SECURITIES AND EXCHANGE COMMISSION
In the Matter of
CHARLES F. KIRBY
GENE C. GEIGER
OPINION OF THE COMMISSION
Trader and salesperson of broker-dealer unlawfully sold unregistered securities. Held, it is in the public interest to bar respondents from associating with any broker or dealer and from participating in a penny stock offering with a right to reapply after five years, and to require respondents to disgorge ill-gotten profits, to pay civil money penalties, and to cease and desist from committing or causing any violations or any future violations of Sections 5(a) and 5(c) of the Securities Act.
David A. Zisser, of Berliner Zisser Walter & Gallegos, P.C., for Charles F. Kirby.
Jeffrey J. Scott, of Scott & Associates, P.C., for Gene C. Geiger.
Robert M. Fusfeld, for the Division of Enforcement.
Appeal filed: December 21, 2000
Last brief filed: September 26, 2002
Charles F. Kirby, head trader at Spencer Edwards Securities, Inc.("Spencer Edwards" or the "Firm"), a registered broker-dealer, and Gene C. Geiger, formerly a Firm salesperson, appeal from the initial decision of an administrative law judge. The law judge found that respondents willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 1through the unregistered sale of shares of the common stock of Golden Eagle International, Inc. ("Golden Eagle" or the "Company"). 2
The law judge barred respondents from associating with any broker or dealer and from participating in a penny stock offering, subject to a right to reapply after five years, and ordered them to cease and desist from committing or causing any violations or future violations of Securities Act Sections 5(a) and 5(c). The law judge ordered Kirby to disgorge $31,352.60, plus prejudgement interest, and to pay a civil money penalty of $200,000. The law judge ordered Geiger to disgorge $15,202.48, plus prejudgement interest, and to pay a civil money penalty of $300,000. 3 We base our findings on an independent review ofthe record, except with respect to those findings not challenged on appeal.
During 1995 and 1996, a series of transactions resulted in the unregistered distribution of close to three million shares of Golden Eagle stock. The stock was sold, in three private transactions orchestrated by Ron Knittle, Golden Eagle's president, to Kirby or to an account controlled by Alfred Peeper, a Geiger client who managed investment accounts at Spencer Edwards on behalf of foreign entities. In each case, the purchaser paid substantially less than the prevailing market price and, shortly thereafter, began reselling the stock at a large profit.
A. Background. Golden Eagle was incorporated in Colorado in 1988 by Gary Griffin and his wife, Teresa Whiteside, as Beneficial Capital Financial Services Corp. ("BenCap"). According to a Commission Form 10-SB/AM3 filed in 1994, BenCap was to "provid[e] financial services to emerging growth companies" but had "undertaken limited operations since its inception due to its lack of working capital."
In November 1994, Knittle and his wife, Mary Erickson, sought to acquire roughly 85 percent of BenCap's stock. 4 Griffin agreed to sell control of BenCap, and caused BenCap to sell 4,000,000 shares of restricted common stock to Golden Eagle Mineral Holdings, Inc. ("Holdings"), a company controlled by Knittle and Erickson, in return for a $25,000 promissory note and the "understanding and agreement" that Holdings would "make available" certain unspecified properties "proposed to be minedfor gold and other precious minerals." Knittle and Erickson also paid $75,000 to acquire from existing stockholders a portion of the already-outstanding BenCap stock.
Knittle became BenCap's president and chief executive officer and Erickson its secretary and treasurer. 5 In February 1995, BenCap changed its name to Golden Eagle. According to the Company's Form 10-QSB for the quarter ended September 30, 1995, during the first nine months of 1995, Golden Eagle had engaged in "organization[al] matters and identification of precious metal properties deemed suitable for acquisition." At that time, the Company had net assets of ($5,793), total equity of ($468,659), and 39,690,975 shares of common stock outstanding. Throughout 1995 and 1996, the Company was tardy in its filing of quarterly and annual reports with the Commission.
According to the Company's Commission filings, Golden Eagle stock did not trade from 1992 through the third quarter of 1994. Although the stock began trading during the fourth quarter of 1994, such trading was limited. Geiger testified that the market for the stock was "very illiquid. There wasn't any trading in [the] stock. I mean you could almost say that the stock traded by appointment only." Kirby also characterized the stock as "thinly traded." Although the Company reported that bid quotations for the stock during the fourth quarter of 1994 ranged from $2.50 to $6.25, the stock traded at prices well below $1 per share during much of 1995 and early 1996.
B. Placement of Stock with Nominees. Knittle placed a substantial portion of the BenCap stock that he acquired in the names of various nominees whose trading he controlled. He placed roughly 10 percent of Golden Eagle's outstanding common stock in Paul Vernon's name (the "Vernon Stock"). 6 Vernon executed several blank stock powers and a Schedule 13D, which was filed with the Commission, that falsely claimed that Vernon had paid consideration for his stock.
Whiteside had held at least a portion of the Vernon Stock for over three years. In connection with the change of control, Whiteside directed the Company's transfer agent, purportedlypursuant to Commission Rule 144(k), 7to issue a new certificate in Vernon's name without a restrictive legend, i.e., a statement placed on restricted stock notifying the holder that the stock may not be resold without registration. When Knittle subsequently sold shares of the Vernon Stock, the certificates also did not carry restrictive legends.
Knittle used the executed stock powers to dispose of the Vernon Stock. 8 In February 1995, Knittle transferred 85,000 shares of Vernon Stock to Bainbridge, Inc., a home builder. 9 Later that spring, Bainbridge returned the stock to Knittle and Erickson. In May 1995, Knittle transferred Vernon Stock into the name of Kimi Hunsaker, a Golden Eagle clerical employee and Knittle's neighbor. Hunsaker testified that she was unaware of this initial transaction and never paid for the Vernon Stock that she received. At Knittle's direction, Hunsaker transferred shares of Golden Eagle stock to other persons. Vernon was unaware of, and did not authorize, any of the transfers to Hunsaker and Bainbridge.
Knittle also transferred Golden Eagle stock to Ravia Seydler, who was Erickson's mother. 10 Seydler subsequently transferred some of her Golden Eagle stock to Hunsaker at Knittle's direction. Seydler received no consideration for the transfer. According to Hunsaker, Knittle told her that the stock would be "more flexible" in her name than if Seydler held it.
A. Transactions Involving Kirby. In June 1995, Knittle told Geiger that two Golden Eagle shareholders were interested in selling 133,333 shares of the Company's stock. 11 Knittle asked Geiger if any of his clients would be interested in buying the stock. Geiger was acquainted with Knittle because Geiger had previously sued him in connection with an unrelated loan guarantee. Geiger conceded that, as a result of the lawsuit, he did not "have the highest regard at the time" for Knittle, and did not consider Golden Eagle a "very credible" company.
