Securities and Exchange Commission
In the Matter of
JOHN S. BROWNSON
c/o Payless Furniture
3380 East Russell Rd.
Las Vegas, Nevada 89120
OPINION OF THE COMMISSION
Ground for Remedial Action
Respondent was convicted of conspiracy to commit securities fraud, mail fraud, and wire fraud. Held, it is in the public interest to bar him from association with a broker or dealer.
John S. Brownson, pro se.
John R. Teakell, for the Division of Enforcement.
Appeal filed: May 7, 2001
Last brief filed: February 22, 2002
John S. Brownson, a former registered representative with several different registered broker-dealers, 1 appeals from thedecision of an administrative law judge. The law judge granted the Division of Enforcement's motion for summary disposition and barred Brownson from association with any broker or dealer based on his criminal conviction for conspiracy to commit securities fraud, among other offenses. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.
On August 27, 1998, Brownson was indicted for his participation in a conspiracy to commit securities fraud, mail fraud, and wire fraud. On August 5, 1999, Brownson pleaded guilty to one count of conspiracy to commit securities fraud, mail fraud, and wire fraud in violation of 18 U.S.C. § 371. 2 He was sentenced to five months imprisonment followed by three years supervised release during which he is prohibited from engaging in the securities business, and ordered to pay restitution of $1,000 and a special assessment of $50. 3 The record indicates that Brownson's period of supervised release will end in January 2003.
The indictment alleged that, between 1993 and 1995, Brownson and others conspired with an unnamed stock promoter to recommend certain stocks to customers in return for payments from the promoter that were not disclosed to the customers. 4 As part of the conspiracy, the defendants were instructed by the promoter to direct securities trades to specific securities firms where the promoter had "parked" stock in accounts he controlled. Brownsonand two other defendants solicited stock purchases totaling over $60,000 as part of this conspiracy. 5
On September 21, 2000, administrative proceedings were instituted against Brownson and five other respondents based on their convictions resulting from this conspiracy. 6 Brownson admitted, in his answer to the Division's Order Instituting Proceedings (the "OIP"), that the Division of Enforcement's allegations that he had been indicted and convicted were true.
On November 16, 2000, the law judge held a pre-hearing conference in which Brownson participated. At the conference, the law judge informed Brownson that the only matters at issue as to him were whether he was convicted as alleged in the OIP and whether sanctions should be imposed based on that conviction. The law judge also stated her view that the matter could be decided based on a motion for summary disposition, without holding a hearing, and that the likely sanction would be a bar. Brownson did not then challenge the law judge's position regarding either summary disposition or the imposition of a bar.
On January 5, 2001, the Division of Enforcement moved for summary disposition based on Brownson's failure to dispute his conviction for securities fraud. On February 26, 2001, Brownson wrote to the Division to inform it that he opposed the motion for summary disposition. 7 Brownson stated that it was unfair that his case was being considered with other respondents but did not offer any reason for opposing the Division's motion other than tostate vaguely that there were "substantial issues to be considered [which] must be addressed if a major miscarriage of justice is to be avoided." Brownson also attached to the letter a series of "Resolutions and Pledges" purportedly reflecting his commitment to avoid misconduct "during the next ten years."
On March 23, 2001, the law judge ruled in favor of the Division, finding that there was no dispute as to any fact material to the proceeding. The law judge noted that, as required by Commission Rule of Practice 250, 8 she was accepting as true all assertions of fact in Brownson's pleadings. 9 These assertions included that Brownson was "a very minor player in the conspiracy," cooperated with the investigation, and paid the court-ordered restitution and assessment. The law judge further noted that Brownson, who views the securities industry as his "very means of livelihood," intends to "resume such work in the future." In deciding to impose a bar, however, the law judge held that there were "no extraordinary mitigating circumstances in this case to warrant a lesser sanction." 10 The law judge found that barring Brownson serves the public interest and the protection of investors.
Brownson challenges the law judge's decision to grant the Division's motion for summary disposition and argues that the matter should be remanded back to the law judge for an evidentiary hearing. Under Rule of Practice 250, a motion for summary disposition may be granted "if there is no genuine issuewith regard to any material fact and the party making the motion is entitled to a summary disposition as a matter of law." 11
Summary disposition is particularly appropriate where, as here, a respondent has pled guilty to securities fraud. Absent extraordinary mitigating circumstances, such an individual cannot be permitted to remain in the securities industry. There are no such mitigating circumstances present in this case.
