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Initial Decision of an SEC Administrative Law JudgeIn the Matter of
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In the Matter of Michael D. Richmond |
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INITIAL DECISION February 25, 2003 |
| APPEARANCES: | Linda B. Bridgman and Robert B. Barry for the Division of Enforcement, Securities and Exchange Commission Michael D. Richmond, pro se |
| BEFORE: | Robert G. Mahony, Administrative Law Judge |
On July 29, 2002, the Securities and Exchange Commission (Commission) issued an Order Instituting Public Administrative Proceedings and Notice of Hearing Pursuant To Section 15(b) of the Securities Exchange Act of 1934 (OIP) against Respondent Michael D. Richmond (Richmond or Respondent). Prior to the initiation of this administrative proceeding, Respondent was temporarily and then permanently enjoined from committing further violations of the federal securities laws.1
The OIP alleges that from at least October 1994 until August 1998, Richmond was associated as a registered representative with Washington Square Securities, Inc. (WSSI). It further alleges that on July 15, 1998, the Commission filed a complaint in the U.S. District Court for the District of Massachusetts (District Court) against Richmond, SEC v. Richmond, et al., Civil Action No. 98-11378-NG (Injunctive Action); the OIP recites the specific allegations therein alleging Richmond violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. (OIP ¶¶ A-E.) Finally, the OIP alleges that on June 28, 2002, the District Court in the Injunctive Action entered an injunction against Richmond prohibiting violations of the antifraud, securities, and broker-dealer registration provisions based on Richmond's prior criminal conviction, facts alleged in the Commission's complaint, Richmond's admissions, and other undisputed material facts concerning Richmond's promotion and operation of Royal Meridian International Bank (RMIB). (OIP ¶ F.)
On October 3, 2002, Respondent filed his answer to the OIP (Answer). In his Answer, Richmond admitted that on June 28, 2002, the District Court in the Injunctive Action entered an injunction against him prohibiting violations of the antifraud, securities, and broker-dealer registration provisions; he admitted the injunction was based on his criminal conviction, facts alleged in the Commission's complaint, his own admissions, and other undisputed material facts concerning his promotion and operation of RMIB. (OIP ¶ F; Answer ¶ F.)
On January 15, 2003, the Division of Enforcement (Division) Filed a Motion for Summary Disposition pursuant to Rule 250 of the Commission's Rules of Practice. See 17 C.F.R. § 201.250. Respondent has not filed an opposition to that motion.
Rule 250 of the Commission's Rules of Practice provides that the Division or Respondent may make a motion for summary disposition subject to leave of the court prior to presentation of the Division's case in chief. The Rule expressly provides that the administrative law judge may grant the motion if there is "no genuine issue with regard to any material fact and the party making the motion is entitled to summary disposition as a matter of law." 17 C.F.R. § 201.250.
On June 28, 2002, Respondent was enjoined in the Commission's Injunctive Action against future violations of, inter alia, Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act, both of which prohibit fraud in connection with the offer, purchase or sale of securities. (Final Judgment.) Respondent was associated as a registered representative with WSSI from at least October 1994 until August 1998. (OIP ¶¶ A, B; Undisputed Facts Statement ¶ 2.) Respondent, since at least October 1997, orchestrated a Ponzi scheme offering over $8.5 million in unregistered securities in the form of "International Certificates of Deposit" (CDs) issued by RMIB that promised to pay guaranteed rates of return as high as twenty-four percent. (OIP ¶ D; Undisputed Facts Statement ¶¶ 18, 15, 23.) Respondent was the founder of RMIB and directed its operations. (Undisputed Facts Statement ¶ 6.) Respondent falsely claimed that RMIB was a fully chartered bank with offices in Canada, the Bahamas, Guernsey, and Turks & Caicos. (OIP ¶ D; Undisputed Facts Statement ¶¶ 6, 12, 13.) Investors' funds were deposited into a series of money market and bank accounts controlled by Respondent; the funds were used to repay other investors and for Richmond's and others' personal expenses, including a $700,000 waterfront home in Clearwater, Florida. (OIP ¶ E; Undisputed Facts Statement ¶¶ 19, 22.)