Despite his opinion of Golden Eagle and Knittle, Geiger recommended the Company to Euram B V, a Peeper-controlled account. Knittle delivered to Spencer Edwards a Golden Eagle stock certificate for 133,333 shares in Euram's name. The certificate, which did not have a restrictive legend, was signed by Erickson as corporate secretary. These 133,333 shares included 85,000 shares that had been held by Bainbridge, Inc. (and returned to Knittle when the house construction contract fell through) and 48,333 shares formerly held in Hunsaker's name. 12 Peeper, however, refused to accept the stock.
Geiger then approached his Spencer Edwards colleague, Kirby. Kirby agreed to purchase the stock at roughly $.19 per share for the account of CKC Partners, a partnership that Kirby controlled on behalf of his minor children. 13 Kirby testified that he purchased the stock because it was substantially discounted fromthe prevailing bid price. 14 Kirby quickly resold the 133,333 shares of Golden Eagle stock to other broker-dealer firms in a series of transactions, making a $31,000 profit on his $25,000 investment over a two-week period.
Kirby claims that he would not have purchased the stock if it was not "free trading." However, he made no effort to verify Geiger's assertion that the stock was free trading by contacting either the Company or the transfer agent. He did not examine the Euram B V stock certificate, which Erickson executed as corporate secretary. Kirby never knew the identity of the seller. He gave Geiger a blank check for $25,000 because, according to Kirby, Geiger was "unclear as to who the seller was or who the check was to be made out to." Eventually, Kirby's check was made payable to Erickson. 15 In addition, and contrary to his usual practice and the requirements of Spencer Edwards' procedures, Kirby admittedly failed to notify the Firm in advance that he was purchasing the Golden Eagle stock. 16
B. Violations by Kirby. Securities Act Section 5 prohibits the unregistered offer or sale of securities in the absence of an exemption from registration. 17 It is undisputed that the stocksales at issue were not registered under the Securities Act. 18Thus, these transactions violated Sections 5(a) and 5(c) of the Securities Act unless an exemption from the registration requirements was available. It is well-established that "[e]xemptions from the general policy of the Securities Act requiring registration are strictly construed against the claimant of such an exemption and the burden of proof is on theclaimant." 19 Evidence in support of an exemption must be explicit, exact, and not built on mere conclusory statements. 20
Kirby claims that CKC's transactions were exempt under Securities Act Section 4(1), which exempts from the registration requirements "transactions by any person other than an issuer, underwriter, or dealer." 21 Kirby contends that he is none of these.
We conclude that Kirby was an underwriter. 22 Securities Act Section 2(a)(11) defines "underwriter" to include "any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security." 23 Section 2(a)(11) further defines "issuer" to include "any person directly or indirectly controlling or controlled by the issuer." 24 "Distribution" refers to "the entire process in a public offering through which a block of securities is dispersed and ultimately comes to rest in the hands of the public." 25
CKC was controlled by Kirby and operated for his and his children's benefit. CKC acquired Golden Eagle stock that had been held by Hunsaker, Knittle, and Erickson. Knittle and Erickson, officers and substantial shareholders of Golden Eagle, effectively controlled the Company. Hunsaker, who had not paid for her stock, permitted Knittle and Erickson, without notice to Hunsaker, to orchestrate the disposition of Golden Eagle stock held in Hunsaker's name. CKC paid Erickson for all the stock, including the stock formally in Hunsaker's name. CKC's subsequent resales of the stock into the market were distributions "for an issuer" within the meaning of Section 2(a)(11).
Kirby admits that CKC bought the stock with an intent to resell, and the fact that Kirby immediately caused CKC to resell the stock after its acquisition confirms his intent. 26 Kirby argues, however, that CKC's sales involved too few shares to constitute a "distribution." 27 According to Kirby, the block involved "represented an insignificant percentage" of the roughly25 million shares then outstanding. 28 We find that CKC's sales constituted a distribution.
The determination of whether a sale of stock constitutes a distribution is not dependent on the number of shares involved. Thus, the United States Court of Appeals for the Tenth Circuit found that an individual who sold 25,000 shares of stock was an underwriter. 29 The court noted that, although the amount of shares sold was not "a great percentage of the total issue," the sale "constituted a public distribution." 30
Kirby also claims that he was entitled to rely on Geiger's assurances that the stock was "free trading." 31 Kirby furtherasserts that "Golden Eagle's officers and their nominees perpetrated a fraud on the public trading markets that made it impossible for Mr. Kirby to have found out the true history of the shares which CKC purchased."
Even if the evidence does not conclusively establish that Kirby was aware of the stock's true status, it does establish that he failed to make an appropriate investigation to ascertain that status. More than forty years ago, we stated that when, as here, a securities professional is offered a substantial block of a little-known security, either by persons who appear reluctant to disclose exactly where the securities came from, or where the surrounding circumstances raise a question as to whether or not the ostensible sellers may be merely intermediaries for controlling persons or statutory underwriters, then searching inquiry is called for. 32
Golden Eagle was a little-known company with limited assets and dubious prospects. It did not trade until the fourth quarter of 1994 and then only sporadically. Kirby admits that he did not investigate the Company other than to perform "a quick technical analysis," consisting of a review of Golden Eagle's stock price, trading activity, and volume. Had Kirby tried to obtain Golden Eagle's most recent annual or quarterly reports (for the fiscal year 1994 and the first quarter of 1995), he would have discovered that, while due in March and May 1995, respectively, they had not been filed. 33 Thus, there was little or no information available regarding the Company's business since the change in control by Knittle.
Moreover, Geiger was unwilling or unable to identify to Kirby the seller of the stock. Although the identity of theseller had a direct impact on the availability of a registration exemption, Kirby willingly gave Geiger a blank check. Had he made even a cursory investigation of the person he was paying, Kirby would have realized that she was the same person who signed, as secretary of the Company, the stock certificate CKC purchased. Kirby also failed to give the Firm prior notice of the trade, as required by Firm procedures, which suggests that he sought to minimize Firm scrutiny of the transaction. 34 We find that Kirby willfully violated Sections 5(a) and 5(c) in connection with CKC's sales of Company stock.
The allegations against Geiger relate to the purchase and sale during 1996 of two blocks of stock, together totaling roughly 2.8 million shares, by a Geiger client.
A. Transactions Involving LaSalle and Hunsaker. In December 1995, Knittle called Geiger (ostensibly on behalf of a Golden Eagle stockholder, Hunsaker) seeking to sell 500,000 shares of the Company's stock. As he had with the earlier blockof Golden Eagle stock, Geiger approached Peeper. Although Peeper had declined the block ultimately sold to Kirby in June, he began trading the Company's stock in August 1995. 35 These trades, however, were not profitable. Despite these losses and his earlier refusal to purchase the shares sold to Kirby, Peeper agreed to purchase the block of 500,000 shares for $25,000, or $.05 per share. The purchase price was a substantial discount from the then-current market price of approximately $.40 a share during January 1996, and was less than the per share price paid by CKC. Peeper purchased the stock on behalf of LaSalle Investment Ltd., an Irish corporation, whose Spencer Edwards trading account Peeper controlled.
