Initial Decision of an SEC Administrative Law Judge
In the Matter of
In the Matter of :
NOLAN W. WADE
June 24, 2002
|APPEARANCES:||Alex Rue, for the Division of Enforcement, Securities and Exchange Commission.
Wayne Hartke, for Respondent Nolan W. Wade.
|BEFORE:||Robert G. Mahony, Administrative Law Judge.|
The Securities and Exchange Commission (SEC or Commission) issued its Order Instituting Proceedings (OIP) on December 10, 2001, pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act). The OIP alleges that on February 2, 2000, the United States District Court for the Western District of Louisiana entered a judgment of permanent injunction and other relief against Nolan W. Wade (Wade or Respondent) individually and doing business as Capital Financial Consultants (Capital Financial). The district court permanently enjoined Wade from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act), and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. The OIP was issued to determine whether the allegations were true and, if so, what if any administrative sanctions would be in the public interest.
On January 15, 2002, the Division of Enforcement (Division) filed a Motion for Default, after Wade failed to respond to the allegations set forth in the OIP. The motion, filed pursuant to Rule 155(a) of the Commission's Rules of Practice, 17 C.F.R. § 201.155(a), sought an order barring Wade from association with any broker or dealer and from participating in any offering of penny stock. On January 17, 2002, an Order to Show Cause was issued, affording Wade until January 31, 2002, to show cause why he should not be held in default. Wade was subsequently allowed until February 4, 2002, to show cause. Wade filed a Response to Motion to Show Cause and Opposition to Entry of Default (Response) on February 4, 2002, and the Division filed a Reply to the Response on February 11, 2002. Wade filed his Answer to the OIP on February 22, 2002.
A public hearing was held on May 16, 2002, in Washington, D.C., to determine whether a penny stock bar or any other remedial action is appropriate in the public interest against Wade, pursuant to Section 15(b)(6) of the Exchange Act. The evidence consists of five exhibits offered by the Division and the testimony of Wade.1
FINDINGS OF FACT
I based my findings and conclusions on the documentary evidence and on the testimony of Wade. I applied "preponderance of the evidence" as the applicable standard of proof. See Steadman v. SEC, 450 U.S. 91, 97-104 (1981). I have considered and rejected all arguments and proposed findings and conclusions that are inconsistent with this Initial Decision.
In his Answer, Wade acknowledged that he had consented to the permanent injunction, and in furtherance of that agreement would not take any action to deny, directly or indirectly, any allegation of the underlying complaint. Wade also acknowledged that the allegations contained in the OIP recite the allegations of the complaint filed in the district court, SEC v. Wade, No. 98-1857 "S" (W.D. La. Sept. 29, 1998) (Complaint), and did not deny those allegations. (Answer ¶ 2; Ex. 1.) Accordingly, I find the following allegations set out in the OIP to be true.
Wade is a resident of Moselle, Mississippi. From 1992 through at least 1996, Wade operated a sole proprietorship named Capital Financial, operating largely in Mississippi. From 1993 through 1996, Wade was affiliated with an unregistered broker and dealer and participated in the offer and sale of securities of EarthNet Companies, Inc. (EarthNet), Mississippi Motorplex, Inc. (Motorplex), and Bio-Solutions of Louisiana, Inc. (Bio-Solutions). At all relevant times, the common stock of EarthNet, Motorplex, and Bio-Solutions each constituted a penny stock as defined by the Exchange Act and rules thereunder.
On September 29, 1998, the Commission filed its Complaint in the United States District Court for the Western District of Louisiana. The Complaint sought, among other relief, the entry of a permanent injunction and civil penalties against Wade based on Wade's willful violations of Section 17(a) of the Securities Act, and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder.
The Complaint alleged that from at least September 1993 through at least June 1995, Wade sold at least $631,600 of EarthNet securities. Wade offered and sold the shares by making false and misleading representations or omitting to disclose material facts concerning, among other things: (1) the increase that investors could expect in the value of their EarthNet stock; (2) the intended monies raised from the investors; (3) the refunding of investors' funds in the event EarthNet failed to go public; and (4) the intended use of an escrow account.
The Complaint also alleged that from at least March 1993 through at least 1994, Wade sold at least $260,000 of Motorplex securities, and from at least October 1994 through at least April 1995, Wade sold his personal shares of Motorplex, raising at least $433,000. Wade offered and sold the Motorplex shares by making false and misleading representations or omitting to disclose material facts concerning: (1) the projected listing of Motorplex stock on NASDAQ within ninety days; (2) the intended use of monies raised from investors; and (3) the intended use of an escrow account for certain investors' funds.
The Complaint also alleged that from at least October 1995 through at least June 1997, Wade sold at least $67,500 of Bio-Solutions securities, and a substantial amount of the proceeds was diverted to Wade. Wade offered and sold the shares by making false and misleading representations or omitting to disclose material facts concerning: (1) the intention of Bio-Solutions to go public within ninety days by merging with an exchange-traded public shell; (2) the intended use of monies raised from investors; and (3) the projected increase in value of investments in Bio-Solutions.
The Complaint also alleged that from at least January 1993 to at least June 1997, Wade, while acting as a broker and dealer not registered with the Commission, engaged in the business of effecting transactions in securities for the accounts of others and of buying and selling securities for his own account, including the sale of securities in EarthNet, Motorplex, and Bio-Solutions.
On February 2, 2000, the United States District Court for the Western District of Louisiana entered a judgment of permanent injunction and other relief as to Wade individually, and doing business as Capital Financial. (Ex. 2.) The district court permanently enjoined Wade from future violations of Section 17(a) of the Securities Act, and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder.
