==========================================START OF PAGE 1====== INITIAL DECISION RELEASE NO. 77 ADMINISTRATIVE PROCEEDING FILE NO. 3-8727 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION : In the Matter of : : : INITIAL DECISION VICTOR H. STREVEL : NOVEMBER 14, 1995 : : : APPEARANCES: William P. Hicks and Betty M. Terry for the Division of Enforcement, Securities and Exchange Commission Victor Strevel, Pro Se BEFORE: Glenn Robert Lawrence, Administrative Law Judge ==========================================START OF PAGE 1====== These public proceedings were instituted pursuant to an Order of the Securities and Exchange Commission dated June 19, 1995, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act"). The purpose of the proceeding is to determine whether the allegations in the Order Instituting Public Proceedings are true, and, if so, what, if any, sanction should be imposed. The Division of Enforcement ("Division") has alleged that on July 28, 1994, the Respondent, Victor H. Strevel ("Strevel" or "Respondent"), was convicted, pursuant to a plea of guilty, of one count of conspiracy, twelve counts of securities fraud, and one count of financial structuring. The Division has further alleged that those violations occurred while the Respondent was associated with a broker-dealer registered with the Commission. Respondent contends that the guilty plea was procured, in substance, by fraud and the incompetence of counsel. After a pre-hearing conference, an evidentiary hearing was held on August 20, 1995, at the Federal Correctional Institution at Jesup, Georgia. The findings and conclusions herein are based on the preponderance of the evidence as determined from the record and upon my observation of the various witnesses that testified at the hearing as well as the briefs, arguments and proposals of fact and law of the Division and the relevant statutes and regulations. FINDINGS OF FACT AND CONCLUSIONS OF LAW ==========================================START OF PAGE 2====== First Alliance Securities, Inc. ("First Alliance") was a broker-dealer registered with the Commission between October 30, 1981, and September 14, 1992. (Official files of the Commission). During the pertinent period, First Alliance did business primarily by trading in penny stocks. Tr. 16.-[1]- Strevel is currently incarcerated at the Federal Correctional Institution at Jesup, Georgia, serving a 57 month sentence. Strevel was associated with First Alliance between February 1989 and late August 1989. Tr. 73. Prior to his association with First Alliance, Strevel was associated with other broker-dealers, specifically the Stuart James Company, Inc., between July 1985 and March 1986; Blinder Robinson & Co., Inc., between February 1987 and January 1988; and Power Securities, Inc., between March 1988 and August 1988. Tr. 77, 78. Strevel's title at First Alliance was "Trading Department Liaison." Tr. 17. Strevel's duties at First Alliance included supervising the sales force and setting prices for the securities. Tr. 17-19. On November 18, 1993, in the United States District Court for the Northern District of Georgia, Strevel pled guilty to one count of conspiracy to commit securities fraud in violation of 18 U.S.C.  371, twelve counts of securities fraud in violation of 15 U.S.C.  78(j)(b) and 17 C.F.R.  240.10b-5, and one count of structuring a financial transaction to avoid reporting ---------FOOTNOTES---------- -[1]-Citations to the transcript of the evidentiary hearing will be in the form "Tr.__." Citations to exhibits will be in the form "Ex. ___." ==========================================START OF PAGE 3====== requirements in violation of 31 U.S.C.  5324(3), based upon his conduct at First Alliance. United States v. Victor H. Strevel, Criminal Information No. 1:93-CR-500 (N.D. Ga.). Ex. 6. The judgment was entered on July 28, 1994. Ex. 4. The criminal information to which Strevel pled guilty charged that Strevel, while a senior officer of First Alliance, conspired with others to violate and did violate Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Specifically, the information charged, among other things, that Strevel did and caused others to misrepresent to investors: a. that they would be able to sell stocks purchased from First Alliance and obtain the proceeds when they chose to do so; b. the suitability and level of risk of the stocks promoted by First Alliance; c. that there were no commissions charged by First Alliance; d. the current available market prices for stocks promoted by First Alliance; e. that stocks promoted by First Alliance