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Initial Decision of an SEC Administrative Law JudgeIn the Matter of
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In the Matter of BRETT L. BOUCHY and
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INITIAL DECISION July 9, 2002 |
| APPEARANCES: | Gregory C. Glynn and Roberto A. Tercero for the Division of
Enforcement, Securities and Exchange Commission
Gregory J. Sherwin for Respondent Richard C. Whelan Michael Salcido for Respondent Brett L. Bouchy |
| BEFORE: | Robert G. Mahony, Administrative Law Judge |
INTRODUCTION
The United States Securities and Exchange Commission (Commission) instituted this proceeding by its Order Instituting Public Administrative Proceeding Pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (OIP) on October 24, 2001. The OIP alleges that on March 22, 2001, following a bench trial, the United States District Court for the District of Arizona, Phoenix Division, entered an Order containing Findings of Fact and Conclusions of Law (Order), and entered judgment against Respondent Richard C. Whelan (Whelan) and Respondent Brett L. Bouchy (Bouchy), permanently enjoining them from any future violations of the securities laws.
Respondent Whelan filed his Answer on or about January 4, 2002, and Respondent Bouchy filed his Answer on or about January 23, 2002. A hearing was held on April 3, 2002, in Los Angeles, California, to determine whether a permanent bar from association with a broker or dealer is in the public interest pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 (Exchange Act). The Division introduced nine exhibits, including one demonstrative exhibit, but called no witnesses. Respondents called no witnesses and introduced no exhibits. The Division filed a Posthearing Brief on May 3, 2002, and Respondents filed a joint Posthearing Brief on June 10, 2002.1 The Division filed a Reply Brief on June 20, 2002.
FINDINGS OF FACT
My findings and conclusions are based on the evidence, all arguments and proposals of fact and law, as well as the pleadings, relevant statutes, regulations, and case law. The applicable standard of proof is preponderance of the evidence. See Steadman v. SEC, 450 U.S. 91 (1981).
The Injunction
On December 2, 1996, the Commission filed a Complaint for Permanent Injunction and Other Relief in the United States District Court for the District of Arizona (District Court). See Securities and Exchange Commission v. Brett L. Bouchy and Richard C. Whelan, Case No. 96-2629 (PHX) (D. Ariz. Dec. 2, 1996). After a bench trial, the District Court issued it Order on March 22, 2001, finding against Respondents, and permanently enjoining them from any future violations of the securities laws. (Div. Ex. 1.) Additionally, the District Court denied the Commission's request for disgorgement, but ordered that Respondents each pay a $50,000 fine. (Div. Ex. 1 at 20.)
On April 25, 2001, the District Court issued an Amended Final Judgment for Permanent Injunction and Other Relief as to Respondents whereby it granted the Commission's motion to amend the District Court's judgment to include greater specificity. Pursuant to the reasons set forth in its Order dated March 22, 2001, the District Court ordered that Respondents be enjoined from violating Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Exchange Act and Rules 10b-5, 10b-6 (now Regulation M), and 10b-9 thereunder. It also imposed second tier civil monetary penalties of $50,000 each against both Respondents. (Div. Ex. 2.)
Brett L. Bouchy and Richard C. Whelan
From the fall of 1990 to the end of 1992, Respondents were registered brokers with First American Biltmore Securities (FABS), a securities firm, and then with another securities firm called Franklin-Lord, Inc. (Franklin-Lord), which Respondents controlled. (Div. Ex. 1 at 1.) Respondents became interested in a publicly traded company called Supermail International, Inc. (Supermail), in late 1990 when the stock was thinly traded. Supermail was founded by Tom Miller (Miller) and began doing business in the mid-1980's as a check cashing business. Christine Umbertino (Umbertino) joined Supermail in 1985 as an officer of the company and was primarily in charge of Supermail's day-to-day operations. (Div. Ex. 1 at 1-2.) Umbertino became Supermail's Chief Executive Officer and Chairman of the Board when Miller resigned in 1991. (Div. Ex. 1 at 2.)
