SECURITIES AND EXCHANGE COMMISSION
In the Matter of
Violations of Antifraud and Recordkeeping Provisions
Conviction of registered representative of registered broker-dealer for enterprise corruption, securities fraud, and falsification of business records established the factual basis for the violations of antifraud and recordkeeping provisions alleged in the order for proceedings. Held, it is in the public interest to bar respondent from association with any broker or dealer, issue a cease-and-desist order, and assess a civil money penalty of $500,000.
Charles Trento, pro se.
Robert Kaplan, for the Division of Enforcement.
Appeal filed: July 21, 2003
Last brief received: November 5, 2003
Charles Trento, who was a registered representative of A.S. Goldmen & Co., Inc., formerly a registered broker-dealer,1 appeals from the initial decision of an administrative law judge. As more fully described below, the law judge found that Trento's criminal conviction in New York established the factual basis for the violations that were alleged against him in this proceeding and, accordingly, that Trento committed those violations. Trento was barred from association with any broker or dealer and assessed a civil money penalty of $500,000. The law judge also issued a cease-and-desist order. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.
The order for proceedings ("OIP") in this matter charges that, during the period from about 1994 through June 1997, Trento engaged in a pattern of fraudulent practices in connection with the offer, purchase, and sale of securities. The OIP further charges that Trento aided and abetted or caused Goldmen's violations of recordkeeping provisions. After the OIP was issued, action in this matter was stayed because of parallel state criminal proceedings in New York.
On July 23, 2001, after a six-month jury trial, Trento was convicted of enterprise corruption, fifteen counts of securities fraud, and twenty counts of falsifying business records.2 He received a prison sentence of 4 to 12 years, and was ordered to pay restitution of $1,345,000. Trento is currently incarcerated in New York.
On the basis of Trento's conviction, the Division of Enforcement moved for summary disposition pursuant to Rule 250 of the Commission's Rules of Practice.3 The law judge noted that Trento had been convicted of violating New York's Martin Act, which prohibits schemes to defraud in connection with the purchase or sale of securities,4 and of falsifying business records in the first degree.5 Applying the doctrine of collateral estoppel, she granted the Division's motion for summary disposition to the extent of finding that Trento's conviction (and materials related thereto of which she took official notice) established that Trento committed the violations alleged in the OIP. Accordingly, the law judge found that Trento willfully violated Section 17(a) of the Securities Act of 1933,6 Section 10(b) of the Securities Exchange Act of 1934,7 and Exchange Act Rule 10b-5.8 She also found that Trento willfully aided and abetted or caused Goldmen's violations of Section 17(a) of the Exchange Act9 and Exchange Act Rule 17a-3.10
The law judge then scheduled a telephonic prehearing conference to give Trento an opportunity to be heard on whether a further hearing was necessary to determine if the public interest required the sanctions recommended by the Division.11 In both her order setting the date and time of the conference, and at the conference itself, the law judge described the factors that the Commission normally considers in determining what sanctions are appropriate in the public interest.12 When asked to address those factors, Trento requested that he be supplied with the evidence adduced at his criminal trial which would assertedly prove that "not one single trade, not one single transaction coincide[d] with the theory of the case [on] which [he] was convicted." Rather, the evidence would assertedly show that Trento "was not part of [the Goldmen criminal] enterprise," and "wasn't a participant in any of this." When pressed by the law judge to specify mitigating circumstances, Trento replied that he "[wasn't] sure [he could] do that . . . without the [requested] information being in front of [him]." The law judge denied Trento's request that he be supplied with the evidence from his criminal trial, stating that Trento could not contest that conviction in this proceeding.
In her "Report and Order Following Prehearing Conference," the law judge concluded that Trento had been given a sufficient opportunity to address public interest criteria and, accordingly, that there was no need for an in-person hearing. Trento had stated at the prehearing conference that he was destitute, and the law judge ordered the Division to supply him with a financial disclosure form. However, the Division failed to do so, and the law judge issued her initial decision imposing a penalty on Trento without having received any financial disclosure form from him or discussing his claim of inability to pay. In its brief to us responding to Trento's appeal of the initial decision, the Division admitted that it had "inadvertently overlooked" the law judge's order to send Trento a financial disclosure form, and stated that it was belatedly complying with that order. Trento subsequently filed a completed disclosure form.
A. Trento argues that he was denied due process because he was not supplied with the criminal trial evidence that was used against him in this proceeding. He asserts that, due to that failure, he was unable adequately to represent himself, and to offer evidence on his behalf at the prehearing conference. These contentions are lacking in merit. To the extent that evidence relating to Trento's conviction was offered against him in this proceeding, it was contained in exhibits to the Division's motion for summary disposition, and that motion and the exhibits thereto were served on Trento.
