered  into executive compensation agreements with each of the Reven Principals. See Volk  Decl. ¶ 5 & Exs. A–I. These agreements provided for annual base compensation of  

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$900,000, $1,000,000, and $1,200,000 in 2019, 2020, and 2021, respectively, for each  of the Reven Principals.5 Id. In total, the employment agreements set forth base  compensation equal to $3,100,000 for each Reven Principal from 2019 to 2021—or  $9,300,000 in total for all three Reven Principals during this period. Id.; see also

Ahern Decl. ¶ 31. In addition, the employment agreements provided target bonuses  of up to 150% of base salary if certain metrics were met, and all but one metric was  met during the period from 2019 to 2021. Volk Decl. ¶ 6. The SEC is aware of these  agreements and even attached some of them to its TRO Application. ECF No. 7  ¶¶ 33-35; ECF No. 3 at 7. These agreements, the associated board minutes, and other  materials reflecting the Reven Principals’ compensation were at all times available  to investors. Critically, however, the SEC’s key witnesses were far more concerned  with product development than they were with executive compensation and thus  never asked to see them. See Frost Tr. 85:5-86:16, 89:19-90:2, 123:13–18, 124:23–25,  182:11-18; Schaatt Tr. 27:7-24, 40:1-41:9, 53:4–25, 54:11–6, 170:5-15.  

The SEC also mischaracterizes the related Health Analytics entity. Health  Analytics was not, as the SEC baldly asserts, a “pass-through or shell company” that  “provided no goods or services to Reven,” ECF No. 3 at 21; rather, it provided  consulting services to both Reven and other entities. See Preston Decl. Ex. H,  Defendants’ Discovery Responses, Response to Interrogatory No. 10. Health  Analytics was also sometimes used, for tax purposes, to pay the Reven Principals  (although, as further explained below, those payments never exceeded the amounts  

5 The 2019 agreements initially state that annual compensation would be $750,000, but this is a  mathematical error, as later provisions state that monthly compensation would be $75,000 per month.  

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the Reven Principals were entitled to receive under their compensation agreements).  See, e.g., ECF No. 57-3 at 6, 7, 11; ECF No. 57-6 at 96. Far from the nefarious “shell”  alleged by the SEC, Health Analytics was a legitimate company that was and would  continue to be used for perfectly normal business purposes had the SEC not  effectively halted its operation.  

B. The SEC’s flawed analysis does not support its  

misappropriation claims.

The SEC has failed to meet its burden to clearly show misappropriation of  investor funds for at least three reasons.  

First, the Court should not credit the SEC’s misappropriation claims because  they are based on a flawed analysis. The $8.8 million figure advanced by the SEC  improperly includes millions of dollars of payments that the evidence confirms  were for the benefit of Reven and its legitimate business purposes—not the  Reven Principals. In addition, the SEC’s figure does not accurately reflect the full  compensation and benefits that the Reven Principals were entitled to receive from  2019 to 2021.  

The SEC’s calculation of the alleged misappropriation stems from the  Declaration of Donna Walker. See ECF No. 8. As part of her calculation, Walker  included more than $4.6 million in payments to “American Express related to Volk’s  personal credit card.” Id. ¶ 18.a. But, Walker incorrectly assumed that 100 percent of  these payments were linked to Mr. Volk’s card and thus attributed them to his  personal benefit. In response, Ahern based his assessment of any potential  misappropriation on contemporaneous records and statements. As for the $4.6  

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million in payments to American Express, Ahern explains that there “were numerous  users of the American Express account, each of whom appears to have had a separate  card,” such that the assumption that these charges are all Mr. Volk’s “is neither fair  nor accurate.” Ahern Decl. ¶ 15.  

Walker’s estimates also fail to properly consider several other charges for  legitimate business expenses, as well as properly charged travel allowances that the  Reven Principals were entitled under their employment agreements for 2019 to 2021.  After analyzing the company’s general ledger, assessing which of these expenses were  reasonable and supported, sampling the remaining charges, and making other  adjustments, Ahern concludes that Walker’s total estimated misappropriation figure  is overstated by at least $4 million. Id. ¶ 30.  

Ahern has also determined that Walker’s estimate did not reflect the full base  compensation that the Reven Principals were entitled to receive for 2019 to 2021  under their employment agreements, which even before applying target bonuses,  reduces the alleged “misappropriation” to approximately $1.58 million. Id. ¶ 32. And  after applying target bonus amounts under their employment agreements, the  purported $8.8 million is more than fully offset. Id. ¶¶ 34-35.  

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The following is a full summary of Ahern’s adjustments, confirming that there  was in fact no misappropriation by Defendants:  

  Second, the SEC asserts that Defendants improperly transferred money to  Health Analytics, claiming it was a “pass-through or shell company” used to transfer  funds to the Reven Principals and that Health Analytics “provided no goods or  services” to the company. ECF No. 3 at 21. However, Ahern’s initial analysis shows  that at least some portion of the funds were used for Reven’s business purposes.  Ahern Decl. ¶ 29. For example, Health Analytics used $275,000 of these funds for  marketing by sponsoring the World Pro Ski Tour in 2020 and 2021, which renamed  its championship to the “Reven Cup.” Id.

Third, the SEC baselessly asserts that Defendants structured two bank  accounts at the same bank to “funnel[] investor funds” as part of a “fraudulent  scheme.” ECF No. 3 at 1, 36 (quoting SEC v. Cooper, 142 F. Supp. 3d 302, 316 (D.N.J.  2015)). In truth, Defendants simply had one account at Wells Fargo that was typically  

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used to receive and maintain funding from investors and a second account for the  company’s operations. ECF No. 8 ¶ 3; Volk Decl. ¶ 22. There is nothing improper  about structuring company funds this way, as the Cooper decision cited by the SEC  demonstrates. In Cooper, the undisputed evidence showed that the defendant and his  company “engaged in sham transactions” and deceived investors “to make it appear  to investors that they were sending money to an independent escrow agent,” created  a “fake escrow company” to receive investor funds, and forged “fake account  statements to investors to make them believe that their money was sitting in an  escrow account or that their investments were collateralized with cash.” Cooper, 142  F. Supp. 3d at 316. Here, in contrast, there is no evidence of anything approaching  such a “fraudulent scheme.” Id.

