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SECURITIES AND EXCHANGE COMMISSION
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In the Matter of DANIEL R. LEHL,
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OPINION OF THE COMMISSION
CEASE-AND-DESIST PROCEEDING
BROKER-DEALER PROCEEDING
Grounds for Remedial Action
Fraud in Offer and Sale of Securities
Manipulative Conduct
Touting
Promoters of gold-mining company participated in the distribution of materially misleading publications to stimulate broker and retail interest in the company, engaged in manipulation of the company's stock, and failed to disclose fully the amount of compensation they received for their promotional work. Held, it is in the public interest to order the promoters to cease and desist from committing or causing any violation or future violation of Sections 17(a) and 17(b) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5; and to order the promoters to disgorge the amount by which each was unjustly enriched, plus prejudgment interest.
Associated person of former registered broker-dealer participated in a fraudulent scheme by making, and directing and encouraging salespersons to make, false and misleading statements to customers. Held, it is in the public interest tobar associated person from association with any broker or dealer; to order associated person to cease and desist from committing or causing any violation or future violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule
10b-5; to order associated person to disgorge $241,167, plus prejudgment interest; and to order associated person to pay a $350,000 civil penalty.
APPEARANCES:
Howard A. Tescher, of Kipnis Tescher Lippman & Valinsky, for Robert Schlien, American Capital Network, Inc., Melvin L. Levine, and William David Jones.
Michael H. Berger, Eben P. Clark, and Scot M. Peterson, of Waldbaum, Corn, Koff & Berger, P.C., for Daniel R. Lehl.
Philip M. Georgeson, pro se.
Robert M. Fusfeld, for the Division of Enforcement.
Appeal filed: March 24, 1999
Last brief received: July 28, 1999*
I.
Robert Schlien, American Capital Network, Inc. ("ACN"), Melvin L. Levine, William David Jones, Philip Georgeson, and Daniel R. Lehl appeal from the decision of an administrative law judge.1 The lawjudge found that the respondents willfully violated Section 17(a) of the Securities Act of 1933,2 Section 10(b) of the Securities Exchange Act of 1934,3 and Exchange Act Rule 10b-5. 4 The law judge further found that the respondents violated Securities Act Sections 5(a) and 5(c)5 by offering and selling unregistered stock. With the exception of Georgeson and Lehl, the law judge concluded that each respondent violated Securities Act Section 17(b)6 by publishing and distributing publications about the issuer without fully disclosing the amount of compensation each received for this promotional work.
The law judge ordered Schlien, ACN, Levine, Jones, and Georgeson (the "Promoter Respondents") to cease and desist from violating orcommitting future violations of Securities Act Sections 5(a), 5(c), and 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5. He further ordered each of them, with the exception of Georgeson, to cease and desist from violating or committing future violations of Securities Act Section 17(b). Additionally, the law judge ordered the Promoter Respondents to pay disgorgement as follows: Schlien and ACN (jointly and severally) to disgorge $2,606,729; Levine to disgorge $79,350; Jones to disgorge $4,546,500; and Georgeson to disgorge $273,572. The law judge also ordered the Promoter Respondents to pay prejudgment interest.
The law judge imposed a bar on Lehl, prohibiting him from association in all areas of the securities industry. Additionally, the law judge ordered Lehl to cease and desist from violating or committing future violations of Securities Act Sections 5(a), 5(c), and 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5; to disgorge $269,759, plus prejudgment interest; and to pay a civil monetary penalty of $350,000. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.
II.
A. Background
Sky Scientific, Inc. ("Sky") was formed in 1991 as a privately held "mining and processing" company. In March 1993, Sky became a public company by merging with a Nasdaq-listed shell corporation called Winners Circle, Inc.7 Upon completion of the merger, Sky had 1.6 million outstanding shares, with a market capitalization8 of under $2 million and low daily trading volume. 9
Starting in April 1993, Sky issued a series of press releases claiming, among other things, substantial mining production, the opening of overseas offices, and the expansion of its business. Virtually all of these releases were reported verbatim on a widely disseminated financial news service.10 The information, however, was largely false. Many of Sky's press releases made representations regarding gold and other precious metal reserves that Sky intended to process at various mining properties. During this period, Sky entered into and backed out of numerous agreements to acquire or lease mining properties. Moreover, Sky had not conducted comprehensive analyses sufficient to estimate provable precious metal reserves and did not have the working capital or necessary governmental approvals to undertake extensive mining operations. 11
Sky also represented in its press releases and its annual report on Form 10-K for the year ended February 28, 1994, that it had begun mining operations at various sites. For example, Sky claimed that its Tallulah mine was operating on a "full-time production basis" of "ten hours a day, seven days a week." In fact, no such production ever occurred.12
Sky's 1994 Form 10-K further asserted that, in a one-year period, Sky's assets increased from $1.5 million to in excess of $67.7 million. Sky claimed that the increase was due to the acquisition of mining properties that it valued at $29.5 million and the acquisition, on the last day of its fiscal year, of "restricted certificates of deposit" issued by a Russian bank (the "Russian CDs") that Sky valued at $40 million.13 Sky stated that it had acquired the mining properties and Russian CDs by issuing "Preferred Class A" stock. Although the preferred stock had no ascertainable market value, Sky ascribed a face value of $10 per share to the preferred stock. In order to value the acquired assets, Sky simply multiplied the number of preferred shares of stock it issued for each item by this unsubstantiated $10 amount. The result was not in accordance with generally accepted accounting principles. Accordingly, Sky's financial statements were materially false.
Other parts of the 1994 Form 10-K demonstrate that Sky's representations about its business and financial operations were materially false. Sky reported no revenue from mining operations at a time that it claimed substantial mining production. During this period, moreover, Sky terminated its engagements with four different auditors and Sky's fifth auditor issued its report with a qualifica-tion that raised substantial doubt about Sky's ability to continue as a going concern.14
B. The Promoter Respondents
Sky employed the services of several persons to promote the company. Schlien's involvement with Sky began in 1992.15 By letter agreement dated December 14, 1992, Sky engaged ACN, a company controlled by Schlien, as a financial consultant.16
According to Schlien,17 he guided management through the merger with Winners Circle and advised Sky on its acquisition of mining properties and other businesses. Schlien also provided communications advice, admitting that Sky sent him "all of their . . . press releases to take a look at" and review, "to see if the wording . . . makes sense because . . . I have some knowledge of these things that [Sky is] doing . . . ."
During 1993, Schlien recruited his friends, Levine and Jones, to help promote Sky. Levine described his involvement as "public relations consulting work" for Sky, and he used his expertise in preparing "promotional pieces" to tout Sky's stock. Jones testified that, at Schlien's request, Jones' company, Best Business Leads ("BBL"), sold "leads" to ACN, and that Schlien would give the leads to brokers in order for them to solicit the sale of stock.18
Schlien was introduced to Georgeson in 1993. Schlien, through ACN, engaged Georgeson to establish broker contacts and distributeleads to them.19 Georgeson's compensation was based on a formula tied to the amount of Sky stock that brokers, at firms contacted by Georgeson, sold to their customers.
C. The Distribution of Publications about Sky
Beginning in June 1993, Levine wrote for general circulation a series of newsletters entitled "Chicago Financial Services" ("CFS"). The CFS newsletters extolled the virtues of Sky's mining operations, its production capacity, and its anticipated revenues. Much of the information in the newsletters regarding Sky's operations was materially misleading, including representations that Sky had substantial reserves of gold and other metals and that actual production had started at multiple locations.
The CFS newsletters contained a "tear-out coupon" encouraging potential investors to mail in a request for additional information about Sky. The address provided in one of the CFS newsletters for obtaining information about Sky was Schlein's office address, and the CFS informational telephone number was answered by Schlein's secretary/receptionist. The CFS newsletters disclosed that CFS had "received a fee in consideration of this report," but did not disclose the nature or amount of the fee. CFS newsletters further disclosed that officers, directors, and others associated with CFS "may" hold "a position in [Sky] securities."
In early 1994, Georgeson complained to Schlien that he had been unsuccessful in his attempts to interest brokers in selling Sky stock. Schlien assured Georgeson that a new promotional piece about Sky to "tell the story" would be forthcoming and that 350,000 copies would be sent out as part of a direct-mail campaign.
In June 1994, Schlien and Levine produced a glossy promotional brochure, which they named "Wall Street Watch" ("WSW"). Jones introduced his neighbor, a printer with direct mailing experience, to Levine in connection with the printing and mailing of WSW. Jones paid nearly $44,000, and Schlien more than $81,000, to print and mail WSW. 20 Approximately 350,000 WSW brochures were distributed by mail during the summer of 1994. The WSW stated, in very small print,that "Officers, Directors or affiliates of the publisher may from time to time have a position in the securities mentioned herein, or receive compensation for the dissemination of information on the company."
WSW falsely represented that Sky had proven gold reserves of nearly $4 billion and probable reserves likely in excess of $5 billion. WSW also claimed that production had started at the Danner and Tallulah mines, and that the Tallulah site was "being worked, full time, seven days a week...." To support this latter claim, the WSW featured a large color photograph of miners working in a cavern, with the caption that "Tallaluh is expected to generate over $3,000,000 pre-tax profit this year."