Knittle, rather than Hunsaker, negotiated the terms of the transaction, and Geiger had no contact with Hunsaker until after negotiations had been concluded. 36 Hunsaker transferred the stock to LaSalle at Knittle's direction.
The Hunsaker stock certificate, which was delivered to Spencer Edwards in late January, bore a restrictive legend. Geiger told Peeper that the restrictive legend would be removed because the stock had been held for the period required for an exemption under Rule 144. Geiger and a colleague at Spencer Edwards, Thomas Kaufman, 37quickly prepared documents that they sent to the transfer agent to get the certificate reissued without a restrictive legend. Among these documents was a "Notice of Proposed Sale of Securities Pursuant to Rule 144." The Notice represented that the stock had been owned in reverse order by Hunsaker, Ravia Seydler, Paul Vernon, and Gary Griffin. 38 The notice also stated, before listing the names of the shares' previous owners, "Attach Holding Period," presumably indicating that the transfer agent should "tack" the holding periods of the previous owners to that of LaSalle's for purposes of satisfying the requirements of Rule 144. Geiger testified that he received the information regarding the stock's previous owners from someone at the Company, probably Knittle.
After concluding the negotiations with Knittle for the purchase of Hunsaker's stock, Geiger finally spoke to Hunsaker. Hunsaker disclosed that she had never paid Ravia Seydler, the previous owner, for Seydler's stock. Geiger then called Knittle. Knittle did not deny Hunsaker's assertion and instructed Geiger to withhold payment until the matter was resolved. 39 LaSalle never paid Hunsaker, Seydler, or any other party for the stock. Despite LaSalle's failure to make payment, it was issued a new certificate for the stock in late January 1996 which it deposited in its Spencer Edwards account. Although, in investigative testimony, Geiger admitted that payment was relevant to a determination of whether an exemption was available under Rule144, 40Geiger failed to notify the transfer agent that Hunsaker had not paid Seydler.
Kaufman also executed, on behalf of the Firm, a form titled Broker-Dealer Representation which stated that, "[a]fter reasonable inquiry . . . the undersigned is not aware of any circumstances indicating that above referenced seller is an underwriter with respect to the Shares [or] that the sale is part of [a] distribution of securities of the Company." Geiger knew that the Firm's procedures required him to give the Broker-Dealer Representation form to Edward Price, Spencer Edward's president and compliance officer, for review before submission to the transfer agent. 41 However, Geiger failed to do so, claiming that "it was just an oversight." Price testified that he wouldnot have approved the form had it been submitted to him because there were "too many inconsistencies in the paperwork." 42
B. Transactions Involving LaSalle and Hills. David Hills owned roughly 2.3 million shares of Golden Eagle stock. Hills had been Golden Eagle's executive vice president and a director for several months during 1995. He resigned from the Company in September 1995. Hills and Knittle executed a severance agreement providing that Hills would retain roughly 2.1 million of his 2.3 million Golden Eagle shares until Golden Eagle satisfied certain debts to Hills and repurchased Golden Eagle stock held by Hills' family members and friends. Upon satisfaction of those conditions, Hills was to return the 2.1 million shares to the Company. The two certificates representing the Hills shares bore restrictive legends.
At roughly the same time as the Hunsaker transaction, between December 1995 and January 1996, Hills and Knittle separately approached Geiger to sell Hills' Golden Eagle stock. 43 Hills and Geiger knew each other because both had worked at the same broker-dealer. 44 Geiger told Hills that he would "talk to Ron [Knittle and] . . . work out some details."
Knittle urged Geiger to find a buyer for the stock. According to Geiger, Knittle was anxious to accommodate Hills because Knittle "thought [Hills] was a bad guy and he was going to come in and crumble the market." 45
In January 1996, Geiger told Hills that a Peeper-controlled entity would pay $156,000 for 666,000 shares. When Hills delivered the certificate for the 666,000 shares to Spencer Edwards on February 1, 1996, however, Geiger told him that "he had spoken with . . . Knittle -- and that in order to consummate the agreement . . . [Hills] needed to turn in all of [his] certificates, meaning the additional 1.6 million share certificate that [Hills] had." Hills accepted a total sales price for the entire 2.3 million shares of $119,000. 46
Hills received payment for the stock in two wire transfers and one check between February 2 and April 29, 1996. Geiger personally delivered the check, which was dated November 4, 1995, to Hills in February 1996. 47 At that time, according to Hills, Hills asked Geiger whether the check was "still going to be good? It's backdated." Geiger assured Hills that the check would clear despite its date. 48
At Geiger's request, Dennis Brovarone, an attorney, submitted an opinion letter, dated February 5, 1996, to Golden Eagle's transfer agent requesting that the restrictive legend on the Hills certificates be removed. Brovarone opined that the legend could be removed and, by implication, the stock freelytraded based on Regulation S, which provides a safe harbor from the registration requirements for certain "offshore" transactions. 49 Brovarone stated in his opinion that he received representations from the parties to the LaSalle transaction that established that LaSalle was not a "U.S. Person" and that the purchase by LaSalle constituted an "offshore transaction," which "closed on or about November 10, 1995." Based on these representations, Brovarone opined that the certificate could be issued without a restrictive legend "as the 40 day Restricted Period required by Regulation S expired on or about December 20, 1995." 50
At the hearing, Brovarone testified that his understanding of the facts of the LaSalle transaction was entirely dependent on representations made by Geiger. 51 That understanding was wrong in that the transaction did not close until February 1996. There was therefore, as Geiger well knew, no basis for Brovarone's opinion that the 40-day restricted period had expired or that Regulation S could have been relied on to avoid the registration requirements.
C. Sales By LaSalle. The Hills stock was deposited in LaSalle's account on February 6, 1996 and commingled with theearlier deposited Hunsaker block. 52 By August 1996, LaSalle had sold the roughly 2.8 million shares of Golden Eagle stock obtained from Hills and Hunsaker for a total profit of roughly $1.3 million. Gross commissions to the Firm totaled roughly $60,000. Geiger personally received 25% of those gross commissions, or $15,202.48. 53
D. Violations by Geiger. Geiger asserts that he is not liable for LaSalle's sale of unregistered stock previously held by Hunsaker and Hills. Geiger claims that "[n]either the Hills or Hunsaker transactions involved an issuer or underwriter" and therefore qualified for the registration exemption of Section 4(1). We disagree.
