U.S. Securities and Exchange Commission v. Van Gilder
FINDINGS OF FACT AND CONCLUSIONS OF LAW RE CONSENT JUDGMENT by Judge John L. Kane on 07/17/14. (jhawk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 12-cv-02839-JLK
SECURITIES AND EXCHANGE COMMISSION
MICHAEL VAN GILDER,
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER RE CONSENT JUDGMENT
On May 28, 2014, Plaintiff Securities and Exchange Commission (SEC) filed a second
unopposed motion for entry of final judgments as to the above named Defendant and the Relief
Defendant.1 I deny the motion, but will approve a consent order and judgment that includes the
I denied the first unopposed Motion For Entry of Proposed Final Judgments for a
number of reasons, not the least of which is that the Motion and the Proposed Final Judgment
contained appellate waivers without expressing any basis other than ipse dixit for it. Curiously,
the instant Second Motion does not propose appellate waivers but contains a gratuitous footnote
stating that “appellate waivers have been routinely upheld by the Tenth Circuit and other circuit
courts.” The footnote continues with a string of citations of eight cases in which appellate courts
have upheld a district court’s decision to impose an appellate waiver. Not a single cited case
stands for the proposition that appellate waivers are mandatory. On the contrary, whether to
impose an appellate waiver is a matter of judicial discretion and it is that exercise of discretion
that is upheld. For the record, I have granted appellate waivers in past cases. I do not entertain
the view that all appellate waivers are inappropriate. I do hold the position that judicial
detailed findings of fact expressed below and complies with the following rulings:
The case involves Van Gilder’s insider trading in the securities of Delta Petroleum
Corporation (“Delta”), in advance of a December 31, 2007 announcement that Tracinda
Corporation (“Tracinda”) was acquiring a 35 percent stake in Delta for $684 million. The Relief
Defendant, Diltz, while not charged with violations of the securities laws, received gains through
his personal trading in Delta securities that constitute unjust enrichment. Unjust enrichment is
inferred based on the coincidence of purchases by Van Gilder through the brokerage services of
Diltz, followed quickly thereafter by Diltz’s purchasing Delta securities for his own account.
The inference is confirmed by Diltz’s consent to disgorge his profits from these trades and to pay
prejudgment interest thereon. His admission or denial of these facts, under the circumstances, is
discretion requires an articulable reason and none was given in this case, only resort by the SEC
to a claim that “Everybody goes along with it.” If I have an opinion about appellate waivers in
general it is that they are too freely granted, often without reason and as such are detrimental to
effective judicial reasoning, but if a sound reason applicable to the context of the case is given,
such a waiver would be considered and included if prudent to do so.
Tangentially related to the gratuitous footnote about appellate waivers, the SEC observes in
another footnote (n. 12) that “[t]his Court has previously entered an order of settlement against a
relief defendant where no factual findings were made and where the order contained a NAND
provision.” This is correct, but misleading. The referenced order was entered in a Ponzi scheme
case after extensive hearings involving members and many victims of the scheme. The relief
defendant, however, was simply the estranged spouse of one of the schemers and was wholly
without knowledge of it or the harm it caused. The instant case is an insider trading case in
which a single player received and profited from insider information, enabling his unwitting
stockbroker to follow suit. The relief defendant’s knowledge of the principal’s conduct and the
circumstances giving rise to it is relevant to the principal’s liability and his own relief defendant
status, thus findings and conclusions related to that knowledge and participation are necessary, in
my view. The NAND provision, on the other hand, is irrelevant and unnecessary in both cases.
Relief defendants are not charged with violating the securities laws, so they have no violations to
“neither admit nor deny.”
The submissions of the Plaintiff and the consents of Van Gelder and Diltz permit the
following findings of fact and conclusions of law to be made under Fed. R. Civ. P. Rule 52
without the need for evidentiary hearings or trial. Rule 52 requires that the facts be found
specially and the conclusions of law stated separately.
