Days between appeal and decision – 9 months, 6 days.
Days between last brief and decision – 5 months, 30 days.
Pages – 12
Comment
Respondent was criminally convicted and permanently enjoined. The ALJ found there was no genuine issue of material fact, and determined that Respondent had caused "enormous losses" to investors, that his conduct was "recurring and egregious", and evidenced a "high degree of scienter." The ALJ barred respondent from association with a broker-dealer or investment adviser. The ALJ's decision was based on the Division of Enforcement's motion for summary disposition. Thus, there was no evidentiary hearing.
One has to wonder why there was no summary affirmance here by the Commission of the ALJ's initial decision. The opinion itself recognizes that the Commission has previously ruled that "absent 'extraordinary mitigating circumstances,' an individual who has been criminally convicted in connection with activities related to the purchase or sale of securities cannot be permitted to remain in the securities industry."
The Commission reasoned that one reason a bar was necessary was that the Respondent had failed to show remorse and consequently there is a strong likelihood that he is capable of repeating his misconduct. Query as to why the Commission makes this argument given the fact that it could be applied to any Respondent who contests the allegations of the Division of Enforcement.
Key points
- A prosecutor's statement of fact at criminal plea proceeding may be used in determining sanction in Commission administrative proceeding based on a criminal conviction.
A court's entry of summary judgment may form the factual or legal basis for imposing sanctions. - Sanctions may be based on a criminal conviction and civil injunctive order and the respondent may not use this forum to collaterally challenge those previous proceedings. The parties are free to offer evidence concerning the "circumstances surrounding" those matters as public interest factors in determining an appropriate sanction.
- A pending appeal of a criminal conviction that is in part the basis of the sanction does not prohibit the Commission from entering an appropriate sanction.
- A respondent may not expand the issues on appeal beyond those stated in his petition for review by "incorporating" in his appeal briefs "all issues" previously raised before the ALJ.
- Respondent's failure to acknowledge his wrongdoing or show remorse or acknowledgment of his guilt shows a significant risk he would repeat his conduct and supports the imposition of a bar from association.
Summary
This is the second time this matter has been before the Commission. In September 2004 an Administrative Law Judge barred respondent, but on appeal in April 2005 the Commission remanded because Respondent claimed that he had not had sufficient time to review the investigative file and the ALJ's failure to hold a prehearing conference. On remand the ALJ barred respondent based on the Division of Enforcement's motion for summary disposition. The ALJ found there was no genuine issue of material fact, and determined that Respondent had caused "enormous losses" to investors, that his conduct was "recurring and egregious", and evidenced a "high degree of scienter." The Commission found nothing in the record to dispute these conclusions.
The respondent was formerly an associated person of broker-dealer and investment adviser and was criminally convicted for conspiracy to commit fraud, and money laundering. He was also enjoined permanently from violating antifraud provisions. The Commission upheld the ALJ's decision imposing a bar from association with any broker, dealer, or investment adviser. Respondent was pro se.
Respondent raised $470 million from 1,000 investors claiming he would invest in CDs and U.S. Treasury instruments. Instead he invested in highly speculative emerging market investments. He was ordered in the criminal case to make restitution to investors of $342 million.
Respondent stated at the hearing on his criminal guilty plea that he agreed that the government could prove that facts alleged at the hearing with the exception that he disputed the government estimate of the amount of the loss.
The Commission obtained its permanent injunction based on the guilty plea. Respondent claims to have a pending appeal challenging his conviction, but the Division of Enforcement disputed that claim.
Respondent may not challenge the underlying criminal conviction or permanent injunction in this proceeding.
The Commission found a bar appropriate because Respondent acted with a high degree of scienter and that his conduct was egregious.
