Securities and Exchange Commission v. Bard et al

Filing 125

MEMORANDUM AND ORDER - AND NOW, this 10th day of Nov., 2011, upon con. of plf.'s mtn. for SJ 99 & pur. to the accompanying memorandum, it is ORDERED as follows: 1. Plf.'s mtn. for SJ 99 is GRANTED. 2. The Clerk of Crt. is directed to en ter jgm. in favor of plf. & against defts. 3. Defts. are hereby found liable for violations of 17(a) of the Securites Act of 1933 10(b) of the Exchange Act of 1934, & Rule 10b-5 thereunder, & Section 206(1) & 206(2) of the Investment Advisers Act of 1940. 4. Defts., & all persons in concert or participation with them who receive actual notice of this order by personal service or otherwise, are permanently restrained & enjoined from violating, directly or indirectly, Section 17(a)of the Securitie s Act of 1933 Section 10(b) of the Exchange Act of 1934, or Rule 10b-5 thereunder, or Section 206(1) & 206(2) of the Investment Advisers Act of 1940. 5. Defts. are jointly & severally liable for disgorgement of $450,000.00, together w/prejudgmen t interest thereon. 6. Instructions for payment shall be set by future order. Defts.' payment obligation shall not take effect until the court has set the final amt. for their total obligation. 7. While a civil penalty appears to be appropriate, a hrg. is required to determine a reasonable amt., given the fact that we lack information as to defts.' current & future financial condition, & other factors that bear on this decision. A hearing will be conducted on Tuesday, 12/13/11, @ 9:30 a.m. (See memo for complete details.) Signed by Judge William W. Caldwell on 11/10/11. (am, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff
v.
ROBERT GLENN BARD and
VISION SPECIALIST GROUP, LLC,
Defendants

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CIVIL NO. 1:09-CV-1473

MEMORANDUM
I.

Introduction
Presently before the court is a motion for summary judgment (Doc. 99) filed

by Plaintiff, the Securities and Exchange Commission (“SEC”). The SEC seeks entry of
summary judgment; an order finding Defendants Robert Glenn Bard (“Bard”) and Vision
Specialist Group, LLC (collectively, “Defendants”)1 liable for violating various securities
laws;2 and an order permanently enjoining Defendants and other persons in concert with
Defendants from further violations of these acts. The SEC also seeks disgorgement of
profits, with prejudgment interest, a civil penalty, and post-judgment interest on any
delinquent amounts. After careful consideration, we will grant the motion.

1

It is undisputed that Vision Specialist acted by and through Bard, and was
controlled by Bard, at all relevant times. Hence, we make no distinction between the
conduct of Vision Specialist and the conduct of Bard.
2

The specific provisions at issue are as follows: § 17(a) of the Securities Act of
1933 (“Securities Act”), § 10(b) of the Exchange Act of 1934 (“Exchange Act”), and
Rule 10b-5 thereunder, and §§ 206(1) and 206(2) of the Investment Advisers Act of
1940 (“Advisers Act”).

II.

Discussion
Rule 56(a) provides that summary judgment should be granted "if the

movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law." FED . R. CIV. P. 56(a). We will examine the
motion under the well-established standard. See, e.g., Meditz v. City of Newark, --- F.3d
---, 2011 WL 4470677 (3d. Cir. 2011). In order to establish that summary judgment is
proper, the SEC must show that the undisputed facts prove that Defendants violated the
laws at issue. We will first examine whether the SEC has shown a violation of the
Securities Act and the Exchange Act. We will then turn to the Advisers Act.
To establish a violation of § 17(a) of the Securities Act, § 10(b) of the
Exchange Act, and Rule 10b-5 thereunder, the SEC must make the following showings:
(1) that Defendants used an instrumentality of interstate commerce, (2) that Defendants
made false or misleading statements or omissions of fact,3 (3) that said statements or
omissions were material, (4) that said conduct was done in connection with the offer,
purchase, or sale of securities, and (5) that Defendants had the requisite intent. See 15
U.S.C. § 77q(a); 15 U.S.C. § 78j(b); 17 C.F.R. 240.10b-5; Aaron v. SEC, 446 U.S. 680,
687-88, 697 (1980). There is no dispute that Defendants used instrumentalities of
interstate commerce, including the Internet, the telephone, fax lines, and mail.

