Initial Decision of an SEC Administrative Law Judge

On July 7, 1999, the Securities and Exchange Commission (“Commission”) issued an Order Instituting Proceeding (“OIP”). The OIP alleges that:

Action in the proceeding was stayed because of parallel criminal proceedings in state court that continued into 2001. The Commission has accepted Offers of Settlement from all Respondents except Stuart E. Winkler and Charles Trento. Respondents Winkler and Trento filed answers to the OIP.

Respondent Winkler was Goldmen’s chief financial officer, chief compliance officer, manager of the New Jersey office, primary investment banker, a licensed securities principal, and a registered representative, who exercised operating supervision of all Goldmen activities. Respondent Trento, age 35, was a registered representative at Goldmen’s New Jersey office.

On January 4, 2001, Respondent Winkler was criminally convicted of conspiracy in the second degree to murder the trial judge.^[2] Respondent Winkler signed a plea agreement with the District Attorney of the County of New York on June 1, 2001. (Motion, Ex. C.) In the plea agreement, he agreed to plead guilty to the crime of enterprise corruption and to execute a factual allocution, to stipulate to a lifetime bar to employment in the securities industry imposed by the Commission, and to forfeit money and property constituting proceeds of the crime. (Motion, Exs. C and D.)
On June 1, 2001, the Supreme Court of the State of New York, upon the entry of his guilty plea, convicted Respondent Winkler of the crime of enterprise corruption.^[3] See New York v. A.S. Goldmen & Co., Indictment No. 4772/99 (N.Y. Sup. Ct., N.Y. County Crim., Term). Respondent Winkler is incarcerated at the Clinton Correctional Facility in Dannemora, New York, serving consecutively sentences of eight and one-third to twenty-five years for the conspiracy conviction and three to nine years for enterprise corruption. (Motion at 6.)

On July 23, 2001, the Supreme Court of the State of New York convicted Respondent Trento of enterprise corruption, fifteen counts of securities fraud, and twenty counts of falsifying business records.^[4] See New York v. A.S. Goldmen & Co., Indictment No. 4772/99 (N.Y. Sup. Ct., N.Y. County Crim., Term). The Court ordered Respondent Trento to serve a maximum prison sentence of four to twelve years and to pay restitution of $1,354,000.^[5] (Motion, Ex. F at 61.) The $1,354,000 million represents “the fruits of the offense” and is the gross income Respondent Trento received as a broker at Goldmen from 1994 to 1997, and all the profits he realized from trading in nominee accounts. (Motion to Modify OIP at 6.) Respondent Trento has not complied with the Court’s Order of Restitution. (April 14, 2003, Respondent Trento, Tr. 4-6.) The Order of Restitution named a Special Master and empowered him to collect the amounts ordered as restitution, and it allowed the Special Master or the District Attorney to apply for further orders that would result in disbursement of the sums collected. Respondent Trento is incarcerated at the Mid-State Correctional Facility in Marcy, New York.

By letter dated April 4, 2003, Respondent Winkler requests that I appoint a lawyer to represent him in this proceeding. I deny the request for the following reasons. A respondent in an administrative proceeding has no constitutional or statutory right to the assistance of counsel. See Hammon Capital Mgmt. Corp., 48 S.E.C. 264, 266 & n.7 (1985) (citing Watson v. Moss, 619 F.2d 775, 776 (8th Cir. 1980); Mekdeci v. Merrell Nat’l Lab., 711 F.2d 1510, 1522 (11th Cir. 1983)); see also Boruski v. S.E.C., 340 F.2d 991, 992 (2d Cir. 1965); David T. Fleischman, 43 S.E.C. 518, 521-22 (1967). The Commission has no authority to appoint or pay for legal counsel for a respondent.

