 |
Home | Previous Page | |
|
||
 |
|
|
|
||
 |
|
|
|
|
|||||||||||||||
|
|
|||||||||||||||
|
|
Initial Decision of an SEC Administrative Law JudgeIn the Matter of
|
| _____________________ | |
| : | |
| In the Matter of | : |
| : | |
| Jerry W. Anderson | : INITIAL DECISION |
| and Robert M. Kerns | : May 31, 2000 |
| : | |
| _____________________ | : |
Appearances:
Karen Matteson and Martin Murphy for the Division of Enforcement, Securities and Exchange Commission
Jerry W. Anderson appeared pro se
Richard G. Sherman, for Respondent Robert M. Kerns
Before:
Robert G. Mahony, Administrative Law Judge
I. INTRODUCTION
The Securities and Exchange Commission (Commission) instituted this proceeding on September 24, 1999, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act). The Order Instituting Proceedings (OIP) alleges that on April 2, 1999, the United States District Court for the Central District of California (District Court) entered a permanent injunction against Respondents Jerry W. Anderson (Anderson) and Robert M. Kerns (Kerns). (Div. Ex. 20.)1 The injunction, among other things, permanently enjoined Respondents from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. (Div. Ex. 20 at 2-3.) The Division of Enforcement (Division) asserts that it is in the public interest to impose remedial sanctions on Respondents as a result of the permanent injunction.
Pursuant to my November 23, 1999 Order, a hearing was held on December 2, 1999, in Los Angeles, California. The Division, represented by counsel, introduced twenty-four exhibits and called no witnesses. Respondent Kerns was represented by counsel and Respondent Anderson appeared pro se. Respondent Anderson made one offer of proof and Respondent Kerns made two offers of proof concerning the testimony of witnesses that was found to be inadmissible in this proceeding.
The Division filed its Posthearing Brief and Proposed Findings of Fact and Conclusions of Law on February 4, 2000. Neither Respondent submitted any posthearing filings.
II. FINDINGS OF FACT AND CONCLUSIONS OF LAW
My findings are based on the pleadings and evidence in the record. I applied preponderance of the evidence as the applicable standard of proof. See Steadman v. SEC, 450 U.S. 91, 104 (1981). The findings of fact and conclusions of law set forth in the District Court's Order Granting Partial Summary Judgment (Summary Judgment) are adopted in this proceeding, as are that court's ultimate findings of fact and conclusions of law as set forth in its Final Judgment of Permanent Injunction and Other Relief Against Defendants Peter Sacker, Jerry W. Anderson, and Robert M. Kerns (Final Judgment) entered on April 2, 1999.2 (Div. Exs. 18-20.)
A. Relevant Entities
Whitworth Energy Resources, Ltd. (Whitworth) and Williston Basin Holding Corp. (Williston) are the managing general partners of at least seventeen oil and gas joint venture offerings. (Div. Ex. 18 at 4-5.) Amerivest Financial Group, Inc. (Amerivest) has been a registered broker-dealer since November 17, 1992, and is the wholly owned subsidiary of Oxford Group of Companies, Ltd. (Oxford Group). Amerivest is the selling agent for the Whitworth and Williston oil and gas offerings and, until recently, all of its business came from selling Whitworth and Williston investments. (Div. Ex. 18 at 6.) On October 14, 1997, the District Court appointed Thomas F. Lennon as the permanent receiver (Receiver) of Whitworth, Williston, and Amerivest. (Div. Ex. 18 at 5-6.) Condor Petroleum, Inc. (Condor) is the operator of most of the oil wells in North Dakota in which either Whitworth or Williston have an interest. (Div. Ex. 18 at 6.)
B. Respondents Jerry W. Anderson and Robert M. Kerns
Respondent Anderson is a co-owner of Whitworth and Williston.3 Anderson is the treasurer and a director of Whitworth and chief executive officer and a director of Williston. Anderson is a member of Amerivest's board of directors. (Div. Ex. 18 at 3.)