The WSW also asserted that "analysts aren't bashful about issuing impressive earnings forecasts for [Sky's] substantially undervalued stock." However, there is no evidence of any such forecasts. WSW further purported to quote an unidentified "expert," stating:
Getting the gold out, an expert explains, "is like pushing a cart down a supermarket aisle, picking food from the shelves and tossing it into a basket."
Levine admitted that he did not know the identity of the quoted "expert."
The information contained in the CFS newsletters and WSW was materially false. Dr. Geoffrey Snow, a metals exploration geology expert, testified that much of the information in WSW could not possibly be true. According to Dr. Snow, contrary to the statements in WSW, none of the mining properties were in prime gold-producing regions. Snow was unaware of any publicly available document that could verify the proven and probable gold reserve amounts attributed to the Tallulah mine. He further concluded, based on maps of the Tallulah mine, that the picture purportedly of miners operating in the Tallulah mine was demonstrably false.21 Snow also testified that it was impossible to have "essentially zero" mining development costs, as WSW claimed.
Roger Hall, an expert having significant experience in gold exploration, testified that Sky asked him in January 1994 to design an exploration program for the Danner mine. Hall stated that Sky had no basis for claiming or estimating reserves at the Danner mine because Danner was a "raw project" with no comprehensive mapping,topographical information, sample sites, equipment, or indication of production. Hall stated that Sky would have to undertake at least two years of significant exploratory drilling before it could estimate Danner's reserves and "make a decision to mine the property."
In July 1994, one month after the publication of WSW and as part of the Division's investigation, a Commission geologist, Carleen Achuff, visited the Tallulah, Danner, and Evergreen mines. Achuff testified that, at the time of her inspection, no mining activity was apparent at any of the mining properties. While the Tallulah mine had some mining equipment on site, the pieces were arranged in a series that appeared incomplete and inoperable. Testimony from other witnesses, including personnel from the Forest Service and BLM, as well as a neighbor on property adjoining the Tallulah mine, all corroborated the geologists' testimony that the Tallulah, Danner, and Evergreen mines were not operating.
WSW also claimed that Sky's "vast" Bowerman project had a processing mill and nine mines with estimated gold reserves of more than 500,000 ounces of high grade ore. However, Sky's Form 10-K for fiscal year 1994 disclosed not only that as of February 28, 1994 Sky had received no significant revenue from mining operations, but also that all operations at Bowerman "have been suspended" due to the filing of a lawsuit against Sky. The Form 10-K further disclosed that the Bowerman mine owners had sued Sky for breach of contract and that Sky was treating its acquisition of that property for accounting purposes "as being in abeyance."
Following the CFS pattern, WSW included a business reply card addressed to a post office box in Fort Lauderdale, Florida, so that potential investors could express their interest in receiving more information about Sky. Schlien helped Levine obtain this post office box for the WSW response cards and loaned money to acquire the box. Schlien retrieved the response cards from the box.
The WSW mailing produced many response cards. Schlien, Jones, and Georgeson used multiple methods to distribute these leads to various brokers. Schlien mailed, sent by facsimile transmission, and hand-delivered response cards to brokers. Schlien also sent by facsimile transmission to Georgeson copies of the WSW response cards, and Georgeson distributed these leads to various brokers. At Georgeson's request, Schlien sent additional leads directly to other brokers identified by Georgeson. Georgeson testified that Jones also sent leads by facsimile to Georgeson's broker contacts. Georgeson also obtained boxes of WSW directly from the printer, and hand-delivered the boxes to a brokerage firm so that its salespersons could mail copies of WSW to customers and potential customers. 22
D. The Supply of Sky Stock
Between May 1993 and November 1994, Sky issued approximately 63.5 million shares of common stock, of which 24 million shares were purportedly unrestricted. During this period, Sky issued approximately 20 million of these purportedly unrestricted shares directly to Schlien, Levine, ACN, and other nominal Sky consultants introduced to Sky by Schlien and/or Levine. This stock was distributed to them pursuant to Form S-8 registration statements purportedly as compensa tion under consulting agreements.23
The remaining "consultants" were recruited by Levine, who introduced them to Schlien. Four of these consultants each testified that, while he had executed a consulting agreement with Sky, he performed little or no work for the company.24 Each of these consultants was required to open a brokerage account at a Canadian brokerage firm, Canaccord Capital Corporation ("Canaccord"). Each of them executed a form granting Schlien authority to trade in the consultant's account. Although millions of dollars flowed through the Canaccord accounts of these nominal consultants, each received, if anything, only a small amount of cash from Schlien or Levine. These consultants' accounts were used to disguise respondents' activity in Sky.
Several of the Promoter Respondents also maintained brokerage accounts at Canaccord. Levine and Jones each had a power of attorneyover ACN's account. Schlien had control over all of the Canaccord accounts, including ACN's account.
Exercising his control over the Canaccord accounts, Schlien caused the net sale of approximately 19.5 million shares of Sky stock.25 A large percentage of these shares was purchased by three of the respondent brokerage firms, Gilbert Marshall & Co., Inc., Strategic Resources Management, Inc., and Smith Benton & Hughes, Inc. 26 Schlien sold the Sky stock at a discount, and one of the respondents27 or Canaccord contacted the purchasing broker-dealers before virtually every purchase made by them from the Canaccord accounts. In his investigative testimony, Schlien admitted that he sold the Sky stock at a discount to certain broker-dealers in order to avoid having it move "arbitrarily on the market." Schlien "directed [the Sky stock in Canaccord accounts] to a specific place where it wouldn't come onto the market and therefore drop the stock down, you know, significantly in price." Schlien stated that he was able to accomplish this because his "cost factor on the stock was a lot different than anybody else's...," admitting that sometimes he obtained Sky stock without paying anything for it.
Following the mass distribution of WSW in June 1994, trading volume in Sky stock exploded. From July to September 1994, Sky's stock on some days was the most heavily traded Nasdaq stock. During this period, Schlien actively purchased Sky stock in order to keep its market price from dropping. Schlien told Georgeson that Schlien "wanted to clean the street," which Georgeson testified was broker slang for "buying up what somebody's selling." Georgeson canvassed his broker-dealer contacts and reported to Schlien on a daily basis the trading activity of Sky stock, including who was interested in selling the stock.
Based on Georgeson's information, Schlien would buy any Sky stock that was offered at a low price. When Georgeson could not speak to Schlien, he instead provided his nonpublic market information to Jones or Levine, Schlien's "partners." Georgeson testified that Schlien intended his purchases to raise Sky's market price by "taking out the low offers." Georgeson stated that Schlienpurchased the Sky stock because Schlien's compensation from Sky was, in part, based on the performance of Sky's stock.28
E. Offer and Sale of Sky Stock by Broker-Dealers
Sky and the Promoter Respondents coordinated their efforts with a series of broker-dealers who further publicized and sold Sky's stock and contributed to Sky's meteoric growth in market value. From July 1993 until March 1994, Lehl, through a corporation he controlled, owned a branch office of Strategic, one of the original respondents in this proceeding. From March until September 1994, Lehl, through his corporation, owned a branch of Gilbert Marshall, another original respondent.
While Lehl was associated with Strategic, he was contacted by Schlien. From December 2, 1993 until February 16, 1994, Strategic purchased 1,488,000 shares of Sky stock from Schlien-controlled Canaccord accounts, representing 95% of the Sky stock purchased by Strategic during this period.
In February 1994, Lehl met with Schlien, William A. Moler, Strategic's president, and Kathleen Parker, Strategic's director of corporate finance, to explore Strategic's acting as a consultant or investment banker to Sky. Before the meeting, Parker reviewed the August 31, 1993 Winners Circle Form 10-Q (which she received only one day in advance of the meeting). She believed that the Form 10-Q raised "significant questions." Parker noted that sales had dropped dramatically,29 that assets had increased dramatically, that significant amounts of preferred stock had been issued, and that the financial statements were unaudited. Parker questioned whether the increased assets were genuine and whether the ascribed values were accurate. She also observed the lack of any disclosure regarding management. Strategic requested additional information about Sky, which was not forthcoming. Thereafter, Moler instructed Lehl that his branch was not to solicit customers to buy Sky stock.
Instead, Lehl left Strategic, associated with Gilbert Marshall, and continued to recommend Sky stock to customers. 30 At Gilbert Marshall, Lehl's branch office focused almost exclusively on selling Sky stock. From March 24 through November 4, 1994, Lehl's Gilbert Marshall branch office sold in excess of $5 million in Sky stock to customers, representing 65% of the total dollar volume of sales atthat office and 78% of the total number of sales transactions.31 Ninety-seven percent of the Sky stock sold in this period was acquired from Canaccord accounts. At Lehl's direction, salespersons at his branch office sent copies of CFS newsletters and WSW to customers, and used Sky's press releases, a script, and high-pressure sales tactics to convince customers to buy Sky stock. Customer witnesses testified about representations of promised dividends, stock splits, increases in the value of Sky's stock, and guarantees to repurchase the stock for the same or a higher price if it failed to meet investor expectations. Customers also were told that Sky was operating multiple mining sites and that these had been inspected by someone from Lehl's firm. Others were told that restrictions on the Russian CDs pledged to Sky had been lifted and that a commercial bank had extended funding to Sky using the Russian CDs as collateral.
* * *
By August 1994, Sky's market capitalization had increased to a high of $80 million. However, by October 1994, following a series of revised filings with the Commission and additional company press releases, Sky's market capitalization had dropped by more than two-thirds.