The bases of the Division’s Motion to Modify OIP filed May 19, 2003, are that: (1) the Order of Restitution issued by the Supreme Court of the State of New York includes Respondent Trento’s profits from illegal activities, which is the amount that the Division would seek to have disgorged,^[6] (2) efforts by the Commission to enforce a disgorgement order would duplicate efforts by the Special Master appointed by the Court, and (3) any payments under the Court’s Order of Restitution would offset any disgorgement ordered by the Commission. See SEC v. Palmisano, 135 F.3d 860, 864 (2d Cir. 1998). The Commission granted the Division’s Motion to Modify OIP on June 26, 2003, so that disgorgement is no longer an issue in this proceeding.

On March 26, 2003, I found, based on Respondents’ criminal convictions in the New York Supreme Court, that: (a) Respondent Winkler willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rules 10b-5 and 10b-6 thereunder, and willfully aided and abetted or caused Goldmen’s violations of Section 5 of the Securities Act, Section 17(a) of the Exchange Act, and Rules 17a-3 and 17a-4 thereunder; and (2) Respondent Trento willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and willfully aided and abetted or caused Goldmen’s violations of Section 17(a) of the Exchange Act and Rule 17a-3. See A.S. Goldmen & Co., 79 SEC Docket 3507, 3512 (Mar. 26, 2003.)

Section 15(b)(6) of the Exchange Act authorizes the Commission to impose sanctions where a person has been found to have willfully violated the federal securities laws and it is in the public interest to do so. Since Respondents Winkler and Trento willfully violated the securities statutes, the only issue is whether or not it is in the public interest for the Commission to order sanctions and penalties. Respondents Winkler and Trento had an opportunity to address the public interest considerations at prehearing conferences on April 14, 2003.

Respondent Winkler maintains that he has no funds to pay penalties. The Commission’s Rules of Practice provide that a respondent’s inability to pay disgorgement, interest or a penalty may be considered in determining the public interest. See 17 C.F.R. § 201.630. At my direction, the Division sent Respondent Winkler copies of the Commission’s financial disclosure statements by express mail on April 14, 2003. Respondent Winkler signed for the materials on April 21, 2003. I ordered Respondent Winkler to submit any completed financial disclosure statements by Monday, May 19, 2003. In a letter dated May 28, 2003, Respondent Winkler informed me that he could not fill out the financial disclosure statements until he has legal counsel.

Relevant public interest considerations include the following factors, among others:

[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 (1981); see also Joseph J. Barbato, 53 S.E.C. 1259, 1282 n.31 (1999); Donald T. Sheldon, 51 S.E.C. 59, 86 (1992), aff’d, 45 F.3d 1515 (11th Cir. 1995). The severity of a 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, 141-42 (2d Cir. 1963); see also Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976); Leo Glassman, 46 S.E.C. 209, 211-12 (1975).

The Division requests that the Commission bar both Respondents from being associated with a broker or dealer.

Respondent Winkler accepts the bar based on the plea agreement with the District Attorney of the County of New York in which he stipulated “to a lifetime bar to employment in the securities industry” imposed by the Commission. (Motion, Exhibit C; April 14, 2003, Respondent Winkler, Tr. 5.) Based on the plea agreement and his criminal conviction, I find it is in the public interest to bar Respondent Winkler from association with a broker or dealer.

Respondent Trento committed egregious criminal conduct while employed as a registered representative with Goldmen, which resulted in a conviction of enterprise corruption, fifteen counts of securities fraud, and twenty counts of falsifying business records. Respondent Trento does not acknowledge that he violated the law. (April 14, 2003, Respondent Trento, Tr. 9, 12-13.) I credit the fact that the judge who presided at Respondent Trento’s six-month criminal trial agreed with the guilty verdict, that he found Respondent Trento to be a con man with lots of charm, and that he believed that the criminal enterprise “milked many people of their life savings” and involved lying to regulators. (Motion, Ex. F at 44-45, 60-61, 63.) For all these reasons, I find it is in the public interest to bar Respondent Trento from being associated with a broker or dealer.

Cease-and-Desist Order

The Division requests that the Commission order Respondents to cease and desist from committing or causing violations of the specific provisions of the securities statutes and Commission rules that they violated.

As noted above, Respondent Winkler agreed in his plea agreement to a lifetime bar from the securities industry. Based on his plea agreement, he accepts a cease-and-desist order. (April 14, 2003, Respondent Winkler, Tr. 5.) Considering the plea agreement and Respondent Winkler’s criminal conviction, I find it in the public interest to issue a cease-and- desist order.

