SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37156 / May 1, 1996 Admin. Proc. File No. 3-8257 ________________________________________________ : In the Matter of : : JAY HOUSTON MEADOWS : 6721 Cool Meadow Drive : Fort Worth, Texas 76132 : ________________________________________________: OPINION OF THE COMMISSION BROKER-DEALER PROCEEDINGS Ground for Remedial Action Fraud in the Offer and Sale of Securities Where salesman of registered broker-dealer made fraudulent statements and omitted material facts in connection with the offer and sale of securities, held, in the public interest: to bar respondent from association with any broker or dealer with a right to reapply in two years; to order respondent to cease and desist from committing or causing any violation and committing or causing any future violation of Section 17(a) of the Securities Act of 1933 or Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and to order respondent to pay a $100,000 penalty. APPEARANCES: Robert F. Watson, H. Allen Pennington, Jr., and Todd P. Kelly, of Law, Snakard & Gambill, P.C., for Jay Houston Meadows. Katherine S. Addleman and Karen Lundskow Cook, for the Division of Enforcement. Appeal filed: October 11, 1994 Last brief received: January 27, 1995 Oral argument: January 17, 1996 I. Jay Houston Meadows, a registered representative who, during the period at issue here, was affiliated with Rauscher Pierce Refsnes, Inc. ("RPR" or the "Firm"), a registered broker-dealer, ==========================================START OF PAGE 2====== appeals from the decision of an administrative law judge. The law judge found that Meadows violated Sections 17(a) of the Securities Act of 1933 (the "Securities Act") and 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 thereunder, in connection with the offer and sale of securities of two related companies. The law judge concluded that Meadows should be barred from association with any broker or dealer with a right to reapply in two years; ordered permanently to cease and desist from committing or causing any violation and committing or causing any future violation of Section 17(a) of the Securities Act or Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and ordered to pay a $100,000 penalty. Our findings are based on an independent review of the record, except with respect to those findings not challenged on appeal. 1/ II. A. Formation of the Companies. In October 1990, Meadows, Marc Gunderson, and William Craig Harriger formed Mundiger International, Inc. ("Mundiger"). 2/ Initially, Mundiger was to engage in both recycling golf balls and drilling natural gas wells. Gunderson, who claimed to be experienced in both businesses, was assigned day-to-day operating responsibility for Mundiger. Harriger, a lawyer, was to provide legal and administrative support. Meadows claims to us that he joined the venture to assist Gunderson in managing the operations, to "wash golf balls," and to invest Mundiger's excess cash flow. We conclude from the record that Meadows was recruited to raise capital for the businesses. When Meadows disclosed his planned involvement to RPR, the Firm told him that he could not be an officer or director of an entity that would raise capital through the sale of interests in gas wells. Consequently, in November 1990, the principals formed a separate company, Mira Golf International, Inc. ("Mira" and, with Mundiger, the "Companies"), to operate the golf ball 1/ On July 24, 1995, new Rules of Practice governing Commission administrative proceedings became effective. Because these proceedings were docketed prior to that date, they have been conducted under the former Rules of Practice. See 60 Fed. Reg. 32,738 (1995). 2/ Mundiger was an acronym for the founders' surnames: Meadows, Gunderson, and Harriger. In 1994, Gunderson and Harriger consented to permanent injunctions in connection with their conduct in this matter. ==========================================START OF PAGE 3====== recycling business. Meadows was a director and the secretary- treasurer of Mira, but held no formal position in Mundiger. RPR also prohibited Meadows from selling the securities of either of the Companies. Meadows paid $10,000 for 10 percent of Mundiger's stock and an additional $100 for an 8-1/2 percent interest in Mira. Meadows did not own a direct interest in any of Mundiger's drilling programs. Because Mundiger held working interests (which ranged between 22 and 63 percent) in each drilling program, Meadows would benefit to the extent that these programs were successful. Shortly before the Companies were formed, Campbell Hawkins, Gunderson's former father-in-law, told Meadows that Gunderson had misappropriated from Hawkins $200,000 in municipal bonds. Gunderson admitted having the bonds, but claimed that they had been a gift from Hawkins which Hawkins wanted to reclaim following the breakdown of Gunderson's marriage to his daughter. Meadows testified that, because Gunderson was in divorce proceedings, Meadows did not know whether to believe Gunderson or Hawkins. B. Sales Efforts. During late 1990 and early 1991, Mundiger raised approximately $800,000 from 27 investors through the sale of participation interests in six separate drilling programs. Mira raised $78,000 through the sale of stock to nine investors. The record indicates that Meadows played a critical role in the Companies' fund-raising efforts, despite RPR's directive that he not do so. 1. Fall 1990. Meadows and Harriger belonged to a small "networking" group known as the "Masterminds," which met weekly to discuss business opportunities. In late October 1990, Meadows and Harriger described Mundiger to the group and arranged for the Masterminds to meet with Gunderson. At the Masterminds meeting, Gunderson made enthusiastic representations about Mundiger's and Mira's prospects. 