Securities and Exchange Commission v. Reynolds et al
Filing
358
MEMORANDUM OPINION & ORDER granting in part and denying in part 328 Motion for Relief and Final Judgment as to the Fleming Defendants and Wynn Defendants. (Ordered by Judge Jane J Boyle on 7/11/2013) (skt)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff,
v.
RYAN M. REYNOLDS, et al.,
Defendants.
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CIVIL ACTION NO. 3:08-CV-0438-B
MEMORANDUM OPINION & ORDER
Before the Court is Plaintiff Securities and Exchange Commission’s (“SEC”) Motion for Relief
and Final Judgment (“SEC Mot.”) against Defendants Jason Wynn; Wynn Industries, LLC; Wynn
Holdings, LL; Carlton Fleming; Regus Investment Group, LLC; and Thomas Wade Investments,
LLC, filed May 28, 2013 (doc. 329). For the reasons stated below, the SEC’s Motion is GRANTED
IN PART AND DENIED IN PART.
I.
BACKGROUND
This case concerns a “pump and dump” penny stock scheme. The SEC alleges that
Defendants Ryan Reynolds, Jason Wynn, and Carlton Fleming and their wholly-owned businesses
engaged in a scheme to sell unregistered shares of penny stocks1 in several small companies at inflated
1
The entities’ stocks are considered penny stocks because the companies’ net tangible assets and
average revenue have been below the thresholds established under Section 3(a)(51) of the Exchange Act and
Rule 3a51-1 thereunder, 15 U.S.C. 78c(a)(51) and 17 C.F.R. § 240.3a51-1, respectively, and the securities
have traded at less than five dollars per share at all times since the stocks began trading. Am. Compl. ¶¶ 73,
121, 157, 159.
1
prices to public investors without providing fair and full disclosures. Am. Compl. ¶ 1.2 This pump and
dump method of distributing stock was primarily effected by “hyp[ing] the shares through spam
emails, an advertisement in USA Today, a commercial on CNBC, nationwide promotional mailers,
and by inducing family and friends to create the appearance of market demand, while reselling
millions of shares out of their own accounts for substantial profits.” Id.
The SEC filed its Amended Complaint on December 22, 2008. The Amended Complaint
alleges, inter alia, that Carlton Fleming and his wholly-owned businesses, Regus Investment Group,
LLC and Thomas Wade Investments, LLC ( the “Fleming Defendants”), violated Sections 5(a) and
5(c) of the Securities Act of 1933, 15 U.S.C. § 77e (“Section 5"), by engaging in a scheme to sell
unregistered shares of ConnectAJet.com, Inc. (“CAJ” or “ConnectAJet”), My Vintage Baby, Inc.
(“MVBY” or “My Vintage Baby”), Alchemy Creative, Inc. (“Alchemy”), and Beverage Creations,
Inc. (“BCI” or “Beverage Creations”) to public investors without fair and full disclosures. Am.
Compl. ¶¶ 217-221. It further alleges that Jason Wynn and his wholly-owned businesses, Wynn
Industries, LLC, and Wynn Holdings, LLC (the “Wynn Defendants”), violated Sections 5(a) and
5(c) of the Securities Act, as well as Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Id. at ¶¶ 217-221, 228-231, 232-235.3
2
The Court takes the allegations of the Amended Complaint as true, pursuant to the parties’
Consents and this Court’s Final Judgments of Permanent Injunction as to the Wynn Defendants and the
Fleming Defendants. SEC Mot. App. 39, 68. For convenience, in referring to the Consents and these Final
Judgments, the Court cites to the SEC’s appendix to the instant motion, which attaches these documents.
The actual Final Judgments were filed as docket entries 234, 242, and 298 on January 3, 2011, January 26,
2011, and October 13, 2011, respectively.
3
The Amended Complaint also contains allegations against Defendants Ryan Reynolds and his
wholly-owned companies Bellatalia, LP and Lugano Funds, LLC (the “Reynolds Defendants”), and
Defendants Beverage Creations, Inc., Robert Wieden, and Patrick Dado (the “BCI Defendants”). The BCI
Defendants previously agreed to final judgments and are no longer in this case. The SEC’s Renewed Motion
2
In 2011, the Court entered partial judgment as to these Defendants pursuant to separate but
similar consents in which they agreed that they violated the federal securities laws as alleged in the
complaint and further agreed that the allegations in the complaint “shall be accepted as and deemed
true by the Court” in determining the appropriate relief. SEC Mot. App. 39, 68. The orders also
permanently enjoined them from violating the relevant securities laws. SEC Mot. App. at 45, 62.
