Initial Decision of an SEC Administrative Law Judge
In the Matter of
In the Matter of
WILLIAM F. LINCOLN
December 31, 1996
Edward G. Sullivan and Betty M. Terry for the Division of Enforcement, Securities and Exchange Commission
William F. Lincoln, pro se
Brenda P. Murray, Chief Administrative Law Judge
The Securities and Exchange Commission ("Commission") initiated this proceeding on May 6, 1996, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"). The Commission's records do not show that Mr. Lincoln ever filed an Answer to the Order Instituting Proceedings ("Order"). Mr. Lincoln had notice but refused to participate in the prehearing conference on May 22, 1996, reportedly because he filed a motion that day for court appointed counsel. (Transcript of May 22, 1996, prehearing conference at 4.)
I held a hearing on June 27, 1996, at the Federal Correctional Institution at Jesup, Georgia.1 The Division of Enforcement ("Division") did not call any witnesses andintroduced 26 exhibits.2 Mr. Lincoln denied that he appeared pro se, however, he is within the definition as someone who appeared in person acting on his own behalf (Tr. 4); Black's Law Dictionary 1099 (5th ed. 1979). He contested all the allegations, and introduced one exhibit, a Notice of Appeal, reiterating his demand that the Commission provide him with legal counsel who was an expert in securities law.3 (Tr. 4-13.) Mr. Lincoln refused to testify under oath.
Neither party filed post-hearing submissions.
The proceeding was instituted to determine whether Mr. Lincoln had been co-owner and president of First Alliance Securities, Inc. ("First Alliance"), a registered broker-dealer, from January through September 1989; whether he had been convicted on August 21, 1995, of five counts of crimes involving securities committed while he was associated with First Alliance; and if the allegations were true what, if any, sanction was appropriate in the public interest. Order at 1.
Findings of Fact4
Mr. Lincoln, 50 years of age, entered the securities industry in March 1987 as a registered representative with Blinder, Robinson & Co., Inc. (Tr. 60; Div. Ex. 1; Div. Ex. 26 at 2.) In the period 1987 - 1989, Mr. Lincoln was associated briefly with several firms: The Stuart-James Company, Inc.; Brownstone-Smith Securities Corporation; Power Securities Corporation; H.T. Fletcher Investment Bankers, Inc.; and Profile Investments Corporation. The National Association of Securities Dealers ("NASD") and/or the Commission have made allegations or findings of excessive mark-ups in the sale of securities by a majority of these firms. (Div. Ex. 26 at 16.)
On February 8, 1989, Mr. Lincoln signed a Form BD amending the registration of EFP Securities, Inc., a registered broker-dealer since 1981, to show First Alliance as the applicant. (Div. Ex. 22 and Div. Ex. 26 at 2.) Mr. Lincoln held a Series 24 registration as a securitiesprincipal in early 1989 when he became president and executive representative of First Alliance, which is headquartered in Atlanta with offices in Chicago, Illinois, and Mobile, Alabama. (Div. Ex. 22 at 3, Div. Ex. 23; Tr. 57.) First Alliance's membership in the NASD authorized a general securities business, primarily in non-NASDAQ5 over-the-counter securities. Mr. Lincoln was listed as a control person and First Alliance's vice president, director and principal. Mr. Lincoln and Judy Pyron owned all the outstanding stock of Word, Lincoln & Company, which owned First Alliance.6 (Div. Ex. 22, Schedule A.) Mr. Lincoln signed First Alliance's amended Form BD, dated March 30, 1989, which listed him as a control person and the firm's president, director, and principal.7 On August 30, 1990, the NASD suspended First Alliance's membership.8 First Alliance appears to have ceased doing business in December 1989. (Div. Ex. 2 at 3; Tr. 47.)
Mr. Lincoln is a "long-time litigant." (Tr. 42.) He is very intelligent and energetic, and is capable of presenting his positions without formal legal representation using various legal resources, including law students at Emory University.9 (Tr. 7, 41-42.) Mr. Lincoln has sued the NASD, and contends that he has information concerning illegal activities by prominent people:[I]f the federal district courts give me the chance or the Justice Department -- if the FBI gives me the chance to prove everything I want to prove, there's going to be a big thing in this whole case and it's going to rise to levels nobody ever dreamed of. It's going to open up -- maybe even up close to the president up there at the higher levels of the SEC and stuff.