For each of these reasons, the Court should reject the SEC’s assertion that  Defendants misappropriated $8.8 million from Reven’s investors. And based on this  additional evidence, the Court should withdraw its TRO and decline the SEC’s  request for a preliminary injunction and continued asset freeze.  

II. The SEC has not made a clear showing that Defendants made  material misstatements or omissions with scienter.  

The SEC also claims that Defendants made materially false and misleading  statements and omissions in violation of Exchange Act Section 10(b), SEC Rule 10b 5, and Securities Act Section 17(a)(2). ECF No. 3 at 25-34. They didn’t. The record  evidence now before the Court confirms that many of the claimed “misstatements”  that the SEC has identified were either (a) accurate statements of fact, (b) statements  that accurately reflected Defendants’ good-faith understanding at the time the  

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statements were made, (c) immaterial forward-looking or generalized statements of  opinion reflecting Defendants’ optimistic expectations and targets for the company,  or (d) at most, incomplete statements that, in the context of other disclosures,  cautionary statements, and other information that was readily available, were not  the type of information that was actually or reasonably relied upon by investors.  

A. Legal Standard  

To show a violation of Section 10(b) and Rule 10b-5(b), “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.” Cell>Point, LLC, 2022 WL 444397, at *6 (quoting  SEC v. Smart, 678 F.3d 850, 856 (10th Cir. 2012)). For Section 17(a)(2), the  requirements are “almost the same; the primary difference between § 17(a) and  § 10(b) lies in the element of scienter” because “negligence is sufficient for § 17(a)(2).”  Id. (quoting Smart, 678 F.3d at 857). Still, as noted above, for the SEC to justify the  broad injunctive relief it has requested here, a high degree of scienter is required— negligence is not sufficient. Curshen, 372 F. App’x at 882 (citing Pros Int’l, 994 F.2d  at 769).  

To demonstrate a misstatement or omission, the SEC “must,” as a threshold  matter, “set forth an explanation as to why the statement or omission complained of  was false or misleading.” Grossman v. Novell, Inc., 120 F.3d 1112, 1124 (10th Cir.  1997). “The statement or omission must not merely be false now; rather, it must have  been false at the time that the document containing it was created.” SEC v. Goldstone,  952 F. Supp. 2d 1060, 1196 (D.N.M. 2013); see also Grossman, 120 F.3d at 1124  

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(“[T]here is no reason to assume that what is true at the moment plaintiff discovers  it was also true at the moment of the alleged misrepresentation, and that therefore  simply because the alleged misrepresentation conflicts with the current state of facts,  the charged statement must have been false.”).  

“It is [also] not enough for a defendant’s statement or omission to be false or  misleading, it must also be material.” Indiana Pub. Ret. Sys. v. Pluralsight, Inc., 45  F.4th 1236, 1248 (10th Cir. 2022). A statement is material “if a reasonable investor  would consider it important in determining whether to buy or sell stock, and if it  would have significantly altered the total mix of information available to current and  potential investors.” City of Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1265  (10th Cir. 2001). Courts “have distinguished between statements that are material  and those that are mere puffing . . . not capable of objective verification.” In re Level  3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1339 (10th Cir. 2012) (alteration in  original); see also Grossman, 120 F.3d at 1119 (“[S]tatements classified as ‘corporate  optimism’ or ‘mere puffing’ are typically forward-looking statements, or are  generalized statements of optimism that are not capable of objective verification.”).  Thus, “[v]ague, optimistic statements are not actionable because reasonable investors  do not rely on them in making investment decisions.” Grossman, 120 F.3d at 1119. A  second category of “forward-looking representations are also considered immaterial  when the defendant has provided the investing public with sufficiently specific risk  disclosures or other cautionary statements concerning the subject matter of the  statements at issue to nullify any potentially misleading effect.” Id. at 1120. Under  

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this “bespeaks caution doctrine,” forward-looking statements are not considered  material if “documents available to the investing public ‘bespoke caution’ about the  subject matter of the alleged misstatement at issue.” Correa v. Liberty Oilfield Servs.,  Inc., 548 F. Supp. 3d 1069, 1083 (D. Colo. 2021). “At bottom, the ‘bespeaks caution’  doctrine stands for the unremarkable proposition that statements must be analyzed  in context when determining whether or not they are materially misleading.”  Grossman, 120 F.3d at 1120.  

The SEC must also clearly show that Defendants acted with scienter. Scienter  is “a mental state embracing intent to deceive, manipulate, or defraud” that includes  “knowing or intentional misconduct.” Fleming Cos., 264 F.3d at 1258. While certain  reckless conduct may also support a showing of scienter, it must be “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.” Id. at 1260. But courts have been  “cautious about imposing liability for securities fraud based on reckless conduct”  alone, and allegations of “fraud by hindsight” are not sufficient. Id.; Dronsejko v.  Thornton, 632 F.3d 658, 668 (10th Cir. 2011) (“recklessness under section 10(b) is a  particularly high standard”).  

B. The SEC failed to meet its burden to clearly show a violation to  justify a preliminary injunction for each of Defendants’  

challenged statements.  

The SEC’s motion seeks injunctive relief and an asset freeze based on alleged  misrepresentations relating to these topics: (1) the compensation of Reven’s  Principals from 2019 to 2021, (2) the status of Reven’s plans to obtain audited  

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financial statements and go forward with an IPO or DPO, (3) how certain individual  investors’ funds would be used, and (4) whether or not certain defendants were the  subject of pending litigation. To justify the requested injunction, the SEC must make  a “clear showing” that each of these alleged statements were false, material, and that  Defendants acted with scienter. Cell>Point, LLC, 2022 WL 444397, at *5. The SEC  has failed to meet its burden with respect to each of these elements.  

i. Defendants’ challenged statements as to compensation  

were not material and not made with scienter.  