Further, the orders provided that this Court would determine the amounts of the disgorgement,
prejudgment interest, and civil penalties upon motion of the SEC. SEC Mot. App. 46, 64. Finally,
the order as to Fleming provided that "upon such motion of the Commission, the Court shall
determine whether it is appropriate to order a permanent Penny Stock Bar pursuant to Section 20(g)
of the Securities Act [15 U.S.C. § 77t(g)].” SEC Mot. App. 47.4 The SEC filed the instant Motion
for Relief and Final Judgments on May 28, 2013, and the motion is now ripe for disposition.
II.
ANALYSIS
A.
Disgorgement
A court may order a party to disgorge profits flowing from securities law violations in order
to prevent the wrongdoer from enriching himself by his wrongs. See, e.g., SEC v. Huffman, 996 F.2d
800, 802-03 (5th Cir. 1993). Once the SEC has established that a defendant violated securities laws,
a court may order the defendant to disgorge a sum of money equal to all the illegal payments he
for Summary Judgment as to the Reynolds Defendants is currently pending but has not yet been fully briefed.
4
The Wynn Defendants already agreed to a penny stock bar in their Consent, and the Court issued
a penny stock bar as to Wynn Defendants in the Court’s October 13, 2011 Judgment. SEC Mot. App. 64,
68.
3
received. SEC v. Blavin, 760 F.2d 706, 713 (6th Cir. 1985). The SEC bears the initial burden of
showing that its requested disgorgement amount reasonably approximates the amount of profits
connected to the violation, and then the burden shifts to the defendant to show that this figure is
not a reasonable approximation. See, e.g., SEC v. Amerifirst Funding, Inc., No. 3:07-CV-1188-D, 2008
WL 1959843, at *2 (N.D. Tex. May 5, 2008) (citation omitted). A court enjoys broad discretion in
determining the amount to be disgorged. See, e.g., SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 147475 (2d Cir. 1996). Further, “any risk of uncertainty in calculating disgorgement should fall on the
wrongdoer whose illegal conduct created that uncertainty.” SEC v. Patel, 61 F.3d 137, 140 (2d Cir.
1995) (citation omitted). Cases from the Fifth Circuit demonstrate that “while it is within a court’s
discretion to consider inability to pay, such a finding is irrelevant to disgorgement liability.” SEC v.
Rockwell Energy of Tex., LLC, No. H-09-4080, 2012 WL 360191, at *3 (S.D. Tex. Feb. 1, 2012)
(discussing Huffman, 996 F.2d at 803, and SEC v. United Energy Partners, Ind., 88 F. App’x 744, 746
(5th Cir. 2004)). Moreover, if the SEC “shows a causal relationship between the defendant’s
wrongdoing and the amount by which he was unjustly enriched, that amount of money may be
disgorged even if the defendant has otherwise disposed of, reinvested, or spent the particular assets
that he wrongfully obtained.” SEC v. Seghers, 298 F. App’x 319, 336 (5th Cir. 2008).
1.
Fleming Defendants5
Based on his consent to the Final Judgment of Permanent Injunction, Fleming is now
5
Fleming is the only Defendant who responded to the instant motion. The Court has not received
a response from the Fleming Corporate Defendants, and the Wynn Defendants chose not to respond to the
Motion given that they agreed in their Consent that the Court would order the appropriate remedies, which
they believe precludes them from challenging the SEC’s Motion. Wynn Defs.’ Resp. to Order to Show Cause
July 1, 2013.
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precluded from arguing that he did not violate the federal securities laws as alleged in the Amended
Complaint. Also, based on the Final Judgment of Permanent Injunction, the Court accepts the
allegations of the Amended Complaint as true. Further, Fleming does not now dispute, at least for
the purposes of the SEC’s motion for disgorgement, that he violated federal securities laws. The
Court also notes that Fleming already agreed to disgorgement in his consent, which stated that
“[d]efendants agree that the Court shall order disgorgement of ill-gotten gains, prejudgment interest
thereon, and a civil penalty . . . . Defendants further agree that the amounts of the disgorgement,
civil penalty, and prejudgment interest . . . shall be determined by the Court upon motion of the
Commission.” SEC Mot. App. 39 (emphasis added). Based on the evidence provided by the SEC,
the Court’s Final Judgment of Permanent Injunction as to the Fleming Defendants, and the
Amended Complaint, the Court finds that Fleming violated federal securities laws and therefore
should disgorge his ill-gotten gains.