Trento did not respond to the Division's motion. Shortly after receiving the law judge's order granting it, he wrote to the staff stating that his "contention has been and still [was] that [he was] innocent of the charges of which [he] was convicted." As further evidenced by his statements at the prehearing conference, it seems clear that Trento sought to obtain the evidence from his criminal trial solely in an effort to relitigate his conviction. However, it is well established that a respondent may not collaterally attack his criminal conviction in administrative proceedings before this Commission.13
Even assuming that Trento was seeking evidence that he could offer in mitigation, he failed to justify his request. He did not specify the nature of the mitigative evidence he was seeking, or explain its relevance to a determination of appropriate sanctions.14 We further note that, at the prehearing conference, Trento indicated that his trial attorney had much of the evidence from Trento's criminal trial, but it does not appear that Trento ever sought to obtain it from that source.15
B. Trento contends that he was not given adequate notice of the April 14, 2003, prehearing conference. He asserts that he did not even receive the law judge's April 7 order setting the date and time of the conference until the conference was over. In fact, Trento received adequate notice. The law judge's March 26 order granting the Division's motion for summary disposition put Trento on notice that he would have an opportunity to proffer mitigative evidence. In addition, the Division notes that, while Trento may not have received a mailed copy of the law judge's April 7 order prior to the conference, the Division faxed him a copy of that order on the day it was issued, and Trento was available and participated in the conference at the prescribed time. We note, moreover, that Trento did not complain at the conference that he had not received adequate notice.
C. Trento requests that the law judge's decision be "vacated or set aside" pending the court's decision on the appeal of his conviction. However, the fact that a conviction is on appeal does not affect its use in a disciplinary action.16 Should the conviction be reversed, any action based on it would be vacated on Trento's application.>17
Trento was guilty of egregious misconduct. While employed as a securities salesman at Goldmen, he engaged in a variety of fraudulent practices that led to his conviction for enterprise corruption, securities fraud, and record falsification. As evidenced by the $1.3 million restitution ordered by the court, he made substantial profits from his misconduct while inflicting substantial harm on others.
Although the law judge did not conduct an in-person hearing, she gave Trento the opportunity to address public interest factors at the prehearing conference and, in assessing sanctions, carefully weighed the factors that guide our determination of appropriate remedial action in the public interest.18 We agree with the law judge's conclusions. As we have previously indicated, absent extraordinary mitigating circumstances, a respondent who has been convicted of securities fraud cannot be permitted to remain in the securities industry.19 There are no such circumstances here. Indeed, like the law judge, we are unable to find any mitigating circumstances with respect to Trento. We shall accordingly bar him from association with any broker or dealer.
Although some risk of future violations is necessary to justify the imposition of a cease-and-desist order, that risk is ordinarily established when a respondent is found to have violated the law.20 There can be little doubt that Trento's egregious misconduct over a more than three-year period carries with it the risk that it may be repeated after he completes his sentence. His insistence that the evidence from his criminal trial would exonerate him demonstrates his lack of understanding of his responsibility for that misconduct. Thus a cease-and-desist order is clearly appropriate.
The law judge concluded that Trento merited a third-tier civil penalty. She noted that Trento had engaged in fraud, deceit, and the deliberate disregard of regulatory requirements, and had caused substantial losses to others. She accordingly assessed a penalty of $500,000.21
Trento argues that he is unable to pay any penalty and, as noted, has filed a sworn financial statement documenting his financial situation. The Division argues that Trento waived his claim of inability to pay by failing to document it either before the law judge or with his initial filing on appeal. However, Trento's failure to document his inability to pay was at least partially due to the Division's failure to send him a financial disclosure form, as ordered by the law judge. Thus we reject the Division's claim of waiver, and admit Trento's financial statement into evidence. Nevertheless, as we have previously pointed out, ability to pay is only one of the factors that we consider in determining whether a penalty is in the public interest.22 Even accepting Trento's financial report at face value, we find that the egregiousness of his conduct far outweighs any consideration of his present ability to pay a penalty. We shall accordingly sustain the civil penalty assessed by the law judge.
An appropriate order will issue.23
By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID and ATKINS); Commissioner CAMPOS not participating.
Jonathan G. Katz
In the Matter of
On the basis of the Commission's opinion issued this day, it is
ORDERED that Charles Trento be, and he hereby is, barred from association with any broker or dealer; and it is further
ORDERED that Trento cease and desist from committing or causing any violations or future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 17(a) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5 and 17a-3; and it is further
ORDERED that Trento be, and he hereby is, assessed a civil money penalty of $500,000.
Payment of the civil money penalty shall be: (i) made by United States postal money order, certified check, bank cashier's check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) mailed or delivered by hand to the Office of Financial Management, Securities and Exchange Commission, 6432 General Green Way, Alexandria, VA 22312 within thirty days of the date of this order; and (iv) submitted under cover letter that identifies the respondent and the file number of this proceeding. A copy of the cover letter and check shall be sent to Robert Kaplan, counsel for the Division of Enforcement, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0911.
By the Commission.
Jonathan G. Katz
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