Initial Decision of an SEC Administrative Law Judge
In the Matter of
In the Matter of
May 8, 2000
Theresa M. Ward for the Division of Enforcement,
Securities and Exchange Commission
Brad Haddy, Respondent, pro se
Carol Fox Foelak, Administrative Law Judge
This Initial Decision bars Brad Haddy from association with a broker-dealer. The Decision is based on his 1996 conviction for conspiracy and securities fraud arising out of the manipulation of the prices of several securities.
A. Procedural Background
The Securities and Exchange Commission (Commission) instituted this proceeding, pursuant to Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act), on December 27, 1999, with an Order Instituting Proceedings (OIP).1 Pursuant to leave granted at the March 22, 2000, prehearing conference and Rule 250 of the Commission's Rules of Practice, 17 C.F.R. § 201.250, the Division of Enforcement (Division) filed a Motion for Summary Disposition on April 18, and Respondent Haddy filed his Response May 5.2 Rule 250(b) requires the administrative law judge to act "promptly" on a Motion for Summary Disposition.
This Initial Decision is based on the Division's Motion for Summary Disposition; Haddy's Response; Haddy's Answer to the OIP, dated March 24, 2000; and Haddy's Affidavit, dated March 27, 2000.3 There is no genuine issue with regard to any fact that is material to this proceeding. All material facts that Haddy disputes that concern the activities for which he was convicted were already litigated, and decided against him, in the criminal proceeding on which this proceeding is based. Haddy is collaterally estopped from relitigating those material facts in this proceeding. Any other facts contained in his pleadings have been taken as true, pursuant to Rule 250(a). All arguments and proposed findings and conclusions that are inconsistent with this decision were considered and rejected.
B. Allegations and Arguments of the Parties
The OIP alleges that Respondent Haddy was convicted in July 1995, following a jury trial in federal court, of securities fraud and conspiracy to commit securities fraud arising out of his activities in 1988 relating to several penny stock securities while associated as a registered representative with L'Argent Securities. The OIP further alleges that, in September 1996, Haddy was sentenced to twenty-seven months imprisonment and a judgment of conviction was entered. The Division urges that Haddy be barred from association with a broker-dealer.
Haddy maintains he is innocent of the conduct underlying his conviction, and denies involvement in the conspiracy and securities fraud. He states that he is continuing to pursue remedies for relief and the setting aside of the verdict through a motion for a Writ of Habeas Corpus. He notes that, as a practical matter, he is barred from a future in the securities industry, regardless of the outcome of this proceeding. Thus, his primary goal in this proceeding is to establish his innocence after a fair hearing on the facts.
Haddy also argues that this proceeding is barred by the statute of limitations, citing Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996). Based on that argument, he contends that the proceeding should be dismissed.
C. Procedural Issues
1. Statute of Limitations
This proceeding was authorized pursuant to Sections 15(b)(6) and 19(h) of the Exchange Act and commenced within the ten-year statute of limitations specified in Section 15(b)(6)(A)(ii). In citing Johnson, Respondent argues that a five-year statute of limitations should apply and that it should run from the date of the alleged wrongdoing, in 1988. This argument is without merit.
Johnson concerned 28 U.S.C. § 2462, a statute of general applicability that provides a five-year statute of limitations for the enforcement of any civil fine, penalty, or forfeiture "[e]xcept as otherwise provided by Act of Congress." See also Johnson, 87 F.3d at 492 & n.15. The ten-year statute of limitations applicable in this case was "otherwise provided by Act of Congress" -- Section 15(b)(6)(A)(ii) of the Exchange Act. Pursuant to that section, an administrative proceeding seeking to bar a respondent from association with a broker-dealer may be brought within ten years of the respondent's conviction of any offense specified in Section 15(b)(4)(B). The crimes of which Respondent Haddy was convicted are among those specified.4 Finally, pursuant to the terms of Section 15(b)(6)(A)(ii), the ten-year limitation runs from the date of conviction, not from the date of the underlying misconduct.
2. Collateral Estoppel
In his Answer, Haddy states that he "continues to deny any involvement in the conspiracy and subsequent counts of securities fraud" of which he was convicted and that this administrative hearing will provide him the proper forum to prove his innocence. He articulates this theme at greater length in his Response. He argues that the law provides him with a right to a hearing on the evidence that was, or should have been, adduced at his trial, and that a fair hearing on the evidence will show he was not culpable. He notes that criminal convictions have been unjustly obtained, pointing to the recent decision of the Governor of Illinois to halt executions because of such injustice.
