US Securities and Exchange Commission v. Wallin

Filing 28

MEMORANDUM Opinion and Order: The defendant, John Wallin, consented to the entry of judgment against him in this action alleging violations of the Securities Exchange Act of 1934. The United States Securities and Exchange Commission (SEC) now moves this Court to assess civil penalties against Wallin and to enter a final judgment in this matter. For the reasons set forth herein, that motion 15 is granted in part and denied in part. Final judgment is entered in favor of plaintiff, SEC and against defendant, Wallin in the amount of $50,000. Civil case terminated. Signed by the Honorable Sharon Johnson Coleman on 6/26/2018. Mailed notice. (ym, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff,
v.
JOHN F. WALLIN,
Defendant.

)
)
) Case No. 17-cv-7057
)
) Judge Sharon Johnson Coleman
)
)
)
)
)

MEMORANDUM OPINION AND ORDER
The defendant, John Wallin, consented to the entry of judgment against him in this action
alleging violations of the Securities Exchange Act of 1934. The United States Securities and
Exchange Commission (SEC) now moves this Court to assess civil penalties against Wallin and to
enter a final judgment in this matter. For the reasons set forth herein, that motion [15] is granted in
part and denied in part.
Background
The following undisputed facts are taken from the SEC’s complaint. Geoffrey Thompson is
the founder and Chairman of Accelera and, with his wife, is the owner and operator of Synergistic
Holdings, LLC. On June 13, 2011, Synergistic acquired Accelera and hired Wallin as Accelera’s
CEO and CFO.
Between April 2012 and April 2017, Wallin signed Accelera’s Form 10-K and 10-Q
submissions and Sarbanes-Oxley certifications as Accelera’s CEO and CFO. Despite being both
CEO and CFO, Wallin had extremely limited knowledge of Accelera’s operations. Wallin never read
the public filings that he signed and made no effort to confirm the information contained in those
filings, despite repeatedly certifying that he had reviewed them and that, based on his knowledge, the
filing “does not contain any untrue statement of material fact” and “fairly present[s] in all material
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respects the financial condition, results of operations and cash flow of the registrant.” As it turns
out, those filings misrepresented that Accelera had taken over another company, BHCA, and
represented BHCA’s financial results as Accelera’s despite the fact that the anticipated purchase of
BHCA had never occurred and Accelera was essentially valueless. Wallin did not receive a salary for
his work for Accelera.
Discussion
Under federal law, United States district courts have jurisdiction to impose civil penalties for
violations of the Securities Exchange Act of 1934. 15 U.S.C. § 78u(d)(3). These civil penalties are
meant to serve the dual goals of punishing the individual violator and deterring future statutory
violations. S.E.C. v. Moran, 944 F. Supp. 286, 296 (S.D.N.Y. 1996).
The Securities Exchange Act provides for three escalating tiers of punishment. The baseline
maximum penalty for an individual defendant under the first tier is either $7,500 or the defendant’s
pecuniary gain. 15 U.S.C. § 78u(d)(3)(B)(i); 17 C.F.R. § 201.1001. The maximum penalty increases
to $80,000 or the defendant’s pecuniary gain when the violation involves “fraud, deceit,
manipulation, or deliberate or reckless disregard of a regulatory requirement.” 15 U.S.C.
§ 78u(d)(3)(B)(ii); 17 C.F.R. § 201.1001.
The amount of any civil penalty awarded is committed to the court’s discretion in light of
the facts and circumstances of the case. 15 U.S.C. § 78u(d)(3)(B)(i). Relevant factors to be
considered include the seriousness of the violations, the defendant’s intent, whether the violations
were isolated or reoccurring, the defendant’s acceptance of responsibility, the losses or risk of losses
caused by the conduct, the defendant’s cooperation with authorities, the other sanctions that the
defendant may face, and the defendant’s ability to pay. SEC v. Church Extension of the Church of
Church, Inc., 429 F. Supp. 2d 1045, 1050–51 (S.D. Ind. 2005); SEC v. Lybrand, 281 F. Supp. 2d 726,
730 (S.D.N.Y. 2003). The SEC bears the burden of establishing that it is entitled to the requested
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remedy by a preponderance of the evidence. S.E.C. v. Koenig, 532 F. Supp. 2d 987, 993 (N.D. Ill.
2007) (Andersen, J.). Here, there can be no dispute that Wallin’s violations were serious, blatant,