In the District Court proceeding, each Respondent asserted his Fifth Amendment privilege and refused to testify about any of the transactions relevant to this proceeding. From the exercise of the privilege by Respondents, the District Court inferred that their testimony would have implicated them in illegal activities. (Div. Ex. 1 at 2.)
Raymond Newberg
Raymond Newberg (Newberg) was a close personal friend of both Respondents, and at all times material to this proceeding, he was a resident of Arizona and employed as a baggage handler for an airline. Newberg asserted his Fifth Amendment privilege and refused to answer any questions during the District Court proceeding. Based on his exercise of the privilege, the District Court inferred that Newberg's testimony would have implicated him in illegal activities. (Div. Ex. 1 at 2.)
Transaction #1
Sometime in the fall of 1990, Umbertino visited FABS's Phoenix office and conducted a presentation of Supermail stock for FABS's brokers. While FABS was a market maker in Supermail stock prior to Umbertino's presentation, its trading of the stock was not very active until after the presentation. Thereafter, Respondents became interested in promoting Supermail stock to their customers and in the first half of 1991, FABS agreed to perform a private placement for Supermail. (Div. Ex. 1 at 2-3.) Respondents were primarily responsible for selling a private placement of Supermail stock to their clients and in doing so they raised over $1 million in a thirty-day period, and a total amount of approximately $1.8 million. (Div. Ex. 1 at 2-3.)
After Umbertino's presentation at FABS, Supermail directors and their relatives were asked to deposit some of their shares with FABS so that there would be stock available to be sold. Between December 1990 and March 1991, Supermail's board members or their relatives sold over 800,000 shares of Supermail stock through FABS, and of those, over 500,000 shares owned by Patricia Miller, Frank Miller, and Coriene Morrison (Morrison) were sold at prices substantially below their market value.2 As Respondents continued to successfully market Supermail stock to their clients, they requested that Supermail shareholders grant them free stock because they were unhappy with the amount of commissions that they were receiving at FABS. Tom Miller testified before the District Court that he gave Respondents free stock, although the exhibits before the District Court did not evince any transfers of stock between Miller, Bouchy, or Whelan. (Div. Ex. 1 at 3.)
In December 1990, Bouchy set up a new account for his wife, Cathryn Monica Vega (Vega), at FABS so he could market Supermail shares. In December 1990 and January 1991, Patricia Miller, Morrison, Frank Miller, and Stephanie Myer all directed transfers of Supermail shares to Vega's account with the intention that the shares be considered free stock for Bouchy and Whelan. Vega had no known relationship with Supermail or any of its shareholders at that time, and paid nothing in exchange for the Supermail shares. (Div. Ex. 1 at 3.) A total of 347,500 shares of Supermail stock were transferred to Vega's account at FABS and then sold by Bouchy almost immediately thereafter. The sale yielded a total of $119,592. After the sales, FABS wired the funds to Vega's bank account. Over a three-month period, Vega withdrew just under $110,000 in fourteen different cash withdrawals from various branches of her bank. For example, on December 26, 1990, Vega withdrew over $41,000 in cash from three different branches of her bank. (Div. Ex. 1 at 3-4.)
On February 27, 1991, Mutsuyo Cox (Cox), the wife of a Supermail director, also transferred 100,000 shares of free stock to Bouchy's childhood friend, Christian Tamburelli (Tamburelli), which he immediately sold through FABS for $124,978. Tamburelli had no known relationship with Cox, Supermail, or any of Supermail's shareholders. FABS subsequently wired the funds to Tamburelli's bank account, which Tamburelli later withdrew in cash in March 1991. (Div. Ex. 1 at 2, 4.)
Overall, the stock transfers to Vega's and Tamburelli's accounts and the cash withdrawals that followed were intended as additional compensation for Respondents' efforts in promoting Supermail. Respondents directed that Supermail shareholders transfer the shares to Vega's and Tamburelli's accounts because they did not want FABS to find out that they were receiving additional compensation from Supermail in the form of free stock. Moreover, while Respondents did not charge many of their customers a commission, they continued to market Supermail stock to their customers without telling those customers that they were being paid additional compensation for promoting Supermail stock. (Div. Ex. 1 at 4.)