As detailed above, even using the SEC’s inflated compensation figures, the  Reven Principals received far less compensation in 2019 to 2021 than they were  entitled to receive under their employment agreements. Greer Decl. ¶ 18 (alleging  the Reven Principals made $15,356,779); Ahern Decl. ¶¶ 31-35 (showing that  employment agreements entitled Reven Principals to $23.1 million in total  compensation for 2019-2021).  

After the SEC began its investigation, the Reven Principals became aware that  some of Reven’s PPMs included unintentional typographical errors in the sections  describing their compensation, including listing incorrect years in compensation  tables. For example, the July 6, 2020 PPM states that it shows certain compensation  paid “at the end of the last two completed fiscal years.” ECF No. 7-17 at 7 (emphasis  added). Yet, the chart below that language lists annual compensation for the years  2019 and 2020—even though 2020 was not yet “completed” as of the date of the PPM.  Id. Similar typographical errors appear in the January 1, 2021 PPM. ECF No. 7-20  at 13.  

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Defendants understood that the figures in the PPM tables reflected annualized  amounts of the monthly draws actually being paid to the Reven Principals, not the  total amounts they were entitled to earn under their employment agreements. Volk  Decl. ¶ 8. Despite having the express ability to do so under the PPMs, it does not  appear that any actual or potential investors ever sought further information or  clarification about the Reven Principals’ compensation (as reflected in the PPMs,  their employment agreements, or otherwise). Volk Decl. ¶ 8; see also Frost Tr. 123:13– 18, 124:23–25; Schaatt Tr. 115:7–12. Had any investor(s) asked for this information,  Defendants would readily have shared it with them. Volk Decl. ¶ 8. Defendants never  intended to provide potentially incomplete or inaccurate information to investors. Id.

No Misrepresentation  

Setting aside the 2020 and 2021 PPMs, the SEC also relies on certain alleged  misstatements related to the expected use of funds in Reven’s 2018 PPM. ECF No. 3  at 12. Specifically, the 2018 PPM outlines Reven’s “estimated use of offering  proceeds,” expressly noting that the “planned use of proceeds shown below is subject  to change” based on several factors including “actual expenses, changes in general  business, economic and competitive conditions, timing and management discretion,  each of which may change the amount of proceeds expended for the purposes  intended.” ECF No. 9-1 at 31. The SEC appears to imply that listing an estimated  figure for its “General Administrative and Payroll Operating costs,” but then later  incurring higher actual costs, somehow equates to securities fraud. ECF No. 3 at 12.  Not so. The SEC has not (and cannot) show that the expected use of proceeds was  

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“false at the time that the document containing it was created.” Goldstone, 952 F.  Supp. 2d at 1196 (citing Grossman, 120 F.3d at 1124). Indeed, the document itself  states that the amounts “are estimated to the best of our knowledge,” and the SEC  has not presented evidence to the contrary. ECF No. 9-1 at 32. No misrepresentation  occurred as to the 2018 PPM.  

Not Material  

The SEC also fails to clearly show that any alleged misstatements were  material. Each of the statements relied on by the SEC came with disclaimers about  forward-looking expectations and management’s discretion regarding the use of  funds, and specifically explained that any potential investor could “obtain additional  information and/or documents in connection with making an investment decision.”  See ECF No. 9-1 at 4-5; ECF No. 7-14 at 2; ECF No. 7-18 at 2. Notably, no investor or  potential investor was ever denied access to the employment contracts or information  about compensation; such information would have been provided if requested. Volk  Decl. ¶ 8; see Ex. 4, Decl. of Bill Luther, ¶ 7 (“I always felt the Founders were an open  book in providing information.”). But no investor was ever particularly interested in  the compensation of the Reven Principals. Volk Decl. ¶ 8; see Ex. 5, Decl. of Geoff  Leopold, ¶ 6 (“I did not have any discussions with the Founders regarding their  compensation prior to investing; from my perspective, their compensation did not  impact my decision to invest.”); Luther Decl. ¶¶ 8–9. Even the investors the SEC has  relied on to establish materiality confirmed that compensation was typically not a  factor they considered when investing in Reven. For example, Frost testified that she  

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did not remember having any understanding of the Reven Principals’ compensation  when she invested and that she never requested compensation information from the  company. Frost Tr. 123:13–23. Thus, Reven’s own investors confirm that the  compensation disclosure the SEC points to is not information that was important to  investors when deciding whether to invest.  

No Scienter  

The SEC also has not shown that Defendants made any alleged misstatements  with scienter. As detailed above, with respect to the PPMs, Defendants understood  them to reflect the annualized amounts of monthly draws then being paid to the  Reven Principals. Recognizing that it does not have evidence reflecting intentional  (or even sufficiently reckless) conduct for the purported misstatements, the SEC  seeks to minimize its burden on scienter. It claims that it can rely on the fact that the  Reven Principals purportedly received compensation beyond the disclosed amount to  establish the requisite intent to deceive. See ECF No. 3 at 32 (citing, e.g., Centra, Inc.  v. Chandler Ins. Co., Ltd., 229 F.3d 1162 (10th Cir. 2000)). But, as detailed above, the  compensation paid to the Reven Principals was well within the amounts covered by  their Employment Contracts. In other words, there was no misappropriation. And  without misappropriation, the payments alone cannot establish scienter. Doing so  would improperly conflate the misrepresentation element with the scienter element  in every case involving a representation about compensation. The Court should reject  the SEC’s attempt to side-step scienter.  

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ii. Statements regarding preparing to take Reven public.  