Haddy's arguments are unavailing. The Securities and Exchange Commission does not permit criminal convictions to be collaterally attacked in its administrative proceedings. This prohibition extends to the validity of the conviction, including the credibility of evidence presented at the criminal trial and any defenses to the criminal charge. In sum, Haddy is barred from attacking the merits of his conviction; this forum does not provide him with the opportunity to prove his innocence of the charges on which he was convicted. See Ira William Scott, 68 SEC Docket 79, 83 (Sept. 15, 1998); William F. Lincoln, 66 SEC Docket 1433, 1436-37 (Feb. 9, 1998).
3. Pending Appeal
Haddy's appeal of his conviction was denied. United States v. Haddy, 134 F.3d 542 (3d Cir. 1998), cert. denied, 525 U.S. 827 (1998). He is continuing to pursue setting aside the verdict through a motion for a Writ of Habeas Corpus. The Commission does not, however, delay an administrative proceeding based on a conviction pending the outcome of an appeal or other post-conviction proceeding. See Scott, 68 SEC Docket at 82 n.8 (citing Charles Phillip Elliott, 50 S.E.C. 1273, 1276-77 (1992), aff'd, 36 F.3d 85 (11th Cir. 1994)).
4. Official Notice
Official notice is taken of the following items included in the Motion for Summary Disposition, Declaration of Kristine W. Collins at Exhibits 1, 3, and 4:
November 15, 1993, Indictment of Haddy and others on thirteen counts of conspiracy, securities fraud and wire fraud (Ex. 1).
Transcript of September 5, 1996, sentencing of Haddy (Ex. 3).
September 6, 1996, Judgment indicating that Haddy was found guilty on counts 1 (conspiracy to violate the Exchange Act) and 2, 3, and 4 (securities fraud) and the sentence imposed (Ex. 4).
II. FINDINGS OF FACT
On July 21, 1995, following a jury trial in the United States District Court for the District of New Jersey, Haddy was found guilty of one felony count under 18 U.S.C. § 371 for conspiracy to commit securities fraud, and three felony counts under 15 U.S.C. §§ 78(j) and 78ff and 18 U.S.C. § 2 for securities fraud. In September 1996, the court sentenced him to twenty-seven months imprisonment, three years probation, and ordered him to pay a special assessment of $200, and entered a judgment of conviction. United States v. Haddy, Cr. 93-558(03) (D.N.J. 1996) (JWB). Exs. 1, 3, and 4. As noted above, his appeal was denied in 1998. He commenced serving his sentence and is currently incarcerated. He is due to be released to a halfway house on May 23, 2000.
Over a period of several months in 1988, while associated as a registered representative with L'Argent Securities, a broker-dealer, Haddy participated in a manipulation scheme and engaged in fraudulent trading practices in furtherance of that scheme. The scheme was designed to artificially raise the prices of three securities: Vista Capital Corp. (Vista), Bellatrix Corp. (Bellatrix), and Castleton Investors Corp. (Castleton).5 Through the use of various manipulative devices, Haddy and his co-conspirators generated demand for these securities and then sold the securities at profits affected by the manipulation. In furtherance of the conspiracy, Haddy, in conjunction with co-conspirators, conspired to trade the securities of Vista, Bellatrix, and Castleton in a manner designed to conceal the illegal manipulation of these securities and engaged in various fraudulent trading practices, including matched orders and parking stock. Ex. 3 at 112-14.
Respondent was an important part of the conspiracy and fraud. In sentencing Respondent, the court considered, but rejected, a downward departure from the sentencing guidelines that applied to his conviction. Ex. 3 at 112-14, Ex. 4 at 4. While noting that Respondent was not the worst of the participants in the criminal venture, and that others received more ill-gotten gains than he, the court stated:
Make no mistake, he was a very important part . . . in the successful performance of the manipulations that were at issue here. . . . He could be counted on by [co-conspirators] to do his part in connection with taking stock, parking the stock, selling it. They could be sure of him and . . . he . . . received certain investment advantages . . . that led to his own personal gain. . . . In the course of doing so, he . . . did indeed compromise the interest of his clients [and] used them for his own advantages . . . . He participated actively in discussions about this. A number of taped telephone calls which the jury had the right to find and this Court finds as well very much incriminating with regard to his conduct.
Ex. 3 at 112-14.