Having made this finding, the Court now examines the parties’ arguments and evidence
regarding the appropriate amount of disgorgement. The SEC proposes a modified First In, First Out
(“FIFO”)6 methodology to calculate Fleming’s disgorgement. SEC Mot. Br. 6. Applying this
methodology, SEC Staff Accountant John Kustusch calculates that Fleming's companies Thomas
Wade Investments (“TWI”) and Regus Investment Group (“Regus”) profited by approximately
$8,248,188 in total from the pump-and-dump scenes alleged in the Amended Complaint. Id. at 6-7
(and citations therein). Fleming argues in his Sur-Reply that the SEC’s calculated amount overstates
his true gain as it “does not take in account Fleming’s investments in the companies and related
6
In calculating gains using FIFO, the earliest sales are attributed to the earliest purchases. SEC Mot.
Br. 6 & n.1 (and citations therein).
5
expenses,” though he does not provide a figure of what he believes is his actual gain. See Fleming SurReply 4. Such argument is insufficient to show that the SEC’s requested disgorgement amount is
unreasonable. The Court finds that the amount estimated by the SEC is a reasonable approximation
of Fleming’s profits connected to the violation.
Fleming’s main arguments in opposition to the SEC’s request for disgorgement concern his
contention that due to his cooperation and inability to pay, the Court should not impose
disgorgement, or alternatively, that it should decrease the amount awarded. Further, Fleming argues
that the disgorgement amount requested by the SEC is not required as deterrence. The Court rejects
these arguments. First, inability to pay and cooperation are largely irrelevant to the disgorgement
determination. See Rockwell Energy, 2012 WL 360191, at *3. Furthermore, the purpose of
disgorgement is not deterrence, but rather to remove a defendant’s profit from illegal transactions.
Huffman, 996 F.2d at 802-03 Given that the SEC has shown that its proposed disgorgement is a
reasonable approximation of his gains, and given that Fleming has failed to show that it was not a
reasonable approximation, the Court hereby ORDERS disgorgement against the Fleming
Defendants, jointly and severally, in the amount of $8,248,188.7
2.
Wynn Defendants
The same legal standard and analysis apply equally to the Wynn Defendants. The SEC, using
the same methodology as explained above, calculates that Wynn’s companies profited by
approximately $7,177,304 via the pump and dump scheme in violation of Section 5, Section 10(b),
and Rule 10b-5. SEC Mot. Br. 7 (and citations therein); see also Am. Compl. ¶¶ 217-221, 228-235.
7
The Court expresses no opinion as to what specific assets Fleming has available to satisfy the ordered
disgorgement amount or any prejudgment interest or civil penalty.
6
Because the Court finds that the SEC’s approximation is reasonable and the Wynn Defendants have
failed to show that it is not reasonable,8 the Court hereby ORDERS disgorgement against the Wynn
Defendants, jointly and severally, in the amount of $7,177,304.
B.
Prejudgment Interest
The SEC also requests prejudgment interest on the requested disgorgement amount. The
Court may award prejudgment interest on disgorgement amounts, in its discretion, in order to
prevent parties from benefitting from what is, in essence, an interest-free loan resulting from illegal
activity. See, e.g., SEC v. Jakubowski, No. 94 C 4539, 1997 WL 598108, at *2 (N.D. Ill. Sept. 19,
1997) (citation omitted). In federal securities cases, courts generally calculate prejudgment interest
by applying the underpayment rate published by the Internal Revenue Service (“IRS”). See, e.g., SEC
v. Koenig, 532 F. Supp. 2d 987, 995 (N.D. Ill. 2007).
1.
Fleming Defendants
Using the IRS’ statutory interest rates on the disgorgement amount above,9 the SEC
calculated the Fleming Defendants’ prejudgment interest at $1,840,544 for the period ending May
31, 2013. SEC Mot. Br. 8 (and citations therein). Fleming does not set forth any particular objections
to the SEC’s calculations, and indeed already agreed to the imposition of prejudgment interest, with
the amount to be determined by the Court. See SEC Mot. App. 39. Instead, he argues, as above, that
the Court should deny the requested prejudgment interest in light of his cooperation and inability
to pay. Fleming Opp’n 11-12. The Court rejects this argument for reasons similar to the Court’s
8
As mentioned previously, the Wynn Defendants did not file a response to the SEC’s Motion.