CONCLUSIONS OF LAW
Section 15(b)(6)(A)(iii) of the Exchange Act authorizes the Commission to censure, limit the activities of, suspend for up to twelve months, or bar any person from association with a broker or dealer, or from participating in an offering of penny stock, after finding that it is in the public interest to do so and that such person is enjoined from any action, conduct, or practice specified in Section 15(b)(4)(C) of the Exchange Act. As here relevant, Section 15(b)(4)(C) covers activity as a broker or dealer, or in connection with the purchase or sale of any security.
The record shows that on February 2, 2000, Respondent was enjoined by a court of competent jurisdiction from future violations of Section 17(a) of the Securities Act, and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. It is undisputed that the violations stemmed from Wade's conduct as an unregistered broker or dealer, as well as the purchase or sale of penny stocks.
The Division seeks a bar from association with a broker or dealer, and participating in any offering of penny stock. Section 3(a)(18) of the Exchange Act defines a "person associated with a broker or dealer" as (1) a partner, officer, director, or branch manager (or any person occupying a similar status or performing similar functions); (2) any person directly or indirectly controlling, controlled by, or under common control with a broker or dealer; or (3) any employee of a broker or dealer, except any person whose functions are solely clerical or ministerial. Section 15(b)(6)(C) of the Exchange Act defines a "person participating in an offering of penny stock" as a person acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
The issue presented is whether administrative sanctions against Respondent are in the public interest. See 15 U.S.C. § 78(o)(6)(A). The factors to be considered in determining the public interest are:
[T]he egregiousness of the [respondent's] actions; the isolated or recurrent nature of the infraction; the degree of scienter involved; the sincerity of the [respondent's] assurances against future violations; the [respondent's] recognition of the wrongful nature of his conduct; and the likelihood that the [respondent's] occupation will present opportunities for future violations.
Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981) (quoting SEC v. Blatt, 583 F.2d 1325, 1334 n.29 (5th Cir. 1978)). The Commission "weigh[s] the effect of [its] action or inaction on the welfare of investors as a class and on standards of conduct in the securities business generally." Arthur Lipper Corp., 46 S.E.C. 78, 100 (1975). The determination of the proper sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. See Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); Leo Glassman, 46 S.E.C. 209, 211-12 (1975).
Respondent's conduct, for which he was enjoined, involved a high degree of scienter, and was both egregious and ongoing. Respondent was enjoined for fraud in the purchase or sale of penny stocks. He made false and misleading misrepresentations, or failed to disclose, material facts concerning three companies. Respondent also, while acting as an unregistered broker or dealer, bought and sold securities for his own account while effecting transactions in the accounts of others. The relevant period of the conduct subject to the injunction spanned several years, and the relevant sales during this period were in excess of $1.3 million.
Respondent's primary arguments against administrative sanctions focus on his assurances against future violations and likelihood that his current occupation will not present opportunities for future violations. Wade is currently working for Bio-Solutions as a consultant based out of Hattiesburg, Mississippi. (Tr. 8, 12.) Prior to becoming a consultant, he was the president and chief executive officer of the company; he resigned prior to the entry of the permanent injunction. (Tr. 9.) As a consultant, Wade sells franchises and provides technical support and training for franchisees. (Tr. 11-12, 15.) He also hires, trains, directs, and organizes the work schedules of the Bio-Solutions staff in Hattiesburg, about four people. None of the people he supervises are associated with raising money for the company. (Tr. 20, 36.) The current president and chief executive officer is in Long Branch, New Jersey, and does not visit Hattiesburg often. (Tr. 33.) Wade is separated "geographically and mentally" with regard to the sale of securities. (Tr. 27.) There is no intention by him or the company to change the scope of his duties. (Tr. 28.)
Since the permanent injunction, Wade has not engaged in the sale of any securities for any company. (Tr. 11.) He insists that he is "paranoid" since receiving the permanent injunction and does not want to know anything about the sale of securities for Bio-Solutions, or any other penny stock company. (Tr. 21, 27.) Respondent terminated his position as chief executive officer and president of Bio-Solutions and resigned as a director before the entry of the permanent injunction to ensure that he would not have any influence on the sale of securities. (Tr. 23-24.) Respondent asserted that he has no intention of engaging in that conduct again. (Tr. 22, 38.) Wade currently has two restricted certificates for Bio-Solutions stock, one for 800,000 shares and the other for 250,000 shares. (Tr. 34.)
Wade's present position and intent to refrain from future violations are mitigating circumstances. However, "past misconduct [may be] the basis for an inference that the risk of probable future misconduct [is] sufficient to require the exclusion from the securities business." Arthur Lipper Corp., 46 S.E.C. at 101. In spite of Wade's good intentions, he would still be free to participate in penny stock offerings, or associate with a broker or dealer. The possibility of which, coupled with his past misconduct, persuades me that both a penny stock bar and a bar from association with any broker or dealer are in the public interest and necessary for the protection of investors. See id. at 101 n.72.
Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R. § 201.351(b), I certify that the record include the items set forth in the record index issued by the Secretary of the Commission on June 6, 2002.
Based on the findings and conclusions set forth above, pursuant to 15(b)(6) of the Securities Exchange Act of 1934, I ORDER that Respondent Nolan W. Wade be, and hereby is, barred from association with any broker or dealer and barred from participating in any offering of penny stock.
This Initial Decision 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 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 Rule 360(d)(1) within twenty-one 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.
Robert G. Mahony
Administrative Law Judge
|1||References to the hearing transcript are "Tr. __." References to the Division's exhibits are "Ex. __."|
|Home | Previous Page||