Knittle orchestrated the transfer of Seydler's stock to Hunsaker without consideration. He also controlled the disposition of the stock held in Hunsaker's name. Under the circumstances, we find that Hunsaker acted as an issuer or underwriter with respect to those shares. 54
Geiger disputes the Division's claim that he negotiated the terms of the Hunsaker transaction "exclusively with Knittle." He offers nothing, however, to refute the Division's charge. Geiger testified that Peeper had no direct contact with Knittle regarding the Hunsaker transaction and that he, Geiger, was the intermediary between Knittle and Peeper. Hunsaker's testimony demonstrates that Hunsaker acted entirely at Knittle's direction. Geiger made no effort to ascertain the relationship between Hunsaker and Knittle. Since LaSalle acquired the Hunsaker stock from a person controlled by an issuer and did so with an intent to resell the stock (which is demonstrated by its almost immediate resale of the stock), 55LaSalle was an underwriter and could not avail itself of the Section 4(1) exemption claimed by Geiger. 56
Geiger also argues that he acted in reasonable reliance on the transfer agent's determination to remove the restrictive legend from the certificate for the shares LaSalle purchased from Hunsaker and that, in doing so, he acted in conformity with industry custom. 57 Geiger's claim of reliance is disingenuous. The determination by the transfer agent was based on representations concerning the applicable holding periods for Hunsaker and the prior owners of the stock contained in documents prepared and submitted by Geiger and his partner. Yet, while Geiger knew that Hunsaker never paid for the stock and that this fact was relevant to a determination of the availability of an exemption (because it meant that Hunsaker's period of ownership could not be counted towards satisfying Rule 144's holding periodrequirement), he never told the transfer agent. Geiger did not make any effort to investigate Hunsaker's ties to the Company. An investigation would have revealed that Hunsaker was a Golden Eagle employee and that the circumstances surrounding her acquisition of the stock were suspicious. 58 Geiger also breached Firm procedures by submitting the Rule 144 paperwork to the transfer agent without review, further evidencing his lack of reliance. 59
Geiger also argues that, because of his reliance on the transfer agent, he lacked "culpable intent" and that, therefore, he cannot have committed a "willful" violation of Section 5. 60A "willful violation of the securities law . . . means merely the intentional commission of an act which constitutes the violation and does not require that the actor "'also be aware that he is violating one of the Rules or Acts.'" 61 Even if we applied the standard suggested by Geiger, we would find that he acted at least recklessly. 62
E. Regulation S and Other Defenses Raised by Geiger.
Geiger claims that LaSalle's resales of shares that LaSalle acquired from Hills were not required to be registered in reliance on Regulation S. 63 Geiger contends that Regulation S applies because LaSalle, a foreign corporation with no relationship to Golden Eagle, held the stock for 42 days before reselling it. He cites both Note 110 of the Adopting Release for Regulation S and Note 113 of its Proposing release which, after "noting the 40 day restricted period, stated, 'Upon expiration of any restricted period, securities (other than the unsold allotments) will be viewed as unrestricted.'"
Regulation S did not apply to these transactions. While Regulation S was intended to "clarify the extraterritorial application of the registration requirements," we stated in adopting Regulation S that:
In view of the objective of these rules and policies underlying the [Securities] Act, Regulation S is not available with respect to any transaction or series of transactions that, although in technical compliance with these rules, is part of a plan or scheme to evade the registration provisions of the [Securities] Act. In such cases, registration under the Act is required. 64/
We believe that Regulation S did not provide a safe harbor here because LaSalle's sales were part of a scheme to evade the registration requirements. 65 Knittle told Geiger that he was anxious to find a buyer for Hills' stock. He arranged for Geiger to sell the stock to LaSalle and, through LaSalle, to the public. Geiger told Brovarone that Hills' sale of Company stock occurred in November 1995 rather than February 1996. However, Hills testified that he had questioned Geiger specifically about the fact that the check that Geiger gave Hills in February was backdated to November. The remainder of the purchase price was paid to Hills by wire transfers in February and April 1996. The only apparent explanation for the backdating of the check was to provide documentary support for Geiger's claim to Brovarone thatthe sale occurred in November and that, consequently, the stock had been held by LaSalle for at least forty days. 66
Moreover, it appears that Peeper subsequently funneled a large portion of LaSalle's trading profits from its sale of the Hills stock back to the Company through purchases of additional Golden Eagle securities. 67 These transactions further support the finding that the placement of Golden Eagle stock with LaSalle was not in fact a sale that came to rest abroad but, instead, was an attempt to avoid the registration requirements. Under the circumstances, Regulation S was not available.
Geiger also claims that LaSalle's resales were exempt under Section 4(1) because Hills was not an underwriter, issuer, or a dealer. Geiger argues that Hills did not purchase his stock with a view towards distribution. Rather, Geiger argues, Hills acquired his Golden Eagle stock as an investment and sold it only after a change in circumstances. Geiger also argues that Hills did not qualify as an issuer because he had no affiliation with the Company at the time of the sale and because his sale of the stock was not in any way controlled by Golden Eagle. According to Geiger, "the discussions, negotiations and agreement on price [for the stock] were between Mr. Hills and Mr. Geiger."
We find that Hills acted as an underwriter. Hills was to hold his Golden Eagle stock only until certain conditions were met by the Company, and then he was to return it to the Company pursuant to a written severance agreement. Hills testified that, when he contacted Geiger about selling the stock, Geiger told him he would first have to check with Knittle. Knittle authorized the transaction and dictated its terms, including both the price and amount of securities sold. Moreover, Knittle persuaded Geiger to recommend the stock to Peeper despite Peeper's earlier losses. The Hills sale would not have occurred without the direct and active participation of Knittle. Consequently, in our view, Hills was a link in the chain of distribution and an underwriter, which precluded the availability of an exemption under Section 4(1).
We therefore conclude that Geiger willfully violated Securities Act Sections 5(a) and 5(c) in connection with LaSalle's sales of roughly 2.8 million shares of Golden Eagle acquired from Hunsaker and Hills. 68
The Commission has broad discretion to set sanctions in administrative proceedings. 69 Respondents argue that the sanctions imposed by the law judge are excessive. Kirby asserts that he was unaware of the scheme perpetrated by others in facilitating this illegal distribution. He claims that he acted reasonably under the circumstances.
Kirby ignored numerous indications that he was participating in an unregistered distribution and circumvented Spencer Edwards' compliance procedures in doing so. Kirby also has a prior disciplinary record -- he has been twice sanctioned by the National Association of Securities Dealers, Inc. 70 In addition, the law judge found that Kirby was not a credible witness. 71
Geiger notes that he has no prior disciplinary record. He further asserts that he has a wife and three young children, for whom he is the sole means of support. Geiger states that he has recently been terminated by Spencer Edwards as a result of this case, and is not currently associated with a broker-dealer.
Geiger's efforts facilitated a series of transactions that resulted in the distribution of well over a million dollars worth of unregistered securities into the market. Among other things, Geiger violated Firm procedures in submitting Rule 144 paperwork to the transfer agent, failed to disclose necessary information to Golden Eagle's transfer agent, and provided false information to an attorney who was evaluating the legality of the sale of Hills' stock.