Defendants began the multistep process of preparing Reven for a financial  audit and potential public offering in 2018, when they completed a corporate  reorganization, and continued to work toward these goals throughout 2019, 2020, and  2021. Volk Decl. ¶¶ 9-15. To be eligible for a direct public offering (“DPO”), Reven had  to file tax returns, obtain audited financial statements, prepare an S-1 registration  statement with the SEC, obtain a third-party valuation, and meet certain market  targets, among other things. And before Reven could file tax returns or complete an  audit, it had several more steps to complete. Id. ¶ 9. In addition to establishing a  register of shareholders, for instance, Reven’s bookkeeping records needed to be  reconciled, a considerable undertaking. See id.; ECF No. 13 ¶ 4.  

Between 2019 and 2021, Defendants took several steps to pursue their goals of  completing an external audit and moving toward a public offering. In 2019, Reven  contacted Eide Bailly LLP (“Eide Bailly”), a CPA and business advisory firm, to begin  working to reconciling Reven’s books and pursuing an audit. Preston Decl. Ex. K,  Deposition of Rodell Rudolph Transcript, 14:23–15:3. Defendants also engaged a  vendor called CARTA to properly document shareholders and communicate with  them consistently, started to formalize their accounting procedures and processes,  and initiated relationships with institutional and investment firms in the biotech and  pharmaceutical space. Volk Decl. ¶ 11. In early 2020, the COVID-19 pandemic  disrupted many of Reven’s plans, yet Reven continued to make progress toward its  goals, including by engaging Jeff Halverson as its CFO and tasking him with helping  complete tax returns for Reven and its related entities in preparation for an audit.  

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Id. ¶ 12; ECF No. 13 at ¶¶ 1-2. Reven also contacted a number of additional firms— including Stifel Healthcare, which generated work product for Reven in late 2020— to begin working together on a potential public offering. Volk Decl. ¶ 13.  

In early 2021, Halverson resumed conversations with Eide Bailly to discuss  preparing tax returns for Reven and its related entities. ECF No. 13 ¶¶ 3, 5. In  particular, Halverson told Eide Bailly that Reven would engage it to prepare an audit  once Reven’s tax returns were finalized. ECF No. 13-1. In the following months,  Halverson gave Eide Bailly access to Reven’s QuickBooks and provided other  information so that Eide Bailly could complete Reven’s tax returns and help Reven  prepare for an audit. ECF No. 13-5 at 2; Rudolph Tr. 45:9–22, 47:14–16. That  summer, Reven also hired 180 Accounting to help reconcile its bookkeeping records  in advance of a financial audit. Volk Decl. ¶ 14.6 In late 2021, Reven also began  working with VMLY&R, an advertising company, to create some of the public

offering-focused slide decks the SEC attached to its TRO Application. Preston Decl.  Ex. L, Deposition of Brian Denomme Transcript, 211:15–19.  

Each of these steps resulted in incremental progress toward Defendants’ goal  of obtaining audited financial statements for Reven and, potentially, pursuing a  public offering. In short, by the end of 2021, Reven had worked with SEC counsel,  established a shareholder register in CARTA, engaged multiple external consultants  to help develop financial controls and procedures, hired a full-time staff member to  

6 Currently, Defendants believe that 180 Accounting’s work is either complete or near complete, but  the asset freeze has prevented Defendants from receiving the benefit of this work because they have  been unable to pay 180 Accounting and obtain its work product. See id.  

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organize its books, held dozens of meetings with institutions, and contacted  representatives of reputable audit firms (including Grant Thornton) about a potential  external audit. See Volk Decl. ¶ 15.  

No Misrepresentation  

The SEC has not clearly shown that Defendants made false and misleading  statements and omissions to investors about obtaining a third-party audit and  otherwise preparing Reven for a direct public offering. See ECF No. 3 at 29–32.  Throughout this process, Defendants made forward-looking statements to investors  about the steps they were taking, or planning to take, to accomplish these goals. The  vast majority of the statements that the SEC now attacks as misrepresentations fall  into this category. But these statements did not, nor were they intended to,  communicate with exact certainty a timeframe for completing certain specific  benchmarks. Rather, Defendants frequently used forward-looking expressions to  communicate plans that were in progress—and that Defendants sincerely believed  were feasible. See Volk Decl. ¶ 16; Ex. 3, Decl. of Peter Lange, ¶ 2. For example:  

∙ In an email to Schaatt dated November 10, 2019, Mr. Volk noted that  Reven was “eagerly hopeful that we are able to close on at least one of  the financing options by the 15th of November” and that Reven was  “get[ting] closer” to completing an S1 “sometime in January.” ECF No.  9-4 at 1 (emphases added).  

∙ In a slide deck sent to potential investors on April 20, 2020, Defendants  provided possible exit strategies, one of which included organizing and  executing an initial public offering after October 1, 2020. ECF No. 7-23  at 16. In outlining that exit strategy scenario, Defendants proposed that  Reven “will have the minimum required two years of audited financial  statements . . . to offer its shares for sale in an Initial Public Offering as  early as October 2020.” Id. (emphases added). Notably, the slide deck  included a disclaimer that its forward-looking statements “involve  known and unknown risks, uncertainties and other important factors  

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that could cause the actual results, performance or achievements of the  Company, or industry results, to differ materially from any future  results, performance or achievements expressed or implied by such  forward-looking statements.” Id. at 5.  

∙ The July 6, 2020 PPM stated that an initial public offering was  anticipated within the next year but expressly noted that “there are no  assurances that we will file for the initial public offering.” ECF No. 7-14  at 8 (PPM page 3).  

∙ In an email to Schaatt dated July 8, 2020, Mr. Lange stated that Reven’s  audit “should be completed in mid-September early October which will allow us to file our S1 sometime before the end of the year and taking  next steps towards an IPO in 2021.” ECF No. 9-6 at 1 (emphases  added).  

∙ In an email dated July 14, 2021 to Schaatt, Mr. Volk mentioned that  they were looking to “raise the final funds prior to our Direct Public  Offering.” ECF No. 9-8. In that email, Mr. Volk attached a Pre-Direct  Public Offering Brief and Deal Structure, which provided that Reven is  “currently preparing for a Direct Public Offering of their stock for a  major stock exchange to occur September/October 2021” and that Reven  “intends on filing its S-1 registration statement as early as August”  but had not yet completed a financial audit. Id. at 2 (emphases added).  