3/ 3/ Gunderson told the group that he had a lease on a valuable natural gas property, as well as a "take or pay" contract to supply gas to a local utility at an above-market price. While Gunderson conceded that there was a "very remote" chance that a particular well would not be successful, he represented that, if a well "came in good," an investment could be returned in six months. (continued...) ==========================================START OF PAGE 4====== During the meeting with Gunderson, Meadows echoed Gunderson's enthusiasm, and did not challenge any of his assertions. Following the Masterminds meeting, Meadows, sometimes joined by either Gunderson or Harriger, met with Masterminds members and other potential investors and encouraged their investment. Meadows told one investor that Mundiger's arrangement to lease the property where it planned to drill was a "sweetheart" or "slam dunk" deal. Meadows recommended Mira to another investor because "you know where your assets lie, and [because], at that particular time, there was a bunch of news out on golf ball companies that were making a lot of money" recycling golf balls. Meadows claimed that Mira's potential profit ranged from $.19 to $.50 per ball, that Mira had more orders than it could fill, and that an investment in Mira was "pretty safe." In another meeting with Meadows and Gunderson, an investor expressed concern that he needed the money he was considering investing to pay his taxes in April 1991. Gunderson told this investor, "Well, it's a 6-month payback. . . . You'll have it back by April anyway." Meadows never disputed any claim by Harriger or Gunderson, and, according to an investor, "added to their credibility." In November or December 1990, Meadows and his brother-in-law visited the Companies' offices, after regular business hours and in Gunderson's and Harriger's absence, to review the Companies' books and records. 4/ Harriger learned of Meadows' visit. Harriger changed the locks on the Companies' offices, and refused to give Meadows or the Companies' accountant, Brian Catlin, a key. Meadows, who claimed to be both upset but yet somehow untroubled by Harriger's action, was thereafter permitted to examine the Companies' records only during regular business hours. However, Meadows never again attempted to look at the Companies' books except to check Mira's inventory of golf balls. He testified that he "trusted" that others were reviewing the 3/(...continued) Gunderson claimed that Mira had the potential to sell two million balls a year, a target which, if met, would assure the venture's success. The group was told that a similar venture run by Gunderson's father "was having so much trouble filling [its] orders that [Mira] could almost sell that many just filling orders that [the other venture] couldn't get to." 4/ Meadows' testimony about the reason for this action was vague: "I had my . . . brother-in-law, TJ, up there to log on the computer to see how many golf balls we had, and that type of thing." ==========================================START OF PAGE 5====== Companies' books. He did not disclose these events to any of the investors. 2. Winter and Spring 1991. Mundiger drilled its first two gas wells in early 1991. Although these wells produced some gas, the cost of production for the wells exceeded the revenue that they generated (as it did for at least 6 of the 10 wells drilled by Mundiger). Gunderson falsely claimed, however, that these wells were profitable. In a February 1991 memorandum to Meadows and Catlin, Gunderson and Harriger estimated that one of the well programs had "a conservative [production] goal of 350 MCF [thousand cubic feet] per day per well," which would result in an investor "payout" in 7.5 months. Gunderson and Harriger also asserted in this memorandum that "in the past, we have grossly underestimated our wells' production." The memorandum urged Meadows and Catlin to "get your feelers out [to potential investors] now." Meadows enthusiastically relayed Gunderson's positive assessments to individuals considering investments in Mundiger. He has admitted that he never verified this information with the wells' operator, the gas purchaser, or otherwise. Investors testified that Meadows' assertions about the success of these wells, which included specific -- and what proved to be -- erroneous production figures, influenced their decision to invest in subsequent well programs. One person who had invested in the first well