The OIP requests the undersigned determine whether Respondent has been enjoined within the meaning of Section 15(b)(6)(A)(iii) of the Exchange Act and whether it is in the public interest to enter remedial sanctions against him on the basis of that injunction. (OIP ¶ III.)
Section 15(b)(6)(A)(iii) of the Exchange Act provides the Commission authority to bar any person who is associated with a broker or dealer if the Commission finds the bar is in the public interest and the associated person is enjoined from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security.
In July 1998, the Commission sued Richmond for securities fraud based on his fraudulent offering of RMIB CDs in an elaborate multi-million dollar Ponzi scheme. Richmond was also charged criminally for the alleged scheme in April 2000. He appeared and defended both actions, ultimately entering a guilty plea in the criminal action and suffering an entry of summary judgment against him without opposition in the Injunctive Action. Although he appealed from the civil judgment, he did not pursue the appeal and it was ultimately dismissed. Based on the record before me, I conclude that Respondent has been enjoined in the Injunctive Action within the meaning of Section 15(b)(6)(A)(iii) of the Exchange Act.
When the Commission determines administrative sanctions it considers what is in the public interest; specifically:
[T]he 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), aff'd on other grounds, 450 U.S. 91 (1980).
Taking into consideration these public interest factors, and based on the injunction against Respondent and his underlying conduct as a registered representative, an order barring Respondent from association with a broker or dealer is appropriate and in the public interest for the protection of investors. On June 28, 2002, Respondent was permanently enjoined for securities violations. Respondent's conduct was egregious in that Respondent stole over $8 million from more than 170 elderly investors in at least ten states in less than one year. (Undisputed Facts Statement ¶¶ 8, 11.) Respondent acted with a high degree of scienter, evidenced by his orchestration of the Ponzi scheme, which included establishing a bogus international bank, a network of salesmen and an Internet website to promote the scheme, compiling and drafting sales brochures touting the fraudulent investment, and his undisclosed use of investor funds to purchase a $700,000 waterfront home in Florida, a $410,000 Illinois farm for a business partner, a power boat, and expensive home furnishings and jewelry. (Undisputed Facts Statement ¶¶ 6-22.) Respondent still does not acknowledge the wrongful nature of his conduct, evidenced by his asserted affirmative defenses. (Answer.)
Based on the facts of this proceeding, the Motion for Summary Disposition is GRANTED;
IT IS HEREBY ORDERED, pursuant to Section 15(b) of the Securities Exchange Act of 1934, that Michael D. Richmond be BARRED from associating with any registered broker or dealer.
This Initial Decision shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice. Pursuant to that Rule, a petition for review of this Initial Decision may be filed within twenty-one days after service of the Initial 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 on that party, unless the Commission, pursuant to Rule 360(b)(1), determines on its own initiative to review this Initial Decision as to that party. If a party timely files a petition for review, or the Commission acts to review on its own motion, the Initial Decision shall not become final as to that party.
___________________________
Robert G. Mahony
Administrative Law Judge
1 Pursuant to Rule 323 of the Commission's Rule of Practice, 17 C.F.R. § 201.323, official notice may be taken of the any material fact which might be judicially noticed by district courts of the United States, any matter in the public records of the Commission, or any other matter which is peculiarly within the knowledge of the Commission as an expert body. In accordance with Rule 323, official notice is taken of the following and the contents therein: (1) Richmond's April 2001 guilty plea and transcripts thereof; (2) the August 2001 judgment of conviction in the parallel criminal action; (3) the June 28, 2002, Final Judgment Against Defendant Richmond; (4) the Commission's June 2002 Statement of Undisputed Material Facts referenced in the June 18, 2002, Final Judgment; and (5) the November 25, 2002, Judgment dismissing Respondent's appeal of the June 28, 2002, Final Judgment against him in the Injunctive Action. Citations will be as follows: (1) the OIP as "OIP ¶__"; (2) Respondent's September 30, 2002, answer as "Answer ¶__"; and (3) the Commission's June 2002 Statement of Undisputed Material Facts as "Undisputed Facts Statement ¶__."
http://www.sec.gov/litigation/aljdec/id224rgm.htm
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