In arguing that Defendants intentionally misrepresented facts to investors, the  SEC largely ignores the express disclaimers and qualifications that permeate many  statements it challenges. For example, the SEC suggests that a June 9, 2021 email  from Mr. Lange to Frost was misleading because it discusses a potential DPO in  September 2021 even though Reven had not yet filed an S-1 statement or commenced  its financial audit. ECF No. 12-2. But that email also specifically says: “The timing is  subject to several variables, but we are pushing to achieve our listing sometime at the  end of August or early September depending on market conditions and the completion  of some of the preparatory tasks that are in process now.” Id. at 2 (emphases added).  After reading these qualifying statements, no reasonable investor would come away  

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from Mr. Lange’s email thinking that a DPO in September 2021 was a certainty. See  also Frost Tr. 104:22–105:13 (agreeing that Mr. Lange’s June 9, 2021 email stated  that preparatory tasks for a public offering, such as obtaining audited financial  statements, were in process, but Reven had not yet obtained audited financial  statements as of June 2021).  

The SEC also makes much of statements in slide decks circulated in November  and December 2021 that “[t]he company has the minimum required two years of  audited financial statements ending August 2021.” ECF No. 12-7 at 22; ECF No. 9-9  at 19; ECF No. 9-11 at 22. This statement, however, was included to describe one of  three possible scenarios for Reven’s future. See, e.g., ECF No. 9-9 at 22; see also

Denomme Tr. at 214:15–216:10 (explaining the slide to mean that Reven will have  audited financial statements “[w]hen we organize and execute the initial public  offering”).7 Further, the SEC does not (and cannot) argue that either Schaatt or Frost  relied on these slide decks when they invested in Reven, because their investments  all pre-dated the relevant emails. See ECF No. 9 ¶¶ 29–49; ECF No. 12 ¶ 18. Indeed,  the evidence supports Mr. Denomme’s testimony that the real purpose of this slide  deck related to Reven’s planned meetings with outside institutions, not individual  investors. See ECF No. 9 ¶ 29 (noting that Mr. Lange told Schaatt that Reven was  

7 To further illustrate this point, the same slide contains a separate “Organic Growth” scenario in  which Reven would continue to grow through selling and marketing RJX and derivative products. ECF  No. 9-9 at 22. That section of the slide states: “Margins built into the pricing of the product are substantial”—even though, to this day, Reven has not yet begun selling or marketing any RJX  products. Id. (emphasis added).  

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sending the deck to “institutions they were speaking to”); ECF No. 9-11 at 1; ECF No.  12 ¶ 16; see also Denomme Tr. 211:15–19, 213:1–11.  

Testimony also confirms that investors believed “that financial statements  were in the process of being prepared and finalized,” not that they already existed.  Schaatt Tr. 63:19–64:5; see also id. 101:11–24 (confirming Schaatt’s understanding  that Reven had not filed an S-1 for the current offering as of July 2021). As  demonstrated above, there is no dispute that Reven and its Principals were then  working through this multistep process. Accordingly, no misrepresentations  occurred.  

Not Material  

The SEC also has not clearly shown that any alleged misstatements were  material. As noted above, some of the statements relied on by the SEC came with  disclaimers about forward-looking statements or obviously contained mere  predictions of future events. In other instances, later communications show that  Defendants provided more complete information, rendering any earlier  misunderstanding immaterial. For example, the SEC claims that Mr. Lange  misrepresented to Schaatt in a February 2020 email that Reven had already filed an  S-1 statement, but two different communications to Schaatt in July 2020 made  perfectly clear that this had not happened yet. Compare ECF No. 9 ¶ 15, with id.

¶¶ 18–19.8 see also Schaatt Tr. 101:11–24.  

8 Schaatt did not invest in Reven between February and July 2020. See id. ¶ 21.  

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At times, Frost and Schaatt also conceded that they did not rely on the  statements at issue when they invested. Frost, for example, agreed that she did not  rely on any promise that Reven would pursue a DPO when she invested in 2020. Frost  Tr. 74:8–13; see also id. at 73:14–17 (declining to testify that Reven promised to do a  DPO); id. at 102:10–24 (agreeing that the DPO described in Mr. Lange’s June 9, 2021  email was a plan that could change). What’s more, other investors confirm that they  understood that a public offering was possible, but by no means guaranteed. See

Luther Decl. ¶ 10; Leopold Decl. ¶ 7. Thus, the evidence does not clearly show that  investors reasonably relied on statements about the planned timing for a public  offering in deciding whether to invest in Reven.  

Any alleged misstatements also were not material considering the record  evidence showing Defendants’ consistent willingness to answer questions from, and  provide additional information to, investors. See Frost Tr. 101:14-21; Luther Decl.  ¶ 7; Leopold Decl. ¶ 5. Schaatt, for example, did not follow up with Reven to ask for  copies of any financial statements (even unaudited financial statements) or Reven’s  potential S-1 filing, despite being an experienced financial professional herself.  Schaatt Tr. 72:5–22, 73:12–74:6, 80:8–11, 108:25–109:2. She also conceded that she  generally knew that financial statements for a “start-up, no revenue company” like  Reven “would not be very robust.” Id. at 31:12–15, 31:23–32:1. This testimony calls  into serious question whether any alleged misrepresentations about the timing of  Reven’s audit were material. Considering these facts, the SEC has not clearly shown  materiality.  