(Tr. 23, 63-64.)
At the hearing, Mr. Lincoln claimed to be dealing with the FBI's Office of Public Accountability concerning his request for appointment of a special prosecutor.10 (Tr. 53-54.)
Securities Law Violations
On November 20, 1995, a jury convicted Mr. Lincoln of one count of conspiracy to commit securities fraud, two counts of securities fraud, and two counts of interstate transportation of monies taken by fraud for actions he took from January until about September 1989, while he was associated with First Alliance. United States v. Lincoln, Criminal Action No. 1:93-CR-0506 (N.D. Ga. Nov. 20, 1995); (Div. Ex. 1).
Mr. Lincoln was tried separately from the other persons indicted with him, Calvin Word, Thomas J. Word, Richard A. Anders, and Dawn Dailey Word, because the court required that he undergo an evaluation of whether he was mentally competent to stand trial. (Tr. 27.) Mr. Lincoln claimed the evaluation was because he refused to cooperate with his court appointed counsel. (Tr. 28-29.) Mr. Lincoln was found to be competent. (Tr. 27.) According to Mr. Lincoln, the judge in the criminal case refused to allow him to represent himself, in part, because he was too emotional. (Tr. 7.) Mr. Lincoln objected to his court appointed counsel in the criminal case because he was not an expert in securities law, among other things. (Tr. 20-22, 28-29.) Mr. Lincoln admitted to being a "broken record" on the subject of his right to expert legal counsel, and claimed to have appealed his conviction on this argument and others. (Tr. 10-11, 20-21, 44.)
Mr. Lincoln made material misrepresentations to customers concerning the liquidity, suitability, and level of risk of penny stocks promoted by First Alliance; the current available market prices for those stocks; the reasons for increases or decreases in the prices of those stocks; the operations, financial condition, and prospects of the purported issuers of those stocks; and the amounts First Alliance charged for executing trades. (Div. Ex. 2 at 7-8.)
Mr. Lincoln and First Alliance omitted to disclose material statements to stock purchasers, including that: (a) First Alliance insiders had undisclosed interests in the stocks; (b)First Alliance was manipulating the price of the stocks; (c) First Alliance had a practice and policy of prohibiting net-selling, that is selling a position in one security without purchasing another security; and (d) the stock prices contained undisclosed excessive markups which benefited First Alliance and the sales persons. (Div. Ex. 2 at 8.)
Mr. Lincoln, through First Alliance, employed the following deceptive sales practices to generate commissions: (a) charged investors prices which were set arbitrarily; (b) held frequent sales meetings at which the arbitrary prices were distributed and stockbrokers were encouraged to sell particular stocks promoted by First Alliance; (c) executed unauthorized trades in investors' accounts; (d) charged undisclosed excessive markups; (e) represented to investors that there were no commissions, only a $10 ticket fee; (f) purchased stocks promoted by First Alliance at prices unavailable to ordinary First Alliance investors; (g) without investor authorization, diverted monies to purchase certain stocks promoted by First Alliance; (h) encouraged purchases on certain days in order to create the appearance of demand for stocks promoted by First Alliance; (i) if unregistered to sell securities, used other First Alliance stockbrokers' identification numbers when placing investors' orders; (j) used high-pressure telephone sales techniques; and (k) misrepresented and omitted to disclose material facts to investors. (Div. Ex. 2 at 8-10.)
Finally, Mr. Lincoln engaged in fraud in connection with the sale of securities and caused money to be transported, transmitted and transferred in interstate commerce, knowing the money had been taken by fraud. (Div. Ex. 2 at 27-28, 32-35.)
In making these findings, I have assumed that the jury found the allegations in the counts set forth in the criminal indictment on which it convicted Mr. Lincoln true as alleged. Wolfson v. Baker, 623 F.2d 1074, 1078 (5th Cir. 1980) (holding that issues which were essential to the verdict were determined as alleged in the indictment since the criminal conviction is based on a jury verdict); Alexander V. Stein, 59 SEC Docket 1493 (June 8, 1995) (holding that the allegations in the indictment that led to the conviction demonstrate that Mr. Stein willfully engaged in a scheme to defraud investor-clients).