Respondent Kerns is the president, chief executive officer, and chief financial officer of Amerivest. He is registered with the National Association of Securities Dealers, Inc., as a registered representative for Amerivest, and is in charge of managing its operations. (Div. Ex. 18 at 4.) Respondents are co-owners of Amerivest's parent company, Oxford Group. (Div. Ex. 18 at 3-4.)
C. Respondents' Regulatory History
On October 16, 1997, upon application by the Commission on September 22, 1997, the District Court issued an Order of Preliminary Injunction (Preliminary Injunction), which prohibited Respondents from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. (Div. Ex. 24 at 3-5.)
In its Summary Judgment issued on May 18, 1998, the District Court found that Respondents had violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. (Div. Ex. 18 at 19-20, Div. Ex. 19 at 1-2.) The District Court found that Respondents engaged in a fraudulent scheme whereby, since at least 1992, they raised between $16 and $19 million from over 500 investors, many of whom were elderly, through at least eighteen offerings of securities in the form of interests in joint ventures and limited partnerships. (Div. Ex. 18 at 7, Div. Ex. 19 at 2.) The District Court also found that Respondents made the following misrepresentations and omissions of material fact:
1. Respondents represented that the monies distributed to investors were derived from revenue generated by the sale of oil and gas, when in fact, beginning by at least mid-1996, only a small portion of distributions to investors was from oil and gas sales, with a much larger percentage of distributions being derived, in Ponzi-like fashion, from new investor funds. (Div. Ex. 18 at 9-11, Div. Ex. 19 at 2.)
2. Respondents failed to disclose that a substantial debt was claimed by Condor to be owed by Whitworth and Williston, and that beginning by at least mid-1996, most of the monies generated by the Condor-operated wells (over $1 million), were applied to this claimed debt rather than being returned to Whitworth and Williston for ultimate distribution to investors. (Div. Ex. 18 at 11-12, Div. Ex. 19 at 2-3.)
3. Respondents falsely represented to investors that Whitworth purchased an interest in specific wells, which it never acquired, during the offerings of interest in certain joint ventures. (Div. Ex. 18 at 12-13, Div. Ex. 19 at 3.) These "phantom" well interests were falsely represented as being a part of the inventory of wells owned by Whitworth in five subsequent offerings. (Div. Ex. 18 at 13.)
4. Respondents grossly overstated Whitworth's ownership interest in about 400 wells by a factor of about twenty during negotiations to purchase an interest in a joint venture. (Div. Ex. 18 at 14-15, 18.)
5. Respondent Anderson engaged in a fraudulent course of conduct by signing Whitworth assignment documents that purported to assign the same interests in the same Condor operated wells to three separate joint ventures. (Div. Ex. 18 at 14, 18-19, Div. Ex. 19 at 3.)
Furthermore, the District Court found that Respondents received ill-gotten gains and Respondent Anderson violated the Preliminary Injunction through a series of continuous fraudulent acts. (Div. Ex. 19 at 4-5.) Respondent Anderson and Kerns received $981,625 and $204,580, respectively, in ill-gotten gains from the entities in receivership in the form of payments on personal bills and credit card accounts. (Div. Ex. 19 at 5.) Respondent Anderson violated the Preliminary Injunction by transmitting to investors memoranda and letters which falsely represented that the Commission and the Receiver had stolen investor monies; that he and the other defendants in the injunctive action were not engaged in a Ponzi scheme and that they had always made full disclosure of all material facts; and that the properties in receivership belonged to investors, when in fact no documents assigning the properties to anyone but Whitworth, Williston, and Amerivest were ever recorded. (Div. Ex. 19 at 7-9.)
On March 27, 1998, the Commission transmitted a letter to Respondent Anderson specifically stating that certain letters from Respondent Anderson and the General Partnership Management Committee (GPMC) to investors were false and misleading and warning that the Commission would seek contempt sanctions if the fraudulent conduct and interference with the District Court's appointed Receiver did not cease.4 (Div. Ex. 19 at 9.)