II.
Securities Law Violations
A. Promoter Respondents
Securities Act Section 17(a) prohibits using the mails or the instruments of interstate commerce to engage in antifraud violations in the offer or sale of securities.32 Exchange Act Section 10(b) and Exchange Act Rule 10b-5 provide that it is unlawful for any person, directly or indirectly, in connection with the purchase or sale of a security, to make an untrue statement of material fact,omit to state a material fact, use any device, scheme or artifice to defraud, or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
1. Misleading Publications
To encourage broker and retail interest in Sky, the Promoter Respondents participated in the publication and dissemination of the CFS newsletters and WSW, among other publications. Much of the information in the CFS newsletters and WSW was false and misrepresented Sky's mining operations, its mineral reserves, and its prospective revenues. Schlien, ACN, Levine, and Jones do not dispute that these documents contained false information. Instead, they argue that the promotional materials were based upon public filings and public announcements disseminated by Sky and imply that they are not to blame for any misrepresentations that may have occurred.33
The Promoter Respondents' asserted reliance on Sky's public filings and press releases is belied by the facts. As discussed above, Schlien in particular knew about Sky's operations and its acquisition of mining properties, and reviewed Sky's press releases in advance of their publication.34 For his part, Levine admitsthat he did not verify any of Sky's information. 35 Further, many of the assertions in CFS newsletters and WSW were contradicted by Sky's own public filings. Thus, for example, WSW's description of operations and revenue from the Tallulah, Danner, and Bowerman properties is contradicted by the disclosure in Sky's 1994 Form 10-K that Sky had not received any significant revenue from mining operations. Moreover, some of the assertions in these publications have no parallel in Sky filings. Among other things, the assertions that analysts are issuing "impressive earnings forecasts" or that Sky's gold mining operations were "like pushing a cart down a supermarket aisle" originated in WSW. WSW also used a stock photo of mining activity purchased from WSW's printer, claiming that it portrayed actual activity at the Tallulah mine.
Each of the Promoter Respondents further denies responsibility for the CFS newsletters and WSW. However, the record demonstrates the responsibility of each for the creation and/or distribution of these publications.
Schlien recommended that Sky engage Levine. Schlien and Levine created the name "Wall Street Watch." Schlien told Georgeson that WSW was designed to stimulate broker-dealer interest in Sky. Schlien supervised Levine's preparation of WSW. Schlien transferred in excess of $80,000 from ACN's bank account and Canaccord accounts that he controlled to help pay for WSW printing and mailing expenses. Schlien directed WSW's mailing to customers. He opened the post office box used to receive response cards generated by WSW and retrieved the cards, maintained them at his office, and directed their distribution to broker-dealers directly and through Georgeson.
Levine admitted that he wrote the CFS newsletters. He further admitted that he was the "publisher" of WSW, participated in its preparation, and "was responsible for what goes into" it. Levine wascompensated with Sky stock for preparing WSW.36 While Schlien claimed that Levine performed a lot of due diligence, Levine admitted that he did not view it as his role to verify independently the accuracy of the information. Thus, when asked about the veracity of information, including references to gold mines, amounts of reserves, operations, names of quoted "experts," and other material information contained in WSW, Levine stated that he did not know the basis for any of this information and simply assumed that it would have been supplied to him by Sky.
While Jones denies any involvement with Schlien in promoting the sale of Sky stock, Jones admits that he "hung around" with Schlien, worked with him on generating leads,37 used Schlien's office, allowed Schlien frequent use of Jones' mobile phone, and transmitted messages between Schlien and various brokers, including Lehl. Jones contributed to the costs of WSW's printing and mailing. Jones admitted that he sold leads to ACN, sent leads to Lehl, and discussed leads with Lehl and other respondents. Georgeson also testified that Jones transmitted leads by facsimile to brokers.
Georgeson interested brokers in Sky and distributed copies of WSW and leads to them for the purpose of selling Sky stock. Georgeson does "not contest that certain activities and events . . . may have been fraudulent." Instead, Georgeson argues that the Division failed to prove that he participated in the fraud. However, Schlein told Georgeson that WSW's publication was designed to create broker-dealer interest in Sky. Georgeson saw that Sky's volume and price increased dramatically after WSW was published. Georgeson knew that Schlien would want to increase Sky's share price because Schlien's compensation was, in part, based on the performance of Sky's stock. Georgeson's compensation, in turn, was based on the number of shares of Sky stock sold by broker-dealers contacted by Georgeson. Georgeson distributed to broker-dealers the leads generated by WSW. He also distributed the misleading publications.
The Promoter Respondents acted with scienter. They produced and distributed publications containing materially false and misleading information concerning Sky's operations. These publications were part of a scheme designed to inflate through misleading statements the prospects of Sky and thereby stimulate retail interest in its stock. Through their actions, the Promoter Respondents succeeded in increasing sales and the price of Sky stock. Accordingly, we conclude that Schlien, ACN, Levine, Jones, and Georgeson willfully violated Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
2. Market Manipulation
"A manipulation is an intentional interference with the free forces of supply and demand in the market for a security."38 Proof of manipulation is almost always inferred from "patterns of behavior, from apparent irregularities, and from trading data." 39 There is no single set of factors that identify a manipulation, but factors that may be indicative "include a rapid surge in prices," control of the supply of securities,40 "the use of undisclosed nominees; [and] the use of material misrepresentations in newsletters and otherwise." 41
Schlien, aided by the other Promoter Respondents, controlled vast amounts of Sky stock traded through their and the nominal consultants' Canaccord accounts. Nearly 20 million shares of Form S-8 stock, representing more than 80% of the stock distributed by Sky pursuant to Form S-8, was funneled through these accounts. Schlien's control of the supply was disguised in part by his use of the accounts of the nominal consultants. More than 28 million shares of Sky stock were traded through the Canaccord accounts, generating net sales in excess of $12.5 million.
The Promoter Respondents sold Sky stock at a discount to friendly broker-dealers, including Strategic, Gilbert Marshall, and Smith Benton. These broker-dealers actively retailed Sky stock to the public. Schlien admitted that he arranged these block sales with the specific intent of avoiding a drop in the stock's price that might otherwise result. These broker-dealers were given advance notice that blocks of Sky stock would be available for purchase at a discount from Canaccord accounts over which Schlien, Jones, and Levine shared trading authority.
Jones assisted Schlien's efforts. Jones admitted that he called Canaccord directly and relayed trading instructions for the sale of Sky stock. Jones also admitted that, at Schlien's direction, he instructed Canaccord to wire funds from ACN's Canaccord account to Schlien's bank account, and that Jones caused Canaccord to send authorization forms so that Schlien could approve the wire transfers that Jones had instructed Canaccord to make.
As discussed above, to encourage retail interest in Sky, the Promoter Respondents produced and distributed the CFS newsletters and WSW containing materially false information about Sky and its operations. The Promoter Respondents used the publications to generate leads. Schlien, with the help of Georgeson, "cleaned the street," i.e., he purchased Sky stock that was offered at a relatively low price in order to maintain Sky's artificially high value. Schlien, Jones, and Georgeson communicated frequently about who in the market was exerting "selling pressure" on the price of Sky stock, based on information that Georgeson gleaned from his broker contacts. As a result, the Promoter Respondents were able to support Sky's price.
Based upon the foregoing, we find that the Promoter Respondents, acting with scienter, willfully engaged in a fraudulent scheme to manipulate the market for Sky stock. Accordingly, we conclude that Schlien, ACN, Levine, Jones, and Georgeson willfully violated Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
3. Touting Without Disclosure of Compensation
Securities Act Section 17(b) makes it unlawful for any person to use the mails or other means of interstate commerce to publish or circulate any communication, including circulars, advertisements, and articles, "which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past orprospective, of such consideration and the amount thereof."42 It is unnecessary to demonstrate scienter.43 Rather, as found by the Court of Appeals for the Seventh Circuit:
The purpose of the statute is clear, and was stated in a committee report at the time of passage of the act as follows: Section 17(b) 'is particularly designed to meet the evils of the 'tipster sheet' as well as articles in newspaper [sic] or periodicals that purport to give an unbiased opinion but which opinions in reality are bought and paid for.'44
Implicitly conceding that the CFS newsletters and WSW are communications within the purview of Section 17(b), Schlien, ACN, Levine, and Jones assert in a single sentence that they did not violate Section 17(b) because WSW "contained the necessary disclosure language."45 Sky's consulting agreements with both Levine and ACN provide specific compensation for, among other things, the preparation of "brochures, advertising materials and other literature." Schlien orchestrated the preparation and circulation of WSW and received compensation from Sky. Schlien and ACN received from the Canaccord accounts wire transfers totaling nearly $700,000. Levine received wire transfers of approximately $80,000.46 No disclosure of any of this compensation is contained in the publications. The disclosure that persons associated with CFS and WSW "may" receive compensation47 or may receive securities ismisleading and inadequate when they in fact received or contracted to receive compensation, including Sky stock.48
Jones denies receiving compensation from Sky, arguing that he did not receive any Sky stock. Securities Act Section 17(b) provides that compensation may be directly or indirectly received from an issuer, underwriter, or dealer. Jones and his company, BBL, received approximately $4.5 million from Schlien-controlled Canaccord accounts, of which Jones individually received in excess of $1.9 million. These funds represent the proceeds from stock issued by Sky to Schlien, ACN, Levine, and nominal consultants that was liquidated through the Canaccord accounts. Jones helped pay for WSW's printing and circulation. He indirectly received from Sky compensation for his participation. This receipt of compensation, however, was not disclosed as required by Section 17(b).49 Based upon the foregoing, we conclude that Schlien, ACN, Levine, and Jones willfully violated Securities Act Section 17(b).50
B. Fraud Violations by Lehl
Lehl, directly and indirectly, made material fraudulent and misleading representations to customers about Sky stock. Lehl sent WSW to customers without disclosing any of the risks that were apparent from Sky's filings with the Commission. He told at least one customer that Sky was operating multiple mining sites and urgedanother customer to disregard as "old news" the going concern qualification of Sky's auditor that the customer had read in Sky financial statements that Lehl had sent him.
