Initial Decision of an SEC Administrative Law Judge
In the Matter of
In the Matter of
JOSEPH P. GALLUZZI
August 7, 2001
|APPEARANCES:|| Anthony J. Bosco, Sheldon Mui, and Peter A. Pizzani, Jr., for the Division of Enforcement, Securities and Exchange Commission.
Joseph P. Galluzzi, pro se.
|BEFORE:||James T. Kelly, Administrative Law Judge.|
The Securities and Exchange Commission (Commission or SEC) instituted this proceeding on May 25, 2000, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 (Exchange Act). The Order Instituting Proceedings (OIP) alleges that from 1985 to 1996, Joseph P. Galluzzi (Galluzzi or Respondent) was associated with Gibraltar Securities Co. (Gibraltar), a registered broker and dealer. The OIP also claims that in 1998 the United States District Court for the District of New Jersey convicted Galluzzi of twenty-six felony counts of mail fraud, wire fraud, bribery, and using facilities in interstate commerce to commit bribery. The OIP further alleges that in 1999, in a civil action brought by the Commission, the same court permanently enjoined Galluzzi from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. 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.
The criminal indictment and the civil injunctive action both arose out of Galluzzi's activities with brokers and dealers involved in underwriting municipal securities. At issue were charges that Galluzzi abused his positions as financial consultant to the Board of Chosen Freeholders of Essex County, financial consultant to Essex County, and financial consultant to the Irvington Municipal Council for his personal gain, through receipt of bribes and kickbacks, which deprived those entities of his honest services relating to several municipal bond and financing projects.
Galluzzi received the OIP on June 1, 2000. The parties initially attempted to reach a settlement, but those negotiations were not successful. Galluzzi advised that he intended to appear pro se.
I established a deadline of October 2, 2000, for Galluzzi to file his answer to the OIP. I then extended that deadline to October 16, 2000, at Galluzzi's request. See Orders of September 11, 2000, and September 27, 2000. When no answer was received by the extended due date, I ordered Galluzzi to show cause why he should not be held in default. See Order of October 17, 2000. On October 28, 2000, Galluzzi submitted a letter which, liberally construed, constituted both his late-filed answer to the OIP and his response to the order to show cause. I accepted the late-filed answer and declined to hold him in default. See Order of November 7, 2000.
The Division then notified Galluzzi of the size and location of its investigative files, and informed him when those files would be available for inspection and copying. See Order of November 7, 2000; Rule 230 of the Commission's Rules of Practice, 17 C.F.R. § 201.230. The Division also identified the materials it proposed to withhold on the grounds of privilege (Letter from Sheldon Mui to Galluzzi, dated November 16, 2000).
Inspection and copying was complicated by the fact that Galluzzi is incarcerated at the Federal Prison Camp in Allenwood, Pennsylvania. Accordingly, I granted Respondent extra time to complete his inspection and copying, and I monitored the progress of his efforts in three telephonic prehearing conferences. See Orders of November 17, 2000, December 18, 2000, and January 16, 2001.
By letter dated January 20, 2001, Galluzzi challenged the Division's claim of privilege as to the withheld documents. I construed Respondent's letter as a motion to compel the production of documents, and I established a schedule for the Division to file an affidavit and pleading in opposition to the motion to compel production. See Orders of January 29, 2001, and February 8, 2001. The Division's opposition to the motion to compel, dated March 23, 2001, consisted of a declaration from Sheldon Mui, the Division's counsel of record; an amended privilege log; the certification of Ralph J. Marra, Jr., an Assistant United States Attorney who was the prosecutor in Galluzzi's criminal trial; and a memorandum of law. As grounds for its opposition, the Division invoked the work product privilege, the attorney-client privilege, the deliberative process privilege, the law enforcement privilege, and Rule 230(b)(ii) of the Commission's Rules of Practice. The Division also stated that it had reviewed the documents listed on its privilege log under the doctrine of Brady v. Maryland, 373 U.S. 83 (1963), and found no exculpatory materials.
On April 4, 2001, Respondent replied to the Division's opposition with a declaration, a memorandum of law, and a chart of rebuttal. After considering the parties' pleadings, I found the Division's invocation of privilege to be well supported.1 With one exception, I declined to order the Division to produce the challenged documents for inspection and copying. See Order of April 11, 2001.
