NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0193n.06
Filed: March 11, 2009
No. 08-3377
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
JEFFREY L. GIBSON,
Petitioner,
v. ON PETITION FOR REVIEW OF AN ORDER OF THE SECURITIES AND SECURITIES AND EXCHANGE EXCHANGE COMMISSION COMMISSION,
Respondent.
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BEFORE: GUY, CLAY, and COOK, Circuit Judges.
CLAY, Circuit Judge. Jeffrey L. Gibson seeks review of the February 4, 2008 order of
the Securities and Exchange Commission, which affirmed the administrative law judge’s
issuance of a lifetime bar precluding Gibson from associating with any broker or dealer pursuant
to § 15(b) of the Securities Exchange Act of 1934 and from associating with any investment
adviser pursuant to § 203(f) of the Investment Advisers Act of 1940. For the reasons that follow,
we DENY Gibson’s petition for review.
BACKGROUND
A. Procedural History No. 08-3377
On August 5, 2005, the SEC Division of Enforcement (“the Division”) filed a civil action
against Jeffrey L. Gibson and Investment Property Management, LLC, (“IPM”) in the United
States District Court for the Northern District of Georgia, alleging that Gibson misappropriated
approximately $450,000 of investor funds generated from the sale of limited partnership interests
in American Car Wash Fund, LP.
On February 9, 2006, Gibson signed a consent agreement, in which he agreed to the entry
of a final judgment holding Gibson and IPM jointly and severally liable for the disgorgement of
$427,701.73 in investor funds. It was agreed that the judgment would impose a civil penalty of
$25,000 pursuant to § 20(d) of the Securities Act of 1933 (“Securities Act”) and § 21(d)(3) of the
Securities Exchange Act of 1934 (“Exchange Act”), and that it would permanently enjoin
Gibson from violating § 17(a) of the Securities Act, 14 U.S.C. 77q(a) (fraud in the offer or sale
of securities); § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) (manipulative and deceptive
devices); Exchange Act Rule 10b-5, 17 C.F.R. 240.10b-5 (fraud in connection with the purchase
or sale of securities); and § 206 of the Investment Advisers Act of 1940 (“Advisers Act”), 15
U.S.C. § 80b-6 (fraud by an investment adviser). The district court entered final judgment
against Gibson in accordance with the terms set forth in the consent agreement.
On June 5, 2006, the Division filed an order instituting a follow-on administrative
proceeding before the Securities and Exchange Commission, seeking remedial sanctions against
Gibson pursuant to pursuant to § 15(b) of the Exchange Act and § 203(f) of the Advisers Act.1
1 This type of administrative proceeding, in which the Division seeks to impose sanctions after an individual is enjoined from acts involving securities or investment fraud in federal court,
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After two pre-hearing conferences, the Division filed a motion for summary disposition, and on
September 22, 2006, an administrative law judge (“ALJ”) granted the Division’s motion,
imposing a lifetime bar precluding Gibson from associating any securities broker, dealer, or
investment adviser. Gibson appealed that decision to a panel of the Securities and Exchange
Commission (“the Commission”), and the Commission affirmed the ALJ’s decision on February
4, 2008.2 Gibson filed a timely notice of appeal, seeking this Court’s review of the
Commission’s judgment.
B. Substantive Facts
In the consent agreement signed by Gibson in the underlying federal court proceedings,
Gibson acknowledged that “the Court’s entry of a permanent injunction may have collateral
consequences” and agreed that “[i]n any disciplinary proceeding before the Commission based
on the entry of the injunction in this action, [he] shall not be permitted to contest the factual
is commonly called a “follow-on” proceeding. Exchange Act §§ 15(b)(6) and 15(b)(c)(4) and Advisers Act §§ 203(f) and 203(e)(4) authorize the Securities and Exchange Commission to sanction any person associated with a broker, dealer, or investment advisor who has been enjoined from “engaging in or continuing any conduct or practice in connection with the purchase or sale of any security.” 15 U.S.C. §§ 78o(b) and 80b-3. 2 The procedural background of this case is somewhat complicated, so we will reiterate and summarize the relevant proceedings and terminology. The SEC Division of Enforcement (“the Division”) filed and prosecuted a civil suit in United States District Court. After receiving a favorable judgment, the Division filed and prosecuted a follow-on administrative proceeding seeking remedial sanctions in front of an Administrative Law Judge (“ALJ”) of the Securities and Exchange Commission. The ALJ imposed sanctions, and that decision was appealed to a panel of the Securities and Exchange Commission (“the Commission”). It is the Commission’s judgment that is now being considered by this Court. For purposes of clarity, we will use the term “Division” when referring to the Securities and Exchange Commission in its prosecutorial role and the term “Commission” when referring to the appellate review panel of the Securities and Exchange Commission.