would be listed on a stock exchange; f. the reasons for the rise and fall in the price of stocks promoted by First Alliance; g. that an investment in the stocks promoted by First Alliance would be profitable; and h. the operations, financial condition, and prospects of the companies whose securities First Alliance and First Alliance stockbrokers sold to investors. Ex. 2, 6. The criminal information to which Strevel pled guilty further alleged that Strevel, among other things, did and caused others to fail to disclose to investors that: a. First Alliance insiders had undisclosed interests in stocks promoted by First Alliance; ==========================================START OF PAGE 4====== b. First Alliance was manipulating the price of stocks promoted by First Alliance; c. First Alliance had a practice or policy of prohibiting net selling by customers, that is, selling a position in one security without purchasing another security; d. the prices investors were paying for stocks promoted by First Alliance contained excessive markups which produced high commissions for First Alliance stockbrokers and exorbitant profits for First Alliance for distribution to First Alliance insiders; and e. the prices at which First Alliance securities were sold to or purchased from investors were arbitrarily established by First Alliance principals and had little or no relationship to the economic value or business success of the underlying companies. Ex. 2, 7. The criminal information to which Strevel pled guilty further alleged that Strevel did and caused First Alliance stockbrokers to: a. attend frequent sales meetings at First Alliance conducted at various times by certain of the senior officers of First Alliance; b. charge First Alliance investors prices which were arbitrarily set by certain of the senior officers of First Alliance; c. execute trades in investors' brokerage accounts without the investors' authorization; d. charge undisclosed excessive markups to investors designed to provide high commissions to First Alliance stockbrokers and exorbitant profits to First Alliance and its insiders; e. represent to investors that there were no commissions, that there was just a $10 ticket fee; f. recommend certain stocks promoted by First Alliance to investors on certain days in order to create an appearance of demand for the stocks promoted by First Alliance; g. use other First Alliance stockbrokers' identification numbers when placing investors' orders, if unregistered to sell securities with the National Association of Securities Dealers, Inc. ("NASD"); and ==========================================START OF PAGE 5====== h. use high-pressure, badgering telephone sales techniques to solicit investors to purchase stocks promoted by First Alliance. Ex. 2, 9. The criminal information to which Strevel pled guilty further alleged that Strevel and others: a. failed to execute investor sell orders and honor investor requests for proceeds from the sale of stocks promoted by First Alliance; b. prevented net-selling by recommending and encouraging investors to reinvest their proceeds in other stocks promoted by First Alliance; c. prevented net-selling by making unauthorized transactions in investors' brokerage accounts; and d. deterred investors from selling First Alliance stocks. Ex. 2, 10. The criminal information to which Strevel pled guilty further alleged that as a result of the conspiracy described above, First Alliance realized income derived from excessive mark-ups charged to the investing public in the approximate amount of $1.4 million, and that Strevel obtained profits through nominee accounts by creating false and misleading brokerage records regarding the beneficial owners of the accounts and concealing profits through structuring transactions. Ex. 2, 12, 13, 14. The criminal information to which Strevel pled guilty also charged that Strevel knowingly structured a transaction with a domestic financial institution for the purpose of evading the reporting requirements of 31 U.S.C.  5313(a), in violation of 31 U.S.C.  5324(3) and 5322, 31 C.F.R.  103.21, 103.22(a) and 103.26(a), and 18 U.S.C.  2. ==========================================START OF PAGE 6====== At the same time that Strevel pled guilty to the information described above, Strevel also pled guilty to a one count indictment charging him with another count of knowingly structuring a transaction with a domestic financial institution for the purpose of evading the reporting requirements of 31 U.S.C.  5313(a), in violation of 31 U.S.C.  5324(3) and 5322, 31 C.F.R.  103.21, 