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No Scienter  

The SEC also has not shown that Defendants made any alleged misstatements  with scienter. To the extent the SEC claims that Defendants misrepresented that  Reven already had audited financial statements, the SEC’s own documents include  numerous examples of Defendants telling investors the opposite. E.g., ECF Nos. 9-6  at 1, 9-8 at 1, 12-2 at 2-3. And Mr. Volk confirms that he never intended to  misrepresent to investors that Reven had already begun an independent audit. Volk  Decl. ¶ 18.9 Nor can the SEC clearly show scienter based on sincerely believed  statements that Defendants made about future plans to pursue a public offering or  obtain audited financial statements. Volk Decl. ¶¶ 16-18; Lange Decl. ¶ 2. For these  reasons, the SEC has not clearly shown any violation with respect to these  statements.  

iii. Statements regarding use of funds.  

The SEC also challenges certain statements Defendants allegedly made about  the use of investor funds. Namely, the SEC challenges: (i) a September 2019 email  from Mr. Lange to Schaatt in which Mr. Lange sent a spreadsheet allegedly listing  certain expenses; (ii) alleged statements in July, August, and September 2021 about  using investor funds to work on clinical trials and progress toward a DPO; and  (iii) alleged statements to Frost in September 2021. But, as explained below,  Defendants used investor funds in substantially the same ways they represented to  

9 Likewise, even if Schaatt misunderstood Mr. Lange’s February 2020 email to mean that Reven had  already filed an S-1 statement, Mr. Lange did not intend to make any such representation. Lange Decl.  ¶ 5.  

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investors that they would—and, in any event, any alleged misrepresentations could  not have been material given the express disclaimers about the use of investor funds  in Reven’s PPMs. For these reasons, the SEC has not clearly shown violations based  on the use of investor funds.  

No Misrepresentation  

The SEC’s attempt to make a clear showing of misrepresentations relating to  the potential use of investor funds fails, as a threshold matter, for the simple reason  that those funds were used in substantially the same ways as represented to  investors. For example, Schaatt wired Reven funds on September 13, 2019, and  claims she was told on September 16, 2019 (after her payment to Reven) that her  investment would be used to pay a number of vendors and employees. ECF No. 9, ¶¶  9–11; ECF No. 9-3 at 2. Indeed, by September 16, Reven had made payments to at  least 12 of the 16 categories of recipients listed on the “use of funds” document,  including substantial payments to a number of employees. Compare ECF No. 9-3 at  2, with ECF No. 54, Ex. A to Reven Entities’ Decl., at 16–17. At least one more  category was paid later. See ECF No. 54, Ex. A. to Reven Entities’ Decl., at 22. What’s  more, Schaatt invested $2 million, yet the spreadsheet lists only $1,380,441.87 of  expenses in the “To Pay” column. ECF No. 9-3 at 2. Accordingly, it should have come  as no surprise to Schaatt that Reven used some of her funds to pay other expenses  not expressly included on the spreadsheet. See Schaatt Tr. at 52:18-22  (acknowledging that the spreadsheet showed how approximately $1.38 million of her  investment would be used); see also id. at 171:11-19.  

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Similarly, Green claims that Volk represented to him that his funds would be  used to “complete phase II trials in process, do more phase II trials for the drug, and  to complete the necessary steps to go to a DPO.” ECF No. 11 ¶ 6. Sure enough, the  day after Green wired funds to Reven Holdings on September 15, 2021, those funds  were transferred to Reven’s working account, and Reven made a substantial payment  to PRX Research, a clinical research facility involved with the Phase 2 trials. ECF  No. 54, Ex. A to Reven Entities’ Decl., at 62; Volk Decl. ¶ 23. Later that month, Reven  continued to use funds to pay ordinary course expenses, such as salaries; and, as  Schaatt conceded, such expenses can properly be considered part of the process of  completing Phase 2 trials. Schaatt Tr. 117:14-22. Accordingly, these statements were  not misrepresentations, as the funds were primarily used for the reasons conveyed to  investors.  

As for Frost, the SEC argues that Reven misrepresented the intended use of  her and her family’s funds by telling her that investments made on September 24,  2021 would be used for a licensing transaction when, in fact, Reven made the sole  licensing payment on September 16, 2021, before the investments were received. ECF  No. 3 at 20. But Frost testified that it was her understanding that Reven did use her  investment to pay the licensor, Reven’s then-chief medical officer. Frost Tr. 156:19-

157:4. Even setting that aside, the SEC ignores the fact that all the alleged  communications from Defendants to Frost about the payment occurred before September 16. See ECF No. 12 ¶¶ 10–13 (describing communications on September  1, 8, 10, and 13, 2021). The emails also show that Defendants told Frost that the  

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proposed licensing transaction was time-sensitive and needed to occur no later than  September 15. See ECF No. 12-3 at 1–2 (“We want to ink this transaction with Dr.  Uckun before the 15th of September[.]”); ECF No. 12-4 at 2 (noting the need to pay  $8.5 million “in the next 6-7 days” after September 8). Based on these  communications, Frost had no reason to believe that by the time she and her family  invested money on September 24, 2021, Reven still planned to use her funds on the  proposed licensing transaction. See also Frost Tr.148:21-151:13 (testifying she could  not recall if Mr. Lange told her how much had been raised for the license or what  would happen if the full amount could not be raised). Thus, once again, Defendants  did not misrepresent the use of the Frost family’s funds.  

What’s more, any statements about specific uses of funds were meant to reflect  Reven’s immediate expenses, not a guarantee that investments would be used for a  specific purpose. Other investors asked or were informed by the Reven Principals  “what payables or foreseeable payables were coming up,” “what specific payments  were due[,] and what vendors needed to be paid.” Luther Decl. ¶ 6. At a minimum,  other investors understood “that the funds would help move Reven along,” and “never  received or asked for specific representations on how my funds would be used.”  Leopold Decl. ¶ 8. While specific statements relating to the use of funds represented  the general direction Reven was heading, which expenses needed to be paid, and the  Reven Principal’s intentions at the time they were made, investors understood that  more pressing business needs could always arise.  