On November 20, 1995, U.S. District Court Judge Ernest Tidwell sentenced Mr. Lincoln to seventy-eight months confinement followed by three years of supervised release, and ordered that he make restitution in the amount of $2.5 million. (Div. Ex. 1; Div. Ex. 3).
Conclusions of Law11
I reject Mr. Lincoln's argument that his criminal conviction was unconstitutional based on the doctrine of collateral estoppel and legal precedent. (Tr. 11); Elliott v. SEC, 36 F.3d 86, 87 (11th Cir. 1994) (stating that a criminal conviction cannot be collaterally attacked in an administrative proceeding); Alexander V. Stein, 59 SEC Docket 1493; Blinder, Robinson & Co. v. SEC, 837 F.2d 1099 (D.C. Cir. 1988), cert. denied, 488 U.S. 869 (1988); Kimball Securities, Inc., 39 S.E.C. 921, 924 n.4 (1960); J.D. Creger & Co., 39 S.E.C. 165, 169 (1959); Kaye, Real & Co., 36 S.E.C. 373, 375 (1955); and James F. Morrissey, 25 S.E.C. 372, 381 (1947).
Since Mr. Lincoln was convicted of a crime involving the purchase or sale of securities within ten years of when the Commission instituted this proceeding, the issue is what, if any, sanction is appropriate in the public interest. Exchange Act Section 15(b)(6).
The selection of an appropriate sanction involves consideration of many factors including deterrence and:the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations.
Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979) (quoting SEC v. Blatt, 583 F.2d 1325, 1334 n.29 (5th Cir. 1978)), aff'd, 450 U.S. 91 (1981). Mr. Lincoln's conduct was egregious; he knowingly participated in a systematic, organized fraud over several months using a registered broker-dealer; he does not acknowledge any wrongdoing but blames others who he claims took advantage of him; and there is a high likelihood that he will commit future violations if he is allowed to remain in the industry. I will consider each of the Steadman criteria with respect to Mr. Lincoln seriatim.
Mr. Lincoln's six and a half year prison sentence is evidence that the criminal sentencing guidelines consider his illegal actions to be blatant. In addition, the court's finding that a reasonable estimate of investor losses totalled $2.5 million, indicates that the fraud wasegregious not only because of the high level of illegal gains but also because they were achieved in a just few months time.
In spite of the jury's verdict that he knowingly and willfully violated the securities statutes and Rule 10b-5, and the judge's imposition of a very strong sentence, Mr. Lincoln continues to claim that he was not responsible for any illegal acts but that others are at fault for using him. He charges that the Commission and NASD are at fault for not training him on how to run a broker-dealer.I was only running a broker-dealer a few short months. You all failed to come in there an [sic] train me. You all failed to do anything to help me to do what I was to do out there with the public.
(Tr. 39.)[T]hey had a lot of political pressure on them and there was always on the SEC to hang some people in penny stocks. . . . There was special interest with some of the regional directors and whatnot else that come to play to keep me up at bat when they know they should have gone to federal court and asked a judge . . . to suspend my trading . . .. The thing is they kept me going there when they knew I was not competent to run the firms. I didn't have the training. What it is -- I got into that firm not understanding and not knowing what I got into.
Mr. Lincoln blames his partner, Calvin Word, for using him. (Tr. 42-43, 51.) According to Mr. Lincoln:I had just answered a thing in The Atlanta Journal Constitution newspaper for a job that paid good. I was hired like anyone else. It so happened that I had a [Series] 24 license. . . . I can usually pass exams even if I don't know the knowledge [sic] of it because I've read a lot of books on [multiple choice questions]. . . . And lo and behold, it shocked me but I get this license. . . . [I]n hindsight, I see a lot of things where I really believe that I was used.12
(Tr. 57.) [M]y partner controlled the firm. But yeah, I mean I signed papers. I didn't know a lot of what was going on in that firm. I didn't -- wasn't aware of everything I was signing. The lawyers brought me stuff and said you sign ithere. Calvin would be there with them. I'd go ahead and I'd sign some things. . . . I don't have the legal skills to attack this stuff . . ..
The Commission has found that failure to acknowledge guilt by a respondent who has been found guilty of crimes involving securities indicates that rehabilitation cannot be expected. Alexander V. Stein, 59 SEC Docket at 1502.