The Division then sought and received leave to file a motion for summary disposition (Prehearing Conference of April 17, 2001, at Tr. 36-40). See Rule 250 of the Commission's Rules of Practice, 17 C.F.R. § 201.250. The Division filed its motion for summary disposition on May 22, 2001.
I held a telephonic prehearing conference with the parties on June 1, 2001. At that conference, I reviewed the Division's motion with Respondent in an effort to determine which allegations in the OIP he contested and which allegations he did not contest. I also apprised him of the issues his opposition should address. I noted that Commission decision makers must follow Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1980), when considering sanctions in the public interest, and I encouraged Galluzzi to address the Steadman factors in his opposition. I also stressed that, if Galluzzi wished an in-person oral hearing, he should so state in his opposition (Prehearing Conference of June 1, 2001, at Tr. 24-25, 32).
My Order of June 1, 2001, emphasized the same things. With respect to a hearing, that Order provided:
[I]f [Respondent] wishes an in-person oral hearing, he should so state in his opposition. He should identify when and where he prefers to hold such a hearing. He should identify the prospective witnesses he wishes to call. He should provide their names and addresses, as well as a brief summary of each witness's expected testimony.
This was consistent with earlier notice I had given Respondent about stating whether he desired a hearing and whether he intended to call witnesses (Prehearing Conference of April 17, 2001, at Tr. 39-40, 42). Respondent filed his opposition to the Division's motion for summary disposition on July 9, 2001, and the Division filed its reply on July 26, 2001. Galluzzi did not request an in-person hearing. Nor did he identify any prospective witnesses. I conclude that Galluzzi has waived his opportunity for an in-person hearing.
The Standards For
Rule 250(a) of the Commission's Rules of Practice provides that, after a respondent's answer has been filed and documents have been made available to that respondent for inspection and copying, a party may make a motion for summary disposition of any or all allegations of the OIP with respect to that respondent. The facts of the pleadings of the party against whom the motion is made shall be taken as true, except as modified by stipulations or admissions made by that party, by uncontested affidavits, or by facts officially noted pursuant to Rule 323 of the Commission's Rules of Practice, 17 C.F.R. § 201.323.
Rule 250(b) of the Commission's Rules of Practice requires the hearing officer promptly to grant or deny the motion, or to defer decision on the motion. The hearing officer may grant the motion for summary disposition if there is no genuine issue with regard to any material fact and the party making the motion is entitled to a summary disposition as a matter of law.
By analogy to Rule 56 of the Federal Rules of Civil Procedure, a factual dispute between the parties will not defeat a motion for summary disposition unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Once the moving party has carried its burden, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The opposing party must set forth specific facts showing a genuine issue for hearing and may not rest upon the mere allegations or denials of its pleadings. At the summary disposition stage, the hearing officer's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for hearing. See Anderson, 477 U.S. at 249.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The documents attached to the Division's motion involve matters that may be officially noticed under Rule 323 of the Commission's Rules of Practice. Based on those documents, the Division has established, and Respondent has not contested, the following facts.
From June 28, 1985, through January 11, 1996, Galluzzi was associated with Gibraltar, a broker and dealer (Declaration of Sheldon Mui in Support of Motion for Summary Disposition, dated May 21, 2001 (Mui Declaration), Exhibit F (NASD Business Records)).
On January 9, 1997, a federal grand jury in the United States District Court for the District of New Jersey handed down a twenty-six count superceding indictment against Galluzzi. The indictment charged Galluzzi with fourteen counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 1346; two counts of wire fraud in violation of 18 U.S.C. §§ 1343 and 1346; five counts of bribery in violation of 18 U.S.C. § 666; and five counts of using a facility in interstate commerce to commit bribery in violation of 18 U.S.C. § 1952 (Mui Declaration, Exhibit A (Superceding Indictment)).
On April 24, 1998, a jury found Galluzzi guilty on all counts of the superceding indictment (Mui Declaration, Exhibit B (Judgment of Conviction)). On September 10, 1998, Judge William H. Walls sentenced Galluzzi to ninety months imprisonment and ordered him to pay $350,000 in restitution. On May 28, 1999, the United States Court of Appeals for the Third Circuit affirmed Galluzzi's conviction and sentence (Mui Declaration, Exhibit E (unpublished Memorandum Opinion)). The United States Supreme Court denied Galluzzi's petition for a writ of certiorari. Galluzzi v. United States, 528 U.S. 1048 (1999).