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allegations of the Complaint [filed in district court] in this action.” (Joint Appendix (“J.A.”) at
58.) As a result, we will take the facts alleged in the aforementioned district court complaint
(“the Complaint”) as true for purposes of our review.
The Complaint alleged that Gibson, a resident of Tennessee, was a certified financial
planner, a registered representative of a broker-dealer, and part owner of IPM, a limited liability
company. In November 2002, Gibson formed American Car Wash Fund, LP (“ACW”) to buy
and manage coin-operated car-wash operations in northern Georgia. Through IPM, Gibson sold
43 limited-partnership interests in ACW, raising approximately $875,000. Approximately 38 of
the limited partners were also clients of Gibson’s advisory business.
Gibson provided a private placement memorandum (“PPM”) to prospective investors
which stated that after organizational expenses were satisfied, investors’ funds would be invested
in money market funds or government securities until the funds could be invested in projects.
According to the Complaint, however, almost as soon as Gibson began selling interests in ACW,
he began misappropriating investor funds for his own use. Gibson wrote checks payable to cash
on ACW bank accounts, misappropriating approximately $450,000. The Complaint stated that
Gibson’s actions were contrary to representations made by Gibson and exceeded any payments
to which Gibson and IPM may have been entitled under the PPM. The PPM was never amended
to reflect the actual use of the funds.
The Complaint alleged that the misappropriations continued up to the time the Complaint
was filed. The Complaint also alleged that subsequent to selling the partnership interests in
ACW, Gibson and IPM sought to “lull investors into believing that their investments [were]
profitable and to conceal the misappropriation of funds” by sending letters to the investors
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describing “annualized rates of return, dividends and purchases of various properties,” without
disclosing “the ongoing misuse of proceeds by” Gibson and IPM. (J.A. at 43.)
After Gibson executed a consent agreement, the district court permanently enjoined
Gibson from violating the antifraud provisions of the securities laws, ordered him to pay a civil
penalty of $25,000 and to disgorge $427,701.73 in misappropriated funds, and enjoined Gibson
and IPM from serving as a general partner or otherwise controlling ACW. Gibson subsequently
liquidated assets purchased with the misappropriated investors’ funds and used the proceeds to
pay the court-ordered civil penalty and disgorgement.
On June 6, 2006, the Division initiated a follow-on administrative proceeding before the
Securities and Exchange Commission pursuant to Exchange Act § 15(b) and Advisers Act §
203(f). After two pre-hearing conferences, the Division moved for summary disposition pursuant
to Commission Rule of Practice 250, relying on the allegations of the aforementioned district
court Complaint. Gibson filed a response, attaching his own declaration and declarations from
31 ACW investors. Gibson’s declaration stated that he had a clean disciplinary record, that he
cooperated with the Commission’s investigation, and that he paid the fine and disgorgement
ordered by the district court. In each individual investor declaration, the investor indicated that
he or she had reviewed Gibson’s answer to the Complaint, agreed to “approve and ratify” all of
Gibson’s actions with respect to ACW, and wanted Gibson to continue to act on his or her behalf
as investment adviser. (J.A. at 162.) These declarations appear to be preprinted forms that allow
only for the investors’ initials and signatures.
The ALJ granted the Division’s motion for summary disposition, finding that Gibson had
failed to create a genuine dispute of material fact. After concluding that Gibson’s
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misappropriation of investor funds demonstrated a lack of honesty and judgment which made
him unsuited to function in the securities industry, the ALJ held that the public interest required
that Gibson be barred.
Gibson appealed the ALJ’s decision to a panel of the Securities and Exchange
Commission (“the Commission”). After discussing the uncontested factual allegations in the
Complaint (which were in turn, taken as true by the ALJ and the Commission) and the relevant
statutory provisions, the Commission concluded that there were significant doubts about
Gibson’s fitness to remain in the securities industry. The Commission held that the ALJ
correctly concluded that there was no issue with regard to any material fact and that imposing a
lifetime bar against Gibson would serve the public interest. The Commission therefore affirmed
the ALJ’s issuance of a lifetime bar precluding Gibson from associating with any securities
broker, dealer, or investment adviser pursuant to § 15(b) of the Exchange Act and § 203(f) of the
Advisers Act. Gibson now seeks our review of the Commission’s order.
DISCUSSION
I. The Grant of Summary Disposition
A. Standard of Review
Our review of an order of the Commission is governed by the Administrative Procedure
Act, 5 U.S.C. § 701, et seq. See MFS Sec. Corp. v. SEC, 380 F.3d 611, 617 (2d Cir. 2004). This
Court must affirm if the Commission’s findings of facts are supported by substantial evidence.