On the issue of public interest, it is appropriate to consider not only the criminal conviction referred to in the Order, but also that the NASD in 1991 censured Mr. Lincoln, barred him from association with an NASD member, and fined him $50,000 for causing: (1) books and record keeping violations, and (2) unfair prices to be charged to customers.13 (Tr. 69; Div. Ex. 26.) The NASD's District Business Conduct Committee for District No. 7 ("NASD DBCC") found that First Alliance, acting through Mr. Lincoln:charged customers highly excessive, unfair and fraudulent prices in 1,335 transactions involving seven (7) securities (all of which were NNOTC14 penny stocks) during a period of less than five (5) months . . . such conduct . . . demonstrated utter contempt for the rules and practices which are necessary for the functioning of free and fair markets.
(Div. Ex. 26 at 16.)
The NASD DBCC observed:[W]e find it hard to believe that Respondent Lincoln is as inexperienced and naive as he claims. On the contrary . . . he expresse[d] a cold and calculated understanding of the inter-workings of the penny stock market. We therefore find that he knowingly and callously set the obscenely high mark-ups which [First Alliance] charged its unwitting customers.
(Div. Ex. 26 at 13.)
Mr. Lincoln is interested in returning to the securities industry, and claims that he should not be sanctioned because he intended no harm. However, I find Mr. Lincoln's claim that he never intended to hurt anybody and that he was regretful for his actions unpersuasive in viewof NASD's findings that "[t]hreats and manipulation . . . were the course of business for [Mr.] Lincoln." (Div. Ex. 26 at 16-17; Tr. 80.) Moreover, because Mr. Lincoln refused to testify about facts and circumstances peculiarly within his knowledge he has created an adverse inference that to have done so would have damaged his position. (Tr. 10-13.) 2 Wigmore, Evidence, § 289 (3rd ed. 1940); Strathmore Securities, Inc., 43 S.E.C. 575, 590 (1967), petition for review denied 407 F.2d 722 (D.C. Cir. 1969); see also Sterling-Harris Ford, Inc., 315 F.2d 277, 279 (7th Cir. 1963), cert. denied, 375 U.S. 814 (1963); N. Sims Organ & Co., v. SEC, 293 F.2d 78, 80-81 (2nd Cir. 1961), cert. denied, 368 U.S. 968 (1962); SEC v. Kelly Andrews & Bradley, Inc., 341 F.Supp. 1201, 1205 (S.D.N.Y. 1972).
The securities industry presents many opportunities for abuse and overreaching, so that it is in the public interest not to allow participation by individuals whose continued participation would expose investors to undue risks. Richard C. Spangler, Inc., 46 S.E.C. 238, 252-53 (1976); see Archer v. SEC, 133 F.2d 795, 803 (8th Cir. 1943), cert. denied, 319 U.S. 767 (1943); Hughes v. SEC, 174 F.2d 969, 975-76 (D.C. Cir. 1949). It is axiomatic that persons convicted of certain types of crimes are not persons of unquestioned honesty and integrity. It follows that someone whose behavior has been established "beyond a reasonable doubt" to have been so unacceptable to society that it is characterized as a felony, should receive, in the absence of mitigating circumstances, a severe sanction. Moreover, Congress in writing Section 15(b) of the Exchange Act viewed past misconduct as the basis for an inference that the risk of probable future misconduct was sufficient to require exclusion from the securities business. Arthur Lipper Corp., 46 S.E.C. 78, 101 (1975).
Finally, an important consideration in imposing a sanction is the impact it will have in deterring people from illegal actions which damage public investors and the integrity of the securities markets.
There is no mitigating evidence.
This record is persuasive that nothing less than the strongest sanction available is required to protect the public interest, and that a lesser sanction will not suffice. Steadman v. SEC, 603 F.2d at 1139. To deter Mr. Lincoln and others tempted to duplicate his illegal acts, it is necessary to bar Mr. Lincoln from participating in the industry to the broadest extent possible.15 Arthur Lipper Corp. v. SEC, 547 F.2d 171, 184 (2d Cir. 1976).
Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R. § 201.351(b)(1996), I certify that the record includes the items set forth in the record index issued by the Secretary of the Commission on September 6, 1996.
Based on the findings and conclusions set forth above, I ORDER, pursuant to Sections 15(b) and 19(h) of the Exchange Act, that William F. Lincoln is barred from being associated with a broker or dealer, from being associated with a member of a national securities exchange or registered securities association, and from participating in an offering of penny stock.