The fraudulent conduct by Respondent Anderson did not cease, even after he received the March 27, 1998 Commission letter, and the District Court issued its Summary Judgment. (Div. Ex. 19 at 9.) Specifically, on or about August 28, 1998, Respondent Anderson, in concert with the GPMC, caused to be transmitted to investors an "August 28 Update." (Div. Ex. 19 at 9.) This document sets forth a purported "foolproof plan" soliciting additional funds from investors "to get the money from your assets flowing back to you." (Div. Ex. 19 at 9.) In so doing, the August 28 Update made several misrepresentations including that:
[t]here is nothing wrong with having a "Ponzi-like scheme." It's having a Ponzi scheme that would be wrong. It would be wrong to tell people you had purchased wells that you had never purchased. We never did that. It would be wrong to give people money if the wells had not earned that money. We never did that.
(Div. Ex. 19 at 10.) In fact, the District Court had determined at least three months earlier that Respondents had engaged in a Ponzi-like scheme, the Ponzi-like scheme was fraudulent, i.e., "wrong"; Respondents had falsely represented that they had purchased wells that they had not in fact purchased; and investors had been given money by Respondents that the wells had not earned. (Div. Ex. 18 at 9-13, 17-20, Div. Ex. 19 at 10.)
Although in issuing the Summary Judgment the District Court found that the above misrepresentations were material and Respondents acted with scienter, the District Court held a non-jury trial regarding the relief issues to provide the defendants with an opportunity to submit additional evidence supporting or opposing entry of the relief requested by the Commission on February 9 and 10, 1999.5 (Div. Ex. 19 at 3-4.) Following the entry of its Findings of Fact and Conclusions of Law on March 17, 1999, the District Court entered its Final Judgment on April 2, 1999, and, among other things, ordered the following relief.
1. The District Court permanently enjoined Respondents from further violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. (Div. Ex. 20 at 2-3.)
2. The District Court ordered Respondent Anderson to disgorge ill-gotten gains of $981,625, plus prejudgment interest thereon and ordered Respondent Kerns to disgorge $204,580, plus prejudgment interest thereon. (Div. Ex. 20 at 4.)
3. The District Court imposed third-tier civil penalties in the amount of $822,781 against Respondent Anderson and $167,150 against Respondent Kerns. (Div. Ex. 20 at 6.)
The District Court also entered contempt judgments against Respondent Anderson on April 19, 1999, and Respondent Kerns on September 1, 1999, finding that the above conduct constituted clear and convincing evidence that they had acted in contempt of the Preliminary Injunction. (Div. Exs. 21-22.) The District Court ordered Respondent Anderson to disgorge an additional $77,674.24, and Respondent Kerns to disgorge an additional $25,200, constituting the investor monies each received in contempt of the preliminary injunction. (Div. Ex. 22 at 5-6.)
III. SANCTIONS
A. Public Interest
The Division has proven by a preponderance of the evidence that Respondents have been permanently enjoined by the District Court from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. Based on this injunction, the Division recommends that Respondents be barred from associating with any broker or dealer.
Sections 15(b) and 19(h) of the Exchange Act empower the Commission to order a wide range of administrative sanctions against those associated with, or seeking to become associated with brokers or dealers if the Commission determines that that person has committed certain wrongful acts. Specifically, Section 15(b)(6) of the Exchange Act authorizes the Commission to censure, place limitations on the activities or functions of such persons, suspend for a period not exceeding twelve months, or bar such persons from being associated with a broker or dealer, if the Commission finds that, on the record after notice and opportunity for hearing, that censure, placing of limitations, suspension, or a bar is in the public interest.