We agree with the law judge's conclusion that respondents' conduct in this case was egregious. The registration requirements are the heart of the securities regulatory system. Respondents' actions demonstrate a disturbing lack of regard for that system and justify strong remedial measures.
A bar from association with any broker or dealer with a right to reapply will ensure that respondents are unable to use positions within the securities industry to engage in further schemes. Respondents' actions in furthering the distribution of the stock of Golden Eagle, an issuer with negligible assets and a stock price of less than $1 per share, also demonstrate the need for a penny stock bar. 72 Although respondents' ability to harm investors through their involvement in the distribution of penny stocks is substantially reduced by barring them from associating with a broker or dealer, the penny stock bar will further protect investors by preventing respondents from acting as promoters, finders, consultants, or agents in any penny stock offering. 73
We will permit both respondents to reapply for association with a broker or dealer and for participation in penny stock offerings after five years. We do this in consideration of the facts that Geiger had no prior disciplinary record and Kirby's involvement with this illegal distribution was relatively isolated. By requiring respondents' removal from the securities industry for a substantial period of time, we hope to impress upon respondents the importance of the regulatory requirements they violated and, thereby, help to ensure their compliance in the event they subsequently are permitted to return to the industry.
Respondents must disgorge, with interest, the amounts they received as a result of their participation in these illegal distributions: $31,352.60 for Kirby and $14,109.21 for Geiger. 74 These amounts represent trading profits, in the case of Kirby, and commissions in the case of Geiger, resulting from respondents' involvement in this scheme. 75 We also believe that respondents should be ordered to cease and desist from further violations of the provisions they have been found to have violated, namely Securities Act Sections 5(a) and 5(c). 76
We further believe that the public interest warrants the imposition of a substantial civil money penalty against each respondent. Exchange Act Section 21B(b) authorizes fines of $5,000 per violation or up to $50,000 per violation -- a "Second Tier" Penalty -- if the conduct involved "fraud . . . or deliberate or reckless disregard of a regulatory requirement." The law judge held that respondents merited second tier penalties "because their actions involved deceit and a deliberate or reckless disregard for regulatory requirements." 77 We agree with the law judge's determination to impose second tier penalties for the series of violative transactions with which each respondent was involved.
An appropriate order will issue. 78
By the Commission (Chairman PITT and Commissioners GLASSMAN, GOLDSCHMID, ATKINS and CAMPOS).
Jonathan G. Katz
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47149 / January 9, 2003
Admin. Proc. File No. 3-9602
In the Matter of
CHARLES F. KIRBY
GENE C. GEIGER
ORDER IMPOSING REMEDIAL SANCTIONS
On the basis of the Commission's opinion issued this day, it is
ORDERED that Charles F. Kirby and Gene C. Geiger be, and they hereby are, barred from association with any broker or dealer and from participating in any penny stock offering subject to a right to reapply after five years, such application to be made to the appropriate self-regulatory organization or, if there is none, to the Commission; and it is further
ORDERED that Charles F. Kirby and Gene C. Geiger cease and desist from committing or causing any violation of or future violation of Sections 5(a) and 5(c) of the Securities Act of 1933; and it is further
ORDERED that Charles F. Kirby disgorge the amount of $31,352.60 as a result of his involvement in an illegal distribution of securities during May and June 1995, plus prejudgement interest calculated from July 1, 1995 and that Gene C. Geiger disgorge the amount of $14,109.21, as a result of his involvement in an illegal distribution of securities between January 1996 and August 1996, plus prejudgement interest calculated from September 1, 1996. Interest is calculated inaccordance with Commission Rule 600(b) and will continue to accrue on all amounts owed until they are paid.
ORDERED, that no later than 60 days after funds or other assets have been paid by either respondent pursuant to this order and any appeals have been waived or completed or appeal is no longer available, the Division of Enforcement will submit to the Commission a proposed plan of disgorgement.
ORDERED that Charles F. Kirby and Gene C. Geiger are assessed civil money penalties of $200,000 and $300,000, respectively.
Respondents payments of civil money penalties and disgorgement 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 within thirty days of the date of this order; and (iv) submitted under cover letter which identifies the respondents in this proceeding, and the file number of this proceeding. A copy of this cover letter and check shall be sent to Robert M. Fusfeld, Counsel for the Division of Enforcement, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202-2648.
By the Commission.
Jonathan G. Katz
1 15 U.S.C. §§ 77e(a) and 77e(c).
2 In related proceedings, a United States District Court, on March 4 and September 21, 1999, enjoined, by consent, Golden Eagle and its officers from violating antifraud and other provisions of the securities laws. See Litigation Rel. No. 16079 (March 8, 1999), 69 SEC Docket 937; Litigation Rel. No. 16289 (Sept. 22, 1999), 70 SEC Docket 1916. Golden Eagle's president and another person associated with the Company also consented to a Commission order barring them from participating in a penny stock offering. See Ronald A. Knittle, Securities Exchange Rel. No. 42211 (Dec. 9, 1999), 71 SEC Docket 619.
3 The Order Instituting Proceedings also alleged that Alfred Peeper, a Geiger client, willfully violated Securities Act Sections 5(a) and 5(c) in connection with his involvement in these transactions, and that Edward Price, Spencer Edwards' president and compliance officer, failed reasonably tosupervise Kirby and Geiger. The law judge found violations by Peeper consistent with the complaint and ordered Peeper to cease and desist from future violations of the provisions he was found to have violated. The law judge dismissed the proceedings as to Price. Charles F. Kirby, Initial Dec. Rel. No. 177 (Dec. 7, 2000), 73 SEC Docket 3550. No petition for review was filed as to those actions, and the initial decision has become final as to Peeper and Price.
4 Griffin testified that, at the time of the sale to Knittle, BenCap was a "public company that had traded in the past, but was not trading at that time" and was essentially a shell.
5 According to the Company's filings with the Commission, Knittle and Erickson controlled at least 39 percent of Golden Eagle's stock as of May 1995.
6 Vernon knew Knittle from their church.
7 17 C.F.R. § 230.144(k) (terminating restrictions on sales of certain restricted securities by non-affiliates or former affiliates of an issuer). Whiteside represented to the transfer agent that she ceased to be an affiliate of the Company because of the "complete change of equity, voting, managerial and executive control" of Golden Eagle.
8 For example, Knittle opened an account in Vernon's name at Strategic Resource Management, Inc., a broker-dealer. Knittle sold $46,720 of Vernon Stock from that account in December 1994 without Vernon's knowledge. The proceeds from that sale were wired to Erickson.
9 The stock was placed in escrow as a deposit for a house Bainbridge had contracted to build for Knittle and his wife. The house was not built.
10 Seydler executed at least one document in the record on behalf of the Company as a "Golden Eagle officer."
11 Although Geiger was involved in all of the transactions at issue in this case, the Order Instituting Proceedings did not allege that Geiger engaged in violations in connection with the Kirby/CKC transactions.