The second unopposed motion proposes that Rule 52's requirements are satisfied by the
incorporation by reference of the facts in the one count of the five count criminal indictment to
which Van Gilder plead guilty. According to the SEC, this is so because the facts in the criminal
case and those alleged in the civil case “largely overlap.” That they “largely overlap” is not the
same as saying they are the same and thus incorporation by reference is insufficient and
inappropriate. In U.S. v. Merz, 376 U.S. 192, 199 (1964), the Supreme Court emphasized that
judges shall take special care in ascertaining the facts necessary to comply with Rule 52,
observing that judges “will give more careful consideration to the problem if they are required to
state not only the end result of their industry, but the process by which they reached it.”
Accepting as a substitute for this careful consideration a cavalier incorporation by reference from
another case is the sort of shortcut that evades or clouds this prescription. Accordingly, I will
use the allegations set forth in the adjudicated count of the indictment to make by Rule 52
findings, as well as the facts set forth in the unopposed motion, the briefs in support thereof, and
the submitted consents.
Findings of Fact
Delta is a publicly traded Delaware corporation headquartered in Denver, Colorado, and
engaged in the oil and gas business. Roger Parker, during the time relevant to this case, was the
chief executive officer of Delta and the chairman of its board of directors. Because of longstanding personal friendship, Parker tipped Van Gilder with material nonpublic information
about a transaction with Tracinda, a private investment company. Van Gilder traded on that
information realizing profits.
Van Gilder’s broker, Stephen Diltz, traded in Delta securities following Van Gilder’s
wrongful trading, earning trading profits and thus being unjustly enriched. There is no evidence
presented that Diltz had notice that Van Gilder was trading with insider information. Criminal
charges were filed against Van Gilder and he plead guilty to Count Five of the Indictment in case
12-cr-00447-WYD. Van Gilder was sentenced to five years of probation, fined $5,000 and
assessed the $100 special statutory fee. He was ordered to forfeit $86,100 of his ill-gotten gains.
The relevant factual allegations in Count Five constitute judicial admissions by Van Gilder.
The Insider Trading Scheme
On November 8, 2007, Delta publicly announced, and filed with the SEC, a quarterly
report disclosing its operational performance, revenues, earnings and other financial performance
for its quarterly period ended September 30, 2007. On November 5, 2007, three days before this
disclosure, the financial publication Barron’s disseminated an article entitled “Day of
Reckoning,” which focused on Delta. The article was generally pessimistic about the company’s
prospects and questioned the valuation of Delta’s common stock. The article noted in particular
that in five of the last seven quarters, Delta, in its quarterly reports, had missed its initial
guidance figures for its oil and gas production and had “a similarly checkered history of missing
analysts’ earnings projections.” The article further noted the company was facing cash flow
problems and opined that, to address these problems, Delta would have to sell assets or obtain
external financing through stock sales or by raising debt. Following publication of the article,
the price of Delta’s common stock dropped $1.49 per share, or approximately 8.8% below its
prior day’s closing price.
At the time, Van Gilder held both shares of Delta common stock and long-term call
options to purchase Delta common stock in a Merrill Lynch brokerage account administered for
him by Diltz, one the brokerage firm’s Chicago, Illinois stockbrokers. On November 5, 2007,
Parker sent Van Gilder an email providing an internet link to the aforementioned Barron’s
article. Later that day, Van Gilder sent an email to Diltz forwarding this article link and asking
Diltz to call him to discuss selling his Delta investment.
On November 5, 2007, following an exchange of emails with Diltz, Van Gilder spoke, in
a series of telephone calls, with Parker who imparted that when it announced its third quarter
financial performance on November 8th, Delta would report figures that would not miss third
quarter forecasts and projections for its financial and operational performance. At the time of
these conversations, Delta’s third quarter financial and operational performance had not yet been
publicly released and was not generally known to the investing public, as Parker and Van Gilder
Based on this confidential and material non-public information, Van Gilder decided not
to liquidate his Delta investment but instead contacted Diltz to buy more Delta common stock on
his behalf. On November 6, 2007, as a consequence, Van Gilder, through Diltz purchased an
additional 1,250 shares of Delta common stock at $15.55 per share.
Several hours after his stock purchase, Van Gilder responded to an earlier email,
counseling others as follows: “Guys - I had a dialogue a friend (sic), of whom you know. Do
not sell this stock, rather buy more. The article is bogus. Delta will hit their numbers at this
Thursday’s announcement.” Delta, in its November 8th release of 2007 third quarter results,
disclosed earnings and other financial figures, and production figures, in line with or exceeding
previous forecasts and predictions of production figures.