Id. We uphold the Commission’s legal conclusions unless they are “‘arbitrary, capricious, an
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abuse of discretion, or otherwise not in accordance with law[.]’” Id. (quoting 5 U.S.C. §
706(2)(A)); see also Seghers v. SEC, 548 F.3d 129, 132 (D.C. Cir. 2008).
B. Analysis
Gibson first argues that the Commission committed reversible error by affirming
summary disposition in the case against him without first holding an evidentiary hearing.
SEC Rule 201.250 of the Commission’s Rules of Practice (“Rule 250”) provides that a
hearing officer is entitled to “grant the motion for summary disposition if there is no genuine
issue with regard to any material fact and the party making the motion is entitled to a summary
disposition as a matter of law.” 17 C.F.R. § 201.250 (2009).
Gibson argues that summary disposition of disciplinary cases is normally not appropriate
under Rule 250, and that it was not appropriate here, because there was a genuine issue with
regard to facts that mitigate his misconduct. He cites to the commentary to Rule 250, which
provides as follows:
Motions for disposition prior to hearing may provide particular benefits in regulatory proceedings. Enforcement or disciplinary proceedings in which a motion for disposition prior to hearing would be appropriate are likely to be less common. Typically, enforcement and disciplinary proceedings that reach litigation involve genuine disagreement between the parties as to the material facts. Where a genuine issue as to material facts clearly exists as to an issue, it would be inappropriate for a party to seek leave to file a motion for summary disposition or for a hearing officer to grant the motion. While partial disposition may be appropriate in some cases, a hearing will still often be necessary in order to determine a respondent’s state of mind and the need for remedial sanctions if liability is found.
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17 C.F.R. § 201.250 (2009); accord In re Melvin Mullin, 61 S.E.C. Docket 2517, 1996 WL
281717 (May 17, 1996).
Gibson’s position is unconvincing for several reasons. First, the Commission has held,
contrary to Gibson’s assertions, that summary disposition is not disfavored in follow-on
disciplinary proceedings. See In re Conrad P. Seghers, 91 SEC Docket 1945, 2007 WL 2790633
(Sept. 26, 2007) (explaining that when a respondent seeks to mitigate his or her misconduct in a
follow-on proceeding involving fraud, summary disposition would be inappropriate only in “rare
circumstances”). As the Division properly notes, this Court has affirmed permanent injunctions
entered on summary judgment. See, e.g., SEC v. George, 426 F.3d 786, 790-91 (6th Cir. 2005);
SEC v. Waco Financial Inc., 751 F.2d 831, 833-34 (6th Cir. 1985).
Second, as discussed above, Gibson agreed not to dispute the facts alleged in the original
district court Complaint. The Complaint alleged that Gibson misappropriated investor funds of
approximately $450,000, that he misrepresented his actions to investors, and that his conduct was
repeated and ongoing. When the facts underlying Gibson’s relevant misconduct are undisputed, it
stands to reason that there is no genuine issue of fact.
Third, Exchange Act §§ 15(b)(6) and 15(b)(c)(4) and Advisers Act §§ 203(f) and
203(e)(4) authorize the Commission to sanction any person associated with a broker, dealer, or
investment advisor who has been enjoined from “engaging in or continuing any conduct or
practice in connection with the purchase or sale of any security.” 15 U.S.C. §§ 78o(b) and 80b-3.
Gibson does not dispute that he was associated with a broker-dealer and an investment advisor,
and that the district court enjoined him from engaging in relevant conduct. Consequently, the
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Commission properly determined that the statutory requirements for the imposition of sanctions
were satisfied.
The only evidence that Gibson submitted on his behalf is evidence that he claims
mitigates his misconduct. As discussed above, in Gibson’s opposition to the motion for summary
disposition, which he filed before the ALJ, Gibson provided his own declaration and declarations
from 31 ACW investors. Gibson’s declaration attested to his prior clean disciplinary record, his
cooperation with the Division’s investigation, and his prompt payment of the civil penalty and
disgorgement. These attestations were not disputed by the Division, and both the ALJ and the
Commission took them as true for purposes of these proceedings. It was not arbitrary or
capricious for the Commission to find that they did not create a genuine issue of fact as to
whether disciplinary action was warranted. See SEC v. Management Dynamics, Inc., 515 F.2d
801, 807 (2d Cir. 1975) (stating that cessation of illegal activity or disclaimer of an intent to
violate the law in the future are not sufficient to justify the denial of an injunction); SEC v.
Bilzerian, 29 F.3d 689, 695 (D.C. Cir. 1994) (holding that an evidentiary hearing was not required
to issue a permanent injunction despite a party’s assurances that he would not violate securities
laws in the future).