Lehl instructed salespersons in his branch office to use Sky press releases as sales tools and provided them with a script to sell Sky stock. The script contained representations about Sky's net worth and projected earnings, without disclosing any of the concerns or risks associated with how these values and projections were determined. Lehl also admitted that he knew that his firm's trader was obtaining blocks of Sky stock below market, and that Lehl profited from obtaining the stock at a discount and selling it to customers.
Lehl admits that he sold Sky stock and made statements to customers that were "consistent" with press releases and other information disseminated by Sky and its promoters. Moreover, Lehl concedes, as found by the law judge, that "serious, material misrepresentations" were made by Sky and its promoters, and that those persons perpetrated a fraud against the investing public. Lehl argues, however, that he did not willfully violate the antifraud provisions, because he did not prepare Sky's filings with the Commission, the CFS newsletters, or WSW.
Lehl claims that in 1993 he "reviewed the due diligence package provided by Sky" containing its Commission filings and press releases,51 and that "normally, a broker's due diligence obligation would be satisfied by such a review." Lehl asserts that holding him to a higher standard is tantamount to requiring that he be a "full-blown securities analyst" or a "fraud examiner." Lehl argues that all outward indicia led him to believe reasonably that the sale of Sky stock was "entirely legal," including that Sky was trading on Nasdaq, that it was current in its Commission reporting requirements under the Exchange Act, that its 1994 Form 10-K contained audited financial statements, and that there were many market makers in Sky stock.
As of October 1993, Sky's then-most recent filing with the Commission was its Form 10-Q for the period ended August 31, 1993(under the name Winners Circle). The Form 10-Q revealed that Winners Circle had merged with Sky, and that, in a six-month period, the total combined assets increased by more than $30 million whereas total liabilities increased by less than $1 million. As a result, Sky's purported stockholders' equity increased by nearly $30 million. The basis for this increase was Sky's acquisition of the Bowerman project mining properties by its issuance of Class B preferred stock that Sky asserted had a face value of $100 per share and a total market value in excess of $15 million.52 During this same period, the company's revenues dwindled, its inventory from Winners Circle's clothing business was reduced by nearly 50%, and its accounts receivable decreased by more than 90%. Since the company at that time had minimal mining revenues, Lehl was, at best, reckless in urging customers to purchase Sky stock without further information. Moreover, Strategic notified Lehl that problems existed with Sky's financial information, and that his branch office was prohibited from soliciting customers to purchase Sky stock.53
Lehl cannot credibly argue that his continued recommendation of Sky stock after February 1994 was reasonable. Lehl claims that, since Sky's 1994 Form 10-K contained audited financial statements, he was entitled to rely upon it for purposes of his due diligence. Since Lehl had access to this Form 10-K, he cannot now claim that he was unaware of the significant red flags contained therein and in other Sky promotional material.54 In particular, Sky made contradictory claims in its press releases and Commission filings regarding mining production and revenues from operations. Sky's financial statements included a going concern qualification focusing on the nature of Sky's assets.55 Sky exaggerated its valuation figures for the mining properties. In a short period, it frequently changed its independent auditors. Sky engaged in a large-scale and sustained increase in the amount of its outstanding common stock. On the last day of its fiscal year, Sky recorded $40 million in U.S. dollar denominated Russian CDs.
We find that Lehl knew or was reckless in not knowing that he and his salespersons were misleading customers, and that he acted with scienter by making and encouraging his sales force to make unreasonable recommendations of Sky stock. 56 We therefore concludethat Lehl willfully violated Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
IV.
Sanctions
A. The Promoter Respondents
Before considering individual sanctions, we first deal with an argument made by all the Promoter Respondents, namely, that they did not violate the securities laws and that disgorgement is therefore inappropriate. As discussed above, the record supports a finding that each respondent violated the antifraud provisions and, with the exception of Georgeson, that each violated Securities Act Section 17(b). The primary purpose of disgorgement is to "deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws."57 Requiring the Promoter Respondents to disgorge the amounts they obtained as a result of their violations is therefore appropriate.58
As for the proper amount of disgorgement, "separating legal from illegal profits exactly may at times be a near-impossible task." 59 Thus, the disgorgement amount "need only be a reasonable approximation of profits causally connected to the violation" and a precise nexus between the disgorgement amount and the violation need not be demonstrated.60
Each of the Promoter Respondents was ordered to cease and desist from violating or committing future violations of the antifraud provisions of the securities laws, and, with the exception of Georgeson, Securities Act Section 17(b). Given their extensive andserious securities violations, and their disciplinary histories discussed below, we find it appropriate to order the Promoter Respondents to cease and desist from violating or committing future violations of the securities laws.
1. Schlien and ACN
The law judge found that Schlien was the alter ego of ACN and held Schlien and ACN liable, jointly and severally, to disgorge $2,606,729, plus prejudgment interest.61 Schlien and ACN argue that no evidence was offered at the hearing to prove that Schlien was the alter ego of ACN, and that the Division did not even make this allegation. The record, however, contains ample evidence demonstrating that Schlien dominated and controlled ACN, was inextricably linked with ACN, and acted as its alter ego. In his investigative testimony, Schlien acknowledged that he and his wife were the sole shareholders of ACN. Schlien confirmed that he did not keep any records.62 Schlien also stated that he and ACN interchangeably provided "consulting services" to Sky, testifying that he shifted initially from working for Sky through ACN to working directly for Sky as a consultant.63 Notably, in discussing the Canaccord accounts and his sales of Sky stock through those accounts, Schlien indicated that brokers would "call us and buy stock from us." When questioned whether "us" referred to himself, Schlien responded that it referred to both himself and ACN.
The foregoing examples illustrate the inextricable links between Schlien and ACN, and the domination and control Schlien exerted over ACN. "If a party dominates and controls a corporation and uses the domination and control to commit fraud, the party is an alter ego of a corporation."64 Even assuming that Schlien was not the alter egoof ACN, these examples nonetheless demonstrate their close relationship. Numerous courts recognize that "where two or more individuals or entities collaborate or have a close relationship in engaging in the violations of securities laws, they have been held jointly and severally liable for the disgorgement of illegally obtained proceeds."65
Based upon our previous finding of fraud by both Schlien and ACN, as well as Schlien's history of securities law violations, 66 we order Schlien and ACN to cease and desist from violating or committing future violations of the antifraud provisions and Securities Act Section 17(b), and jointly and severally liable to disgorge $2,606,729, plus prejudgment interest.
2. Levine
The law judge ordered Levine to cease and desist from violating or committing future violations of securities laws and to disgorge $79,350, plus prejudgment interest. Levine argues that the Division demonstrated that $70,850 of this amount came from ACN, not Sky. Levine therefore asserts that this amount is not a reasonable approximation of what he received as a result of the sale of Sky stock.
The record demonstrates that, between November 1993 and December 1994, wire transfers from Canaccord into ACN's bank account totaled $1,053,000. These wire transfers were the proceeds from the sale of Sky stock that had been distributed to Schlien, ACN, Levine and nominees, ostensibly as payment for consulting services. Levine stated that he left to Schlien the task of converting into cash the stock that Levine received from Sky and had granted Schlien a power of attorney to permit Schlien to sell Levine's Sky stock. Levine drew checks on ACN's account totaling $70,850. Another $8,500 was wired directly from ACN's Canaccord account into Levine's bank account. Accordingly, the Division established that the amount to be disgorged is a reasonable approximation of profits causally linked to Levine's participation in the Promoter Respondents' scheme. 67 Levine, who bears the burden of showing that the disgorgement amount is an unreasonable approximation, has failed to offer any evidence to refute the Division's evidence.68 We therefore order Levine tocease and desist from violating or committing future violations of the antifraud provisions and Securities Act Section 17(b), and to disgorge $79,350, plus prejudgment interest.
3. Jones
Finding Jones to be "one and the same" with his company, BBL, the law judge ordered Jones to disgorge $4,546,500, plus prejudgment interest. This amount reflects the funds routed through the Canaccord accounts into BBL's bank account --$4,333,500 -- and those paid by ACN to BBL for expenses involved in the production and distribution of WSW -- $213,000. The law judge further ordered Jones to cease and desist from violating or committing future violations of the securities laws.
Jones argues that he was never issued stock by Sky and did not receive compensation from Sky. According to Jones, the Division therefore failed to prove that Jones violated any securities laws. Although the record does not demonstrate the issuance of Sky stock to Jones, his conclusion that he did not violate any securities laws and that he need not make disgorgement is incorrect. Jones does not dispute that he received nearly $2 million from BBL's bank account, which had received the funds from the Canaccord accounts. Because these funds resulted from a fraudulent scheme in which Jones actively participated, it is irrelevant that Jones did not receive payments or stock directly from Sky.