9
See SEC Mot. Br. 7-8; SEC Mot. App. 5-6 at ¶¶ 11-13; SEC Mot. App. 17-21 (setting forth IRS
statutory interest rates and methodology for calculating prejudgment interest).
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reasoning as to Fleming’s arguments as to disgorgement. The purpose of an award of prejudgment
interest is to prevent a party from receiving an interest-free loan as a result of his actions, and
Fleming’s cooperation and inability to pay are insufficient to persuade the Court that such an award
is unwarranted here. As such, in its discretion, the Court finds that Fleming should pay the SEC’s
requested prejudgment interest amount. Accordingly, the Court hereby ORDERS the Fleming
Defendants to pay $1,840,544 in prejudgment interest.
2.
Wynn Defendants
Using the same methodology, the SEC calculated Wynn’s prejudgment interest at $1,601,583
for the period ending May 31, 2013. SEC Mot. Br. 8 (and citations therein). The Wynn Defendants
filed no objection to the SEC’s calculations and already agreed to the imposition of prejudgment
interest in their Consent. See SEC Mot. App. 68. Accordingly, the Court hereby ORDERS the
Wynn Defendants to pay prejudgment interest in the amount of $1,601,583.
C.
Civil Penalties
The SEC requests third-tier civil penalties against Carlton Fleming, Jason Wynn, and TWI.
The Court is authorized to impose a first-tier penalty after a showing of a violation of the Securities
Act, and such a penalty does not require any additional finding by the Court. 15 U.S.C. §
77t(d)(2)(A)(2012). Second-tier penalties additionally require a showing that the violation
“involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement.”
Id. at § 77t(d)(2)(B). Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of
the Exchange Act [15 U.S.C. § 78u(d)] authorize the Court to impose third-tier civil money penalty
if the defendant’s violation “directly or indirectly resulted in substantial losses or created a significant
risk of substantial losses to other persons.” Under Section 20(d) of the Securities Act and Section
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21(d) of the Exchange Act, third-tier civil penalties for a natural person shall not exceed the greater
of $130,000, per the inflation adjustment specified by 17 C.F.R. § 201.1003, or the gross amount of
pecuniary gain to such defendant as a result of the violation.
Monetary penalties are designed to serve as deterrents against securities law violations, in
contrast with disgorgement, which primarily aims to remove a defendant’s profit from illegal
transactions and which “merely places the offender in the same position he would have been in had
he not committed the offense.” SEC v. Lipson, 129 F. Supp. 2d 1148, 1159 (N.D. Ill. 2001). To
determine civil penalties, a court considers the following factors:
(1) the egregiousness of the defendant’s conduct; (2) the degree of the defendant’s
scienter; (3) whether the defendant’s conduct created substantial losses or the risk
of substantial losses to other persons; (4) whether the defendant’s conduct was
isolated or recurrent; and (5) whether the penalty should be reduced due to the
defendant’s demonstrated current and future financial condition.
SEC v. Offill, No. 3:07-CV-1643-D, 2012 WL 1138622, at *3 (N.D. Tex. Apr. 5, 2012) (citations
omitted). Courts may award civil penalties for violations of Section 5 of the Securities Act. See, e.g.,
Zacharias v. SEC, 569 F.3d 458, 470-71 (D.C. Cir. 2009); SEC v. Kern, 425 F.3d 143, 153 (2d Cir.
2005).
1.
Carlton Fleming
The SEC requests that the Court impose a third-tier civil penalty on Fleming in the amount
of $650,000.10 Without explaining where the $650,000 figure comes from, the SEC argues that the
potential penalty for Fleming could be as high as $8,248,188, his gross pecuniary gain, but that they
are only seeking a third-tier penalty that reflects Fleming’s “egregious misconduct and the longevity
10
The Court notes that the requested penalty of $650,000 falls within the range of available first-tier
penalties, given that Fleming realized a gross pecuniary gain over $8 million.