I also find it necessary in the public interest to order Respondent Trento to cease and desist from committing or causing violations of the securities statutes and Commission rules. Respondent Trento refuses to acknowledge that he knowingly committed egregious criminal acts despite a six-month trial that resulted in a jury verdict of guilty and a lengthy period of incarceration. Respondent Winkler’s factual allocution identified Respondent Trento as an individual who participated with him in the crime of enterprise corruption. (Motion, Ex. D at 11.) Respondent Trento’s past and present conduct indicate that, if given the opportunity, he will very likely commit future violations. See KPMG Peat Marwick, LLP, 74 SEC Docket 384, 429 (2002), petition denied, 289 F.3d 109 (D.C. Cir. 2002). In KPMG, the Commission held that “there must be some likelihood of future violations” whenever it issues a cease-and-desist order, and that “[a]bsent evidence to the contrary, a finding of violation raises a sufficient risk of future violation.” Id. at 429-30. In John J. Kenny, Securities Act Rel. No. 8234, slip at 33 (May 14, 2003), the Commission noted that it considers an entire range of factors in making a public interest determination, and that the risk of future violations was “ordinarily established by a showing that a respondent has already violated the law once.”

The Division recommends that Respondents pay civil penalties at the highest level allowed for each substantive violation.^[7] (April 14, 2003, Respondent Winkler, Tr. 10-11, 22.) The Division cites S.E.C. v. Bocchino, 2002 U.S. Dist. LEXIS 22047, *11 (S.D.N.Y. 2002) (quoting S.E.C. v. Moran, 944 F. Supp. 286, 296 (S.D.N.Y. 1996), for the proposition that civil money penalties achieve the dual goals of punishment and deterrence.) (Motion at 26-28.) Respondents oppose the imposition of civil penalties. Respondent Winkler advanced arguments addressing the public interest in letters and at an April 14, 2003, prehearing conference.

Respondent Winkler is correct that certain mitigating circumstances should be considered when considering whether he should be ordered to pay civil penalties. Respondent Winkler’s guilty plea saved the government considerable litigation expenses. Respondent Winkler acknowledged wrongdoing in the factual allocution he executed as part of the plea agreement. His description of criminal activities by others likely assisted government prosecutions. Respondent Winkler has satisfied all the demands of the State of New York, which brought the criminal prosecution. As the result of his plea agreement, Respondent Winkler paid a total of $3.5 million, and at least $3 million of the $3.5 million was restitution to persons damaged by his illegal activities, he is serving a prison term of three to nine years, and he has accepted a Commission imposed bar from association with a broker or dealer, and an order to cease and desist.^[8] (Motion at 6, Ex. C.)

Despite these mitigating circumstances, I find assessment of a civil money penalty to be in the public interest for the following reasons. Respondent Winkler’s plea agreement served his interests as well as the government’s. Respondent Winkler’s illegal conduct meets the criteria set out in Section 21B of the Exchange Act for civil money penalties at the highest level. From at least July 1994 to at least June 1998, Respondent Winkler willfully violated the securities statutes and rules by actions that involved fraud, deceit, manipulation, and deliberate disregard of regulatory requirements, and he willfully aided, abetted or caused Goldmen’s violations. Respondent Winkler admits engaging in:

manipulation of securities prices, control of stock through nominee and other controlled accounts, unauthorized trading in customer accounts, falsification of records, requiring brokers to offset customer sell orders with fraudulently-induced purchase orders, charging undisclosed and excessive markups and commissions, sales of securities by unlicensed persons, violation of “blue sky” registration laws, high pressure sales tactics, and making misleading and false statements to investors.