Jones further argues that BBL was not a party to this proceeding. He also argues that the law judge erred in finding Jones and BBL to be one and in ordering Jones to disgorge the entire $4,546,500 wired to BBL.
BBL was never made a party to this proceeding. Although the failure to join BBL as a party, by itself, is not necessarily fatal, the Division failed to produce evidence demonstrating a basis to disregard BBL's corporate form and pierce BBL's corporate veil.69 The Division also failed to establish a "close relationship" between Jones and BBL sufficient to hold them jointly and severally liable for disgorgement. Thus, while the Division established that BBL received $4,546,500 from the Canaccord accounts and ACN, and that funds totaling $1,951,500 were transferred from BBL's account to persons named "Jones,"70 the record does not contain evidence sufficient to demonstrate that Jones and BBL are in fact "one and the same" or that Jones benefitted from the balance of BBL's funds.
Based upon our previous finding of fraud by Jones, as well as his history of securities law violations,71 we order Jones to ceaseand desist from violating or committing future violations of the antifraud provisions and Securities Act Section 17(b), and to disgorge $1,951,500, plus prejudgment interest.
4. Georgeson
Georgeson was ordered to cease and desist from violating or committing future violations of securities laws and to disgorge $273,572, plus prejudgment interest. Georgeson denies that he committed any securities law violations, but does not contest that the amount he was ordered to disgorge represents a reasonable approximation of the profits that he received as a result of his involvement with the sale of Sky stock. These funds were transferred to Georgeson from Canaccord accounts controlled by Schlien. Based upon our previous finding of fraud by Georgeson, as well as Georgeson's history of securities law violations,72 we order Georgeson to cease and desist from violating or committing future violations of the antifraud provisions, and to disgorge $273,572, plus prejudgment interest.
5. Ability to Pay
With the exception of Georgeson, the Promoter Respondents assert that, "due to their cooperation with the United States Attorneys Office," they cannot demonstrate an inability to pay disgorgement without waiving their Fifth Amendment rights.73 Schlien, ACN, Levine, and Jones request that they be allowed to demonstrate an inability to pay "after the threat of criminal prosecution no longer exists," as a basis for avoiding the payment of any ordered disgorgement. We find no merit to the argument that preservation of Fifth Amendment rights mandates that we cannot require the Promoter Respondents to disclose their finances in order to demonstrate an inability to pay disgorgement. Although each respondent may elect to withhold financial information on the basis of an asserted privilege against self-incrimination, such election carries with it the consequence that the Commission may draw an adverse inference from the withholding of such information, which we do here.74 In the absence of any Promoter Respondent providing the necessary documentation demonstrating an inability to pay disgorgement, there is no basis to relieve any Promoter Respondent from this requirement and the request to provide financial disclosure at some later time is denied.75
B. Lehl
The law judge ordered Lehl to cease and desist from violating or committing future violations of securities laws and to disgorge $269,759, plus prejudgment interest. The law judge further imposed against Lehl a third-tier civil penalty in the amount of $350,000 and barred him from association with any broker, dealer, investment adviser, investment company, municipal securities dealer, or member of a registered securities association or of a national stock exchange.
We may assess a civil money penalty pursuant to Exchange Act Section 21B76 upon a finding that such assessment is in the public interest. 77 Lehl argues that, because the terms "violation" or "act or omission" are not defined in Section 21(B)(b), the statute is ambiguous and violates Lehl's constitutional rights of due process. Lehl cites no authority to support this argument.
Subsection (b) of Section 21(B) provides the maximum amount of a penalty for each act or omission as "described in subsection (a)." (Emphasis added). Subsection (a) of Section 21(B) clearly and unambiguously provides four categories of acts or omissions, including willful violations of the securities laws, which, if proven, are grounds for the imposition of a civil penalty. We may impose a third-tier civil money penalty for each act or omission that willfully violates the securities laws, and involves fraud, deceit, manipulation, or a deliberate or reckless disregard of a regulatory requirement. Thus, the basis for imposition of a third-tier penalty is neither unclear nor uncertain and the ability to assess such a penalty therefore does not violate Lehl's right to due process.
Lehl further argues that a third-tier penalty is "in the nature" of a criminal penalty and, therefore, due process in the criminalcontext requires the application of a "rule of lenity." 78 Under this standard, Lehl asserts that the maximum penalty cannot exceed $100,000, which is the amount prescribed for a single third-tier penalty.
Lehl relies on Hudson v. United States.79 That case, however, states that "'only the clearest proof' will suffice to override legislative intent and transform what has been denominated a civil remedy into a criminal penalty."80 Here, Section 21(B) expressly states that a violation may result in the imposition of a "civil penalty." Moreover, the Supreme Court in Hudson reiterated the long recognized principle that a monetary penalty is a sanction that is a civil remedy, not criminal punishment. 81 We conclude that a civil monetary penalty is not criminal punishment, and therefore is not subject to a rule of lenity. Even if Lehl's sanction were a criminal penalty, however, the rule of lenity would still not be applicable since the statute is unambiguous and therefore not subject to two possible meanings.
Although Lehl asserts that no sanction is appropriate because the record does not support a finding of wrongdoing against him, the record demonstrates that Lehl committed numerous acts constituting violations of the Securities Act and Exchange Act. These multiple acts or omissions involved fraud, directly or indirectly resulted in substantial losses or created significant risk of substantial losses for Lehl's customers, and resulted in Lehl obtaining substantial pecuniary gain in excess of $240,000. Lehl, moreover, has a history of violating securities laws, including the imposition of sanctions by the NASD for charging excessive markups.82 Accordingly, weorder Lehl to cease and desist from violating or committing future violations of the antifraud provisions, and to pay a $350,000 civil monetary penalty.
We have found that Lehl engaged in extensive violations of the securities laws. The parties agree that the record demonstrates that Lehl received a total of only $241,167 from his involvement with the sale of Sky stock, not $269,759. Accordingly, we order Lehl to disgorge $241,167, plus prejudgment interest.
We also conclude that the public interest requires that we impose a bar on Lehl's activities in the securities business.83 Accordingly, we bar Lehl from association with any broker, dealer, or member of a registered securities association or of a national securities exchange. 84
An appropriate order will issue.85
By the Commission (Chairman PITT and Commissioners HUNT and GLASSMAN).
Jonathan G. Katz
Secretary
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 45955 / May 17, 2002
Admin. Proc. File No. 3-9201
In the Matter of DANIEL R. LEHL,
|
: |
ORDER IMPOSING REMEDIAL SANCTIONS
On the basis of the Commission's opinion issued this day, it is,
ORDERED, that Robert Schlien and American Capital Network, Inc. cease and desist from committing or causing any violation or future violation of Sections 17(a) and 17(b) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; and it is further
ORDERED, that Robert Schlien and American Capital Network, Inc., jointly and severally, disgorge $2,606,729, plus prejudgment interest calculated in accordance with Rule 600(b), 17 C.F.R. § 201.600(b), of the Commission's Rules of Practice, due from July 1, 1995 through the last day of the month preceding the month in which payment of disgorgement is made; and it is further
ORDERED, that Melvin L. Levine cease and desist from committing or causing any violation or future violation of Sections 17(a) and 17(b) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; and it is further
ORDERED, that Melvin L. Levine disgorge $79,350, plus prejudgment interest calculated in accordance with Rule 600(b), 17 C.F.R. § 201.600(b), of the Commission's Rules of Practice, due fromJuly 1, 1995 through the last day of the month preceding the month in which payment of disgorgement is made; and it is further
ORDERED, that William David Jones cease and desist from committing or causing any violation or future violation of Sections 17(a) and 17(b) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; and it is further
ORDERED, that William David Jones disgorge $1,951,500, plus prejudgment interest calculated in accordance with Rule 600(b), 17 C.F.R. § 201.600(b), of the Commission's Rules of Practice, due from July 1, 1995 through the last day of the month preceding the month in which payment of disgorgement is made; and it is further
ORDERED, that Philip M. Georgeson cease and desist from committing or causing any violation or future violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; and it is further
ORDERED, that Philip M. Georgeson disgorge $273,572, plus prejudgment interest calculated in accordance with Rule 600(b), 17 C.F.R. § 201.600(b), of the Commission's Rules of Practice, due from July 1, 1995 through the last day of the month preceding the month in which payment of disgorgement is made; and it is further
ORDERED, that Daniel R. Lehl cease and desist from committing or causing any violation or future violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; and it is further
ORDERED, that Daniel R. Lehl disgorge $241,167, plus prejudgment interest calculated in accordance with Rule 600(b), 17 C.F.R. § 201.600(b), of the Commission's Rules of Practice, due from October 1, 1994 through the last day of the month preceding the month in which payment of disgorgement is made; and it is further
ORDERED, that Daniel R. Lehl pay a civil penalty of $350,000; and it is further
ORDERED, that Daniel R. Lehl be, and he hereby is, barred from association with any broker, dealer, or member of a registered securities association or of a national stock exchange; and it is further
ORDERED, that payment of the amounts ordered herein shall be made within 30 days from the date of this Order by certified check, U.S. Postal money order, bank cashier's check, or bank money order payable to the Securities and Exchange Commission. The check and a cover letter identifying the respondent and the proceeding designation, Administrative Proceeding File No. 3-9201, should be mailed or delivered by hand to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop0-3, Alexandria, Virginia 22812. A copy of the cover letter should be sent to Robert M. Fusfield, Esquire, Securities and Exchange Commission, 1801 California Street, Suite 4800, Denver, Colorado 80202; and it is further
ORDERED, that the Division of Enforcement, in accordance with Rule 610, 17 C.F.R. § 201.610, of the Commission's Rules of Practice, shall submit a separate proposed disgorgement plan within 60 days of payment of the funds by each respondent.