recalled that Meadows told him that "the production from the first wells . . . would more than cover our expenses for the second investment of wells [because] they're doing so well." Another investor testified that Meadows told him that, based on the flows from the first two wells, "we'd have our money back in a year." Meadows recommended to this investor that he participate in a new Mundiger well program in which Mundiger planned to reopen a previously capped well. Meadows told the investor that this well was of all the "investments up to now the most sure thing . . . [a] huge plum." However, records maintained by the Texas Railroad Commission, which oversees that state's oil and gas industry, showed that this particular well had previously produced very little. Meadows never contacted the Railroad Commission. Meadows told this same investor, without any basis, that the "value" of Mira had doubled during the previous month. C. Meadows' Withdrawal from the Companies. In April 1991, Mundiger began paying investors in the gas well drilling programs amounts that purported to be the investors' share of the wells' production revenues. The amounts were significantly less than the investors had been led to expect. While below expectations, these distributions in fact exceeded the investors' pro rata portion of revenues. Although ==========================================START OF PAGE 6====== they were separated to some degree on the Companies' books, funds from Mundiger's various well programs and Mira's funds were commingled in one or two Company bank accounts, despite Catlin's recommendation against such practice. Thus, it appears that funds invested in subsequent programs were used to pay returns for earlier ones. 5/ A few weeks later, Meadows met with Gunderson, Harriger, and Catlin to discuss the Companies' budgets. A dispute developed over salaries for Gunderson and Harriger, who wanted $120,000 and $96,000 per year, respectively. Meadows, who had had various unspecified disagreements with Harriger over his management of Mira, resigned as a director and treasurer of Mira. He also sold back a portion of his ownership interests in the Companies equal to 6.5 percent of the outstanding stock of Mundiger and 3 percent of the outstanding stock of Mira for an initial payment of $10,000 and additional monthly payments of $1,000 for one year. The monthly payments were conditioned on Meadows: [R]efrain[ing] entirely, whether intentionally or unintentionally, from divulging any information regarding either corporation's financial position, stock ownership, sum of money invested in intangible or tangible assets, or any discussions held at formal or informal board of directors meetings for either corporation. Meadows was paid a total of $13,000 under this agreement. In August 1991, Harriger told Catlin that Gunderson might be misappropriating Mundiger funds. Catlin assumed management responsibility for Mundiger in September 1991. After reviewing the books, Catlin ascertained that neither of the Companies had ever been profitable, and that Mundiger was insolvent. Catlin also discovered that, throughout the operation of the Companies, both Gunderson and Harriger had misappropriated corporate funds for personal uses and unauthorized business purposes. 6/ 5/ Mira also paid its shareholders a "dividend" in early April 1991 equal to five percent of what they had invested. In his transmittal letter to shareholders, Harriger stated that "[i]t is our belief that by the end of October 1991, that you will have received dividend checks representing 60% of your initial investment. We hope to have paid to you 100% of your initial investment at that time, but we will have to see how things progress." 6/ Among other things, Gunderson had diverted over $40,000 of Mundiger's funds to a girlfriend. Mundiger funds also had (continued...) ==========================================START OF PAGE 7====== III. Meadows raises various defenses. A. Meadows appears to argue that we lack jurisdiction to decide this matter because, at the time of these violations, he was not acting in his capacity as a registered representative. It is clear, however, that the Exchange Act authorizes this Commission to bring an administrative proceeding based upon an individual's association with a broker-dealer, and does not require that the alleged misconduct occur while the person was acting in that capacity. 7/ Meadows argues that he was not a seller of these securities, and that, therefore, he cannot be held liable under Section 17(a) of the Securities Act. 8/ Meadows was found to have violated Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, as well as Section 17(a) of the Securities Act. Moreover, Section 17(a) expressly proscribes fraud in the offer, as well as in the sale, of a security. 9/ 6/(...continued) been used to drill a well for an unaffiliated gas drilling company owned primarily by Harriger's relatives. 7/ See Section 15(b)(6) of the Exchange Act. Nor, for the same reason, is the fact that these securities were sold away from RPR directly relevant to our analysis. 