(Motion, Ex. D at 1.) Respondent Winkler lied to regulators and destroyed documents, and “falsely agreed to obey securities laws and regulations, and then systematically violated them, including those requiring full and accurate disclosure of material facts to investors and the establishment and operation of a legitimate compliance department.” (Motion, Ex. D at 6.) As the trial judge noted, many people lost their life savings in the criminal enterprise in which Respondent Winkler was a leading member. (Motion, Ex. F at 63.) It is settled that civil money penalties are punitive damages aimed at deterrence and retribution. See State Farm Mut. Auto. Ins. Co., v. Campbell, 123 S. Ct. 1513, 1519-20 (April 7, 2003) (citing Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432 (2001)); see also BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568 (1996).

The case law does not support Respondent Winkler’s position that the Commission does not usually impose fines where a Respondent is incarcerated and has disgorged funds. The case law is clear that the Commission can, and does, impose civil penalties based on illegal conduct that also resulted in incarceration and disgorgement. See Palmisano, 135 F.3d 860; see also SEC v. In Shig Ahn, 74 SEC Docket 111 (2001); S.A. Healy Co. v. OSHRC, 138 F.3d 686, 688 (7th Cir. 1998) (“If Congress has designated penalties as civil, only the ‘clearest proof’ that the penalty is criminal would justify application of the double jeopardy clause.”).

Finally, I informed Respondent Winkler at the prehearing conference that under the Commission’s rules he had the burden of showing he is unable to pay a civil money penalty. See 17 C.F.R. § 201.630(b). Form D-A, Model Disclosure of Assets and Financial Information, consists of four double-sided pages. The questions are straightforward and uncomplicated. Respondent Winkler chose not to return Form D-A. Respondent Winkler’s failure to file the form is a waiver of his claim that he is unable to pay a civil money penalty. See 17 C.F.R. § 201.630(e).

There are no mitigating circumstances with respect to Respondent Trento. Respondent Trento’s willful criminal conduct involved fraud, deceit, and deliberate disregard of the regulatory requirements. Because his illegal actions caused harm to others, Respondent Trento was ordered to pay restitution in the amount of $1,345,000. Additional measures are needed given Respondent Trento’s failure to comply with the Court’s Order of Restitution and his adamant refusal to acknowledge that he violated the securities statutes despite a jury verdict of guilty. Finally, the presiding judge’s characterization of Respondent Trento as a “con man” engaged in a criminal enterprise that “milked many people of their life savings” indicates that a substantial money penalty is necessary in the public interest to deter him and others from additional violations of the securities statutes and rules.

For all the reasons stated, I find it is in the public interest to impose on Respondents Winkler and Trento civil money penalties at the highest level for each violation of the securities laws and regulations.

Based on the findings and conclusions set forth above:

I ORDER, pursuant to Section 15(b) of the Securities Exchange Act of 1934, that Stuart E. Winkler and Charles Trento are BARRED from association with a broker or dealer;

I FURTHER ORDER, pursuant to Sections 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, that Stuart E. Winkler shall CEASE AND DESIST from committing or causing any violations or any future violations of Sections 5 and 17(a) of the Securities Act of 1933, and Sections 10(b) and 17(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 10b-6, 17a-3, and 17a-4;

I FURTHER ORDER, pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, that Charles Trento shall CEASE AND DESIST from committing or causing any violations or any future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 17(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 17a-3;

I FURTHER ORDER, pursuant to Section 21B of the Securities Exchange Act of 1934, that Stuart E. Winkler pay a civil money penalty of $800,000;^[9] and

I FURTHER ORDER, pursuant to Section 21B of the Securities Exchange Act of 1934, that Charles Trento pay a civil money penalty of $500,000.^[10]

Payment of civil money penalties, shall be made within twenty-one days of when this decision becomes final, by certified check, United States postal money order, bank cashier’s check, or bank money order payable to the U.S. Securities and Exchange Commission. The check and a cover letter identifying Stuart E. Winkler or Charles Trento as a Respondent in Administrative Proceeding No. 3-9933, should be delivered by hand or courier to the Office of Financial Management, Securities and Exchange Commission, 6432 General Green Way, Stop 0-3, Alexandria, Virginia 22312. A copy of the cover letter should be sent to the Commission’s Division of Enforcement.