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of [the] pump-and-dump scheme.” SEC Mot. Br. 10-11. Although Fleming was not charged with
fraud, it is evident from the allegations in the complaint that he, at a minimum, recklessly
disregarded the requirements of Section 5 and actively participated in the pump and dump scheme,
though perhaps he played a lesser role than Reynolds and Wynn. Indeed, the Amended Complaint
alleges that Fleming used his proxy companies to facilitate public offerings without registration from
My Vintage Baby, Alchemy, and Beverage Creations, recruited issuers to the IPO scheme, solicited
Wynn and Reynolds to participate in the My Vintage Baby and Alchemy offerings, directed the
purchase of publicly traded shell companies to facilitate the illegal offerings of Alchemy and My
Vintage Baby, helped funnel over 14 million shares of penny stock to the public through unregistered
offerings, and falsely represented in subscription agreements that he would “not engage in any
activity that will constitute a distribution of the Shares,” and that he had “not offered or sold any
portion of the Shares to others or with a view to reselling or otherwise disposing of any portion of the
Shares.” Am. Compl. ¶¶ 2-4, 84-100, 114, 117, 124-137, 148-156, 162, 164-181. Such actions
resulted in over $8 million in ill-gotten gains to Fleming. Given that the Court takes the allegations
of the Amended Complaint as true for the purposes of this motion, Fleming has clearly engaged in
conduct with at least reckless disregard for a regulatory requirement that created a substantial loss
or at least a substantial risk of loss for the investors in My Vintage Baby, Alchemy, and Beverage
Creations. The Court also notes that Fleming already consented to the imposition of a civil penalty
in his consent. See SEC Mot. App. 39. As such, the Court would be well within its discretion to
impose a third-tier civil penalty.
10
At the same time, the Court recognizes that the parties dispute Fleming’s scienter,11 whether
his conduct was isolated or recurrent, and whether the penalty should be reduced due to his
demonstrated current and future financial condition. The Court disagrees in part with the SEC’s
characterization of Fleming as a repeat offender, as the Court has no indication that Fleming engaged
in this type of conduct prior to this case. While he violated Section 5 multiple times in this case, in
the Court’s view, such action does not make him a true repeat offender for the purposes of
determining whether a civil penalty is warranted. The Court also recognizes that the proposed civil
penalty amount is relatively small in comparison to the disgorgement and prejudgment interest
amounts already ordered in this case. Finally, the SEC does not dispute that Fleming has cooperated
with the Justice Department in a related criminal investigation. See, e.g., Offill, 2012 WL 1138622,
at *3 (some courts have considered factors such as cooperation of defendant with law enforcement
authorities).
Overall, considering the factors enumerated in Offill, and given that the Court has already
found that Fleming violated Section 5, the Court, in its discretion, finds that Fleming should pay
a first-tier civil penalty in the amount of $650,000. Although the parties dispute Fleming’s precise
role in the pump and dump schemes in this case, Fleming admits that he violated Section 5, and
taking the allegations of the Amended Complaint as true, a first-tier civil penalty, at a minimum, is
warranted in this case.
11
Fleming claims that he relied on the advice of an attorney in participating in the unregistered
offerings. The SEC has not directly addressed this contention.
11
2.
Thomas Wade Investments12
The SEC also requests a third-tier civil penalty in the amount of $650,000 against Thomas
Wade Investments. However, the SEC does not explain why a separate penalty should be imposed
on TWI, focusing instead on the roles of Fleming and Wynn in the pump and dump scheme, without
discussion of the factors for imposition of a civil penalty with respect to TWI specifically. The Court
therefore DENIES the SEC’s motion insofar as it seeks civil penalties against TWI.
3.
Jason Wynn
The SEC requests a third-tier civil penalty in the amount of $1,300,000 against Jason Wynn.
Again, the SEC does not explain how it arrived at that number, but explains that it could have
requested up to $7,177,304, Wynn’s gross pecuniary gain. The SEC requests a large penalty here
“given [Wynn’s] fraudulent conduct, that is, the deceptive non-‘disclosures’ in millions of mailers
that hid the essential characteristics of the pump-and-dump scheme.” SEC Mot. Br. 11. Wynn does
not contest this request, and he has already agreed that he committed securities fraud in violation
of Section 10(b) and Rule 10b-5, as well as violating Section 5. The Court notes that Wynn also
claims that he is unable to pay any ordered civil penalty, but in contrast with Fleming, there is no
indication of Wynn’s cooperation with any criminal investigation. Also in contrast with Fleming,
Wynn has consented to a final judgment finding him liable for securities fraud, and he appears to
have assumed a larger role in the pump and dump schemes in this case. Because of Wynn’s egregious
12
The Court has not received a reply from TWI or from Fleming on behalf of TWI. The SEC is not
seeking penalties from the other corporate defendants because they are “apparently defunct.” SEC Mot. Br.
11.
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conduct and high degree of scienter,13 the fact that his conduct caused substantial losses or at least
the risk of substantial losses to others, and the fact that he engaged in multiple pump and dump stock
schemes, the Court finds, in its discretion, that a high civil penalty is warranted in this case.