12 As discussed above, Knittle previously had placed all of these shares in the name of Paul Vernon.
13 Kirby acknowledged that he "was the partner who makes decisions on [CKC's] behalf" and Edward Price, the Firm's president, testified that CKC was controlled by Kirby. Kirby also testified that he owned 1 percent of CKC and that an entity known as CKC Trust owned the remaining 99 percent. Although Kirby challenges the law judge's finding that he and CKC Partners "were one and the same," he offered no documentary evidence relating to the entity's organization, ownership, or management to contradict that finding.
14 At the time, Golden Eagle was trading on the OTC Bulletin Board. The record does not contain evidence regarding the market for Golden Eagle on June 14, 1995, the date of CKC's purchase. However, CKC sold 76,000 shares at roughly $.41 per share on June 22, 1995. There is no indication that the market for Golden Eagle changed between June 14 and June 22, 1995.
15 While Geiger could not recall actually writing in Erickson's name as the payee, he conceded that the handwriting on the check resembled his handwriting.
16 Kirby disputes the law judge's conclusion that he violated Firm procedures. He asserts that documents relating to CKC's purchase of the stock were reviewed by Shawna Roatch, who acted as Price's "eyes and ears." The procedures required, however, that written notice be given in advance -- not after the fact -- of any securities transaction by a Spencer Edwards employee outside the regular course of employment. Price testified that Kirby's actions violated these procedures.
17 See, e.g., Jacob Wonsover, Exchange Act Rel. No. 41123 (Mar.1, 1999), 69 SEC Docket 694, 701, petition for review denied, 205 F.3d 408 (D.C. Cir. 2000); Michael A. Niebuhr, 52 S.E.C. 546, 549 (1995).
Section 5(a) provides that:
Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly --
(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise;
15 U.S.C. § 77e(a). Section 5(c) provides:
It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security . . . .
15 U.S.C. § 77e(c).
18 Golden Eagle had registered its common stock with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934. 15 U.S.C. § 78l(g).
19 Gearhart & Otis, Inc., 42 S.E.C. 1, 4-5 n.3 (1964) (citing SEC v. Ralston Purina Co., 346 U.S. 119 (1953)), aff'd, 348 F.2d 798 (D.C. Cir. 1965).
20 V.F. Minton Securities, Inc., 51 S.E.C. 346, 352 (1993) (and authority there cited), aff'd, 18 F.3d 937 (5th Cir. 1994) (Table).
21 We note in this connection that, "even if a particular respondent is not an issuer, underwriter or dealer, he is not protected by Section 4(1) if the sale in question is a transaction by anyone in those categories and the respondent's activity bearing upon the sale is sufficiently significant to hold him responsible for it." Owen V. Kane, 48 S.E.C. 617, 619 (1986), aff'd, 842 F.2d 194 (8th Cir. 1988).
22 See Pennaluna & Co v. SEC, 410 F.2d 861 (9th Cir. 1969) (person who sells for control person in connection with a distribution deemed underwriter), cert. denied, 396 U.S. 1007 (1970).
23 15 U.S.C. § 77b(a)(11).
25 Jacob Wonsover, 69 SEC Docket at 705 n. 25.
26 See Jacob Wonsover, 69 SEC Docket at 705 n.25 ("A distribution within a relatively short period after acquisition is evidence of an original intent to distribute.") (citation omitted).
27 Although Kirby testified in some detail regarding his involvement in the transaction at the hearing before the law judge, he earlier claimed (during the Division's investigation) to "have no real memory as to what the circumstances were surrounding that." Kirby's selective memory caused the law judge to conclude that Kirby testified with "a lack of candor." We see no basis for overturning this credibility finding. See Anthony Tricarico, 51 S.E.C. 457, 460 (1993) (credibility findings entitled to "considerable weight" and "can be overcome only where the record contains 'substantial evidence' for doing so").
28 Kirby claims that, at the time of his purchase in June, he "determined" that there were at least 25 million shares outstanding and that, as a result, he saw no need to conduct what he described as "a special inquiry relating to registration issues." Kirby does not provide the basis for his determination, other than the Company's Form 10-KSB, which stated that, as of December 1994, Golden Eagle had 25,617,500 shares outstanding. The Form 10-KSB, however, was filed in August 1995 after his purchase. In any event, as discussed below, we believe that Kirby's investigation of the status of the stock offered to CKC was inadequate under the circumstances.
29 Quinn and Company, Inc. v. SEC, 452 F.2d 943 (10th Cir. 1971), cert. denied, 406 U.S. 957 (1972). In Terry T. Steen, 53 S.E.C. 618 (1998), a case cited by Kirby, we found a registration violation based on a sale of 300,000 unregistered shares where the issuer had in excess of 100 million shares outstanding.
30 Quinn and Company, Inc., 452 F.2d at 946. See also Robert G. Leigh, 50 S.E.C. 189, 195 n.14 (1990) ("fact that only 26,000 shares of stock were involved does not make their sale any the less a public distribution that required registration").
31 Kirby argues that, because CKC sold its Golden Eagle stock to market makers at the market price, it did not "offer" to sell the stock within the meaning of Section 5(c). The Securities Act defines an "offer" or an "offer to sell" as "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, forvalue." 15 U.S.C. § 77b(a)(3). This is a broad definition which encompasses Kirby's efforts on behalf of CKC.
32Distribution By Broker-Dealers of Unregistered Securities, Securities Act Rel. No. 4445 (Feb. 2, 1962), 1962 WL 69442, *2. These principles were recently reaffirmed. See Steen, 53 S.E.C. at 620.
33 The Form 10K was eventually filed in August 1995, five months late, and the 10Q was filed in September 1995.
34 For the reasons discussed above, we do not believe that Kirby relied in good faith on Geiger in concluding that the stock was unrestricted. We find that Kirby knew or should have known of the stock's restricted status. In any event, it is well-established that a securities professional cannot rely on the "'self-serving statements of his sellers and their counsel without reasonably exploring the possibility of contrary facts.'" Distribution By Broker-Dealers of Unregistered Securities, Securities Act Rel. No. 4445 (Feb. 2, 1962), 1962 WL 69442, *1 (citations omitted).
Kirby also suggests that he was misled by Golden Eagle's "improper removal of restrictions from share certificates." Kirby testified, however, that he did not see the the Golden Eagle stock certificate (which had been issued in the name of Euram B V) purchased by CKC. Moreover, we have held that a securities professional cannot rely on the determination of a transfer agent that stock is free trading. See Wonsover 69 SEC Docket at 708 (no relief from obligation to investigate circumstances surrounding stock offering "simply because the transfer agent and Restricted Stock Department eventually cleared the stock.") (citations omitted); Robert G. Leigh, 50 S.E.C. at 194 (finding inadequate investigation notwithstanding respondent's claim of reliance on transfer agent who removed restrictive legend).
35 According to Peeper, he subsequently "became a little bit interested [in the Company] because [he] heard that the buyer CKC has [made a] lot of money on this transaction . . . ."