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The parties both acknowledge that the second prong of this test would also be
satisfied by a showing that a defendant otherwise employed any device, scheme, or
artifice to defraud, or engaged in any transaction, practice, or course of business
which operates as a fraud or deceit. In this case, it is unnecessary to consider each of
these alternatives.
2

Defendants also admit to making false statements, although they contend that the false
statements were not material and were not made in the offer, purchase, or sale of
securities. Defendants also claim that there is an issue of material fact concerning intent.
Aside from a conclusory assertion that “Mr. Bard’s missatements were not
material,” (Doc. 110 at 13), Defendants’ brief does little to address the element of
materiality. Defendants argue that “Mr. Bard’s misrepresentations to his clients did not
play a material role in the loss that the accounts experienced[,]” (id. at 11), but they fail to
cite any authority defining materiality in such terms. We note that, in a case interpreting
other rules promulgated under the Exchange Act, the Supreme Court has held that a fact
is material if there is a “substantial likelihood” that the fact at issue “would have been
viewed by the reasonable investor as having significantly altered the ‘total mix’ of
information made available.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449
(1976). Applying this standard to the instant case, we conclude that the undisputed facts
establish the materiality of Mr. Bard’s false statements.
Specifically, Bard admits that he made false statements to 33 clients, on
146 occasions, over the course of two and a half years, misrepresenting the value of
their accounts by an approximate total of $1,895,200. He also admits falsely indicating
that his clients’ accounts had holdings in a type of security that they did not actually hold.
These admissions alone are sufficient to support our conclusion. A reasonable investor
would certainly consider it important to know the amount of funds in his or her account,
and the type of securities held. The record contains additional evidence that bolsters our

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conclusion, but no further discussion is necessary. Reasonable minds could not differ
over the conclusion that the false statements were material.
Defendants contend that “the false statements relating to account values
took place after the securities were purchased,” and therefore, they were not made in
connection with the offer, purchase, or sale of securities. (Doc. 110 at 13). This
argument is unavailing. In order to properly apply the “in connection with” element, we
examine whether the “scheme to defraud and the security coincide.” SEC v. Zandford,
535 U.S. 813, 822 (2002). In this case, the undisputed facts show that Defendants’ false
statements coincide with securities. For instance, Bard admits that he modified
documents to show holdings in a security identified as TCUUX, although none of his
clients did, in fact, have holdings in TCUUX. Bard also admitted to making false
statements about the value of his clients’ accounts. His fraud related directly to his work
as a financial advisor. Furthermore, throughout the period of time in which he engaged
in fraud, he continued to purchase and sell securities. He attracted and maintained
clients by relying on his reputation as a morally upright and successful financial advisor,
a reputation that he could not have earned without the ability to purchase and sell
securities. Hence, Bard’s false statements coincide with securities, and the “in
connection with” element is satisfied.
Finally, with respect to the element of intent, we find no issue of material
fact. The requisite intent, scienter, includes a variety of mental states, such as intent to
deceive, manipulate, or defraud, or in some circumstances, reckless disregard for

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misleading statements. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). In
this case, the undisputed facts show that Bard, an experienced investment advisor,
significantly and repeatedly misrepresented the value of his clients’ accounts, and the
record is utterly devoid of any evidence of innocent mistakes. To the contrary, all the
evidence suggests that Bard acted deliberately. Indeed, Bard admits that he fabricated
and modified documents, to reflect holdings that his clients did not, in fact, hold, and that
he overstated the value of their accounts. Therefore, we must reject Defendants’
conclusory assertion that an issue of material fact exists. We have no difficulty
concluding that the undisputed facts establish scienter.
Sections 206(1) and 206(2) of the Advisers Act set forth fiduciary standards
of conduct. The SEC contends that Defendants have violated these laws, which prohibit
investment advisors from using “any device, scheme, or artifice to defraud any client or
prospective client,” and from engaging “in any transaction, practice, or course of
business which operates as a fraud or deceit upon any client or prospective client,”
respectively. See 15 U.S.C. § 80b-6. According to the SEC, undisputed evidence
establishes that Defendants violated these provisions. Defendants do not dispute the
SEC’s argument on this point. Upon our own review of the undisputed facts, we agree
that Defendants’ violations of these laws are clear. Therefore, the SEC is entitled to
summary judgment.
Having concluded that liability is established, we will turn to the question of
remedies. As previously noted, the SEC seeks a finding of liability, a permanent