Accordingly, the Court hereby imposes upon Jason Wynn a third-tier civil penalty in the amount of
$1,300,000.
D.
Penny Stock Bar
Finally, the SEC requests a permanent penny stock bar against Fleming. The Securities Act
provides that a penny stock bar is appropriate in actions “against any person participating in, or, at
the time of the alleged misconduct, who was participating in, an offering of penny stock.” 15 U.S.C.
§ 77t(g)(1) (2012). The Securities Act defines a “person participating in an offering of penny stock”
to include “any person engaging in activities with a broker, dealer, or issuer for purposes of issuing,
trading, or inducing or attempting to induce the purchase or sale of, any penny stock.” Id. at §
77t(g)(2). In determining whether a penny stock bar is appropriate, a court considers: “(1) the
egregiousness of the underlying securities law violation; (2) the defendant’s repeat offender status;
(3) the defendant’s role or position when he engaged in the fraud; (4) the defendant’s degree of
scienter; (5) the defendant’s economic stake in the violation; and (6) the likelihood that misconduct
will recur.” Offill, 2012 WL 1138622, at *5 (quoting SEC v. Elliott, 2011 WL 3586454, at *14
(S.D.N.Y. Aug. 11, 2011)) (internal quotation marks omitted).
13
The allegations in the Amended Complaint state that Wynn engaged in securities fraud and that
he knowingly participated in numerous violations of securities laws. In order to artificially inflate the price
of the penny stocks, Wynn actively promoted the penny stocks through websites, spam emails, mailers, a
newspaper ad, and a commercial on CNBC. Am. Compl. ¶¶ 40-43, 51-57. Furthermore, Wynn knowingly
included an incomplete and inaccurate disclosure on the front of the mailers. Id. at ¶¶ 74-81.
13
In Offill, based on circumstances similar to those in the instant case, the court imposed a
seven-year unconditional penny stock bar on defendants who violated Section 5 of the Securities Act
because the defendants "each took part in a scheme in which millions of shares of unregistered
securities were sold for millions of dollars, they sold unregistered securities (at least with reckless
disregard for the registration requirements, if not intentionally), and such a scheme could easily be
repeated." Offill, 2012 WL 1138622 at *5. The court found that a seven-year bar was “reasonably
likely to protect the investing public from future violations of the securities laws . . . without
overpunishing these defendants for their conduct.” Id. In contrast, the court imposed a permanent
unconditional penny stock bar on one of the defendants, a former SEC attorney, given that his
conduct was particularly egregious and "his knowledge and experience as a securities regulator make
him especially dangerous to the investing public." Id. at *5-6.
The Court finds that the Offill court's reasoning is equally applicable here, and considering
the same factors, finds that a seven-year unconditional penny stock bar against Fleming is warranted.
While Fleming’s conduct was perhaps not as egregious as that of his co-defendants Wynn and
Fleming, he still took part in multiple sales of unregistered securities which resulted in millions of
dollars of gross profits to him and his companies with at least reckless disregard for the applicable
registration requirements. While Fleming states that he has no current plans to return the securities
business, the pump and dump schemes in which he participated could be easily repeated. Overall,
the Court finds that a seven-year penny stock bar is reasonably likely to protect the investing public
from future violations of the securities law without over-punishing Fleming for his conduct. See Offill,
2010 WL 1138622, at *5.
III.
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CONCLUSION
For the reasons discussed above, the Court GRANTS IN PART and DENIES IN PART
the SEC’s Motion for Relief and Final Judgment as to the Fleming Defendants and Wynn Defendants
(doc. 329). The Fleming Defendants are hereby ORDERED to disgorge, jointly and severally,
$8,248,188, and pay $1,840,544 in prejudgment interest thereon. The Wynn Defendants are hereby
ORDERED to disgorge, jointly and severally, $7,177,304, and pay $1,601,583 in prejudgment
interest thereon. Carlton Fleming is hereby ORDERED to pay a first-tier civil penalty in the amount
of $650,000. The SEC’s request for the imposition of civil penalties as to Thomas Wade Investments
is DENIED. Jason Wynn is hereby ORDERED to pay a third-tier civil penalty of $1,300,000. In
addition, Fleming is hereby BARRED from engaging in the trade of any penny stock for seven years
from the date this judgment is filed. The Court will issue final judgments as to the Fleming and
Wynn Defendants setting forth this relief in separate orders.
SO ORDERED.
DATED: July 11, 2013.
_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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