On January 9, 1997, the Commission filed a civil complaint against Galluzzi in the United States District Court for the District of New Jersey. As relief, the Commission sought a permanent injunction from future violations of Section 10(b) of the Exchange Act and Rule 10b-5, as well as disgorgement of ill-gotten gains (Mui Declaration, Exhibit C (Complaint)). The Commission subsequently filed a motion for summary judgment on the basis of Galluzzi's criminal conviction. It argued that because the conduct alleged in the complaint was the basis for the criminal conviction, Galluzzi was collaterally estopped from relitigating those issues. Galluzzi filed a response to the summary judgment motion.
On September 14, 1999, Judge Walls issued an opinion granting the Commission's motion for summary judgment in the civil injunctive action (Mui Declaration, Exhibit D (Opinion)). On October 20, 1999, Judge Walls issued his final judgment (Mui Declaration, Exhibit G (Final Judgment)). The judgment permanently enjoined Galluzzi from violations of Section 10(b) of the Exchange Act and Rule 10b-5. It also ordered Galluzzi to pay disgorgement of $258,382, plus prejudgment interest.
To The Division's Motion
Galluzzi raises several arguments in his opposition to the Division's motion for summary disposition, but they are insufficient to establish that there are contested genuine and material issues of fact or law.
First, Galluzzi contends that the United States Attorney denied him due process in the criminal case by refusing to provide him with all of the materials that the Commission had gathered during its investigation and turned over to the prosecution. Galluzzi presented a similar claim before the Third Circuit on the direct appeal of his criminal conviction. That court found no merit to the argument (Mui Declaration, Exhibit E (Memorandum Opinion at 9-10)). Moreover, the Commission does not permit criminal convictions to be collaterally attacked in its administrative proceedings. See Ira William Scott, 53 S.E.C. 862, 866 (1998); William F. Lincoln, 53 S.E.C. 452, 455-56 (1998). Galluzzi also relies on United States v. LaSalle Nat'l Bank, 437 U.S. 298 (1978), a case arising under the Internal Revenue Code, for the proposition that an administrative agency cannot use its civil investigative powers to investigate criminal conduct. However, LaSalle is not applicable to the Commission's investigations under SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1376-80 (D.C. Cir. 1980) (en banc).
Galluzzi next contends that the criminal case and the civil injunctive case lacked an "identity of issues." He observes that the criminal conviction involved mail fraud, wire fraud, and bribery, but not any securities law violations. In the civil injunctive action, the Commission claimed that, because the same conduct alleged in the injunctive complaint formed the basis for the criminal charges of which Galluzzi had already been convicted, Galluzzi should be collaterally estopped from relitigating those issues. Judge Walls accepted that argument and granted summary judgment to the Commission (Mui Declaration, Exhibit D (Opinion at 4-7)). Galluzzi elected not to appeal the district court's determination. He nonetheless argues in this administrative proceeding that the district court was wrong.
After Judge Walls issued his opinion in the civil injunctive proceeding, decisions by two courts of appeal have addressed the Commission's ability to invoke the doctrine of offensive collateral estoppel when a civil injunctive action follows a criminal conviction. See SEC v. Monarch Funding Corp., 192 F.3d 295 (2d Cir. 1999) (rejecting the Commission's argument that the same acts by which an individual obstructed justice established the elements of securities fraud in a subsequent civil injunctive case); SEC v. Zandford, 238 F.3d 559 (4th Cir. 2001) (reversing a district court decision which held that a criminal conviction for wire fraud established all facts necessary to satisfy the elements of the Commission's securities fraud claim), petition for cert. filed, (U.S. July 25, 2001) (No. 01-147). If Galluzzi believes that Monarch Funding and/or Zandford afford him a fresh basis for reopening the civil injunctive action, he must present such arguments to the appropriate tribunal. He cannot challenge the outcome of the civil injunctive case in this administrative forum. See Martin R. Kaiden, 70 SEC Docket 439, 453 & n.39 (July 20, 1999); cf. Elliott v. SEC, 36 F.3d 86, 87 (11th Cir. 1994); Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1108 (D.C. Cir. 1988).
