INITIAL DECISION RELEASE NO. 87 ADMINISTRATIVE PROCEEDING FILE NO. 3-8803 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION ____________________________ In the Matter of : : INITIAL DECISION DEMITRIOS JULIUS SHIVA : APRIL 1, 1996 : : ____________________________ APPEARANCES: Edward G. Sullivan for the Division of Enforcement, Securities and Exchange Commission, Atlanta District Office Demitrios Julius Shiva, pro se BEFORE: Carol Fox Foelak, Administrative Law Judge The Securities and Exchange Commission (Commission) initiated this proceeding by an Order Initiating Proceedings (OIP) on September 7, 1995, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act). The OIP alleged that a Final Judgment of Permanent Injunction had been entered against Respondent Shiva restraining him from violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act in SEC v. Demitrios Julius Shiva, et al., Civil No. 94-2374-2-1 (D.S.C. Oct. 21, 1994) (aff'd per curiam, No. 94-2501, 4th Cir., June 13, 1995)-[1]- and that the district court had found that Shiva had made material misrepresentations and omissions concerning fraudulent securities and taken steps in furtherance of their eventual sale to the public. I held a hearing in Charleston, South Carolina, on December 11, 1995, at which one witness, Respondent Shiva, testified, and a number of exhibits were received into evidence.-[2]- The Division of Enforcement (Division) filed Proposed Findings of Fact and Conclusions of Law and a Supporting Post Hearing Brief dated January 10, 1996. Mr. Shiva filed his Post Hearing Brief on February 28, 1996. ---------FOOTNOTES---------- -[1]- Hereinafter SEC v. Shiva. -[2]- Citations to the transcript of the December 11, 1995, hearing will be noted as "Tr. __" and to exhibits offered by the Division or Respondent as "Div. Ex. __" or "Resp. Ex. __," respectively. ==========================================START OF PAGE 2====== My findings and conclusions are based on the record and my observations of the respondent's demeanor. I applied preponderance of evidence as the applicable standard of proof.-[3]- ---------FOOTNOTES---------- -[3]- I have considered and rejected all the arguments and proposed findings that are inconsistent with this decision. ==========================================START OF PAGE 3====== FINDINGS OF FACT AND CONCLUSIONS OF LAW Respondent Shiva was associated with The Investment Center, a registered broker-dealer, during the period at least from May 1993 through July 1994. Tr. 10. In SEC v. Shiva, the district court made the following findings of fact: 1) That Defendant Shiva was advised by his employer in early June 1994 that Certificates A-1263 and A-1266, purportedly representing Japanese Yen Bonds valued at approximately $1.6 billion, appeared to be a scam; 2) That after he was advised, he contacted officials at Prudential Securities for the purpose of depositing the certificates for eventual sale to the public, and misrepresented to Prudential that his employer did not understand these instruments; 3) That Shiva was again advised by Geoffrey M. Salkow of Prudential that due diligence conducted by Prudential established that the certificates were fraudulent; 4) That Shiva thereafter coordinated and attended a meeting at Prudential in New York in an effort to deposit the certificates for eventual sale to the public; 5) That certificates A-1263 and A-1266 are counterfeit and fictitious, as established in sworn deposition testimony of Yoshiki Takeuchi, a longtime deputy of the Japanese Ministry of Finance temporarily on assignment to the Embassy of Japan in Washington, D.C.; 6) That defendant Shiva obtained constructive and actual knowledge of the fictitiousness of the certificates and thereafter acted recklessly in his attempts to deposit the certificates at Prudential; and 7) That Shiva holds a license to trade securities, and has exhibited a willingness to proceed with the placement of the certificates, after having been placed on constructive notice of their fictitious nature. Div. Ex. 4. The court further stated that no evidence existed to establish that Shiva had as yet placed for sale or sold the certificates to anyone but that Shiva had demonstrated the intent to continue his ==========================================START OF PAGE 4====== efforts to sell the certificates through his actions, which were ongoing to the date the action was brought. The court also noted in its October 21, 1994, Order, that "[a]s recently as August 18, 1994, he was still contacting Prudential in an effort to place prime bank notes."