With respect to the investor declarations submitted by Gibson, each individual declaration
stated that the investor had reviewed Gibson’s answer to the complaint, that the investor ratified
Gibson’s actions, and that the investor wanted Gibson to continue to serve as his or her
investment advisor. Again, the ALJ and the Commission took these declarations as true and
found a bar appropriate notwithstanding the evidence. We agree with the Commission’s
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observation that “it is difficult to see how live testimony regarding the investors’ attitude toward
Gibson would affect the sanctioning determination.” (J.A. at 245.)
Because the investor declarations, like Gibson’s own declaration, do not create a material
issue of fact, and because Gibson proffered no additional evidence that he hoped to prove at a
hearing, we hold that the Commission did not err in granting the Division’s motion for summary
disposition without requiring a full evidentiary hearing.
II. Remedial Sanctions
“Unless a gross abuse of discretion on the part of the Commission is shown, the
Commission’s determination of the sanctions necessary to protect the public interest will not be
disturbed.” Armstrong, Jones & Co. v. SEC, 421 F.2d 359, 365 (6th Cir. 1970); see also Lowry v.
SEC, 340 F.3d 501 (8th Cir. 2003) (applying “gross abuse of discretion” standard when reviewing
SEC sanctions); Orkin v. SEC, 31 F.3d 1056, 1066 (11th Cir. 1994) (same). This standard
recognizes that there is a “range of choice within which we will not reverse . . . even if we might
have reached a different decision.” Siebert v. Allen, 506 F.3d 1047, 1049 n.2 (11th Cir. 2009)
(quotation marks and citations omitted).
The Fifth Circuit’s decision in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), is
recognized as the leading case that establishes the standard courts should use when evaluating
administrative actions involving disciplinary sanctions. See, e.g., Seghers, 548 F.3d at 134;
Lowry 340 F.3d at 504. Under Steadman, a court must consider a number of factors when
imposing disciplinary sanctions: (1) the egregiousness of the defendant’s actions; (2) the isolated
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or recurrent nature of the infraction, (3) the degree of scienter involved, (4) the sincerity of the
defendant’s assurances against future violations, (5) the defendant’s recognition of the wrongful
nature of his conduct, and (6) the likelihood that the defendant's occupation will present
opportunities for future violations. 603 F.2d at 1140.
Gibson argues that, applying the Steadman factors to this case and considering the
substantial mitigating evidence favoring Gibson, a lifetime bar is an excessive disciplinary
sanction that should be reversed.
We find that the Commission appropriately considered each of the Steadman factors, as
well as the mitigating evidence submitted by Gibson, before affirming the ALJ’s imposition of
remedial sanctions. First, the Commission found that Gibson’s conduct was egregious, because
he misappropriated approximately $450,000 from a group of investors, many of whom were
clients to whom he owed a fiduciary duty, all the while sending the investors “lulling
communications.” The Commission next found that the infractions were recurrent and ongoing
and that they involved several different types of misconduct and a large number of clients. Third,
the Commission found that Gibson’s actions demonstrated a high degree of scienter, that he took
actions to disguise his conduct, and that he failed to discontinue the conduct until the Division
filed a complaint in district court. As to the fourth and fifth factors, the Commission stated that
“[w]hile we do not dispute Gibson’s assertions regarding his acknowledgment of wrongdoing and
his assurances against future misconduct, those assertions do not overcome the other factors that
indicate the gravity of the threat to investors that Gibson would present if he were permitted to
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remain in the securities industry.” (J.A. at 241.) Finally, the Commission found that if Gibson
were not barred, he would be presented with further opportunities to engage in misconduct, and
that his breach of fiduciary duty as an investment advisor demonstrated a lack of fitness to remain
in the industry.
The Commission has held that “the fact that a person has been enjoined from violating
antifraud provisions ‘has especially serious implications for the public interest.’” In re Michael
T. Struder, Exchange Act Rel. No. 50411, 83 SEC Docket 2853, 2861 (Sept. 20, 2004); see also
In re Marshall E. Melton, Advisers Act Rel. No. 2151, 56 SEC Docket 695, 713 (July 25, 2003)
(“Based on our experience enforcing federal securities laws, we believe that ordinarily, and in
absence of evidence to the contrary, it will be in the public interest to . . . suspend or bar from
participation in the securities industry . . . a respondent who is enjoined from violating the
antifraud provisions.”)
In light of this precedent and the Commission’s analysis of the Steadman factors, we
conclude that the Commission did not grossly abuse its discretion in determining that Gibson’s
lifetime bar was necessary to serve the public interest.
CONCLUSION
For the reasons stated above, we DENY Gibson’s petition for review.
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