36 When Geiger was asked if he had negotiated the price, he initially answered "I believe so," but then later stated that "I don't know that I actually negotiated the price." Geiger admitted, however, that he was the intermediary between Knittle and Peeper, handling all communications between the two.
37 According to Geiger, he and Kaufman were partners and generally split their total commissions 50-50.
38 Griffin controlled the Company prior to Knittle. See text accompanying n.4, supra.
39 According to Geiger, Knittle told him that there was "a problem" between Seydler and Hunsaker, that LaSalle should hold the money for the stock until it could be determined whom to pay, and that "[b]asically, if there's a problem, we'll take care of it for you because we made the introduction."
40 At the time in question, Rule 144(d)(1) provided that:
A minimum of two years must elapse between the later of the date of the acquisition of the securities from the issuer or from an affiliate of the issuer, and any resale . . . for the account of the acquiror or any subsequent holder . . . and if the acquiror takes the securities by purchase, the two-year period shall not begin until the full purchase price or other consideration is paid or given by the person acquiring the securities . . . . 17 C.F.R. § 230.144(d)(1) (1995).
In spite of this rule and his investigative testimony, Geiger claimed before the law judge that he did not believe that Hunsaker's failure to pay would be important to the transfer agent in determining whether to remove the restrictive legend.
41 The Firm's Compliance & Supervisory Manual provided:
Even prospective transactions under Rule 144 must be reported to the Compliance Department and be approved before the order may be accepted. The original of each Rule 144 letter should be sent to the Compliance Department.
42 Spencer Edwards sanctioned Geiger for failing to have this documentation reviewed by the compliance department and for failing adequately to investigate the circumstances surrounding the Golden Eagle trades in LaSalle's account.
43 Geiger testified at the hearing that he could not recall whether it was Hills or Knittle who contacted him first with an offer to sell the Hills block. During the staff's investigation, however, he stated that Knittle called him "out of the blue," i.e., presumably before Hills, asking if one of Geiger's clients "would be interested in buying" the stock. Geiger did not disavow this testimony.
44 Hills testified that he was subject to disciplinary proceedings concerning "a dispute about one of the stocks that [he] had been involved with when [he] was a broker," and that, as a result, he was forced to "surrender" his license.
45 Geiger told Knittle that he was reluctant to arrange another sale of the Company's stock because "I've already lost money with your company," a reference to an $80,000 trading loss suffered by Peeper-controlled entities during the preceding months. It is unclear from the record how Knittle overcame Geiger's reluctance regarding this or the earlier transaction involving the Hunsaker block.
46 Hills claimed that the original purchase price of $156,000 was based on a mathematical error by Geiger.
47 The check, which Hills deposited the same day that he received it, was paid on February 9, 1996.
48 Geiger testified that he did not believe that the check had been backdated. Geiger also testified that the transaction was initiated in November when, he claimed, Peeper gave Geiger the check. Geiger did not explain why Peeper would issue a check several months before the stock was transferred.
49 17 C.F.R. § 230.901 (1995). See Problematic Practices Under Regulation S, Securities Act Rel. No. 7190 (July 10, 1995), 59 SEC Docket 1998. See also Offshore Offers and Sales, Securities Act Rel. 6863 (April 24, 1990), 46 SEC Docket 40; Gerald Backman, Amendments to Regulation S Safe Harbor Procedures for Offshore Sales of Equity Securities, 1171 PLI/Corp 225 (2000).
50 Prior to its amendment in 1998, Regulation S contained a 40-day restricted period, during which securities sold in offshore transactions pursuant to Regulation S could not be offered or sold to a U.S. person. See 17 C.F.R. § 230.903(c)(2)(iii) (1995); Offshore Offers and Sales, Securities Act Rel. No. 6863 (April 24, 1990), 46 SEC Docket 40, 52.
51 Brovarone testified that he could not specifically recall whether Geiger told him that the sale by Hills occurred on November 10, but conceded that he relied entirely on Geiger for the facts of the transaction before preparing the opinion.
52 Since the Hills and Hunsaker stock was commingled in a single account, we cannot determine when shares from each of the blocks were sold.
53 Peeper testified that, later in 1996, he caused various entities that he controlled to invest over $500,000 in debentures and additional shares of restricted stock issued by the Company. He also had these entities purchase restricted stock held by associates of Hills whose holdings the Company was obligated to repurchase, thereby reducing Golden Eagle's liability to Hills. Peeper testified that he was reluctant to make an additional investment in the Company following the Hunsaker and Hills transactions because, among other things, he did not like mining companies, but he purportedly changed his mind because of the "profits" generated by LaSalle's trading in the stock. Although the record is not fully developed regarding this aspect of the case, it appears that these additional investments represented an effort by Peeper to funnel a large portion of LaSalle's profits back to Golden Eagle.
54 The safe harbor provisions of Rule 144 did not apply because, among other reasons, Hunsaker had acquired the stock in early 1995 and therefore had not held it for the required period. While Rule 144 permits an unaffiliated owner, under certain circumstances, to tack her ownershipperiod to those of her predecessors in interest for purposes of satisfying the Rule's holding requirements, Hunsaker could not do so because, as Geiger knew, Hunsaker never paid for her stock. 17 C.F.R. § 230.144(d)(1) (1995). Additionally, Knittle, who was an affiliate of Golden Eagle, controlled Hunsaker which made Hunsaker an affiliate as well and also precluded her use of this exemption.
55 See n.26, supra.
56 See, e.g., Sutro Bros. & Co., 41 S.E.C. 470, 476-77 (1963) (finding Section 5 violation based on offers and sales of unregistered stock on behalf of issuer, its nominees, or its underwriters).
57 Geiger concedes that, "in hindsight . . . it could be said that there was less than a perfect investigation conducted."
58 The determination by a transfer agent to remove a restrictive legend does not relieve a securities professional of the duty to investigate. See n.34, supra. Nor is it a defense, if true, that others in the industry rely on transfer agents to determine whether stock is restricted. See SEC v. Dain Rauscher, Inc., 254 F.3d 852, 857 (9th Cir. 2001) (rejecting claim that securities professional should be judged by the industry standard but noting that such standard "is a relevant factor").
59 Geiger asserts, in support of his claim that he acted appropriately, that Spencer Edwards' president and compliance officer, Price, testified that at the time he found nothing improper about Geiger's conduct with respect to the Hills and Hunsaker transactions. Geiger cites testimony by Price that Geiger "makes a good effort to try to follow the rules" and "impressed" Price "with the way he's acted in the last year and a half after I sanctioned him." In light of such testimony and the fact that allegations that Price failed reasonably to supervise Geiger were dismissed, Geiger claims that it was inconsistent to hold Geiger liable. We disagree.