-[4]- The thrust of Mr. Shiva's Post Trial Brief is to dispute the facts found by the district court. For example, he argues that Mr. Takeuchi's deposition, which the district court relied on to establish that the certificates were counterfeit and fictitious, (Resp. Ex. 4, Section 10) showed the opposite. Mr. Shiva's interpretation of Mr. Takeuchi's deposition testimony is remarkably strained. Mr. Shiva's pleading includes material from his Ex. 10, Section 2, which was proferred, objected to on the grounds of authenticity and relevance, and not admitted into evidence. It consists of copies of letters from and to persons who were not present at the hearing. The letters state the purported legitimacy of two certificates different from those at issue in SEC v. Shiva. As to relevance, Mr. Shiva expressed the view ---------FOOTNOTES---------- -[4]- In a case in which the court described as "an out- and-out fraud" the purported investment of a pension plan's assets in so-called prime bank instruments, the court noted, "Prime Bank Instruments do not exist." SEC v. Lauer, 52 F.3d 667, 669-70 (7th Cir. 1995). It is difficult to define something that does not exist, but SEC Commissioner Wallman's description of "so called 'international prime bank instruments'" is evocative: "According to their purveyors, these instruments have no risk, are issued by the largest international banks and promise returns as high as 150% per year. Is there a better way of defining fraud?" Remarks of Commissioner Steven M. H. Wallman before the Institute of International Bankers (Four Seasons Hotel, Washington, D.C., Mar. 4, 1996). ==========================================START OF PAGE 5====== that, because of the injunction, he could not actually use A-1263 and A-1266 in his quest to prove their legitimacy, so the next best thing was to use statements about other certificates. Tr. 82. This argument is quite strained, as well, and again amounts to a collateral attack on the court's judgment. The doctrine of collateral estoppel as well as Commission case law preclude any attack in this proceeding on the validity of the permanent injunction issued against him or of the district court's findings of fact and conclusions of law underlying that injunction. Blinder, Robinson & Co., Inc., 48 S.E.C. 624 (1986), vacated and remanded, 837 F.2d 1099 (D.C. Cir. 1988), cert. denied, 488 U.S. 869 (1988); Kimball Securities, Inc., 39 S.E.C. 921, 924 n. 4 (1960); J.D. Creger & Co., 39 S.E.C. 165 (1959); Kaye, Real & Co., Inc., 36 S.E.C. 373, 375 (1955); and James F. Morrissey, 25 S.E.C. 372, 381 (1947). According to Respondent Shiva's testimony, he engaged in further dealings concerning additional alleged Yen Bond certificates and at the time of the hearing was involved in some dealings with "overseas trusts" in Europe, about which he was not forthcoming. Tr. 33-36, 41-45. Another public interest consideration is his 1991 conviction on his plea of guilty to grand larceny in South Carolina. Div. Ex. 6; Tr. 45- 55.-[5]- ---------FOOTNOTES---------- -[5]- In his Post Trial Brief, Mr. Shiva continues to object to Div. Ex. 6 (a certified copy of his 1991 sentencing for grand larceny). At the hearing he had objected on the grounds of relevance, arguing that this exhibit "has nothing to do with (continued...) ==========================================START OF PAGE 6====== At the hearing Respondent Shiva affirmatively attempted to discredit those persons who advised him of the fraudulent nature of the Yen Bond certificates by consistently dismissing them as either uninformed or without sufficient authority to make an informed decision on the issue. His supervisors who first told him the bonds were a scam, according to Shiva, did not understand the documents. Div. Ex. 4. The sworn deposition testimony of Yoshiki Takeuchi, First Secretary in the Financial Section of the Embassy of Japan and a long time official of the Ministry of Finance, Securities Bureau, established that the two certificates were counterfeit and fictitious. Resp. Ex. 4, Sec. 10; Div. Ex. 4, p. 2. Mr. Shiva, however, dismissed Mr. Takeuchi's opinion concerning the certificates on the ground that he was not the Minister of Finance. Tr. 85-86. In his Post Hearing Brief he argues that Mr. Takeuchi's testimony actually indicates that the certificates are legitimate. Mr. Shiva's unwillingness to concede or, alternatively, to understand, the fraudulence of the certificates is demonstrated in his Post Hearing Brief as it has been throughout this proceeding. This also bears on the