Although Brownson asserts that he is entitled to an evidentiary hearing, he fails to make any evidentiary challenge to the findings of the law judge. Brownson claims that he should be permitted to "present his own evidence of the exact nature of his own individual acts and behavior giving rise to this case, the exact duration of these acts, and the exact harm done, if any, to the individual investors as a causal result." He wholly fails to specify, however, the nature of any such evidence or explain how it would establish circumstances, such as rehabilitation or mitigating factors, that would counter a determination that it is in the public interest to bar him. We believe that under these circumstances it was appropriate for the law judge to grant the Division's motion. 12
Brownson makes various additional arguments in his briefs to us, none of which justifies a reversal of the law judge's decision. 13 He challenges the underlying conviction, claiming that, "[a]t the time the trial proceeding took place, petitioner was heavily sedated . . . and hardly knew who he was or what was happening, and, if this had not been so, he would have discharged his counsel." 14 However, as Brownson subsequently concedes inhis brief, his criminal conviction cannot now be challenged collaterally. 15
Brownson also complains that he was at "a grave disadvantage in having his case joined" with the other respondents in this proceeding, some of whom were co-defendants with Brownson in the criminal proceeding. Although, for purposes of this motion, it is undisputed that Brownson's role in the conspiracy was less significant than other respondents, it does not appear that the wrongdoing of others was imputed to him or that he was otherwise prejudiced by having his case consolidated. 16 Indeed, since there was no hearing held in this case (and only one other active respondent remaining at the time Brownson's case was adjudicated by the law judge), 17 the possibility that our view of Brownson's conduct or that of the law judge could be affected by the wrongdoing of others is particularly remote.
In assessing sanctions, we are guided by the following factors:
[T]he 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'soccupation will present opportunities for future violations. 18
Brownson engaged in serious misconduct. Over an extended period, he made recommendations to his clients motivated by his potential personal gain in furtherance of a criminal conspiracy. This was an egregious abuse of the trust placed in him as a securities professional.
Brownson claims that he has "gained valuable experience from this sorry episode, which will stand him in good stead in his future dealings with the public in general and with the more unsavory members of the financial world." Yet, while Brownson asserts that he has learned from this experience, he is unwilling to accept responsibility for his actions. 19 This attitude suggests a troubling lack of appreciation for the responsibilities of a securities professional.
Brownson is prohibited from engaging in the securities business during the pendency of his parole. We have considered whether a person is under court supervision in determining the appropriateness of sanctions. 20 We note that his parole will expire during the next year and, absent our action, Brownson could seek to associate with a broker or dealer. 21 Were he todo so, Brownson could pose a threat to the investing public. Under the circumstances, we believe that it is appropriate in the public interest that he be barred.
An appropriate order will issue. 22
By the Commission (Chairman PITT and Commissioners HUNT and GLASSMAN).
Jonathan G. Katz
In the Matter of
JOHN S. BROWNSON
c/o Payless Furniture
3380 East Russell Rd.
Las Vegas, Nevada 89120
ORDER IMPOSING REMEDIAL SANCTION
On the basis of the Commission's opinion issued this day, it is
ORDERED that John S. Brownson be, and he hereby is, barred from association with any broker or dealer.
By the Commission.
Jonathan G. Katz
1 Brownson was associated with Corporate Securities Group, Inc. (September 1992 to July 1993); Gruntal & Co., Inc.(August 1993 to October 1993); PCM Securities Limited, L.P. (November 1993 to January 1994); Global Strategies Group, Inc. (February 1994 to March 1994); and Paragon Capital Corporation (March 1994 to May 1994).
2 In return for Brownson's agreement to plead guilty to count one of the indictment, the indictment's remaining counts were dismissed as to him.
3 U.S. v. Brownson, 9:98CRO8117-002 (S.D. Fla. 1999).
4 The stocks involved were issued by Malvy Technology, Inc.; United States Exploration, Inc.; Linium Technology, Inc.; Madison Sports and Entertainment, Inc.; Musicsource, Inc.; Entertainment & Gaming International, Inc.; and Optimax Industries, Inc.
5 The indictment does not allocate particular trades to Brownson or the other two defendants. Nor does the indictment state how much money Brownson received from the promoter.