Galluzzi also asserts that the Commission "took great liberties" with the facts when presenting its memorandum in support of summary judgment to the district court in the civil injunctive action. This proceeding is not the appropriate place to challenge the propriety of the injunctive action. Cf. Charles Phillip Elliott, 50 S.E.C. 1273, 1276-77 (1992), aff'd, 36 F.3d 86 (11th Cir. 1994).
Finally, Galluzzi contends that, without the civil injunctive action, no sanction would be possible in this administrative proceeding. This claim is unfounded. Galluzzi has been convicted, within ten years of the commencement of this proceeding, of felonies that involve violations of 18 U.S.C. §§ 1341 and 1343. Such offenses are specifically identified in Section 15(b)(4)(B) of the Exchange Act as a basis for action under Section 15(b)(6)(A)(ii) of the Exchange Act. If the civil injunctive action had never been brought, the criminal conviction alone would still offer sufficient grounds for instituting this administrative proceeding.
The Public Interest
Early in this proceeding, the Division expressed the view that the sanction it sought, an order barring Galluzzi from associating with a broker or dealer, would also encompass a bar on association with a municipal securities dealer (Prehearing Conference of November 17, 2000, at Tr. 3). See Sections 3(a)(18) and 3(a)(32) of the Exchange Act (definition of terms). Some months later, the Division stated that it was not seeking a collateral bar, but only a bar from association with a broker or dealer (Prehearing Conference of April 17, 2001, at Tr. 36).
No bar on association with a municipal securities dealer is possible in this proceeding. In Dan King Brainard, 47 S.E.C. 991, 1001 n.31 (1983), the Commission held there was no basis to bar a respondent from association with a municipal securities dealer because the proceeding was not instituted pursuant to Section 15B(c)(4) of the Exchange Act, which authorizes the Commission to sanction persons associated with a municipal securities dealer. After Brainard, the Commission interpreted Section 15(b)(6) of the Exchange Act as permitting a wide range of collateral bars. See Meyer Blinder, 53 S.E.C. 250, 254 n.12 (1997). However, such collateral bars are now foreclosed by Teicher v. SEC, 177 F.3d 1016 (D.C. Cir. 1999), cert. denied, 529 U.S. 1003 (2000). In any event, the Division has never shown that Galluzzi was associated with a municipal securities dealer. The most severe sanction possible in this case is a bar on association with a broker or dealer, and the only issue remaining for decision is whether that sanction is warranted in the public interest.
Under Steadman, 603 F.2d at 1140, there are six factors to consider: (1) the egregiousness of the respondent's actions; (2) the isolated or recurrent nature of his infractions; (3) the degree of scienter involved; (4) the sincerity of the respondent's assurances against future violations; (5) the respondent's recognition of the wrongful nature of his conduct; and (6) the likelihood that the respondent's occupation will present opportunities for future violations.
Galluzzi's conviction of twenty-six felonies was egregious. Those felonies involved deliberate, knowing violations of the law and they required premeditation and planning. In the criminal case, Judge Walls found that Galluzzi compounded his underlying misconduct by obstructing justice through perjurious statements. He therefore imposed an upward adjustment of Galluzzi's sentence. The United States Court of Appeals for the Third Circuit affirmed this adjustment (Mui Declaration, Exhibit E (Opinion at 10-15)).
Galluzzi's criminal violations were not isolated; rather, they occurred over a lengthy period. Although Galluzzi's conviction was affirmed on appeal, he has refused to recognize the wrongful nature of his conduct and continues to insist that he was wronged. He has not expressed any remorse for his criminal violations.
Galluzzi has stated that he has no intention of associating with a broker or dealer in the future, and no concern about being barred from any business that requires a Commission license (Prehearing Conference of November 17, 2000, at Tr. 4, 19; Prehearing Conference of April 17, 2001, at Tr. 46). While he has pledged not to violate the securities laws in the future, the absence of a bar would enable him to do so.
I am aware of no mitigating evidence and no rehabilitation evidence in this case. Considering the Steadman factors in their entirety, the public interest plainly warrants the relief sought by the Division.
It is ordered that:
1. The Division of Enforcement's motion for summary disposition is granted.
2. The prehearing conference scheduled for September 5, 2001, is cancelled.
3. Joseph P. Galluzzi is barred from association with any broker or dealer.
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 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.
James T. Kelly
Administrative Law Judge
|1||The process of requiring the Division to justify its invocation of privilege resulted in the release to Galluzzi of several additional documents. See Order of April 11, 2001, at nn.1-2.|
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