Securities and Exchange Commission v. Schalk, Jr.

• Court: District Court, D. Maryland
• Decided: December 27, 2024
• Docket: 1:21-cv-01458
• Status: Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

SECURITIES AND EXCHANGE * COMMISSION, * Plaintiff, * v. * Civ. No. CCB-21-1458 RUSSELL C. SCHALK, JR., * Defendant.

MEMORANDUM Now pending is an Application for an Order Enforcing Compliance with a Commission Order. The Application was filed by the Securities and Exchange Commission on June 10, 2021 (ECF 1) and relates to an Order entered against Russell C. Schalk, Jr. on April 17, 2015 for violations of the Securities Act, the Exchange Act, and Rule 10b-5. Mr. Schalk agreed to disgorgement, and an ALJ determined Mr. Schalk had the ability to pay the amount of $20,000 per year (ECF 1-6). The ALJ’s findings were upheld on September 21, 2016 (ECF 1-7). Nine months later, on June 19, 2017, the SEC served upon Mr. Schalk a demand for payment (ECF 1-8, ¶ 8). There followed a round of correspondence between Mr. Schalk and the SEC as he tried to comply with providing the documents the SEC said were necessary to reach agreement about the payment schedule. Mr. Schalk also wished to avoid the imposition of a district court judgment, which he believed would impair his employment opportunities and cause the loss of his license and the loss of his ability to earn an income (ECF 8). In July 2021, the SEC requested and the court issued a show cause order (ECF 6). Mr. Schalk then filed his formal answer to the Application with attachments (ECF 8). A hearing was held on November 19, 2021 (ECF 10). Both sides presented discussion about the history of their attempts to reach an agreement. SEC counsel conceded at the hearing that there was no evidence of a response to Mr. Schalk’s most recent submission of the requested financial documents, which he provided in December 2018 (ECF 11). At the hearing the court urged both sides to

attempt to reach an agreement, and then required periodic status reports. The parties did reach an agreement about the amount of monthly payments, and from January 2022 forward Mr. Schalk has continued to pay every month the amount that he agreed upon with the SEC (ECF 22, ¶ 4; ECF 23). Unfortunately, they reached no agreement about the entry of a district court judgment. Mr. Schalk, now 72 and representing himself, continues to be concerned about the likely loss of his jobs if a judgment is entered against him (ECF 23). The SEC correctly notes that enforcement proceedings are generally summary in nature, and the respondent may not challenge or relitigate the merits of the Commission’s order. SEC v McCarthy, 322 F.3d 650, 658 (9th Cir. 2003); SEC v Gerasimowicz, 9 F. Supp. 3d 378, 381 (S.D.N.Y. 2014); SEC v Pinchas, 421 F. Supp. 2d 781, 783 (S.D.N.Y. 2006). But Mr. Schalk has

not challenged the legality or merits of the Order. Indeed, he has been complying with his monthly payment obligations ever since they were agreed to in January 2022. The record in this case suggests that the SEC bears the majority of the responsibility for the delay in reaching an agreement, and fairness suggests that disrupting the new employment Mr. Schalk has been able to obtain would not be appropriate. The court does not minimize the seriousness of the conduct that was the basis for the Order, but Mr. Schalk is paying a penalty for that misconduct. The SEC notes that the statute of limitations for converting the Order into a judgment has run since the filing of the Application in this court. 28 U.S.C. § 2462. For that reason, the court has decided not to dismiss the Application at this time. Instead, the matter will be administratively closed, subject to reopening upon motion by the SEC if Mr. Schalk fails to continue his payments as agreed upon. If Mr. Schalk fails to make payments as agreed, the SEC may request a judgment be entered against him. A separate Order follows.

Date: December 27, 2024 BY THE COURT:

/S/ CATHERINE C. BLAKE Catherine C. Blake United States District Judge