By the Commission.
Jonathan G. Katz
Secretary
_______________________________
| * | Oral argument had been scheduled in this proceeding for May 8, 2002, but was waived by the respondents on May 6, 2002. |
| 1 | Sky Scientific, Inc., Initial Decision No. 137 (Mar. 5, 1999), 69 SEC Docket 945. Originally, eighteen respondents were charged in this proceeding. The proceeding has become final with respect to twelve respondents: Sky Scientific, Inc.; Walter Arlan Dorow, Jr.; Douglas A. Glaser; Thomas Patrick Meehan; Jerry L. Foster; Gilbert Marshall & Co., Inc.; Michael A. Usher; Strategic Resource Management, Inc.; William A. Moler; Smith, Benton & Hughes, Inc.; Michael Zaman; and George T. Hellen. Respondents Sky Scientific, Dorow and Glaser defaulted during the initial proceeding. See Sky Scientific, Inc., Securities Act Rel. No. 7474 (Nov. 7, 1997), 65 SEC Docket 2579 (entry of default order against Sky); Sky Scientific, Inc.,Securities Act Rel. No. 7471 (Oct. 22, 1997), 65 SEC Docket 2278 (entry of default order against Walter A. Dorow); Sky Scientific, Inc., Securities Act Rel. No. 7412 (Apr. 3, 1997), 64 SEC Docket 0575 (entry of default order against Douglas A. Glaser). Respondents Moler, Strategic Resources, Usher, Gilbert Marshall, and Meehan entered into settlements with the Commission. See Sky Scientific, Inc., Securities Act Rel. No. 7740 (Sept. 22, 1999), 70 SEC Docket 1801 (settlement as to William A. Moler and Strategic Resources Management, Inc.); Sky Scientific, Inc., Securities Act Rel. No. 7724 (Aug. 16, 1999), 70 SEC Docket 1050 (settlement as to Michael A. Usher and Gilbert Marshall & Co., Inc.); Thomas Patrick Meehan, Exchange Act Rel. No. 7435 (Aug. 18, 1997), 65 SEC Docket 0542 (settlement). Respondents Foster, Smith, Benton & Hughes, and Zaman did not appeal the initial decision. Jerry L. Foster, Exchange Act Rel. No. 41364 (May 4, 1999), 69 SEC Docket 2170 (notice that initial decision has become final as to Foster, Smith, Benton & Hughes, Inc., and Michael Zaman). Respondent Hellen defaulted during the appeal of this proceeding. George T. Hellen, Securities Act Rel. No. 7868 (June 15, 2000), 72 SEC Docket 1829 (entry of default and summary affirmance). Our findings here with respect to any former respondent are solely for purposes of this opinion. |
| 2 | 15 U.S.C. § 77q(a). |
| 3 | 15 U.S.C. § 78j(b). |
| 4 | 17 C.F.R. § 240.10b-5. |
| 5 | 15 U.S.C. §§ 77e(a), 77e(c). |
| 6 | 15 U.S.C. § 77q(b). |
| 7 | The merged company retained the name Winners Circle until November 1993, when it changed its name to Sky Scientific, Inc. |
| 8 | Market capitalization is calculated by multiplying a corporation's "number of outstanding shares by the current market price of a share" in order to determine the value of the corporation. Barron's Dictionary of Finance and Investment Terms 349 (5th ed. 1998). |
| 9 | Sky's daily trading volume at the time of the merger rarely exceeded 4,000 shares and the high bid for its stock fluctuated between $.75 and $.82 per share. |
| 10 | In addition to obtaining from Sky copies of its press releases, the Division retrieved virtually verbatim copies from Dow Jones News Service and its Business Wire Service, a database service that publishes financial information worldwide. |
| 11 | Sky represented that it held mining rights located in either Nevada or California. These properties were commonly referred to by Sky as the Berry, Evergreen, Tallulah, Danner, and Bowerman mines. All of these properties were located on public property owned by the United States and were subject to the jurisdiction of both the United States Forest Service (management of public land) and the Bureau of Land Management ("BLM") (management of mineral estates).
In its annual report on Form 10-K for the period ended February 28, 1994, filed with the Commission on June 15, 1994, Sky disclosed that it would take one to three years for the Forest Service to complete a watershed assessment in order to approve a plan of operations allowing Sky to begin mining production at the Evergreen mine. Testimony at the hearing established that Sky would have to complete, at a minimum, environmental assessments for the Berry and Tallulah mines prior to engaging in production, and that this process would take at least one and possibly two to three years in order to obtain BLM approval. BLM had no record of Sky filing any of the necessary documents in order to engage in such production at the Berry, Tallulah, or Danner mines. |
| 12 | Sky's Form 10-KSB for its fiscal year ended February 28, 1995discloses that, because of safety regulation violations, all exploration at the Tallulah mine ceased in March 1994 -- a month prior to Sky's April 1994 press release claiming full-time operation at the mine. The 1995 Form 10-KSB further discloses that, due to a dispute with the "third party" that owned the milling equipment used at the Tallulah site, Sky subsequently lost the use of the equipment and had its lease of water rights canceled. These events were additional impediments to Sky's operation of the mine. |
| 13 | The evidence demonstrates that the Russian CDs were counterfeit. Moreover, an accountant testified that the terms of this transaction, whereby the Russian bank was to pay interest on the Russian CDs at 11.25% in return for preferred Sky stock bearing a coupon rate dividend of 4.25%, made no economic sense. |
| 14 | This auditor subsequently resigned, and Sky engaged yet another auditor, for a total of six within a two-year period. |
| 15 | In his investigative testimony, Schlien described himself as a financial advisor to individuals and companies on how to "grow" their businesses. |
| 16 | Schlien, ACN, and Sky entered into a series of additional "consulting agreements" and addenda expanding the scope of Schlien's and ACN's duties. Among other things, Schlien and ACN agreed to prepare "proofs of brochures, advertising materials and other literature" for dissemination through "appropriate informational channels and networks." The last addendum was executed by Sky and Schlien in February 1996. |
| 17 | Schlien, like most of the other respondents in this proceeding, asserted his right under the Fifth Amendment of the United States Constitution not to testify before the law judge. U.S. Const. amend. V (privilege against self-incrimination). As such, references to his testimony, as well as to the testimony of Levine, Jones, and Lehl, refer to the investigative testimony given by these respondents and admitted into evidence by the law judge. |
| 18 | As an example of a source for leads, Jones, without identifying the types of firms, stated that he would purchase lists of customers of firms that had gone out of business. These lists in turn became the "leads" that Jones sold through BBL. |
| 19 | Georgeson subsequently executed a consulting agreement with Sky for the express purpose of maximizing the dissemination of information about Sky to brokers and dealers and of preparing proofs of brochures, advertising materials and other literature. |
| 20 | Schlien's contributions came from ACN's bank account and securities accounts at Canaccord Capital Corporation controlled by Schlien. |
| 21 | The record demonstrates that the picture of the mine was a stock photo purchased from WSW's printer. |
| 22 | A copy of WSW sent by a salesperson directly to an investor bears the facsimile number of the executive suites where Schlien maintained his office. |
| 23 | A Form S-8 registration statement is used to register securities "offered pursuant to any employment benefit plan." See Fed. Sec. L. Rep. (CCH) ¶ 8141.
Georgeson did not meet or negotiate with anyone at Sky regarding his employment. He dealt exclusively with Schlien, who caused Sky to send to Georgeson a consulting contract which was executed in December 1994. Similarly, Levine testified that he never negotiated his compensation with Sky; rather, Schlien conducted such negotiations on Levine's behalf. |
| 24 | These "consultants" further testified that they did not negotiate their agreements with Sky. Rather, negotiations regarding compensation were conducted only with Levine and/or Schlien. Two consultants never spoke with anyone at Sky. |
| 25 | More than 28 million shares of Sky stock were sold through the Canaccord accounts and more than 8.5 million Sky shares were purchased through the Canaccord accounts. |
| 26 | See supra note 1. |
| 27 | Respondent Meehan (see supra note 1) was identified by numerous witnesses as having contacted brokers prior to Schlien selling discounted Sky stock. |
| 28 | In late 1994, Georgeson agreed with Schlien to expand Georgeson's promotional activities for the sale of Sky stock. To finance these activities, Schlien suggested that Georgeson be engaged as a Sky consultant and receive stock pursuant to Form S-8 registration statements. As part of this arrangement, Schlien told Georgeson that there was "no free ride" and that Georgeson couldn't "get something for nothing." Schlien instructed that Sky stock would be issued to Georgeson pursuant to Form S-8, that Georgeson was to liquidate the stock, open up separate bank accounts, wire the stock proceeds into these accounts, make cash withdrawals from each account in increments of less than $10,000, and give the cash to Schlien. Georgeson stated that he was told by Schlien that the reason for withdrawing the cash in less than $10,000 increments was to avoid cash reporting requirements under federal law. Georgeson confirmed that he also had these cash payment discussions with Jones.