and consistently repeated over multiple years.
Wallin contends that the SEC cannot establish that he acted recklessly because he did not
know that the financial statements in question were inaccurate. Wallin has plausibly represented that
he lacks comprehension of accounting and legal matters, made no effort to inform himself of the
operations of the corporation that he nominally ran, and would have been incapable of
understanding the financial statements that he signed. Unfortunately for Wallin, his comprehension
of the statements that he signed is irrelevant to the violation alleged here. Even if Wallin did not
understand the statements that he was signing, there can be no doubt that he knew that when he
signed them he was certifying that he had read them, reviewed them, and believed them to be
accurate. Whether or not Wallin knew the financial statements were inaccurate, he surely knew
whether or not he had read them, and undoubtedly understood that he was lying to shareholders
and the public about that fact. This conduct, at a minimum, constitutes reckless disregard of a
regulatory requirement.
The factors previously discussed favor a substantial penalty in this case, although this Court
notes that Wallin promptly accepted his responsibility in this case and was not the underlying source
of the deception that was the root cause of investor’s losses. The SEC, in a show of compassion
and restraint, has not sought a substantial penalty against Wallin. Instead, the SEC seeks a penalty
of only $80,000 dollars, which amounts to $8,000 per false federal filing and is therefore 10% of the
total possible penalty authorized by statute.
The SEC’s desired penalty appears to be based primarily on Wallin’s personal financial
circumstances. Wallin’s daughter suffers from a chronic medical condition which renders her unable
to work and requires frequent hospitalizations. The family’s income stream, based on the evidence
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before this Court, amounts to approximately $74,000 a year, an amount offset by substantial debt.
Although the SEC has already proposed a reduced penalty, Wallin contends that this Court should
waive any civil penalty in light of his family circumstances, his lack of intent, and his promise not to
serve as an officer or director of a public entity again. As an initial matter, the Court notes that
Wallin’s conduct clearly warrants some form of penalty for purposes of both general and specific
deterrence. Wallin has failed to establish that his purported promise removes the need to deter him
from future misconduct, and, as previously noted, Wallin is far more culpable than he is inclined to
admit.
The Court does, however, give consideration to Wallin’s family circumstances, which,
although unfortunate, are not unique. As this Court frequently admonishes in criminal cases, it is
often family members who suffer the collateral consequences of a defendant’s misconduct. This is
not the first time that an individual has appeared before this Court and asked that their misconduct
be overlooked because of a family-member’s medical condition. To the extent that the civil penalty
here will harm Wallin’s family, the fault is Wallin’s for engaging in misconduct subject to such a
penalty when he knew of both his financial situation and his daughter’s condition. Indeed, Wallin’s
apparent disregard of the risk of penalty for his actions demonstrates precisely why principles of
general deterrence require a significant penalty here. The Court accordingly rejects Wallin’s request
that no civil penalty be assessed in this case.
The Court, however, believes that the penalty proposed here, although appropriate for
deterrence purposes, still exceeds Wallin’s reasonable ability to pay in light of the extenuating
circumstances set forth above. The Court accordingly reduces the proposed penalty from $8,000 for
each false filing to $5,000 for each false filing, for a total civil penalty of $50,000. This amount is
appropriate in light of the deterrence purposes of the statute, Wallin’s personal circumstances, and
the penalties already assessed to other involved individuals.
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Conclusion
For the foregoing reasons, the Court grants the SEC’s motion for a civil penalty and entry of
a final judgment [15] and enters final judgment against Wallin in the amount of $50,000.

SO ORDERED.

____________________________________
Sharon Johnson Coleman
United States District Court Judge
DATED: 6/26/2018

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