Transaction #2
In early June 1991, Respondents recommended to Umbertino that Supermail invest in U.S. Pawn warrants using some of the excess cash that it had retained from its $1.8 million private offering. At Respondents' direction, Supermail wired $262,000 to Newberg's brokerage account in Chicago. Respondents told Umbertino that U.S. Pawn warrants could not be purchased in Arizona and that Newberg was a broker in Chicago who could make the purchase. Their representations about Newberg were false. (Div. Ex. 1 at 5.)
No U.S. Pawn warrants were ever bought for the account of Supermail. Instead, the $262,000 that Supermail wired to Newberg's account was then wired to a bank account in Newberg's name in Arizona, and then to his account at FABS. Ultimately, Newberg allowed Respondents to take the $262,000 from his FABS account and use it to buy 100,000 shares of Supermail stock. At the end of June, Respondents reported to Umbertino that Supermail's $262,000 investment in U.S. Pawn warrants had already yielded a profit of $302,495, which Supermail consequently booked as a gain on the investment. (Div. Ex. 1 at 5.)
When it came time for Supermail's year-end audit, there was no documentation of the purchase of U.S. Pawn warrants or the gain that had been booked by Supermail. In February 1992, Umbertino recorded contemporaneous notes during a conversation with Respondents where they advised her that they had not purchased the U.S. Pawn warrants as they had promised. Thereafter, Respondents agreed that they would sign whatever documentation Supermail's auditors needed to document a loan transaction, and promised that they would pay the money back to Supermail. (Div. Ex. 1 at 6.)
Umbertino responded by sending them backdated promissory notes so Supermail could document what had happened to its $262,000. She also sent them a letter prepared for their signatures documenting the gain. Respondents did not sign either set of documents. Instead, a promissory note was returned to Supermail purportedly signed by Newberg dated June 4, 1991, in the amount of $262,000. They also sent a letter dated July 22, 1991, again purporting to be signed by Newberg stating that as of June 30, Supermail's investment had a gain of $302,495.74. However, while Supermail received both of these documents in March 1992, Respondents had forged Newberg's signatures on the documents. (Div. Ex. 1 at 6.)
Newberg did, however, sign a letter dated June 8, 1992, informing Supermail's auditors that he had used a $262,000 loan from Supermail to purchase an airplane that was subsequently sold for a gain of $605,000, of which $302,000 was for Supermail. Even though Newberg wired Supermail $302,000 as a follow-up to this letter, the transaction that he described in his letter was in reality a fictitious transaction. (Div. Ex. 1 at 6-7.) The $302,000 that Newberg wired to Supermail was originally Tom Miller's. In March 1992, Respondents approached Tom Miller and requested that he sell $350,000 worth of his restricted Supermail stock to an investor named John You (You), and then loan $302,495 of that amount to Newberg. The balance of the funds, some $47,500, was paid as a commission directly to Randy Story (Story), a friend of Whelan's and a broker at Franklin-Lord. Whelan had encouraged Story to sell the large block of restricted shares at below market rates to You. The sale was made directly and not through Franklin-Lord. (Div. Ex. 1 at 7.)
Umbertino may have been aware of the source of the $302,000 since she helped Respondents cover up the fictitious purchase of U.S. Pawn warrants. The District Court found that Respondents had tried to cover up their defrauding of Supermail by convincing Tom Miller to sell restricted shares at a below market rate and then loan the money to Newberg. Tom Miller was never repaid any of the $302,495 he loaned to Newberg at Respondents' insistence. (Div. Ex. 1 at 7.)
Supermail received what was to be one of three installments on the promissory note from Newberg. A check dated June 30, 1992, and drawn on Newberg's account for $87,300 was sent to Supermail purporting to be the first installment on the promissory note. However, because the check was drawn on insufficient funds, that same amount was later delivered to Supermail in cash. Newberg never tendered any other payments to Supermail. (Div. Ex. 1 at 7.)