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 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 such party, 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

^[1] On May 12, 2003, Guy Oksenhendler filed to withdraw a notice to represent Respondent Trento that Mr. Oksenhendler had filed on August 10, 1999, on behalf of the Law Offices of Barry E. Schulman. See 17 C.F.R § 201.102(d)(4). Neither Mr. Oksenhendler, nor his former law firm, represents Respondent Trento. On May 12, 2003, Lowenstein Sandler PC requested to withdraw its notice of appearance as counsel for Respondent Winkler. Richard C. Szuch of the firm submitted Respondent Winkler’s answer on August 27, 1999. According to the firm, Respondent Winkler terminated the firm’s representation two years ago. I grant the requests to withdraw from representation, and I accept Respondents’ representations that they are without counsel. See 17 C.F.R §§ 201.111, .102(d)(4).
^[2] In an Order issued March 26, 2003, I took official notice of the exhibits to the Division of Enforcement’s Motion for Summary Disposition (“Motion”). See A.S. Goldmen & Co., 79 SEC Docket 3507, 3512 (Mar. 26, 2003.) I will cite to the Motion and exhibits as follows, “Motion at __.” and “Motion, Ex. __.” On April 14, 2003, I held separate prehearing conferences for each Respondent. I will refer to the transcript of the prehearing conference by date, Respondent’s name, and transcript page (“Tr. __.”). Neither Respondent was represented at a prehearing conference held on August 29, 2002. Prison officials would not allow Respondent Winkler to attend, and the Division of Enforcement (“Division”) could not reach an attorney it believed represented Respondent Trento. (August 29, 2002, prehearing conference, Tr. 10-12, 15-16.)
^[3] Respondent Winkler was indicted on one count of enterprise corruption, twenty-three counts of the state equivalents of federal securities fraud, six counts of criminal possession of stolen property, and seventeen counts of falsifying business records. (Motion at 5.)
^[4] Respondent Trento was indicted on one count of enterprise corruption, eighteen counts of the state equivalents of federal securities fraud, twenty counts of falsifying business records, and one count of grand larceny. (Motion at 5.)
^[5] The Court’s calculation of this amount is described in its Order of Restitution, November 8, 2001. I take official notice of the Court’s Order of Restitution, Exhibit A to the Division’s Motion To Modify the [OIP] to Withdraw the Disgorgement Claim Against Respondent Charles E. Trento (“Motion to Modify OIP”), filed May 19, 2003. See 17 C.F.R § 201.323.
^[6] It its Motion to Modify OIP, the Division explains that the allegation in the OIP that Respondent Trento earned commissions of nearly $1.7 million from cross-trades is based on gross commissions before Goldmen deducted a substantial percentage. (Motion to Modify OIP at 6 n.7.)
^[7] The maximum civil money penalty per act or omission committed up to and including December 9, 1996, is $100,000. The maximum amount per act or omission increased to $110,000, from December 10, 1996, until February 2, 2001. See 17 C.F.R. § 201.1001.

^[8] In the plea agreement, Respondent Winkler agreed to a lifetime bar from employment in the securities industry to be imposed by the Commission. (Motion, Ex. C.) The nature or purpose of the $500,000, the amount over the $3 million restitution, is not clear. Respondent Winker believes, but is not sure, that he paid $500,000 as a penalty. (April 14, 2003, Respondent Winkler, Tr. 8-9, 12.) The Division does not concede that Respondent Winkler paid a $500,000 penalty. The Division hesitates to make a representation, but believes that the $500,000 was intended for a special restitution fund set up by the District Attorney. (April 14, 2003, Respondent Winkler, Tr. 9.)

^[9] Respondent Winkler violated eight provisions of the securities statutes and rules in the period from July 1994 to June 1998. (OIP at 2.) I have used $100,000 per violation as the maximum amount because this was the maximum penalty for twenty-nine months of this forty-seven month period.
^[10] Respondent Trento violated five provisions of the securities statutes and rules in the period from at least July 1994 to at least May 1997. (OIP at 3.) I have used $100,000 per violation as the maximum amount because this was the maximum penalty for twenty-nine months of this thirty-four month period.