Time between appeal and decision - 1 year, 3 months, 22 days.
Time between last brief and decision - 1 year 17 days.
Time since oral argument - 5 days.
Pages - 11
Footnotes - 33
Summary
Gibson was barred from investment adviser or broker-dealer association by the ALJ based on a previous injunction for violations of the anti-fraud provisions of the securities laws. He sold 43 limited partnership interests to 38 investors for about $875,000 in a business that intended to buy and operate coin operated car washes.
Instead of investing the funds as specified, Gibson misappropriated about $450,000 of the money he had raised from investors by investing the funds in other commercial real estate. Gibson had also told investors that investor funds would be invested in money market funds until car washes could be acquired. Gibson also sent post-investment lulling letters to investors the purported to describe rates of returns from various properties, without telling investors that the funds had not been used as claimed in the offering materials.
He consented to a district court injunction and he was ordered to pay a penalty of $25,000 and to disgorge $427,000 to investors. He liquidated the commercial real estate to pay the penalty and disgorgement amounts.
At the trial before the ALJ the Division of Enforcement moved for summary disposition. Thirty-one investors filed substantially identical declarations claiming to "ratify" Gibson's actions and stating they wished him to remain their investment adviser. The ALJ granted the Division's motion.
Using the standard factors set out in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979) in determining what sanctions are in the public interest, the Commission upheld the ALJ's bar. Here, the Commission found that Gibson's misappropriation occurred over a three year period, involved several types of misconduct, and involved a large number of his clients. It also concluded that Gibson's conduct exhibited a high degree of scienter.
Comment
Again the lesson is simple. Enjoined investment advisers who have court orders prohibiting anti-fraud violations will be barred even when there are no investor losses.
Further, the Commission will ignore the wishes of investors. Indeed, it found that Gibson's ability to retain the confidence of his investors was testament to his persuasiveness and hence his potential ability to engage in similar misconduct in the future.
One must wonder why the Commission exercised its discretion to hear oral argument in this matter as no novel or significant issues are presented for decision. Indeed, the Commission rejected Gibson's objection to the ALJ's granting of summary disposition finding summary disposition to be appropriate because "there is no genuine issue with regard to any material fact. . . ." The lack of novel factual or legal issues is further underscored by the fact that the opinion was rendered only five days after the argument. Under these circumstances, the Commission's decision to wait one year and 12 days to hear oral argument is puzzling. If there were no issues of material fact confronting the trial judge, and the opinion itself relies on extensive Commission precedent, it is puzzling that: 1) the Commission even decided to hear oral argument; and 2) it took more than a year to schedule the oral argument.