8/ As support, Meadows cites Aaron v. SEC, 446 U.S. 680, 687 (1980), where the Supreme Court stated that Section 17(a) of the Securities Act "applies only to sellers." It is manifest, however, that the Court there was merely distinguishing between Section 17(a), which by its express terms, applies to fraud in the "offer or sale of any securities," from Section 10(b) of the Exchange Act which prohibits fraud "in connection with [both] the purchase or sale of any security." Id. 9/ Meadows contends that the Division waived argument over the issue of whether he was a seller for purposes of Section 17(a). Although the Division stated that it did not allege that "Meadows, quote unquote, sold the securities," the statement had to do with whether the Division was charging Meadows with a violation of Section 5 of the Securities Act, which prohibits the sale of unregistered securities. Immediately following this assertion, the Division reiterated that Meadows' alleged misconduct occurred "in connection with" the sale of the Companies' securities and therefore constituted violations of both Section 17(a) of (continued...) ==========================================START OF PAGE 8====== Although Meadows contends that he made no offers of the Companies' securities, he concedes that he "may have discussed his investment [in the Companies] with his friends." Many of these friends were also customers of Meadows at RPR. 10/ Their testimony shows that, through these "friendly" discussions, Meadows effectively solicited investments in the Companies by presenting materially misleading information about the Companies' prospects. Meadows made fraudulent misrepresentations with respect to the likelihood that the ventures would be profitable, the time periods required for a return on an investment in them, production by the wells, and the safety of an investment in Mira. 11/ His involvement with the Companies and presence at meetings with investors lent credibility to the additional misrepresentations of Gunderson and Harriger. Meadows, who did little more to verify the claims of his associates than count golf balls, clearly had an insufficient basis for making, or implicitly endorsing, these assertions. 12/ 9/(...continued) the Securities Act and Section 10(b) of the Exchange Act. Moreover, even if Meadows had been confused about whether the Division continued to allege a violation of Section 17(a) -- which we strongly doubt -- there was never any question that the Division was alleging a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 10/ We note further that Meadows received checks from investors for the Companies' securities and had certain discussions with investors in his office at RPR. 11/ See generally Basic Inc. v. Levinson, 485 U.S. 224 (1988). Among other misrepresentations, Meadows misled at least one investor in a well program by suggesting that Meadows' investment in Mundiger was the same as the investor's. This was untrue because Meadows had not invested in any particular well program. As a Mundiger stockholder, however, Meadows, through Mundiger, had a participation interest in all of them. 12/ Meadows notes that he received no commissions from the sale of the Companies' securities. As a Mundiger shareholder, Meadows held a financial stake in each well program, and thus stood to profit to the extent these wells were successfully developed. Because such development could not occur in the absence of additional investment, Meadows had an obvious and strong incentive to solicit new investors. Mira's prospects similarly were dependent on additional investment, and provided Meadows with the same kind of motivation for his sales efforts. ==========================================START OF PAGE 9====== While Meadows challenges the law judge's determination to credit the investors' testimony, we have found no basis for doing so. It is well settled that credibility determinations by an initial trier of fact are entitled to considerable weight and deference, and are rejected only where there is substantial evidence for doing so. 13/ We have not found a basis for rejecting the law judge's findings. 14/ To the contrary, there were "similarities in each customer's [challenged] testimony regarding [Meadows'] behavior and treatment of them," which further support the law judge's determination. 15/ Moreover, we do not find credible Meadows' claim that he was not brought into the ventures to solicit investors. Meadows admittedly had no expertise in either of the Companies' businesses. The only expertise he offered was as a securities salesman, with valuable investor contacts and credibility. As Gunderson's February 1991 memorandum suggests, Meadows was expected to, and did, encourage investment in the Companies' securities. 13/ See, e.g., Keith L. DeSanto, Securities Exchange Act Rel. No. 35860 (June 19, 1995), 59 SEC Docket 1784, 1787, aff'd, No. 95-4127 (2d Cir. 1996) (summary order); Anthony Tricarico, 51 S.E.C. 457, 460 (1993). 14/ Meadows also challenges the credibility of Harriger, who testified for the Division. Our findings of violation are not based on Harriger's testimony. 