Initial Decision of an SEC Administrative Law Judge
In the Matter of
In the Matter of
SHIRLEY A. McKINNEY,
March 23, 2001
|APPEARANCES:|| Glenn A. Harris for the Division of Enforcement,
Securities and Exchange Commission
Darlan Gordon, Respondent, pro se
|BEFORE:||Carol Fox Foelak, Administrative Law Judge|
This Initial Decision bars Darlan Gordon and John S. Brownson from association with a broker-dealer. It is based on their 1999 convictions for conspiracy to commit securities fraud, mail fraud, and wire fraud. Each was a stock-broker who participated in an arrangement to induce customers to buy stock in return for undisclosed pay-offs from the stock's promoter.
Francis A. Taylor, IV, has not been located and served with the charges, and the Decision dismisses without prejudice the proceeding as to him. Previously, Shirley A. McKinney and Michael J. McEvoy settled with the Commission, and Douglas Parks defaulted.
A. Procedural Background
The Securities and Exchange Commission (Commission) instituted this proceeding, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act), on September 21, 2000, with an Order Instituting Proceedings (OIP).1 Pursuant to leave granted at the November 16, 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 January 5, 2001, as to Darlan Gordon and John S. Brownson. Gordon did not respond. Brownson filed an opposition, dated February 26, 2001, to the Division's motion (Brownson's Opposition).2 The administrative law judge is required by 17 C.F.R. § 201.250(b) to act "promptly" on a motion for summary disposition.
This Initial Decision is based on: (1) the Division's Motion for Summary Disposition; (2) Brownson's Opposition; Brownson's Answer to the OIP, dated November 6, 2000; Brownson's Motion to Dismiss, dated March 12, 2001; and (3) Gordon's Answers to the OIP (letters dated October 11 and December 5, 2000). There is no genuine issue with regard to any fact that is material to this proceeding. All material facts that concern the activities for which Gordon and Brownson were convicted were decided against them in the criminal case on which this proceeding is based. Any other facts in Respondents' pleadings have been taken as true, pursuant to 17 C.F.R. § 201.250(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 Respondents Gordon and Brownson were each convicted of conspiracy to commit securities fraud, mail fraud, and wire fraud arising out of their activities as registered representatives from June 1993 through June 1995, when they induced clients to purchase securities in return for undisclosed compensation from the securities' promoter. The Division urges that each be barred from association with a broker or dealer.
Brownson argues that this proceeding is untimely because the conduct underlying the charges occurred more than five years before the proceeding was instituted. He also argues that the Commission is precluded from bringing an administrative proceeding against him in view of the choice to prosecute him criminally, and that the sanctions he has already received are more than sufficient. Further, he promises to reform. Finally, he argues that his criminal conviction is fatally flawed, that the facts concerning his involvement in the criminal wrongdoing are not proven, and that the administrative proceeding against him thus must be dismissed.
Gordon's October 11 and December 5 letters indicate that he had not decided whether to oppose the charges or settle. He has not subsequently offered to settle. In light of the Division's burden of proof, Gordon's letters are construed as opposing summary disposition.
C. Procedural Issues
1. Statute of Limitations
Brownson, in essence, argues that a five-year statute of limitations should apply and that it should run from the date of the alleged wrongdoing, which ended in June 1995. This argument is without merit. This proceeding was authorized pursuant to Sections 15(b) and 19(h) of the Exchange Act and commenced within the ten-year statute of limitations specified in Section 15(b)(6)(A)(ii).3 Pursuant to that section, an administrative proceeding seeking to bar a respondent from association with a broker or 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 Brownson and Gordon were convicted are among those specified.4 Additionally, pursuant to Section 15(b)(6)(A)(ii), the ten-year limitation runs from the date of conviction, not from the date of the underlying misconduct.
Brownson also argues that, in view of the criminal case, the Commission elected its remedies and is precluded from proceeding against him in this administrative forum. This argument is also without merit. Section 15(b)(6)(A)(ii) of the Exchange Act specifically authorizes the Commission to follow up on a criminal conviction with an administrative proceeding to bar the person convicted from association with a broker or dealer.