The $262,000 that Supermail originally intended for the U.S. Pawn warrants eventually made its way into Respondents' pockets through another series of transactions. After Respondents sold the 100,000 shares of Supermail stock that they had purchased using the $262,000 from Newberg's account, they purchased stock in Scorpion Technology and U.S. Pawn. In July 1991, Newberg deposited $195,000 into his First Interstate checking account, and then distributed $55,000 to Bouchy and $9,000 to Whelan. He also paid Whelan's $43,000 short-term loan at Fidelity National Title. (Div. Ex. 1 at 8.)
Transaction # 3
In late June 1991, Bouchy, Whelan, and John Cathcart (Cathcart) contributed $80,000, $60,000, and $20,000, respectively, to a FABS bank account at Bank America. That money was then wired to a bank account in Chicago held by Robert Dolan (Dolan). Dolan then transferred the $160,000 to a brokerage account in Chicago called Coltrane, Howe and Barnes. The $160,000, plus an additional $20,000, was then sent to Dolan's account at Otra Clearing. On July 5, 1991, Dolan used the $180,000 to purchase 450,000 shares of U.S. Pawn stock in his name. (Div. Ex. 1 at 8.)
Around this time, Respondents recommended that Supermail invest some of its surplus cash in U.S. Pawn stock. However, what Respondents failed to disclose to Supermail was that the stock it was purchasing was stock owned by Respondents. On July 16 and 18, 1991, 315,000 shares of the 450,000 shares that Dolan purchased were sold for a total of $338,995, or a profit of over $200,000 in less than two weeks. On the same day that Dolan's shares of U.S. Pawn were sold, the same amount of shares of U.S. Pawn stock were purchased for Supermail at $1.25 per share. Dolan had purchased the same shares at $.40 per share less than two weeks earlier. (Div. Ex. 1 at 8.)
After Supermail purchased the U.S. Pawn stock, it experienced a cash crisis. Umbertino called Respondents and they told her that Supermail could not sell its position in U.S. Pawn, but that they would arrange for some short-term loans for the company. Thereafter, Dolan loaned Supermail $384,000 from the profits that he realized after the sale of U.S. Pawn stock. Newberg also loaned Supermail $61,000 of the remaining funds in his account. When Supermail repaid the short-term loan, totaling $445,000, all of the monies were wired to Newberg's Arizona bank account. On August 1, 1991, Newberg gave Respondents $120,000 each from the monies that Supermail wired to Newberg's Arizona bank account. Newberg also used $113,000 of the $445,000 to buy U.S. Pawn warrants, and sent checks totaling $49,000 to both Bouchy and Whelan. In essence, Respondents purchased U.S. Pawn stock at $.40 per share and then sold it two weeks later to Supermail for $1.25 per share, and in doing so, reaped profits of almost $400,000. All the while, Supermail unknowingly bought stock in U.S. Pawn from Respondents using their nominee Dolan. (Div. Ex. 1 at 9.)
Steve Harrington (Harrington), a friend of Whelan's since high school, said that Respondents told Umbertino that Supermail would be buying their share of U.S. Pawn and that Respondents would be tripling their money. However, the District Court did not find this testimony to be credible because had Respondents made such a disclosure, they would not have gone through the elaborate series of transactions to purchase and disguise ownership of the shares or have employed a complicated method of returning the proceeds to them. (Div. Ex. 1 at 8.)
Transaction # 4
Newberg used $98,000 of the loan repayment funds to purchase U.S. Pawn warrants. Supplemented by an additional $15,000, Newberg bought 330,500 U.S. Pawn warrants, which he later sold at a profit of over $184,000. Newberg returned the money to Respondents using numerous money orders in the amount of $1,000 each. In all, Newberg distributed money orders totaling $138,000 and $11,000, to Bouchy and Whelan, respectively. (Div. Ex. 1 at 9.)
Respondents also entered into a second transaction involving U.S. Pawn warrants using a bank account owned by a man named Kenneth Straughn (Straughn). Bouchy's assistant, Nathan Skoog (Skoog), was provided with $61,700, and he wired this amount to Straughn's bank account at Bank Western. These monies were then used to purchase 181,837 U.S. Pawn warrants, which were later sold for a profit of over $51,000. Afterwards, Straughn sent Newberg these monies and Newberg withdrew them from his bank account using multiple cashier's checks of $9,900 each. (Div. Ex. 1 at 10.)