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Not Material  

PPMs and other disclosures made clear that Reven had broad discretion to use  investment funds as it deemed appropriate. The PPMs contained a disclaimer with  the heading, “We have broad discretion in the use of proceeds of the Offering.” See,  e.g., ECF No. 7-15 at 13. In this section, the PPM further stated:  

After deducting estimated Offering expenses, a significant portion of the  net proceeds of this Offering will be going towards working capital and  other general corporate purposes. Accordingly, our management will  have broad discretion as to the application of such working capital. The  proceeds shall be used to carry out our business plan, compensate our  employees and consultants, and satisfy all our expenses, foreseeable and  unforeseeable. As is the case with any business, it should be expected  that certain expenses unforeseeable to management at this juncture will  arise in the future . . . Our management may utilize a portion or all of  the proceeds of the Offering on expenditures with which you do not  agree.  

Id. The PPMs make clear that proceeds would be used as needed by Reven, even  potentially in ways “with which [investors] do not agree.” Id. Even prior versions of  the PPM, including the version purportedly relied upon by Schaatt, state:  

The planned use of proceeds shown below is subject to change based on  the actual net proceeds received from this Offering, actual expenses,  changes in general business, economic and competitive conditions,  timing and management discretion, each of which may change the  amount of proceeds expended for the purposes intended.

ECF No. 9-1 at 31 (emphases added). These disclosures therefore disclaim any  reliance by investors on statements made by the Reven Principals.  

iv. Statements regarding Florida litigation.  

In August 2016, Dawn Van Beck, court-appointed guardian of a former Reven  shareholder, initiated a lawsuit in Florida state court. See Preston Decl. Ex. A. The  initial defendants were Reven Pharmaceuticals, Mr. Lange, and two non-parties to  

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this litigation. See id. In June 2017, Beck amended her complaint. See id. Ex B. At  that point, she alleged five causes of action against the same four defendants: sale of  unregistered securities, securities fraud (under Florida state law), common law fraud,  unjust enrichment, and exploitation of the elderly. See id. at 6–10. A few months  later, the court dismissed the securities fraud, common law fraud, and exploitation of  the elderly claims. See id. Ex. C.  

In December 2017, Beck filed a Second Amended Complaint alleging the same  causes of action (except exploitation of the elderly) against the same four defendants.  See id. Ex. D at 7–11. It was not until two years later, in December 2019, that Marie  Renton, who succeeded Beck as guardian, filed a Third Amended Complaint naming  additional defendants, including Reven, LLC. See id. Ex. E. On June 22, 2020, the  Court dismissed two counts of the Third Amended Complaint without prejudice. See  id. Ex. F. On July 6, 2020, a Fourth Amended Complaint was filed, and the case was  eventually settled. See id. Ex. G.  

No Misrepresentation  

The SEC predicates liability on alleged misstatements about this lawsuit  included in three documents: (1) an August 31, 2018 PPM; (2) an email from Mr.  Lange to a shareholder dated February 13, 2020; and (3) a July 6, 2020 PPM. But  none of these statements rises to the level of being materially false, let alone  intentionally misleading.  

First, the August 31, 2018 PPM was issued by Reven Holdings, Inc., a non party to the underlying litigation. The PPM defines the Company as “Reven Holdings,  

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Inc.,” which includes “Reven, LLC.” ECF No. 9-1 at 3, 8. Using that definition, the  PPM accurately represents that “[t]he Company is not currently the subject of any  litigation.” Id. at 51. As of August 31, 2018, Reven Holdings, Inc. and Reven, LLC  were not the subject of any litigation. See also Schaatt Tr. 37:2–5 (Schaatt understood  this statement to mean “[e]xactly what it says”).  

Second, Mr. Lange’s email to Schaatt does not constitute an intentional  misrepresentation. In that email, he told Schaatt that “we have no lawsuits from  shareholders.” ECF No. 9-5 at 2. At that time, Mr. Lange did not view the underlying  lawsuit as one brought by a shareholder but by a guardian. Lange Decl. ¶ 4. In other  words, Mr. Lange intended the literal meaning of what he said: that Reven did not  have a lawsuit in which a shareholder was the named plaintiff. Id.; see also Schaatt  Tr. 86:5–22 (Schaatt understood this language to mean that no shareholders had sued  Reven or its predecessors).  

Third, the PPM dated July 6, 2020 contained the following disclaimer:  

From time to time we may be involved in litigation relating to claims  arising out of the operation of our business in the normal course of  business. As of the date of this Memorandum we are not aware of  potential dispute or pending litigation and are not currently involved in  a litigation proceeding or governmental actions the outcome of which  in management's opinion would be material to our financial  condition or results of operations.  

ECF No. 9-6 at 59 (emphasis added). Given these qualifications, Defendants did not  misrepresent the status of the lawsuit. When Defendants were finalizing this version  of the PPM, the court in the Florida lawsuit had recently dismissed multiple counts  of the operative complaint without prejudice. See Preston Decl. Ex. F. Indeed, the  

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court’s June 22, 2020 ruling was actually the second time the court threw out the  plaintiff’s fraud claims. See id. Ex. C. And, in any event, Reven believed the  allegations in the lawsuit to be completely baseless. Volk. Decl. ¶ 14. Accordingly, the  Defendants did not view the litigation as material to Reven’s financial condition or  the results of its operations. Id.; see also Schaatt Tr. 89:6–24 (Schaatt understood this  language to mean “that litigation is something that happens in the ordinary course  of business; but right now there’s nothing material affecting -- affecting the company”  (emphasis added)).  

Not Material  

Further, the SEC has not clearly shown that Defendants’ statements about the  lawsuit were material. The SEC relies on Schaatt’s assertions that the lack of  shareholder litigation was important to her investment decisions, but as shown  above, her testimony confirms that she understood each of the challenged statements,  which were not misrepresentations at all. See supra. Additionally, other Reven  investors knew about the litigation and did not believe it to be material. See, e.g.,  Luther Decl. ¶ 11.  

No Scienter  

Finally, the SEC has not clearly shown scienter. As described above, the  alleged misstatements about the Florida lawsuit were not inaccurate. And even if  Schaatt misinterpreted Mr. Lange’s email to her, Mr. Lange has confirmed that he  did not intend his email to be misleading. Lange Decl. ¶ 4. Accordingly, the SEC has  not clearly shown any violation concerning the Florida litigation.  