This order shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice, 17 C.F.R. § 201.360 (1996). Pursuant to that rule, a petition for review of this initial decision may be filed within 21 days after service of the decision. It shall become the final decision of the Commission as to each party who has not filed a petition for review pursuant to Rule 360(d)(1) within 21 days after service of the initial decision upon him, unless the Commission, pursuant to Rule 360(b)(1), determines on its own initiative to review this initial decision as to any party. If a party timely files a petition for review, or the Commission acts to review as to a party, the initial decision shall not become final as to that party.
Brenda P. Murray
Chief Administrative Law Judge
1Mr. Lincoln's failure to file an Answer and his failure to participate in the prehearing conference are grounds for a default finding against him. 17 C.F.R. § 201.155. I went forward with the hearing based on Mr. Lincoln's active participation in the proceeding, and information that he would attend the hearing.
2"(Tr. ___.)" refers to the transcript page of the hearing. Division exhibits are referred to by number as "(Div. Ex. ___.)"
3On June 12, 1996, I denied Mr. Lincoln's Motion for Appointment of Counsel for Defendant, Motion for Appointment of Special Prosecutor to Investigate Corruption of Public Officials Pursuant to 28 U.S.C. §§ 591, 592, et seq., signed by Mr. Lincoln on May 25, 1996. Order on Motion, 62 SEC Docket 383 (June 2, 1996).
4 My findings and conclusions are based on the record. I applied preponderance of the evidence as the applicable standard of proof. I have considered all proposed findings and conclusions and all contentions, and I accept those that are consistent with this decision.
5 Acronym for National Association of Securities Dealers' Automated Quotation system.
6 Calvin L. Word, a control person, and First Alliance's vice president, listed eight complaint proceedings where he was a party. (Div. Ex. 22, Schedule D.) Mr. Lincoln refers to Mr. Word, a respondent in the criminal action as his partner, and claims that Mr. Word controlled the holding company, Word, Lincoln & Company. (Tr. 51.)
7 The form noted that the Georgia Securities Commissioner had entered an order against EFP Securities, Inc., in connection with the offer and sale of securities, and that the NASD had found the firm had committed a variety of violations. (Div. Ex. 23, Schedule D.)
8 An amended Form BD submitted October 20, 1989, does not show Mr. Lincoln as a control person or as an owner of the parent company, Word, Lincoln & Co. (Div. Ex. 25, Schedule A.)
9 Mr. Lincoln has had ten to twelve years of college studies and is able to score well on multiple choice tests. (Tr. 40, 57.)
10 On June 17, 1996, I received a Ten Day Notice and Call for Federal Investigation of Fraud and Deceit and Appointment of Special Prosecutor for S.E.C. Official Corruption in Southeast, signed by Mr. Lincoln on May 25, 1996. Copies appear to have been sent to the U.S. Attorney General, a United States Senator, the General Accounting Office, and persons at the Commission.
On July 2, 1996, I received an Emergency Petition for Temporary Restraining Order Against the Securities & Exchange Commission Pursuant to Title 28 U.S.C. § 1331, § 2201, § 2202, § 1367 and U.S. Constitution, Amend. Six, which Mr. Lincoln signed on June 18, 1996.
11 Johnson v. SEC, 87 F.3d 484, 492 n.15 (D.C. Cir. 1996), reh'g denied August 28, 1996, is inapplicable to Mr. Lincoln because Section 15(b)(6)(A)(ii) of the Exchange Act specifically authorizes the Commission to sanction a respondent who has been criminally convicted within ten years of when the Commission initiated a proceeding that results in a penalty.
12 Mr. Lincoln referred to "K-type" questions, by which he explained he meant multiple choice questions. (Tr. 57.)
13 In 1989 authorities in the State of Georgia forced Mr. Lincoln to stop doing securities business in Georgia. (Tr. 58-59, 73-74.)
14 Acronym for non-NASDAQ over-the-counter securities.
15 The Division requested that Mr. Lincoln be barred from participation in the securities industry and from participating in an offering of penny stock. (Tr. 77.) I deny the request because I believe the Commission's authority to sanction a respondent is limited by the language of the sections of the statute cited in the Order.
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