15/ Frank J. Custable, Jr., 51 S.E.C. 643, 648 (1993). Meadows claims that the law judge ignored testimony of two members of the Masterminds group and of others who were solicited by Gunderson and Harriger that Meadows neither solicited nor recommended an investment in the Companies. This testimony, however, does not refute the statements of others that Meadows solicited them. See, e.g., William L. Kicklighter, Jr., 51 S.E.C. 1, 5, 7 (1991), aff'd sub non., Brown v. SEC, 992 F.2d 328 (llth Cir. 1993) (table) (salesperson's disclosure of adverse information about security to some customers did not "impair" the testimony of other customers that such information was not disclosed). We note that the Division indicated that it originally planned to call at least one additional investor as a witness against Meadows, but declined to do so after the law judge complained about repetitive testimony from the investors it had called. The Division made no proffer regarding this witness, and thus we do not know the nature of the testimony that would have been given. ==========================================START OF PAGE 10====== B. Meadows argues that the Division failed to establish that he acted with the scienter required for a finding of fraud. The various courts of appeals have held that recklessness satisfies the scienter requirements of the antifraud provisions of the securities laws. 16/ It is also well established by the record that Meadows' conduct here was reckless. Meadows was confronted with -- but completely failed to heed -- various "red flags." For example, Meadows knew that the Companies' accountant recommended the use of separate bank accounts for each of the well programs. This recommendation was ignored and, as Meadows also knew, the funds were commingled. In addition, while Meadows claims that he depended on Gunderson's representations, he had cause to question Gunderson's integrity in light of the allegation that Gunderson had misappropriated $200,000. Although Meadows admittedly gave this accusation at least some credence, he failed to investigate the matter. 17/ Moreover, in December 1990, shortly after investor funds began to be received, Meadows was denied unrestricted access to the Companies' records. 18/ Incredibly, Meadows claims not to have been troubled by this development, nor to have attempted to review the records during business hours, other than to check Mira's inventory of golf balls. Finally, we note that Gunderson and Harriger returned Meadows' investment (with a premium), as 16/ See, e.g., Broad v. Rockwell Int'l Corp., 642 F.2d 929, 961 (5th Cir.), cert. denied, 454 U.S. 965 (1981); Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1039-40 (7th Cir.), cert. denied, 434 U.S. 875 (1977). In addition, we note that negligent conduct can establish liability under Sections 17(a)(2) and 17(a)(3) of the Securities Act. See Aaron v. SEC, 446 U.S. 680, 695-700 (1980); Donald T. Sheldon, 51 S.E.C. 59, 82 n.94 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995). 17/ One of Meadows' clients, David Forbess, a Masterminds group member, investigated Gunderson's background when he was solicited to invest in the Companies in 1990. Forbess learned from two different parties that Gunderson had an unsavory business reputation. Although Meadows denies that Forbess conveyed this information to him, Meadows presumably could have learned the same information had he conducted his own investigation of Gunderson. 18/ The fact that Meadows was reviewing the Companies' books after business hours, when Gunderson and Harriger were absent -- the event which triggered the lockout -- by itself suggests that Meadows was suspicious of his associates. ==========================================START OF PAGE 11====== part of an agreement that included Meadows' covenant not to disclose any of the Companies' affairs. 19/ Meadows' claim that he was misled by Gunderson's misrepresentations is no excuse. Meadows was experienced as a securities professional. He had an obligation to investigate and verify consistently optimistic assertions before repeating them to others. 20/ This was particularly true here because of the several suspicious circumstances that were present. C. Meadows claims that the Companies' investors involved in this case "had a high tolerance for risk." He further notes that some of the investors had prior experience with the natural gas drilling business. We have, however, repeatedly rejected arguments that the antifraud provisions do not apply to customers who were experienced or sophisticated. 21/ Although Meadows also asserts that investors did not rely on his assertions in making their decisions to invest in the Companies, the record indicates otherwise. Moreover, it is well established that reliance need not be shown for this Commission to establish a violation of the antifraud rules. 22/ In light of Meadows' securities experience, his intimate involvement with the internal affairs of the Companies, and the presence of a number of red flags, we believe that Meadows acted recklessly in misrepresenting the Companies' securities. His conduct consequently satisfies the requisite scienter requirement. 