In late November 2007, a mutual friend of Parker and the owner of Tracinda discussed
the possibility of Tracinda making a substantial investment in Delta. At the time, the possibility
of Tracinda’s interest in Delta was confidential and not generally known to the investing public.
On November 26, 2007, following a series of telephone calls and other communications
with Parker over the course of November 23, 2007 through November 25, 2007, Van Gilder
contacted Diltz and, through him, purchased an additional 1,750 shares of Delta common stock
at $13.87 and $13.88 per share.
On December 2, 2007, Parker spoke with representatives of Tracinda about Tracinda
making a substantial equity investment in Delta. The following day, Parker and other Delta
representatives traveled to Las Vegas, Nevada, to meet with Tracinda representatives on
December 10th to discuss the matter further. Over the course of these days, Parker and Van
Gilder had a series of telephone conversations and cell phone text messages, in which Parker
informed Van Gilder of, and kept him apprised with respect to, the confidential negotiations
between Delta and Tracinda concerning Tracinda’s possible equity investment in Delta.
On Saturday, December 8, 2007, within an hour of an exchange of text messages with
Parker, and as a result of his receipt of this material and confidential information, Van Gilder
emailed Diltz and advised that he “wanted to buy as much Delta stock as possible” and that the
two should talk the next business day. On December 10, 2007, Van Gilder, through Diltz,
purchased an additional 4,000 shares of Delta common stock, at $17.64 per share, for his Merrill
Lynch brokerage account. Within minutes of the execution of these purchases, Van Gilder spoke
by telephone with a family member, who, several minutes thereafter, in turn, contacted his own
stockbroker to purchase Delta common stock for his own account.
On December 17, 2007, Parker advised Delta’s board of directors of his discussions with
Tracinda’s representatives about Tracinda’s investment interest in Delta, and the board
authorized Parker and the rest of its management team to proceed with negotiations with
Tracinda. That evening, Parker exchanged a series of cell phone text messages with Van Gilder,
and the following morning, Van Gilder telephoned Diltz. Several hours later, Van Gilder
directed that $40,000 be wire transferred from a bank account to his Merrill Lynch brokerage
On December 19, 2007, a representative of Tracinda contacted Parker and made an offer
for Tracinda to purchase a one-third interest in Delta through a purchase of Delta’s common
stock at $17 per share. At the time, Delta’s common stock was trading at approximately $14.65
per share, and Tracinda’s overture remained confidential, unknown to the investing public, as did
its particular stock purchase offer. Van Gilder, through Diltz, purchased 200 call options,
entitling him to purchase up to 20,000 shares of Delta common stock at $20 per share until
March 22, 2008.
Over the course of December 20 through December 22, 2007, Parker had continuing
confidential discussions with Tracinda’s representatives concerning the terms of Tracinda’s
stock purchase offer. Parker, at the direction of Delta’s board of directors, sought in these
discussions to negotiate a higher share price for the stock purchase. On Saturday, December 22,
2007, as a result of these discussions, Tracinda agreed to increase its stock purchase offer to $19
per share. Tracinda’s representatives indicated to Parker that this was Tracinda’s final offer.
In a series of telephone calls that same day, December 22, 2007, Parker kept Van Gilder
informed of the progress of these confidential discussions. Immediately following one of these
telephone conversations with Parker, Van Gilder sent an email to two of his family members, its
subject identified as, “Xmas present,” and the email reading as follows:
Siblings - my present (just kidding) is that I can’t stress enough the opportunity
right now to buy Delta Petroleum. Something significant will happen in the next
When one of the recipients emailed him a reply asking for more details, Van Gilder sent
the relative an email stating, “Call me, prefer not to have in email,” and provided a telephone
number. During the course of his telephone calls with Parker that day, Van Gilder also contacted
Diltz to talk about Delta, exchanging a series of emails and having several telephone calls with
Diltz between calls with Parker.