103.22(a) and 103.26(a), and 18 U.S.C.  2. U.S. v. Victor H. Strevel, Case No. 1:93-CR-89 (N.D. Ga.). Exs. 1,4. Strevel's assistant, Ilene Albert, who shared an office with Strevel, testified that the First Alliance scheme operated as follows: a. First Alliance sold penny stocks, including those securities listed in the information. Tr. 16, 17. b. On a given day, First Alliance would promote one of the stocks in which they made a market. Customers would be induced to purchase the stock throughout the day at unspecified prices. In essence, the customer would invest a given amount of money but would not be told exactly how many shares he or she was buying. At the end of the day, all of the order tickets would be provided to Strevel, who would fill in the prices to create the appearance of a price level escalating throughout the trading day. Tr. 18-21. c. Strevel would buy securities for his nominee accounts and his favorite customers at the lowest price and would sell the securities of his nominee accounts and his favorite customers at the highest price. Tr. 20, 21. d. The remaining customers would be left with securities for which they paid top of the market prices. Those customers would not be allowed to sell their securities for cash. Instead, pursuant to First Alliance's no net-selling policy, the customers would be required to invest the proceeds in another security being promoted by First Alliance. Tr. 21. e. Strevel implemented the no net-selling policy. Tr. 21, 22. ==========================================START OF PAGE 7====== Strevel, who was not registered as a representative with the NASD, effected trades in customer accounts using his assistant's registration number. Tr. 20. The no net-selling policy was not disclosed to customers at the time they purchased the securities. Tr. 22. Strevel also opened and traded through nominee accounts, which Albert defined as an account set up in a different name but actually for the benefit of the broker. Tr. 23, 24. Brokers were not told the markups that the firm was charging the customers, and accordingly, could not have disclosed that information to the customers. Tr. 26. Strevel, who conducted the sales meetings, told the brokers only to disclose to the client that there was a $10 transaction fee per trade. Tr. 27. Strevel's assistant, Ms. Albert, also testified that Strevel attempted to dissuade her from cooperating with the government. Tr. 27. At the time that Strevel entered his guilty plea to the charges listed above in both the information and the indictment, Strevel, under oath, stated to the district court judge that he was familiar with the charges in the information and indictment, and that he did the acts charged and was guilty of the violations. Ex. 6 at 20, 21. He further stated that he understood "very well" what was going on that morning. Ex. 6 at 23. He further indicated that the plea was free and voluntary and that he had thoroughly discussed the matter with his attorney. Ex. 6 at 29. ==========================================START OF PAGE 8====== Strevel now refuses to acknowledge that he committed the acts for which he was convicted. Tr. 54. Strevel claims he is not guilty of all the charges. Tr. 56. Strevel claims that he did not know what the charges were at the time of his guilty plea, despite his contrary statement to the judge. Tr. 58. He also claims his attorney lied to him about the prospective criminal sentence he was facing, and that he was "coerced" into entering a guilty plea. Tr. 61, 69. Strevel states that he was lying to the district judge when he stated in giving his plea that he was familiar with the charges. Tr. 75. Strevel refuses to acknowledge any wrongdoing while associated with First Alliance. Instead, he asserted his Fifth Amendment privilege. Tr. 82. Strevel was associated with a broker-dealer between February 1989 and September or late August 1989, the period alleged by the Order Instituting Proceedings. Under the provisions of Sections 15(b) and 19(h) of the Exchange Act, the Commission has jurisdiction to institute these proceedings against Strevel and to impose sanctions. Strevel's convictions fall within the conduct enumerated as a basis for sanctions under Section 15(b)(6) of the Exchange Act, specifically falling under the category of crimes involving the purchase or sale of any security, arising out of the conduct of the business of a broker, or involving fraudulent concealment. See Exchange Act Section 15(b)(6) and, by reference, Section 15(b)(4)(B). ==========================================START OF PAGE 9====== Based on his criminal conviction, sanctions should be imposed against Strevel pursuant to Sections 15(b)(6) and 19(h) of the Exchange Act. Imposition of administrative sanctions requires consideration of: ...the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that his occupation will present opportunities for future violations. Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir., 1979), aff'd on other grounds, 450 U.S. 91 (1981). The amount of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); Leo Glassman, 46 S.E.C. 209, 211 (1975); Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976). In consideration of these authorities, it is noted that the activities for which Strevel was convicted were extremely egregious, and involved an organized scheme to defraud investors using a wide variety of fraudulent practices. Indeed, the indictment recites what is virtually a laundry list of practices used by broker-dealers to defraud investors, including price manipulation; excessive, undisclosed mark-ups; misrepresentations; no net-selling practices; and the use of nominee accounts. The indictment reflects that investors lost approximately $1.4 million in undisclosed, excessive markups alone. ==========================================START OF PAGE 10====== Furthermore, the violations were not isolated. In fact, the violations occurred over an extensive period of time, involved numerous different securities, and clearly reflected the use of a broker-dealer to perpetrate a systematic, organized fraud. The respondent has not acknowledged the wrongfulness of his conduct and has given no assurances against future violations. Instead, he now repudiates his confession and claims that he is not, in fact, guilty of the crimes to which he plead guilty. He asserted his Fifth Amendment privilege and refused to answer when asked if he acknowledged any wrongdoing at First Alliance. The doctrine of collateral estoppel as well as Commission case law preclude respondent from refuting in this proceeding the validity of the criminal conviction based upon his guilty plea in other proceedings. Blinder, Robinson & Co., Inc, 48 S.E.C. 624 (1986), vacated and remanded, 837 F.2d 1099 (D.C. Cir. 1988), cert. denied, 488 U.S. 869 (1988); Kimball Securities, Inc., 39 S.E.C. 921, 924 n.4 (1960); J. D. Creger & Co., 39 S.E.C. 165 (1959); Kaye, Real & Co., Inc., 36 S.E.C. 373, 375 (1955); and James F. Morrisey, 25 S.E.C. 372, 381 (1947). Indeed, the Commission has recognized that "[i]t is well-settled that a criminal conviction, whether by jury verdict or guilty plea, constitutes estoppel in favor of the United States in a subsequent civil or administrative proceeding as to those matters determined by the judgment in the criminal case." Robert Blakeney Stevenson, 48 S.E.C. 89, 90 n.4 (1985); see United States v. Podell, 572 F.2d 31, 35 (2d Cir. 1978). ==========================================START OF PAGE 11====== The Division requests a bar from associating with a broker- dealer and participating in any future penny stock offering as well as a collateral industry bar. I disagree that a collateral industry bar is warranted under the clear language of Section 15(b)(6) of the Exchange Act. Under the holding of Randall v. Loftsgarden, 47 U.S. 647, 656 (1986), it is the plain language of the statute that is the starting point of statutory interpretation and that language is controlling here. Based on the foregoing, it is concluded that it is in the public interest that Strevel be sanctioned as follows: ORDER Victor H. Strevel is barred permanently from association with any broker or dealer and participating in any future offering of penny stock under Sections 15(b)(6) and 19(h) of the Exchange Act. This sanction is imposed as necessary and appropriate in the public interest, for the protection of investors. Pursuant to Rule 17(f) of the Rules of Practice, this initial decision shall become the final decision of the Commission as to each party who has not, within fifteen days after service of this initial decision upon him, filed a petition for review of this initial decision pursuant to Rule 17(b), unless the Commission, pursuant to Rule 17(c), determines on its own initiative to review this initial decision as to him. If a party timely files a petition for review, or the Commission ==========================================START OF PAGE 12====== takes action to review as to a party, the initial decision shall not become final with respect to that party. _________________________ Glenn Robert Lawrence Administrative Law Judge November 14, 1995 Washington, D.C.