6 The remaining respondents were Darlan Gordon, Francis Taylor, Shirley A. McKinney, Michael J. McEvoy, and Douglas Parks. The law judge barred Gordon from associating with any broker or dealer based on his criminal conviction. Gordon did not appeal and the decision became final as to him. See Darlan Gordon, Securities Exchange Act of 1934 Rel. No. 44235 (Apr. 30, 2001), 74 SEC Docket 2394. Parks, who defaulted, also was barred.
McKinney and McEvoy settled the charges that had been brought against them by agreeing to be barred. See Michael J. McEvoy, Exchange Act Rel. No. 44068 (March 13, 2001), 74 SEC Docket 1411; Shirley A. McKinney, Exchange Act Rel. No. 44069 (March 13, 2001), 74 SEC Docket 1413. Taylor could not be located and charges were dismissed, without prejudice, as to him.
7 The law judge was copied on Brownson's letter to the Division; it does not appear that Brownson otherwise addressed the Division's motion.
8 Rule 250, 17 C.F.R. § 201.250, governs motions for summary disposition.
9 See 17 C.F.R. § 201.250(a) ("The facts of the pleadings of the party against whom the motion is made shall be taken as true . . . .").
10 The law judge also observed that "the Commission invariably imposes a bar in litigated administrative proceedings based on a conviction involving fraud." We have held, however, that "the appropriate remedial action depends on the facts and circumstances of each particular case and cannot be determined precisely by comparison with the action taken in other cases." Martin J. Cunnane, Jr., 53 S.E.C. 285, 288 (1997) (citing Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 (1973)).
11 17 C.F.R. § 201.250(b).
12 Summary disposition may not be appropriate in every case. We have on occasion found that certain criminal convictions warrant less severe sanctions. See, e.g., Alan E. Rosenthal, 53 S.E.C. 767 (1998) (respondent who was convicted of offering gratuity to a pension fund manager barred with right to apply for association after three years). It is also possible that a respondent may present genuine issues with respect to facts that could mitigate his or her misconduct, although we believe that those cases will be rare. We believe that, under such circumstances, an order granting summary disposition would not be appropriate. Here, respondent has failed to identify any such issues.
13 Brownson's two briefs together total four single-spaced pages.
14 Brownson's reference to a trial is unclear; as indicated, he settled the criminal proceedings by pleading guilty. Seen.2, supra.
15 See, e.g., William F. Lincoln, 53 S.E.C. 452, 455-56 (1998) ("A criminal conviction cannot be collaterally attacked in an administrative proceeding.").
16 We have held that such consolidation of proceedings is justified where, as here, there are "[c]ommon issues of law and fact." Kirk A. Knapp, 50 S.E.C. 858, 863 (1992) (rejecting claim of prejudice based on consolidation of disciplinary proceedings). See also Rule of Practice 201, 17 C.F.R. § 201.201 (permitting consolidation in proceedings "involving a common question of law or fact").
17 See n.6, supra.
18 Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981).
19 He claims in his brief that he was "both coerced and misled by his superiors into the course of conduct complained of."
20 Cf. Frank Kufrovich, Exchange Act Rel. No. 45437 (Feb. 13, 2002), 76 SEC Docket 2709, 2718(upholding self-regulatory organization's denial of member's application to permit employment of individual subject to statutory disqualification for felony conviction based in part on fact that individual remained on parole); Adrian Antoniu, Exchange Act Rel. No. 22383 (Sept. 3, 1985), 33 SEC Docket 1574, 1576 (self-regulatory organization ordered to bar proposed association of individual with broker-dealer based on the egregious nature of the individual's crimes, the short period of time since his conviction, and the fact that he remained on probation, notwithstanding individual's claim of rehabilitation), aff'd, 877 F.2d 721 (1989).
21 As a result of his conviction, Brownson is subject to a"'statutory disqualification' with respect to membership or participation in, or association with a member of, a self-regulatory organizaton," for ten years from the date of his conviction. 15 U.S.C. § 78c(a)(39). Consequently, and regardless of the outcome of this administrative proceeding, he will not be able to associate with a broker or dealer without the consent of the appropriate self-regulatory organization and of the Commission. See 15 U.S.C. § 78o-3(g)(2). See also Rizek v. SEC, 215 F.3d 157, 161 (1st Cir. 2000) (discussing the scope of a permanent bar and discussing the "two routes back in" to the securities industry); George Salloum, 52 S.E.C. 208, 217 n.41 (1995) (discussing process whereby person was permitted to associate with broker-dealer notwithstanding statutory disqualification).
22 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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