FABS was the broker-dealer acting as the underwriter for a $2 million minimum offering of U.S. Pawn warrants during the time that Straughn and Newberg were buying and selling U.S. Pawn warrants with the funds that Respondents provided them. If the minimum warrants had not been sold, all monies would have been required to be returned to investors. Respondents utilized their funds through Straughn and Newberg to close the offering, to avoid having to return the warrant proceeds to investors, and hide their ownership of the warrants. (Div. Ex. 1 at 10.)
Transaction # 5
After Respondents and Cathcart formed Franklin-Lord, they engaged in an initial public offering (IPO) for a company known as 2 Bi 2. Respondents arranged to purchase IPO shares through Newberg, who transferred $40,000 to a man named Brian Chalupa (Chalupa). Chalupa took the $40,000, and with an additional $5,000, purchased 10,000 shares of stock and 5,000 warrants in Wholesome and Hearty Foods. The warrants and some of the shares of stock were subsequently sold for a profit of $46,000. Chalupa then bought 15,000 IPO shares of 2 Bi 2 on September 24, 1992, for $45,450. After the stock began trading, Chalupa sold the 15,000 2 Bi 2 shares for $78,360, or a profit of over $32,000. Chalupa then wired the funds in his Franklin-Lord account to his bank account. On October 2, Chalupa sent $72,100 back to Newberg. (Div. Ex. 1 at 10.)
In connection with the 2 Bi 2 IPO, Respondents advised Franklin-Lord's brokers that they were to sell 2 Bi 2 shares to long-term investors and that if any broker sold IPO shares immediately, they would not receive their commission on that sale, and they would not receive future allocations of IPO shares of new companies. The Division characterizes this as a "no net sales" policy, whereas Respondents refer to it as an "anti-flipping" policy. The District Court found that the evidence supported the conclusion that Franklin-Lord had an "anti-flipping" policy for some of its brokers. The witnesses who testified in court about the "no net sales" policy all admitted that they did sell their clients' IPO shares within thirty days and still received their commissions. (Div. Ex. 1 at 10-11.)
Respondents advised brokers at Franklin-Lord that they should get customers to commit to after-market purchases at the time that they sold them IPO shares. The District Court found that the evidence showed that after-market shares were required to be purchased by some customers in order for that customer to be allowed to purchase IPO shares, and that after-market shares were ordered before 2 Bi 2 was publicly traded. While the District Court found that there were delays in some customers' purchases of 2 Bi 2 IPO shares, the evidence did not support any refusal to allow customers who bought 2 Bi 2 stock in the IPO to sell the stock. (Div. Ex. 1 at 11.)
Respondents used Chalupa to purchase 15,000 IPO shares of 2 Bi 2 stock and to obtain secret profits by selling those shares on the first day that the stock was publicly traded. The proceeds of those profits inured to the benefit of Respondents. The evidence before the District Court showed that while Respondents were advocating the 2 Bi 2 IPO as a long-term investment to many of their brokers, they were fueling the aftermarket price of 2 Bi 2 on its first trading day by selling over 350,000 shares to IPO customers.
CONCLUSIONS OF LAW
The Division contends that the District Court correctly found that Respondents violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. (Div. Brief at 20-22.) It further contends that because the District Court proceeding against Respondents was fully and fairly litigated, the doctrines of res judicata and collateral estoppel prevent Respondents from relitigating or challenging the Court's findings of fact and conclusions of law in the present proceeding. (Div. Brief at 22-24.) The Division's position is that Respondents' conduct was so egregious and intentional that it is necessary to permanently bar them from registration and association with a broker or dealer to protect the investing public. (Div. Brief at 24-29.)
Respondents contend that this proceeding is barred by the five-year statute of limitations. (Resp. Brief at 3-5.) They also contend that the Division's delay in pursuing this proceeding renders it fundamentally unfair. (Resp. Brief at 5-7.) Lastly, Respondents argue that they have been sufficiently punished for their transgressions and that the Division has not proven that it is in the public interest to permanently bar them from association with a broker or dealer. (Resp. Brief at 7-8.)