23/ We therefore find that Meadows willfully 19/ Although this occurred after the sales at issue, it suggests that Meadows learned adverse information about the Companies at some earlier point in time. 20/ See, e.g., James E. Cavallo, 49 S.E.C. 1099, 1102 (1989) (aff'd, 1993 F.2d 913 (D.C. Cir. 1993) (Table) ("A salesman's honest belief in an issuer's prospects does not warrant his making exaggerated and unfounded representations and predictions to others."). 21/ See, e.g., William L. Kicklighter, Jr., 51 S.E.C. at 5. 22/ See, e.g., SEC v. North American Research & Dev. Corp., 424 F.2d 63, 84 (2d Cir. 1970)("reliance is immaterial . . . because it is not an element of fraudulent representation under Rule 10b-5 in the context of an SEC proceeding against a broker"); Bohn-Williams Securities Corporation, 44 S.E.C. 709, 715 (1971). 23/ See Dan King Brainard, 47 S.E.C. 991 (1983). See also n. 16. (continued...) ==========================================START OF PAGE 12====== violated Sections 17(a) of the Securities Act and 10(b) of the Securities Exchange Act, and Rule 10b-5 thereunder. IV. Meadows makes various allegations of procedural impropriety. 24/ He argues that he did not receive a fair hearing. 25/ As support, Meadows claims that he was denied the opportunity of calling certain witnesses. While the law judge did question the relevance to the case of the proposed testimony of certain of Meadows' witnesses, he nevertheless permitted them to testify. We note that the law judge also discouraged the Division from calling certain witnesses, and that, as a result, it called fewer witnesses than it had planned. 26/ Although the law judge limited the extent of Meadows' examination of certain witnesses on relevance and other grounds, the law judge limited the Division's questioning of witnesses, as well. While Meadows 23/(...continued) Citing Ratzlaf v. U.S., 114 S.Ct. 655, 659 (1994), Meadows claims that he did not "willfully" violate the securities laws because he did not know that his conduct was illegal. It is well established, however, that "willfully" means "intentionally committing the act which constitutes the violation. There is no requirement that the actor also be aware that he is violating one of the Rules or Acts." Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). We previously have observed that Ratzlaf addressed the degree of willfulness required to violate a specific criminal statute, and is inapplicable to Commission proceedings. See R.B. Webster Investments, Inc., Securities Exchange Act Rel. No. 35754 (May 23, 1995), 59 SEC Docket 1194. 24/ In various motions, Meadows sought a continuance of the oral argument in this matter by claiming that the Commission, which, at the time, consisted of two members, lacked a quorum. We denied these motions, and Meadows renewed his request at oral argument. Since that time, two additional members have joined the Commission. Because former Rule of Practice 21(f) permits commissioners not present at an oral argument to participate in the decision of a matter if the commissioner reviews the transcript of such argument, the issue is now moot. 25/ In his brief, Meadows charged that the law judge was biased and prejudged the case against him. At oral argument, he suggested that "motive is irrelevant," and that the law judge's actions could have been inadvertent. 26/ See n. 15. ==========================================START OF PAGE 13====== complains that the law judge examined Meadows' witnesses, the law judge also questioned the Division's witnesses. Meadows contends that the law judge impermissibly shifted the burden of proof to him. We disagree. After the Division had presented the testimony of three customers against Meadows, the law judge merely, and not improperly, informed Meadows that Meadows then had the burden of producing evidence in support of his innocence, i.e., the burden of going forward. 27/ The law judge's statement merely suggests that he found the customers credible and that, as a result, the Division had presented a prima facie case against Meadows. The burden of persuasion always remained with the Division. Although we do not consider the law judge's comments improper, we have weighed the evidence and find that the Division has demonstrated its case by a preponderance of the evidence. Although some of the law judge's comments during the hearing might be described as injudicious, we do not believe Meadows was prejudiced. Both Meadows and the Division were, at various times, targets of the law judge's sarcasm, which did not appear to reflect a bias in favor of one side or the other. The law judge's efforts to control the calendar and expedite the proceedings did not inhibit Meadows' defense, and were within his discretion to make. 28/ V. Meadows contends that the sanctions are excessive. Asserting an "excellent reputation for integrity," Meadows states that he has, other than these proceedings, an unblemished 27/ See, e.g., Donald T. Sheldon, 51 S.E.C. at 77 (burden of defending pricing of securities shifted to respondents following presentation of evidence that it was fraudulent). 