Georgeson testified that he was uncomfortable with this arrangement and attempted to unwind a large stock distribution he received by sending $100,000 of proceeds back to Schlien. This constituted Georgeson's last dealing with Schlien. |
| 29 | At the time, Sky's revenue consisted of income from the wind-down of Winners Circle's clothing business and the sale of equipment used to embroider clothing. |
| 30 | Lehl's new operations for Gilbert Marshall remained at the same physical location as his Strategic branch office, with the same personnel. |
| 31 | At the time that Lehl left Gilbert Marshall in September, he sold his interest to Douglas Glaser, another original respondent in this proceeding. Glaser continued to run the branch through at least November 1994. |
| 32 | Pursuant to Section 17(a)(1), it is unlawful "to employ any device, scheme, or artifice to defraud." Section 17(a)(2) proscribes obtaining money or property by means of any untrue statement or omission of material fact. Section 17(a)(3) makes it illegal "to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon" a securities purchaser. |
| 33 | At the hearing, Schlien, Levine, Jones, and Lehl, among others, refused to answer questions when called to testify. See supra note 17. Relying on Supreme Court precedent, the law judge concluded that it was permissible to draw adverse inferences from the refusal by these respondents to testify. See Baxter v. Palmigiano, 425 U.S. 308, 319 (1976); LiButti v. United States, 107 F.3d 110, 121 (2d Cir. 1997). Respondents object to this ruling. A trier of fact in a civil proceeding may draw adverse inferences from a respondent's refusal to testify. Baxter, supra. Accordingly, where appropriate, we draw such inferences. See, e.g., John Kilpatrick, 48 S.E.C. 481, 486 & n.18 (1986) ("In light of the evidence in the record, we deem it appropriate to draw such an [adverse] inference in connection with our findings of violation herein.").
Schlien, ACN, Levine, and Jones challenge the law judge's admission into evidence of only one transcript, investigative testimony given by Glaser. We have not relied upon Glaser's testimony in reaching our decision herein. However, since no respondent has challenged the use of investigative testimony other than Glaser's, we have used all other such testimony against all of the respondents. |
| 34 | Thus, although Schlien and the other Promoter Respondents arguethat Sky was responsible for disseminating false information, it is clear that the Promoter Respondents were actively involved in preparing the statements for which they now disclaim any responsibility. |
| 35 | See, e.g., Rubin v. Schottenstein, Zox & Dunn, 143 F.3d 263, 268 (6th Cir. 1998) (an attorney representing a seller in a securities transaction "assumes a duty to provide complete and nonmisleading information with respect to subjects on which he undertakes to speak"); Ackerman v. Schwartz, 947 F.2d 841, 846 (7th Cir. 1991) ("Federal law requires persons to tell the truth about material facts once they commence speaking, but with rare exceptions does not obligate them to start speaking."). |
| 36 | Levine further testified that he had an "arrangement" with Schlien whereby Schlien would obtain cash for Levine and "would take care of the stock," i.e., Schlien would convert Levine's Sky stock distributions into cash and remit the proceeds to Levine. |
| 37 | Although Jones testified during his first investigative interview that he worked with Schlien to generate leads, when Jones was asked during his second interview whether he collected or distributed leads generated specifically by WSW, he refused to answer and asserted his Fifth Amendment privilege against self-incrimination. |
| 38 | R.B. Webster Inv., Inc., 51 S.E.C. 1269, 1271 (1994) (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 (1976); Pagel, Inc., 48 S.E.C. 223, 226 (1985), aff'd, 803 F.2d 942 (8th Cir. 1986)). |
| 39 | L.C. Wegard & Co., 53 S.E.C. 607, 613 (1998) (quoting Pagel, Inc., 48 S.E.C. 223, 226 (1985), aff'd, 803 F.2d 942 (8th Cir. 1986)), aff'd, 189 F.3d 461 (2d Cir. 1999) (Table). |
| 40 | Webster, 51 S.E.C. at 1271 (citations omitted). |
| 41 | SEC v. Kimmes, 799 F. Supp. 852, 859 (N.D. Ill. 1992), aff'd, 997 F.2d 287 (7th Cir. 1993). |
| 42 | 15 U.S.C. § 77q(b). |
| 43 | SEC v. Liberty Capital Group, Inc., 75 F. Supp. 2d 1160, 1163 (D. W.D. Wash. 1999) ("plain meaning of Section 17(b) excludes an element of intent" to violate its terms). |
| 44 | United States v. Amick, 439 F.2d 351, 365 (7th Cir. 1971) (quoting H.R. Rep. No. 73-85, at 24 (1933)). |
| 45 | These respondents do not address the CFS newsletters. |
| 46 | These wire transfers represented proceeds from the liquidation of Sky stock. |
| 47 | WSW disclosed that "affiliates of the publisher may from time to time...receive compensation for the dissemination of information on the company." |
| 48 | Accord, SEC v. Liberty Capital Group, Inc., 75 F. Supp. 2d 1160, 1162 (W.D. Wash. 1999) (Securities Act Section 17(b) is violated "when the facts show that, in substance, there was a quid pro quo" for publisher providing publicity about a publicly-traded company). |
| 49 | See Amick, 439 F.2d at 364 (newsletter publication of information about a company without disclosing payment by the company constitutes willful violation of Section 17(b)). |
| 50 | The respondents also appeal the law judge's conclusion that each violated Securities Act Sections 5(a) and 5(c) by offering and selling Sky stock to the public without a registration statement filed or in effect as to the public sale of those securities. The respondents' contentions in this regard include objections that the relevant law was insufficiently clear and cite to various Commission precedent. Although we do not concur in respondents' contentions, we do not consider it necessary to affirm the law judge's conclusions regarding these violations and we will determine the public interest in imposing sanctions against each respondent based solely upon the other violations we have found. |
| 51 | Lehl further testified that the only other due diligence he performed consisted of obtaining from "a friend of a friend" an "independent mining report" purportedly showing that Sky had reserves at one or two of its mining locations. When asked for more detail about this report, Lehl was unable to identify the source of the report or any specific information, stating only that he did not "know exactly what type of report it was, but it was something separate from [Sky] and everything." |
| 52 | As noted in Section II.C. supra, by the time Sky filed its 1994 Form 10-K, Sky had been sued by the Bowerman mine owners for breach of contract. Sky disclosed in its 1994 Form 10-K that, for accounting purposes, it had rescinded its purchase of the Bowerman mines, and the transaction did not appear on Sky's balance sheet. |
| 53 | A comparison of many of Sky's press releases with its Commission filings during this period demonstrates inconsistencies that raise "red flags" regarding the accuracy of the disclosures. For example, a press release from April 1993 indicates that Sky had started production at the Starr-King mine and estimated gross revenue over the next 12-month period "in excess of $5 million." Sky's August 31, 1993 10-Q, however, reflects that Sky had generated no revenue from this mine as of that date. Similarly, the unaudited asset values disclosed by Sky in a June 24, 1993 press release are contradicted by the asset values disclosed in Sky's August 31, 1993 10-Q.