Section 15(b)(6) of the Exchange Act empowers the Commission to impose administrative sanctions against persons associated with broker-dealers. Specifically, Section 15(b)(6) of the Exchange Act authorizes the Commission to censure, place limitations on the activities or functions of such person, suspend for a period not exceeding twelve months, or bar such person from being associated with a broker or dealer if the Commission finds that, on the record after notice and opportunity for hearing, such censure, placing of limitations, suspension, or bar is in the public interest and that such person is enjoined from any action, conduct, or practice specified in Section 15(b)(4)(C) of the Exchange Act.
Furthermore, Section 15(b)(4)(C) of the Exchange Act authorizes the Commission to impose administrative sanctions against persons associated with broker-dealers if said persons are permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security. Thus, pursuant to Sections 15(b)(6) and 15(b)(4)(C) of the Exchange Act, the Commission can impose an administrative sanction against a person if there is an injunction and it is in the public interest.
Respondents contend that the Division's case is barred by the statute of limitations as set forth in 28 U.S.C. § 2462, in that the Division's case against Respondents first accrued when Respondents engaged in the wrongful activities that preceded the District Court's judgment against them in March 2001. While the Commission filed suit against Respondents in the District Court in December 1996, the Division did not initiate the present proceeding until October 24, 2001, almost ten years after Respondents committed the wrongdoing that was the basis for the entry of the injunction against them. Respondents rely upon Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996), which held that Commission proceedings that result in a disciplinary suspension or bar are required under 28 U.S.C. § 2462 to be brought within five years of the date when the claim first accrued.
In accordance with prior Commission opinions, Respondents' argument that the Division's action accrued more than five years before this proceeding was instituted is without merit. In Michael J. Markowski, 74 SEC Docket 1537 (Mar. 20, 2001), the Commission stated that "[l]imitations periods . . . commence when the party instituting the proceeding has a `complete and present cause of action.'" Id. at 1539 (citation omitted). The Commission reasoned that because the Division's case against Markowski was based on an injunction issued against him by the United Stated District Court for the Southern District of New York, the Division "did not have a complete and present claim, and its cause of action did not accrue, until the [district court] entered the injunction" against Markowski. Id. at 1540. Likewise, in Robert Sayegh, 69 SEC Docket 1307 (Mar. 30, 1999), the Commission held that the date of the conduct underlying the injunctive action is not determinative, and that the Division's case against a respondent does not "accrue" until a final judgment is entered by the court in the underlying injunctive action. See id. at 1311.
The Commission filed the injunctive action in the District Court on December 2, 1996, the District Court enjoined Respondents on March 22, 2001, and then later amended its final order on April 25, 2001. The Commission instituted this proceeding on October 24, 2001. Because the Division's injunctive action against Respondents was decided on March 22, 2001, and amended on April 25, 2001, the current administrative action against Respondents was clearly brought within the five-year statutory period since the statute of limitations did not begin to accrue until March 22, 2001, at the earliest.
The Division has proven by a preponderance of the evidence that Respondents were permanently enjoined from any future violation of the securities laws in that the District Court, a court of competent jurisdiction, enjoined them from any future violations of Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rules 10b-5, 10b-6, 10b-9 thereunder.3 In light of the District Court's injunction, the only remaining issue to be determined is whether it is the public interest to impose administrative sanctions against Respondents. The imposition of administrative sanctions requires consideration of:
[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 likelihood that the defendant's occupation will present opportunities for future violations.
Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979) (quoting SEC v. Blatt, 583 F.2d 1325, 1334 n.29 (5th Cir. 1978)), aff'd on other grounds, 450 U.S. 91 (1981). The severity of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. See Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976); Leo Glassman, 46 S.E.C. 209, 211-12 (1975); see also Berko v. SEC, 316, F.2d 137, 141 (2d Cir. 1963). Sanctions should demonstrate to the particular respondent, the industry, and the public generally, that egregious conduct will elicit a harsh response. See Arthur Lipper Corp. v. SEC, 547 F.2d 171, 184 (2d Cir. 1976). Sanctions, however, are not intended to punish a respondent, but rather to protect the public from future harm. See Leo Glassman, 46 S.E.C. at 211-12.