On December 24, 2007, based on the confidential, material non-public information about
the Tracinda stock purchase offer, Diltz purchased, on Van Gilder’s behalf, 3,000 more shares of
Delta common stock, at prices ranging between $15.63 and 15.65 per share, and 90 additional
call options to purchase up to 9,000 more shares of Delta common stock at $20 per share until
March 22, 2008.
On December 28, 2007, during the course of working to finalize the Tracinda stock
purchase agreement, Parker exchanged a series of cell phone text messages with Van Gilder,
who then caused $272,212 from a bank account to be wired to his Merrill Lynch brokerage
account. The following day, Saturday, Van Gilder emailed Diltz requesting him to “get it on
On December 29, 2007, Delta’s board of directors approved a finalized stock purchase
agreement for Tracinda to purchase approximately 35% of Delta’s common stock for $19 per
share. On Monday, December 31, 2007, before the commencement of regular hours trading on
the NASDAQ’S Global Select Market, Delta and Tracinda issued press releases announcing the
stock purchase agreement and Tracinda’s stock investment pursuant to it. Within an hour of the
commencement of regular hours trading that day, acting on Van Gilder’s direction, Diltz,
purchased an additional 4,000 shares of Delta common stock for Van Gilder, at prices ranging
from $19.28 to $19.33 per share, and 114 call options to purchase Delta common stock. By
close of regular hours trading that day, Delta’s common stock price had risen $3.34 from its
previous close of $15.51 on December 28, 2007. Over the course of the next three trading days,
its common stock price continued to rise, closing at $22.82 per share by January 4, 2008.
On January 9, 2008, acting through Diltz, Van Gilder sold the 290 call options on Delta’s
common stock that he had purchased between December 19 and December 24, 2007, realizing a
profit of approximately $86,100 on the transaction.
In sum, Van Gilder, wrongfully using insider information, purchased 1,250 shares of
Delta common stock on November 6, 2007; 4,000 shares of Delta Common stock on December
10, 2007; 200 call options on Delta Common stock on December 19, 2007; 3000 shares of Delta
common stock on December 24, 2007; and 90 call options on Delta common stock on December
24, 2007. Diltz gained $50,935 profit in his personal accounts as a result of trades in Delta stock
during the relevant time period.
The SEC and Van Gilder have agreed the amount of disgorgement is $109, 265 plus
prejudgment interest of $22,667 for a total of $131,932. Van Gilder, however, has already paid
$86,100 in forfeiture as an incidence of his guilty plea in the criminal case. Therefore, the
amount of disgorgement agreed to is $109,265 due and owing. In addition, the SEC has
determined, and Van Gilder has agreed, on a civil penalty in the same amount as the
disgorgement figure of $109,265. The SEC and Diltz agree that the profits in his personal
accounts are deserving of disgorgement, plus prejudgment interest thereon in the amount of
$10,840 for a total of $61,775.
CONCLUSIONS OF LAW
Disgorgement and Civil Penalties
I find the proposed monetary settlements are fair, adequate, and in the public interest.
Based on the foregoing facts, I find the proposed settlements are reasonable and the ratio of one
to one of the amount of Van Gilder’s disgorgement and the proposed civil penalty is reasonable.
This finding gives deference to the SEC’s determination based on its experience with other
insider trading cases. The amount is neither confiscatory nor lenient and falls well within the
statutorily suggested range of one to three times the amount ordered disgorged.2 Were the figure
to be outside that range, a more searching enquiry and justification would have to be made, but
within that range deference is appropriate. Prejudgment interest is a matter of equitable
discretion for the court and I find it is fair, reasonable and just in order to have the inside trader
return the time value of the moneys he was illegally obtaining. The fact that the SEC and Van
Section 21A of the Exchange Act provides that the amount of the civil penalty “shall be
determined by the court in light of the facts and circumstances, but shall not exceed three times
the profit gained or loss avoided as a result [of the violations].”
Gilder agree that such an award is appropriate under the circumstances of this case is persuasive.