Proof that an individual has been enjoined by a court of competent jurisdiction from engaging in conduct violative of the federal securities laws is a sufficient basis for imposing sanctions against the party so enjoined, provided that the sanctions are in the public interest. See Russell G. Koch, 52 S.E.C. 1330, 1331 n.4 (1997), vacated on other grounds, 177 F.3d 784 (9th Cir. 1999). Relevant considerations in making the public interest determination are:
the egregiousness of the Respondents' actions; the isolated or recurrent nature of the infraction; the degree of scienter involved; the sincerity of the Respondents' assurances against future violations; the Respondents' recognition of the wrongful nature of their conduct; and the likelihood that Respondents' occupations will present opportunities for future violations.
See Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979) (citation omitted). The severity of a sanction depends on the facts of the particular case and the value of the sanction in preventing a recurrence. See Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 (1973); Hiller v. SEC, 429 F. 2d 856, 858-59 (1970).
The District Court's findings illustrate violations that were egregious, repeated over several years, and committed with a high degree of scienter. (Div. Ex. 19 at 24). Illegal conduct by Respondents did not cease, even after the entry of the Preliminary Injunction and Summary Judgment. Rather, Respondents continued to commit acts, which violated the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The continuing nature of these violations indicates a lack of remorse, and would negate any assurances made by Respondents that they would not violate the antifraud provisions again.6 Additionally, Respondents' respective occupations place them in a position where they would be able to violate the law again. (Div. Ex. 19 at 24.) Specifically, Respondent Kerns is licensed as a principal of a broker-dealer. (Div. Ex. 19 at 24.)
The totality of the circumstances, presence of factors indicative of a likelihood of future violations of the antifraud provisions, and complete failure by Respondents to introduce any mitigating evidence, render it appropriate and in the public interest to bar each Respondent from associating with any broker or dealer.
IV. RECORD CERTIFICATION
Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R. § 201.351(b), I certify that the record includes the items set forth in the Record Index issued by the Secretary of the Commission on March 10, 2000.
V. ORDER
Based on the findings and the conclusions set forth above, and pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act, I ORDER that Respondent Jerry W. Anderson and Respondent Robert M. Kerns each be, and hereby are, barred from association with any broker or dealer.
This order shall become effective in accordance with and subject to the provisions of Rule 360 of the Robert G. Mahony
1 Division exhibits will be cited as "(Div. Ex. __.)." Final Judgment of Permanent Injunction and Other Relief Against Defendants Peter Sacker, Jerry W. Anderson, and Robert M. Kerns, SEC v. Whitworth Energy Resources, Ltd., U.S.D.C. Case No. CV 9706980 CAS (SHx) (C.D. Cal. 1999).
2 When, as here, an administrative proceeding is based on the entry of a district court injunction, Respondents may not relitigate in the administrative proceeding any portion of the underlying district court case, including any findings of fact or legal conclusions made by the district court. See, e.g., Meyer Blinder, 65 SEC Docket 1970, 1973 (Oct. 1, 1997).
3 Respondent Anderson and Peter Sacker (Sacker) co-owned Whitworth and Williston. Sacker was a defendant in the original action brought by the Commission in District Court, but is not a party to this administrative proceeding. (Div. Ex. 18 at 2-3.)
4 The GPMC is an entity purportedly controlled by investors, but in fact controlled by Respondent Anderson and Sacker. (Div. Ex. 19 at 6.)
5 The Commission requested a permanent injunction against each defendant prohibiting future violations of the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; disgorgement by each defendant of his ill-gotten gains with prejudgment interest; and civil penalties against each defendant equaling the amount of his gross pecuniary gains during the five years prior to the filing of this action. (Div. Ex. 19 at 3-4.)
6 Neither Respondent made credible assurances that he would not commit fraudulent acts in the future. In fact, Respondents made "continued protestations of innocence" in various declarations to the District Court. (Div. Ex. 19 at 26.)
http://www.sec.gov/litigation/aljdec/id166rgm.htm
Administrative Law Judge
Footnotes
Home | Previous Page
Modified:06/05/2000