2. Collateral Estoppel
Brownson argues that this proceeding is fatally flawed because it is based on his criminal conviction. He argues that the facts concerning his involvement in the criminal wrongdoing are not proven. Brownson's argument is unavailing. It is well established that the Commission does not permit criminal convictions to be collaterally attacked in its administrative proceedings. 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. Francis A. Taylor, IV
Francis A. Taylor, IV, has not been served with the OIP and cannot be located. The Division's Motion to Postpone March 22, 2001 Prehearing Conference acknowledges that the undersigned, sua sponte, may dismiss the proceeding as to him. Since it has not been possible to locate and serve Taylor over a period of six months, to enable a timely resolution of this proceeding, the proceeding as to him will be dismissed without prejudice. See Richard Cannistraro, 66 SEC Docket 790 (Jan. 7, 1998).
4. Official Notice
Official notice is taken of the following items included in the Division's Motion for Summary Disposition, at Exhibits A, C, D, E, and F:
August 27, 1998, Indictment of Gordon, Brownson, and others on one count of conspiracy to commit securities fraud, mail fraud, and wire fraud (Count One) and other counts (Ex. A).
April 8, 1999, Plea Agreement of Gordon in which he agrees to plead guilty to Count One (Ex. C).
August 5, 1999, Judgment indicating that Gordon pleaded guilty to Count One, the sentence imposed, and dismissing all remaining counts (Ex. D).
April 8, 1999, Plea Agreement of Brownson in which he agrees to plead guilty to Count One (Ex. E).
August 5, 1999, Judgment indicating that Brownson pleaded guilty to Count One, the sentence imposed, and dismissing all remaining counts (Ex. F).
On August 5, 1999, Gordon and Brownson were each convicted in the United States District Court for the Southern District of Florida, following their pleas of guilty, of conspiracy to commit securities fraud, mail fraud, and wire fraud in violation of 18 U.S.C. § 371. Exs. A, C, D, E, F. Gordon was sentenced to eighteen months imprisonment followed by three years probation, during which he is prohibited from engaging in the securities business, and was ordered to pay restitution of $6,519.62 and a special assessment of $50. United States v. Gordon, 9:98CR08117-002 (S.D. Fla. 1999). Ex. D. Brownson was sentenced to five months imprisonment followed by three years probation, during which he is prohibited from engaging in the securities business, and was ordered to pay restitution of $1,000 and a special assessment of $50. United States v. Brownson, 9:98CR08117-006 (S.D. Fla. 1999). Ex. F.
The violations occurred over a two-year period, from June 1993 through June 1995. Exs. A at 1, C at 1, D at 1, E at 1, F at 1. During that time, Gordon was employed as a registered representative at several broker-dealers, including Joseph Roberts & Co. and Euro-Atlantic Securities, Inc. Exs. A at 2, C at 1, D at 1. Brownson was employed as a registered representative at broker-dealers, including PCM Securities, Inc., Paragon Capital, and Corporate Securities Group, Inc. Exs. A at 3, E at 1, F at 1. Each participated in a conspiracy to induce customers to buy stock in return for undisclosed payments from the stock's promoter. Exs. A at 4-6, C at 1, D at 1, E at 1, F at 1. Gordon's solicitations resulted in $167,000 of stock purchases. Exs. A at 9, C at 1, D at 1. Brownson's solicitations resulted in purchases in an unspecified amount up to $60,000. Exs. A at 9-10, E at 1, F at 1. Gordon received pay-offs amounting to $50,800. Exs. A at 6-8, 10-12, C at 1, D at 1. Brownson also received pay-offs in insubstantial amounts. Exs. A at 4-8, E at 1, F at 1; Brownson's Answer at 1.
Brownson was a very minor player in the conspiracy, and was cooperative in providing testimony and evidence concerning himself and others for whom indictments were sought. Brownson's Answer at 1. He paid the court-ordered restitution and assessment. Brownson's Answer at 1. Brownson regards the securities industry as his means of livelihood and is dissatisfied with being excluded from it during his three-year probation; he intends to resume such work in the future. Brownson's Opposition at 1. However, he has foresworn illegal activity and unsavory associates in the securities industry, and will attempt to be upright and knowledgeable for a period of ten years, 2001 through 2010. Brownson's Opposition at 2.