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injunction, disgorgement of profits, a civil penalty, prejudgment and post-judgment
interest on any delinquent amounts.
A permanent injunction is appropriate if the SEC establishes a reasonable
likelihood that Defendants, if not enjoined, will repeat their illegal conduct. We have
considered a variety of factors, including the degree of scienter, the recurrent nature of
the fraud, Defendants’ recognition of the wrongful conduct, assurances against future
violations, and the likelihood of future violations. We conclude that a permanent
injunction is warranted in this case.
The SEC seeks disgorgement of all fees taken from Defendants’ clients
during the pendency of the fraud, a total of $852,383. We are not convinced that this
sum is a reasonable approximation of profits causally connected to the violation.
Although we agree, to some extent, with the SEC’s assertion that Bard would have lost
clients if the truth had been known, the evidence does not indicate that Bard would have
lost all of his clients, or lost the ability to earn fees completely. We will therefore order
disgorgement of a lesser amount of the fees, specifically, $450,000.00.
The SEC has also requested a civil penalty. We find that a civil penalty
appears to be appropriate. However, in determining the appropriate sum for such a
penalty, we should consider many factors, including the egregiousness of Defendants’
conduct, the degree of scienter, the recurrent nature of the fraud, Defendants’ degree of
cooperation with authorities, the risk of substantial losses created by Defendants’
conduct, and Defendants’ current and future financial condition. We find that, at this

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juncture, the parties have not presented enough information to permit us to identify a
specific sum of money that would make a reasonable civil penalty in this case.
Therefore, we will order a hearing on this issue.
Finally, we will grant the SEC’s request for prejudgment interest on the
disgorgement obligation, calculated in the same manner that the IRS calculates tax
underpayments. Once we have determined the total sum of Defendants’ obligations, we
will issue an order providing that, if they fail to satisfy the obligations, they shall pay postjudgment interest on any delinquent amounts.
We will issue an appropriate order.

/s/ William W. Caldwell
William W. Caldwell
United States District Judge

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IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff

:
:
:
:
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:

v.
ROBERT GLENN BARD and
VISION SPECIALIST GROUP, LLC,
Defendants

CIVIL NO. 1:09-CV-1473

ORDER
AND NOW, this 10th day of November, 2011, upon consideration of
Plaintiff’s motion for summary judgment (Doc. 99), and pursuant to the accompanying
memorandum, it is ORDERED as follows:
1.

Plaintiff’s motion for summary judgment (Doc. 99) is
GRANTED.

2.

The Clerk of Court is direct to enter judgment in
favor of Plaintiff and against Defendants.

3.

Defendants are hereby found liable for violations of § 17(a) of the
Securities Act of 1933, § 10(b) of the Exchange Act of 1934, and
Rule 10b-5 thereunder, and §§ 206(1) and 206(2) of the
Investment Advisers Act of 1940.

4.

Defendants, and all persons in concert or participation with them
who receive actual notice of this order by personal service or
otherwise, are permanently restrained and enjoined from violating,
directly or indirectly, § 17(a) of the Securities Act of 1933, § 10(b)
of the Exchange Act of 1934, or Rule 10b-5 thereunder, or
§§ 206(1) and 206(2) of the Investment Advisers Act of 1940.

5.

Defendants are jointly and severally liable for disgorgement of
$450,000.00, together with prejudment interest thereon.

6.

Instructions for payment shall be set by future order. Defendants’
payment obligation shall not take effect until the court has set the
final amount for their total obligation.

7.

While a civil penalty appears to be appropriate, a hearing is
required to determine a reasonable amount, given the fact that we
lack information as to Defendants’ current and future financial
condition, and other factors that bear on this decision.
A hearing will be conducted on Tuesday, December 13, 2011, at
9:30 a.m.

/s/ William W. Caldwell
William W. Caldwell
United States District Judge