The determination of whether supervision was reasonable is distinguishable from the issue of whether there was underlying misconduct. See, e.g., Arthur James Huff, 50 S.E.C. 524 (1991) (dismissing allegations of unreasonable supervision of salesman who engaged "in a massive securities fraud"). Moreover, as the testimony cited above indicates, Price sanctioned Geiger as a result of Geiger's involvement in these transactions.
60 Exchange Act Section 15(b) authorizes the Commission toimpose certain sanctions based on "willful violations" of the securities laws. 15 U.S.C. § 78o(b).
61 Wonsover v. SEC, 205 F.3d at 414 (quoting Gearhart & Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C.Cir. 1965)). See also V.F. Minton, 51 S.E.C. at 352 ("To have committed a 'willful' violation, a respondent need only have intentionally committed the act which constitutes the violation.").
62 V.F. Minton, 51 S.E.C. at 352 (failure to investigate circumstances surrounding offering of securities was reckless and supported finding of willfulness).
63 17 C.F.R. § 230.901-904.
6446 SEC Docket at 58.
We subsequently issued a release that identified certain "problematic practices" that developed following adoption of Regulation S. We stated in that release that, where "there was no reasonable expectation that the securities could be viewed as actually coming to rest abroad," the transactions "would not be covered by the safe harbors." 59 SEC Docket at 1999 Moreover, Regulation S "cannot be used for the purpose of 'washing off' resale restrictions, such as the holding period requirement for restricted securities in Rule 144." Id.
Regulation S was amended in 1998 to clarify the status of securities sold in offshore transactions and thereby further address certain of the abusive practices that had developed. See generally J. William Hicks, Exempt Transactions Underthe Securities Act of 1933, § 15A.06[a] (2001).
65 Geiger seems to concede that the sale by Hills to LaSalle occurred in February 1996, not November 1995 (as he claimed at the hearing) notwithstanding the November date of the check he gave Hills. See n.47, supra, and accompanying text. Thus the basis for his Regulation S claim differs from Brovarone's opinion, which was based on the representation that LaSalle acquired Hills' stock in early November.
Geiger now contends that LaSalle did not begin to sell the stock acquired from Hills until March 18, 1996, after it had sold the shares (primarily acquired from Hunsaker) already in its account on February 6, the day on which the Hills stock was deposited. As a result, Geiger claims that the Hills stock was held for forty-two days following the date on which the shares were received into LaSalle's account. The Division argues however, and we agree, that the shares of stock from the Hills and Hunsaker blocks were commingled in the one account, and that there is therefore no basis for finding that shares from one block rather than the other were sold at any given point following February 6. Thus, aside from the question of whether these sales were part of a scheme to evade the registration requirements (and, for that reason, ineligible for purposes of Regulation S), Geiger has not shown that the sales were in technical compliance with Regulation S.
66 Even if the check had not been backdated and Hills actually had received partial payment in November 1995, the transaction nevertheless did not close until February 1996 when the stock was transferred by Hills to LaSalle. The restricted period did not begin until the stock was transferred to LaSalle.
67 See n.53, supra.
68 See Kane, 48 S.E.C. at 620 (securities professional held liable for Section 5 violations, notwithstanding the fact that he neither directly sold nor offered to sell any of the securities, based on his having played "crucial role in the distribution at issue").
69 See, e.g., Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 188-89 (1973) ("The fashioning of an appropriate and reasonable remedy is for the Secretary [of Agriculture], not the court. The court may decide only whether under the pertinent statute and relevant facts, the secretary made 'an allowable judgement in [his] choice of the remedy.'") (quoting Jacob Siegel Co. v. FTC, 327 U.S. 608, 612 (1946)).
70 In 1993, the NASD censured Kirby, fined him $5,000, and suspended him for five days as a result of pricing violations at another firm. He was also censured and fined $5,000 in 1987 for recordkeeping violations.
71 Kirby complains that the sanctions are excessive when compared with those imposed in similar recent cases and with those imposed on Geiger. We consistently have held, however, that appropriate sanctions depend on particular facts and circumstances and cannot be determined by comparison with the action taken in other cases. See, e.g., Butz, 411 U.S. at 187 ("The employment of a sanction within the authority of an administrative agency is . . . not rendered invalid in a particular case because it is more severe than sanctions imposed in other cases."); Hiller v. SEC, 429 F.2d 856, 858-59 (2d Cir. 1970); Pasquale Schettino, Exchange Act Rel. No. 44329 (May 21, 2001), 75 SEC Docket 71, 82; Robert A. Grunberg, 52 S.E.C. 1081, 1083 (1996); Jeffrey D. Field, 51 S.E.C. 1074, 1077 (1994); Robert A. Amato, 51 S.E.C. 316, 321 n.25 (1993), aff'd, 18 F.3d 1281 (5th Cir. 1994); J.V. Ace & Co., Inc., 50 S.E.C.461, 467 (1990).
72 See 15 U.S.C. § 78c(a)(51)(A) (defining penny stock) and 17 C.F.R. § 240.3a51-1 (defining penny stock to exclude stocks where the share price is $5 or more or where the issuer has substantial assets).
73 See Russell G. Koch, 52 S.E.C. 1330, 1335 (1997), appeal petition granted, order vacated, 177 F.3d 784 (9th Cir. 1999); James Harvey Thornton, 53 S.E.C. 1210, 1217 (Feb. 1, 1999) (Congress authorized Commission to impose penny stockbars to prevent "unscrupulous securities professionals who have committed penny stock fraud from becoming consultants to or promoters of penny stock issuers after being otherwise banned from the securities industry."), aff'd, 199 F.3d 440 (5th Cir. 1999) (Table).
74 We believe that the disgorgement amount set by the law judge for Geiger erroneously included commissions on transactions not at issue in this case. We therefore have recalculated the disgorgement amount based only on those transactions found violative.
The law judge held respondents liable for interest on the disgorgement amounts beginning on the first day of the month following the end of their illegal activities. We agree with the law judge's determination.
75 See SEC v. First City Fin. Corp., 890 F.2d 1215, 1230-31 (D.C. Cir. 1989) ("disgorgement need only be a reasonable approximation of profits causally connected to the violation").
76 Although there must be some likelihood or risk of futureviolations to warrant the imposition of a cease and desist order, "[a]bsent evidence to the contrary, a finding of violation raises a sufficient risk of future violation." See KPMG Peat Marwick LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC Docket 384, 430, petition denied, No. 01-1131 (D.C. Cir. 2002). Although Kirby was less involved in the illegal distribution than Geiger, his continued insistence that he behaved reasonably under the circumstances and his violation of Spencer Edwards' procedures demonstrates the need for an order requiring future obedience to the registration provisions.
77 Although the presence of the factors enumerated in Section 21B(b) "makes it appropriate to impose second tier penalties . . . it does not follow that we must impose maximum second tier penalties." New Allied Development Corporation, 52 S.E.C. 1119, 1130 (1996).
78 We have considered all of the arguments advanced by the parties. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed herein.
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