Haddy has no intention of becoming re-licensed as a registered representative or being associated with a broker-dealer as an owner, principal, or registered representative. Response at 7. See Rule 250(a). As he notes, it is unlikely that any state or other licensing authority would relicense him. Thus, as a practical matter he is barred from a future in the securities industry.
III. CONCLUSIONS OF LAW
Haddy has been convicted, within ten years of the commencement of this proceeding, of a felony that "involves the purchase or sale of any security" within the meaning of Sections 15(b)(4)(B) and 15(b)(6)(A)(ii) of the Exchange Act. He was convicted of conspiracy to commit securities fraud and securities fraud. The court found that he had played an important part in the conspiracy and fraud.
The Division requests that Haddy be barred from association with any broker or dealer, or member of any national securities exchange or registered securities association. This sanction will serve the public interest and the protection of investors, pursuant to Sections 15(b)(6) and 19(h) of the Exchange Act. It accords with Commission precedent and sanction considerations set forth in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979). His unlawful conduct, for which he was convicted for conspiracy and securities fraud, was recurring and egregious.
Haddy has foresworn future employment as a registered representative and association with a broker-dealer. Nonetheless, in litigated administrative proceedings based on a conviction the Commission invariably imposes a bar. See Ted Harold Westerfield, 69 SEC Docket 722 (Mar. 1, 1999); Ira William Scott, 68 SEC Docket 79 (Sept. 15, 1998); Victor Teicher, 67 SEC Docket 542 (May 20, 1998), aff'd in part and rev'd in part, 177 F.3d 1016 (June 1, 1999), cert denied, 2000 U.S. LEXIS 1745 (Mar. 6, 2000); William F. Lincoln, 66 SEC Docket 1433 (Feb. 9, 1998); Meyer Blinder, 65 SEC Docket 1970 (Oct. 1, 1997); Benjamin G. Sprecher, 52 S.E.C. 1296 (1997); Ahmed M. Soliman, 52 S.E.C. 227 (1995).6 There are no mitigating circumstances in this case to warrant a lesser sanction.
V. PROCEDURAL ORDER
IT IS ORDERED that the Division's Motion for Leave to Exceed Thirty-Five Pages in its Motion for Summary Disposition IS GRANTED.
IT IS FURTHER ORDERED that the June 6, 2000, scheduled hearing date in this proceeding IS VACATED.
IT IS ORDERED that Brady Haddy IS BARRED from association with any broker or dealer, or member of any national securities exchange or registered securities association.
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. 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.
Carol Fox Foelak
Administrative Law Judge
1 The proceeding originally was styled Brad Haddy and Ronald D. Spencer, but has ended as to Respondent Spencer. Order Making Findings and Imposing Sanctions by Default Against Ronald D. Spencer, Exch. Act Rel. No. 42602 (A.L.J. Mar. 31, 2000).
2 As Haddy notes in his response, the Division's Motion for Summary Disposition filing is comprised of three documents, entitled "Memorandum in Support of the Motion by the Division of Enforcement for Summary Disposition," "Declaration of Kristine W. Collins," and "Motion for Leave to Exceed Thirty Five Pages." There is no separate document entitled "Motion for Summary Disposition."
3 Haddy's Response includes three letters and documents entitled "Declaration," "Response," and "Statement of the Case." His Answer includes a letter and documents entitled "Preliminary Statement," "The Offense," and "Respondent's Answer."
4 For example, Section 15(b)(4)(B) includes any crime that "(i) involves the purchase or sale of any security . . . ; (ii) arises out of the conduct of the business of a broker, dealer . . . ."
5 As Haddy's Answer and the Judgment indicate, he was convicted on four counts. Count 1 was conspiracy. Counts 2 through 4 were securities fraud in connection with Vista, Castleton, and Belletrix, respectively. Ex. 1, Ex. 4 at 1.
6 Alan E. Rosenthal, 67 SEC Docket 2694 (Sept. 1, 1998) is arguably an exception to the Commission's unvarying sanctions in cases based on convictions. In that case the Commission imposed a bar with the right to reapply after three years. The proceeding was based on Respondent's conviction on a single count for offering a gratuity to a pension fund manager with intent to influence the manager's investment decisions. In imposing the decreased sanction, the Commission was influenced by the facts that the conviction was based on a single instance of wrongdoing and that the trial judge had imposed a lenient sentence consisting of one year, suspended; three years probation; community service; and a fine. Such factors, which led the Commission to diminish the seriousness of the conviction, are absent in the instant case.
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