28/ See U.S. v. Laurins, 857 F.2d 529, 537 (9th Cir. 1988), cert. denied, 492 U.S. 906 (1989) ("A trial judge is more than an umpire, and may participate in the examination of witnesses to clarify evidence, confine counsel to evidentiary rulings, ensure the orderly presentation of evidence, and prevent undue repetition."). Meadows' motion to strike from the record, as "scandalous or impertinent," a portion of a response by a Division witness, elicited by Meadows' counsel during cross-examination, is denied. See Section 201.20(d) of our former Rules of Practice. Meadows' motion for leave to file a response brief to the reply brief of the Division is granted. ==========================================START OF PAGE 14====== disciplinary history in the securities industry. 29/ Meadows contends that the $100,000 penalty is excessive in light of the amount of customer losses, and because "[t]hese ventures did not involve widows and orphans." Meadows also claims that a bar is unwarranted because, in his view, he "does not pose a threat to the public." 30/ We believe that the sanctions imposed by the law judge are warranted by the serious nature of Meadows' misconduct. Contrary to his assertions, Meadows' actions evidence a lack of sensitivity to his obligations to have a basis for representations he makes to others. His continuance in the industry would present further opportunities for such misconduct. We also believe the penalty of $100,000 is justified. Since 1990, this Commission has had the authority to assess penalties of $100,000 for each fraudulent act or omission if it resulted in "substantial losses or . . . substantial pecuniary gain to the person who committed the act or omission." 31/ Among the factors to be considered in determining whether a penalty is in the public interest is "the harm to other persons resulting either directly or indirectly" from the wrongdoer's conduct. The record indicates that investors in the Companies suffered significant losses. Mundiger's investors received, through 1993, a total return of just $167,445 on a total investment of $783,126; those in Mira apparently lost over 90 percent of what they had invested. 32/ Together, the customers who testified against Meadows lost well over $100,000. 29/ Meadows joined RPR in 1986, four years before the period at issue. 30/ As support, he has introduced before us a letter from the president of his current employer which states that "he is an honest, ethical broker." 31/ Section 21B(b) of the Exchange Act. 32/ The record indicates that some of Mundiger's wells continue to produce and generate revenue for their investors which, over time, could reduce their losses. We are not convinced that these revenues would properly be considered in the measuring of losses for purposes of Section 21B(b). In any event, Meadows has not introduced evidence about the amount of any such reduction. ==========================================START OF PAGE 15====== Meadows, it seems, was the only investor involved who recovered what he invested and more. 33/ Meadows' conduct evinces a reckless disregard for the interest of his customers. Under the circumstances, we believe that the sanctions imposed by the law judge were amply warranted by the public interest. Accordingly, we shall affirm them in full. An appropriate order will issue. 34/ By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary 33/ Meadows contends that he enjoyed no unjust enrichment as a result of his involvement with the Companies. However, he concedes that he received $3,000, in addition to the roughly $10,000 he had invested, upon severing his ties in the spring of 1991, a generous return on an investment he held for less than a year, particularly in light of the amounts other investors lost. 34/ All of the arguments advanced by the parties have been considered. They are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37156 / May 1, 1996 Admin. Proc. File No. 3-8257 ________________________________________________ : In the Matter of : : JAY HOUSTON MEADOWS : 6721 Cool Meadow Drive : Fort Worth, Texas 76132 : ________________________________________________: ORDER IMPOSING REMEDIAL SANCTIONS On the basis of the Commission's opinion issued this day, it is ORDERED that Jay Houston Meadows be, and he hereby is, barred from association with any broker or dealer provided that, after two years, he may apply to become so associated, and it is further ORDERED that Jay Houston Meadows cease and desist from committing or causing any violation and committing or causing any future violation of Section 17(a) of the Securities Act of 1933 or Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and it is further ORDERED that Jay Houston Meadows pay to the United States Treasury a civil penalty of $100,000, pursuant to Section 21B of the Securities Exchange Act of 1934, within 21 days of the issuance of this Order. Such payment 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) delivered by hand or courier to the Comptroller, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549; and (iv) submitted under cover letter which identifies Meadows as Respondent in these proceedings, and the file number of these proceedings. By the Commission. Jonathan G. Katz Secretary