In this regard, we are persuaded by the testimony of Leslie Patten, a certified public accountant who testified as an expert witness in accounting, fraud examination, and business valuation, that the positive nature of Sky's press releases, when compared with the actual results reflected in Sky's financial statements, raised a red flag that "should have alerted the reader of the financial statements that more investigation and due diligence with respect to the company was warranted." |
| 54 | Cf., Feeney v. SEC, 564 F.2d 260, 262 (8th Cir. 1977) (registered securities dealer has "a direct obligation to the public to investigate the relative value of securities" and "to apprise the public of material facts respecting the value of such securities"; where representative makes representations about securities with "no adequate reason to believe such representations to be true," this violates Securities Act Section 17(a)); Hanly v. SEC, 415 F.2d 589, 597 (2d Cir. 1969) (representative violates Securities Act Section 17(a) by recommending a security without an adequate and reasonable basis for doing so). See also SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985) (investment adviser "acted recklessly by relying, without thorough investigation, upon the information that corporate representatives provided him."). |
| 55 | As discussed above, Lehl instructed a customer to ignore the auditor's qualified opinion. |
| 56 | See e.g., Meadows v. SEC, 119 F.3d 1219, 1226 (5th Cir. 1997) (respondent acted with scienter and violated antifraud securities laws by soliciting investors with materially false and misleading claims and failing to disclose material facts); Joseph J. Barbato, 53 S.E.C. 1259, 1274 (1999) ("Where a registered representative omits to disclose material information necessary to make his statements not misleading to customersabout an investment he is recommending, including known risk factors and negative information about the stock, the representative violates the antifraud provisions."). |
| 57 | SEC v. First City Fin. Corp., 890 F.2d 1215, 1230, 1232 n. 24 (D.C. Cir. 1989). |
| 58 | Id. |
| 59 | Id. at 1231 (citing Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 171 (2d Cir. 1980)). |
| 60 | Id. at 1232 (citing CFTC v. British Am. Commodity Options Corp., 788 F.2d 92 (2d Cir. 1986)). |
| 61 | Schlien does not contest that the disgorgement amount represents a reasonable approximation of the funds that he and ACN received as a result of their involvement with Sky. |
| 62 | When questioned about what he did with records when he received them, Schlien stated "I usually throw them in the garbage" and "I don't keep anything." |
| 63 | Upon further questioning, Schlien stated that he could not remember why he shifted from consulting for Sky through ACN to consulting for Sky as an individual. |
| 64 | SEC v. Great Lakes Equities Co., 775 F. Supp. 211, 213 (E.D. Mich. 1991) (finding activities of an individual and his corporation "inextricably linked")(citing Bucyrus-Erie Co. v.General Products, 643 F.2d 413, 418 (6th Cir. 1981)), aff'd, 12 F.3d 214 (6th Cir. 1993) (Table). |
| 65 | SEC v. First Pacific Bancorp, 142 F.3d 1186, 1191 (9th Cir. 1998) (citing SEC v. Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997); SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1475 (2d Cir. 1996); Hateley v. SEC, 8 F.3d 653, 656 (9th Cir. 1993)). |
| 66 | Schlien's history of securities law violations began in August 1989 when he entered into a settlement with the Commission barring him for an 18-month period, with a right thereafter to reapply, from association with any broker-dealer, municipal securities dealer, investment adviser, or investment company based on allegations of his willful violations of the antifraud provisions of the Securities Act and Exchange Act. Profile Invs. Corp., Exchange Act Rel. No. 27134 (Aug. 11, 1989), 44 SEC Docket 535. In February 1990, based on allegations of violations of antifraud and registration provisions of Florida securities laws, Schlien consented to a fine of $25,000 and a permanent bar from association with any state dealer or investment adviser or acting as an officer, director, owner, control person, affiliate or promoter for any dealer or investment adviser located or registered to do business in Florida. Profile Invs. Corp., Admin. Proc. No. 890-S-6/88 (Fla. Dep't Banking and Fin. Feb. 14, 1990). In August 1992, in an action initiated against Schlien, Jones, and others, the United States District Court for the District of Florida permanently enjoined Schlien from committing violations of the antifraud provisions of the Securities Act and Exchange Act. SEC v. Schlien, No. 90-227-CIV (S.D. Fla. Aug. 13, 1992). In September 1992, Schlien settled yet another Commission proceeding by agreeing to a bar from associating with any broker-dealer, municipal securities dealer, investment adviser, or investment company based on allegations of violations of the antifraud provisions of the securities laws. Robert Schlien, Exchange ActRel. No. 31147 (Sept. 3, 1992), 52 SEC Docket 1650. When asked about his lengthy disciplinary history, Schlien stated in his investigative testimony that he thought that he was a party to one Commission action in 1990 or 1989 but could not remember the results of that action. |
| 67 | See First City, 890 F.2d at 1231 ("disgorgement need only be a reasonable approximation of profits causally connected to the violation"). |
| 68 | See SEC v. Lorin, 76 F.3d 458, 462 (2d Cir. 1996) (calculation of disgorgement lies within discretion of trial court and where calculation cannot be exact, burden shifts to wrongdoer todemonstrate error in amount); SEC v. Patel, 61 F.3d 137, 140 (2d Cir. 1995) ("risk of uncertainty [in calculating disgorgement] should fall on the wrongdoer whose illegal conduct created that uncertainty) (quoting First City Fin. Corp., 890 F.2d 1215, 1232 (D.C. Cir. 1989)). |
| 69 | Cf., e.g., Laborer's Pension Trust Fund v. Sidney Weinberger Homes, Inc., 872 F.2d 702 (6th Cir. 1988) (factors to be considered in determining whether to pierce corporate veilinclude undercapitalization of corporation, maintenance of separate books, separation of corporate and individual finances, use of corporation to support fraud or illegality, honoring of corporate formalities, and whether corporation is mere sham). |
| 70 | Jones was the signatory that authorized all of the transfers from BBL's account to himself or to "Sharon Jones." Of the $1,951,500 transferred from BBL's account, Jones transferred $1,845,500 to himself and $106,000 to Sharon Jones. |
| 71 | Jones' history of securities law violations began in April 1989, when the National Association of Securities Dealers, Inc. ("NASD") censured and fined Jones $1,000 for effecting an unauthorized transaction in a customer account. William David Jones, No. ATL-1020 (NASD Apr. 14, 1989). As a result, the State of Florida, in September 1989, imposed significant restrictions on Jones' business activities. William David Jones, Order No. 89.226.DOS (Fla. Dep't Banking and Fin. Sept. 22, 1989). In May 1993, Jones entered into a settlement with the Commission barring him for a two-year period from acting in a supervisory capacity based upon allegations of failure reasonably to supervise and violations of securities law antifraud provisions. David Jones, Exchange Act Rel. No. 32293 (May 11, 1993), 54 SEC Docket 142. In May 1998, Jones was criminally convicted in the United States District Court for the District of Nevada of conspiracy, securities fraud and wire fraud in connection with the sale of more than three million dollars in stock to unsuspecting investors. United States v. Cozzolino, No. CR-S-96-287-LDG(LRL) (D. Nev. May 14, 1998).
Although Jones argues that the law judge's consideration of Jones' prior violations is "misguided" because such violations relate to his activity as a broker, not a "leads" salesman, we find such argument to be without merit. It is entirelyappropriate to consider Jones' history of securities law violations in determining appropriate sanctions. See, e.g., Krull v. SEC, 248 F.3d 907, 915 & n.10 (9th Cir. 2001) (in determining an appropriate sanction, considering a respondent's disciplinary history is consistent with the Exchange Act's purpose to protect the public interest by insuring stability of the markets and integrity of representation by its participants). |
| 72 | In September 1989, Georgeson consented to an NASD censure and fine of $7,500. Philip M. Georgeson, No. DEN-879 (NASD Sept. 12, 1989). In July 1990, Georgeson consented to a Commission bar from association with any broker, dealer, investment adviser, investment company, municipal securities dealer or broker, or government securities dealer or broker, with a right to reapply in one year. Philip M. Georgeson, Exchange Act Rel. No. 28180 (July 5, 1990), 46 SEC Docket 1108. Simultaneously, Georgeson also consented to the entry by the United States District Court for the District of Columbia of a permanent injunction prohibiting Georgeson from violating Exchange Act Section 15(b), 15 U.S.C. § 78o. SEC v.Georgeson, Civ. Action No. 90-1563 (D. D.C. July 5, 1990). |
| 73 | Pursuant to Rule 410(c), 17 C.F.R. § 201.410(c), of the Commission's Rules of Practice, a petitioner seeking review of an initial decision claiming an inability to pay either disgorgement, interest, or a penalty shall file with the opening brief a sworn financial disclosure statement evidencing the respondent's financial ability. |
| 74 | Accord, Baxter v. Palmigiano, 425 U.S. 308, 320 (1976) ("permitting an adverse inference to be drawn from an inmate's silence at his disciplinary proceedings is not, on its face, an invalid practice"). |
| 75 | We note that in Joseph Barbato, 53 S.E.C. 1259, 1280 n.30 (1997), we indicated that the "failure to assert an inability to pay disgorgement before the law judge can constitute a waiver precluding the Commission's consideration of inability to pay on appeal." The respondents in this case, although represented by the same counsel who also represented Barbato, did not raise their inability to pay defense with the law judge. Such failure further demonstrates that extending the time for the respondents to provide financial information is unwarranted. |
| 76 | 15 U.S.C. § 78u-2. |
| 77 | New Allied Dev. Corp., 52 S.E.C. 1119, 1129-30 (1996). In determining the public interest, subsection (c) of Section 21B provides factors to be considered, including whether the act or omission upon which the penalty is based involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, the resulting harm to other persons, the extent to which any person was unjustly enriched, whether the person previously has been found to have violated securities laws or rules, and the need to deter the commission of such acts or omissions. Subsection (b) provides for three penalty levels or tiers, increasing in amount depending upon the egregiousness of the act or omission. |
| 78 | According to Lehl, the rule of lenity applies in a criminal context and requires that, where the wording of a statute is subject to two possible meanings, a court must apply a policy of lenity and adopt the less harsh meaning. |
| 79 | 522 U.S. 93 (1997). Lehl claims that his penalty is akin to a criminal penalty within the purview of the Double Jeopardy Clause of the United States Constitution. |
| 80 | Hudson, 522 U.S. at 100 (quoting United States v. Ward, 448 U.S. 242, 249 (1980)). |
| 81 | Id. at 104. |
| 82 | See Lehl v. SEC 90 F.3d 1483 (10th Cir. 1996) (affirming Commission's decision upholding imposition of sanctions by the NASD against Lehl); see also Daniel R. Lehl, No. C3A950072(National Ass'n Sec. Dealers Regulation, Inc. Nov. 14, 1996) (censure and fine in connection with the practices Lehl used in selling Sky's stock). |
| 83 | In determining to order a bar against Lehl, we apply the factors cited by the court in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd, 450 U.S. 91 (1980). |
| 84 | Although Lehl has not raised this issue, the Division, in its reply brief, expressly requested that the bar imposed by the law judge against Lehl be modified. In light of the decision in Teicher v. SEC, 177 F.3d 1016, 1021-22 (D.C. Cir. 1999), cert. denied, 529 U.S. 1003 (2000), we impose a bar on Lehl more narrow in scope than that imposed by the law judge. |
| 85 | We have considered all of the parties' contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed in this opinion. |
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Modified: 05/17/2002