There is no penalty requested against Mr. Diltz, nor should there be. While his conduct
is sufficient to warrant disgorgement based upon unjust enrichment, there are no allegations nor
evidence presented that he violated any law or rule. What is evident is that his purchases of
Delta for his own account followed his purchases of Delta stock and call options for Van Gilder
and are therefore related, albeit tangentially, to Van Gilder’s illegal trades. But for Van Gilder’s
illegal insider trading, Diltz’s acquisitions would not have occurred. His consent to disgorge the
$51,000 by which he was unjustly enriched, and to pay $10,818 in prejudgment interest accrued
on that money while under his control, for a total of $61,753, provides a sufficient, reasonable
and just remedy falling squarely within the ambit of the public interest.
The Injunction Against Van Gilder
In addition to the disgorgement and penalty assessed against Van Gilder, the SEC
requests an injunction of rather pervasive scope enjoining him from future violations of the
Exchange Act Section 10(b) and Rule 10 b-5 thereunder. Van Gilder, of course, is prohibited
from violating these laws just as much an anyone else. There are numerous ways and means of
violating these provisions, but the evidence and admissions adduced show only violations by
Van Gilder of engaging in insider trading. The injunction requested, even if permitted, is broader
in scope than the facts justify.
When a proposed consent decree requests injunctive relief, the SEC must satisfy the fourfactor test spelled out in eBay Inc. v. MercEchange, 547 U.S. 388, 391 (2006):
(1) that it has suffered an irreparable injury;
(2) that remedies available at law, such as monetary damages, are inadequate to
compensate for that injury;
(3) that, considering the balance fo hardships between the plaintiff and the defendant, a
remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.
As stated in Salinger v. Colting, 607 F.3d 68, 78 (2d Cir. 2010), “eBay strongly indicates that the
traditional principles of equity it employed are the presumptive standard for injunctions in any
context.” The Tenth Circuit has similarly stated that the traditional rules of equity apply in suits
for injunction filed by the SEC. See SEC v. Barraco, 438 F.2d 97 (1971).
It is clear that Section 21 (d) of the Exchange Act authorizes the entry of permanent
injunctions in securities cases, but it does not elide or supplant the standard criteria for issuing an
injunction. To the contrary, the statute provides that
(1) Whenever it shall appear to the Commission that any person is engaged or
about to engage in acts or practices constituting a violation of the provisions of
this chapter, the rules or regulations thereunder. . . . .it may in its discretion bring
an action in the proper district court of the United States . . . .to enjoin such acts
or practices, and upon a proper showing a permanent or temporary injunction or
restraining order shall be granted without bond.
Here, there is no basis for asserting that Van Gilder “is engaged or about to engage in
acts or practices constituting a violation.” There is only evidence and admissions that Van
Gilder has engaged in such acts in the past. More to the point, there is no basis for ascertaining
that Van Gilder represents a continuing threat or that equity should be invoked to prevent
continuing violations. Further, there is no basis submitted or demonstrated for finding that Van
Gilder’s violations are inadequately remedied at law. This very action providing for
disgorgement, interest payments and a penalty demonstrates the opposite. In addition, Van
Gilder has been placed on probation in the tandem criminal case under terms that prohibit him
from further violations of the law. Because there are adequate remedies at law, both civil and
criminal, equity will not lie. An injunction under these circumstances would be superfluous.
Finally, it is not in the public interest for courts to issue injunctions on an indiscriminate basis.
The nearly ageless admonition of our jurisprudence is that equitable relief should be provided
sparingly and only when the law itself is shown to be inadequate. No such showing has been
made in this case.
In sum, the requested injunction is overly broad in seeking to prohibit a variety of means
by which the Exchange Act and Rule 10b-5 may be violated when only one such means has been
shown. The requested injunction seeks to enjoin that which is already proscribed by law and
therefore Van Gilder is already prohibited from such activities. Both in this case and in general
an existing adequate remedy at law has been applied thus precluding equitable relief. Therefore,
the request for a permanent injunction is denied.
Similar to the action taken by Judge Bumb in Federal Trade Commission v. Circa Direct
LLC and Davidson, 2012 WL 3987610 (D. N.J. Sept. 2012), the parties shall have until
September 1, 2014, to prepare and execute a proposed consent judgment that complies with the
conditional approval set forth above. Upon receipt of a compliant consent decree, it will be
approved and this matter finally laid to rest.
Dated this 17th day of July, 2014.
s/John L. Kane
SENIOR U.S. DISTRICT JUDGE
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