public interest issue. ---------FOOTNOTES---------- -[5]-(...continued) the Securities & Exchange case and Japanese bonds." Tr. 53. He also stated that his plea on the grand larceny count was part of a plea bargain in which rape charges were dropped. Tr. 49. As indicated in my February 2, 1996, Order, larceny is clearly relevant to an individual's qualifications to work in the securities industry. Indeed it is a basis for proceeding under Section 15(b). See Section 15(b)(4)(B)(iii). Further, Shiva is collaterally estopped from claiming before this tribunal that he did not commit the larceny to which he pleaded guilty and for which he was sentenced in 1991. ==========================================START OF PAGE 7====== PUBLIC INTEREST Imposition of administrative sanctions requires consideration of: ...the 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). The amount of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); Leo Glassman, 46 S.E.C. 209, 211 (1975); Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n. 67 (1976). In his Post Hearing Brief Mr. Shiva asks that any sanctions be limited to barring him from "work[ing] in Japanese Yen Certificates of the 57th Series [or] represent[ing] anybody owning them." The activities for which Mr. Shiva was enjoined were egregious and involved an organized scheme to defraud investors by continued efforts to place fraudulent Japanese Yen Bond certificates with a broker-dealer for eventual sale to the public. Respondent Shiva persisted in his efforts despite warnings from his supervisors that the bonds were fraudulent. There is no evidence of any mitigating circumstance. He has not acknowledged the wrongfulness of his conduct and has given no assurances against future violations. To the contrary, and in ==========================================START OF PAGE 8====== opposition to the district court's findings, he continues to contend that the bonds are not counterfeit and fictitious. Further, the violations were apparently not isolated. In fact, he acknowledged arranging calls with Prudential employees concerning unrelated alleged Yen Bond certificates and additionally refused to answer questions at the hearing concerning his current business activities. A severe sanction also is warranted to deter others from similar activities. For the above reasons, a severe sanction is warranted in this case. It is in the public interest to bar Respondent Shiva from association with any broker or dealer-[6]- and from participating in any placement of Japanese Yen Bond certificates or prime bank type instruments of any nature. CERTIFICATION OF RECORD Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R. Section 201.351(b), I hereby certify that the record includes the items set forth in the record index issued by the Secretary of the Commission on February 8, 1996. Specifically the record includes transcribed testimony from one witness, Respondent Shiva, 6 exhibits offered by the Division and 5 exhibits offered by Respondent Shiva. It also includes the Division's January 10, 1996, Proposed Findings of Fact and Conclusions of Law and a Supporting Post Hearing Brief and -[6]- The Division asked that Mr. Shiva also be barred from association with a municipal securities dealer, investment company or investment adviser. These sanctions, however, are provided for in statutes other than the Exchange Act, which was the sole authority cited for this proceeding. The issue of whether such a collateral bar can be imposed is currently before the Commission. ==========================================START OF PAGE 9====== Respondent Shiva's February 28, 1996, Post Hearing Brief in Relief of any Punishment. ORDER Based on the findings and conclusions set forth above, I ORDER that Demitrios Julius Shiva is barred from association with any broker or dealer and barred from participating in any capacity in the placement of Japanese Yen Bond certificates or "prime bank" type instruments of any nature under Sections 15(b) and 19(h) of the Exchange Act. 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. Section 201.360. Pursuant to that rule, a petition for review of this initial decision may be filed within 21 days after service of the decision. It shall become the final decision of the Commission as to each ==========================================START OF PAGE 10====== party who has not filed a petition for review pursuant to Rule 360(d)(1) within 21 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. ______________________________ Carol Fox Foelak Administrative Law Judge