Respondents' arguments against any sanction are not persuasive. Their activities were egregious and demonstrated a high degree of scienter in that they repeatedly used their positions as registered brokers to defraud their customers by selling them securities that Respondents secretly owned through nominee accounts. Respondents furthered their fraudulent scheme by not telling their customers that they were selling them securities from Respondents' nominee accounts, and that Respondents had purchased the securities at discounted prices. Moreover, neither Respondent has expressed remorse, or acknowledged the wrongful nature of his conduct. Finally, Respondents' continued presence in the securities industry would present the opportunity for future violations. In its Form 10-KSB filed with the Commission on March 31, 1999, the Orlando Predators Entertainment, Inc. (Orlando Predators), listed Whelan as a director.4 Similarly, in its Form 10-KSB filed with the Commission on January 14, 2002, the Orlando Predators listed Bouchy as a director, and also stated in its Form 10-KSB filed with the Commission on March 31, 1999, that Bouchy "intends to apply for reinstatement of his license in the near future." For these reasons, I conclude that it is in the public interest to bar Respondents from being associated with any broker or dealer.
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 described in the record index issued by the Secretary of the Commission on June 6, 2002.
ORDER
Based on the findings and the conclusions set forth above, pursuant to Sections 15(b)(6), and 15(b)(4)(C) of the Exchange Act, I ORDER that Brett L. Bouchy and Richard C. Whelan 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 Commission's Rules of Practice, 17 C.F.R. § 201.360. Pursuant to that rule, a petition for review of this Initial Decision may be filed within twenty-one days after service of the decision. It shall become the final decision of the Commission as to each party who has not filed a petition for review pursuant to Rule 360(d)(1) within twenty-one days after service of the Initial Decision upon him, unless the Commission, pursuant to Rule 360(b)(1), determines on its own initiative to review this Initial Decision as to any party. If a party timely files a petition for review, or the Commission acts to review as to a party, the Initial Decision shall not become final as to that party.
_______________________________
Robert G. Mahony
Administrative Law Judge
______________________________
| 1 | Citations to the hearing transcript will be indicated by "(Tr. ___.)," and the Division's exhibits will be cited by number as "(Div. Ex. ___.)." The Division's Posthearing Brief will be referred to as "(Div. Brief at ___.)," and Respondents' Posthearing Brief will be referred to as "(Resp. Brief at ___.)." |
| 2 | Patricia Miller is Tom Miller's daughter; Frank Miller is Tom Miller's brother; Morrison was an acquaintance of Tom Miller who later became his wife. (Div. Ex. 1 at 3.) |
| 3 | The doctrine of collateral estoppel, as well as Commission case law, preclude Respondents from any attack in this proceeding on the validity of the findings and conclusions of law made by the District Court. See Blinder, Robinson & Co., Inc., 48 S.E.C. 624, 628-30 (1986), vacated and remanded, 837 F.2d 1099, 1108 (D.C. Cir. 1988) (holding that issues that could have been adjudicated in a prior injunctive proceeding held in a District Court cannot be litigated in a later administrative proceeding), cert. denied, 488 U.S. 869 (1989); Kimball Securities, Inc., 39 S.E.C. 921, 924 n.4 (1960); J.D. Creger & Co., 39 S.E.C. 165 (1959); Kaye, Real & Co., Inc., 36 S.E.C. 373, 375 (1955); James F. Morrissey, 25 S.E.C. 372, 381 (1947). |
| 4 | The Orlando Predators, a Florida corporation that is publicly traded on the NASDAQ SmallCap Market, filed annual reports with the Commission and official notice of those documents is permissible under Rule 323 of the Commission's Rules of Practice, 17 C.F.R. § 201.323. The Orlando Predators filed its Form 10-KSB for its fiscal year ended September 30, 2001, on January 14, 2002. |
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