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III. The SEC has not made a substantial showing that any violation of  the Securities Laws is likely to recur.  

The requested preliminary injunction and asset freeze should also be denied  on the independent ground that the SEC has not made a “substantial showing” that  any violation of the securities laws is likely to recur. Cell>Point, 2022 WL 444397, at  *5. The Court granted the TRO based primarily on allegations of misappropriation,  but, as shown above, the facts demonstrate that no misappropriation exists. Thus,  the SEC’s core allegations of intentional theft are meritless. The SEC’s remaining  allegations involve alleged misrepresentations that are, as explained above, not in  fact false or misleading when viewed in context, not material and/or not made with  the requisite scienter. If the SEC claims that Defendants made negligent mistakes in  their investor communications, the parties can proceed to litigate those claims, but  that provides no basis for an injunction that would doom Reven to further financial  losses that will ultimately be borne by the very shareholders the SEC seeks to protect.  

Indeed, the TRO has already severely harmed Reven, its personnel and their  families, and every shareholder over the past several months. See Compania  Internacional Financiera S.A., 2011 WL 3251813, at *10 (noting that, in making this  determination, courts should be mindful of the severe “reputational and economic  harm” that a preliminary injunction can cause). Most importantly, because Reven has  been unable to raise capital or pay significant expenses for the last several months,  Reven has lost access to data generated from Phase 2 clinical trials that, before the  SEC intervened, were nearly complete. Volk Decl. ¶ 27. Losing this data has cost  Reven tens of millions of dollars—a significant sum for any small start-up  

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company, but especially Reven, which managed to fund Phase 1 and 2 clinical trials  on a shoestring budget. Id. For this reason alone, the TRO and asset freeze have failed  to accomplish their goal of preserving the status quo for the past several months.  

The TRO and asset freeze have harmed Reven in other ways as well. As Mr.  Volk describes, Reven has lost relationships with irreplaceable technical staff and  key industry vendors, further limiting the company’s future prospects. Id. ¶ 28.  Further, without access to capital, Reven has struggled to preserve its patents and  patent applications, which are perhaps the most important assets for any  pharmaceutical company. See id. ¶ 26. All the while, the Reven Principals have done  everything they can to keep the company alive while their own assets remain  personally frozen (and after taking close to no compensation from the company for all  of 2022, while the SEC’s investigation was ongoing). See ECF No. 57-6 at 69–71. In  fact, lacking other options, Reven and two of its Principals had no choice but to ask  this Court for permission to use their personal frozen funds to pay these expenses.  ECF Nos. 73, 74. It is difficult to describe how devastated the Reven Principals have  felt over the past year and a half, watching so much of their hard work, and the value  they created for the shareholders they serve, slowly dissipate.  

CONCLUSION  

For these reasons, the Court should deny the SEC’s request for a preliminary  injunction and lift the current TRO and asset freeze.  

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Dated: June 12, 2023 Respectfully Submitted,  

/s/Daniel N. Guisbond  

Kathryn A. Reilly  

Daniel N. Guisbond  

Wheeler Trigg O’Donnell LLP  

370 Seventeenth Street, Suite 4500  

Denver, CO 80202  

Telephone: 303-244-1800  

Facsimile: 303-244-1879  

Email: reilly@wtotrial.com  

 guisbond@wtotrial.com  

John E. Schreiber  

Winston & Strawn LLP  

333 South Grand Avenue, 38th Floor  

Los Angeles, CA 90071-1543  

Telephone: 213-615-1700  

Email: jschreiber@winston.com  

Brandon Duke  

Katherine A. Preston  

Winston & Strawn LLP  

800 Capitol St., Suite 2400  

Houston, TX 77002-2925  

Telephone: 713-651-2600  

Email: bduke@winston.com  

 kpreston@winston.com  

Attorneys for Defendants and Relief  

Defendants  

CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATIONS  

Counsel hereby certifies that the foregoing pleading is comprised of 11,760  words, exclusive of the caption, signature block, and certificate of service, and  therefore complies with the type-volume limitations set forth in the Court’s Order  Granting Defendants’ and Relief Defendants’ Unopposed Motion for Enlargement of  Length Limitation. See ECF No. 95.  

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CERTIFICATE OF SERVICE  

I HEREBY CERTIFY that on June 12, 2023, I electronically filed the foregoing  DEFENDANTS’ AND RELIEF DEFENDANTS’ OPPOSITION TO PLAINTIFF’S  MOTION FOR PRELIMINARY INJUNCTION with the Clerk of Court using the CM/ECF  system which will send notification of such filing to the following email addresses:  

∙ Brandon W. Duke

bduke@winston.com, brandon-duke-2046@ecf.pacerpro.com,  

ecf_houston@winston.com  

∙ Daniel Nathan Guisbond

guisbond@wtotrial.com, lacey@wtotrial.com,  

daniel.guisbond@gmail.com  

∙ Sharan Lieberman

liebermans@sec.gov, kasperg@sec.gov, knowlescy@sec.gov,  

nesvign@sec.gov  

∙ Katherine Ann Preston

kpreston@winston.com, katy-preston-2248@ecf.pacerpro.com,  

ecf_houston@winston.com  

∙ Kathryn A. Reilly

reilly@wtotrial.com, sanchez@wtotrial.com, CLJones@wtotrial.com  

∙ John E. Schreiber

jschreiber@winston.com, john-schreiber-4288@ecf.pacerpro.com,  

rvega@winston.com, ECF_Houston@winston.com  

∙ Kenneth Edward Stalzer

stalzerk@sec.gov, knowlescy@sec.gov, KasperG@sec.gov,  

liebermans@sec.gov, shelbyj@sec.gov  

∙ Murray S. Wilkening

murray@mwilkening.com

/s/ Daniel N. Guisbond  

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