Gordon and Brownson have each been convicted, within ten years of the commencement of this proceeding, of "conspiracy to commit" a felony that "involves the purchase or sale of any security" and also "arises out of the conduct of the business of a broker [or] dealer" within the meaning of Sections 15(b)(4)(B) and 15(b)(6)(A)(ii) of the Exchange Act. Each was convicted of conspiracy to commit securities fraud, mail fraud, and wire fraud over an extended period, from at least June 1993 through June 1995.
The Division requests that Gordon and Brownson be barred from association with any broker or dealer. This sanction will serve the public interest and the protection of investors, pursuant to Sections 15(b) 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). When the Commission determines administrative sanctions, it considers:
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, 603 F.2d at 1140 (quoting SEC v. Blatt, 583 F.2d 1325, 1334 n.29 (5th Cir. 1978), aff'd on other grounds, 450 U.S. 91 (1981)).
The unlawful conduct for which Gordon and Brownson were each convicted extended over a lengthy period and was thus recurring and egregious. Participation in a conspiracy to commit securities fraud indicates a high degree of scienter. There are no mitigating circumstances concerning Gordon. While Brownson has foresworn illegality for a period of ten years, this mitigating circumstance is outweighed by other considerations. Brownson has declared his intent to return to work in the securities industry in the future so that his occupation would present opportunities for future violations. While he has complied with all requirements of his sentence, he does not see the need for the bar from the securities industry that is a condition of his three-year probation.
In any event, the Commission invariably imposes a bar in litigated administrative proceedings based on a conviction involving fraud. 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 (D.C. Cir. 1999), cert. denied, 529 U.S. 1003 (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). There are no extraordinary mitigating circumstances in this case to warrant a lesser sanction.
IT IS ORDERED that John S. Brownson's Motion to Dismiss IS DENIED.
IT IS FURTHER ORDERED that John S. Brownson's motions to sever ARE DENIED as moot.
IT IS FURTHER ORDERED that John S. Brownson's motions for change of venue ARE DENIED as moot.
IT IS FURTHER ORDERED that the prehearing conference scheduled for June 22, 2001, IS CANCELLED.
IT IS ORDERED that DARLAN GORDON IS BARRED from association with any broker or dealer.
IT IS FURTHER ORDERED that JOHN S. BROWNSON IS BARRED from association with any broker or dealer.
IT IS FURTHER ORDERED that this proceeding IS DISMISSED WITHOUT PREJUDICE as to FRANCIS A. TAYLOR, IV.
This order shall become effective in accordance with and subject to the provisions of 17 C.F.R. § 201.360. Pursuant to that rule, a petition for review of this Initial Decision may be filed within twenty-one 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 17 C.F.R. § 201.360(d)(1) within twenty-one days after service of the Initial Decision upon him, unless the Commission, pursuant to 17 C.F.R. § 201.360(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 has ended as to Respondents McKinney, McEvoy, and Parks. See Shirley A. McKinney, Order Making Findings and Imposing Remedial Sanctions, Exch. Act Rel. No. 44069 (Mar. 13, 2001); Michael J. McEvoy, Order Making Findings and Imposing Remedial Sanctions, Exch. Act Rel. No. 44068 (Mar. 13, 2001); Shirley A. McKinney, Order Making Findings and Imposing Sanctions by Default Against Douglas Parks, Exch. Act Rel. No. 44094 (A.L.J. Mar. 23, 2001).|
|2||Brownson also filed motions for severance and for change of venue, which the Division opposed. In view of the disposition of the proceeding, the motions will be denied as moot.|
|3||See Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996), which 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." 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. See also Johnson, 87 F.3d at 492 & n.15 (noting the ten-year statute of limitations in Section 15(b)(4)(B) of the Exchange Act was "otherwise provided by Act of Congress").|
|4||For example, Section 15(b)(4)(B) includes any crime that "(i) involves the purchase or sale of any security . . . or conspiracy to commit any such offense; [or] (ii) arises out of the conduct of the business of a broker, dealer . . . ."|
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