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SECURITIES AND EXCHANGE COMMISSION
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In the Matter of JOSEPH P. GALLUZZI
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OPINION OF THE COMMISSION
BROKER-DEALER PROCEEDING
Grounds for Remedial Action
Conviction
Injunction
Respondent was convicted of mail fraud, wire fraud, bribery, and using facilities in interstate commerce to commit bribery, and enjoined from violating antifraud provisions of the federal securities laws. Held, it is in the public interest to bar respondent from association with a broker or dealer.
APPEARANCES:
Joseph P. Galluzzi, pro se.
Wayne M. Carlin, Mark Schonfeld, Kay Lackey, Peter Pizzani, and Sheldon Mui, for the Division of Enforcement.
Appeal filed: September 12, 2001
Last brief received: March 15, 2002
I.
Joseph P. Galluzzi, formerly associated with Gibraltar Securities Co., a registered broker-dealer, appeals from the decision of an administrative law judge. The law judge found that Galluzzi had been convicted of mail fraud and bribery, among other offenses, and enjoined from future violations of Section�10(b) of the Securities Exchange Act of 1934 1 and Rule�10b-5 thereunder.2 The law judge barred Galluzzi from association with a broker or dealer. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.
II.
On January 9, 1997, a grand jury handed down a 26-count Superseding Indictment against Galluzzi. The indictment charged Galluzzi with fourteen counts of mail fraud;3 two counts of wire fraud;4 five counts of bribery;5 and five counts of using a facility in interstate commerce to commit bribery.6 On April 24, 1998, Galluzzi was found guilty by a jury on all counts.7 Sentencing hearings were held on September 9 and 10, 1998, and an order of Judgement and Conviction was entered on September 18, 1998. The court sentenced Galluzzi to 90 months of incarceration on ten of the mail fraud counts, one of the wire fraud counts, and the bribery counts. The sentence was to be served concurrently with a sentence of 60 months of incarceration imposed for the remaining wire fraud count and the counts for use of a facility in interstate commerce to commit bribery, and concurrently with an 80 month sentence on the remaining four mail fraud counts.8 Galluzzi also was ordered to pay restitution of $350,000 and a special assessment of $1,300. In setting Galluzzi's sentence, the District Court made an upward adjustment pursuant to applicable federal sentencing guidelines based on its finding that Galluzzi had obstructed justice by providing false testimony to Commission staff.
On January 9 1997, the Commission filed a complaint against Galluzzi alleging violations of Exchange Act Section 10(b) and Rule 10b-5 thereunder and seeking an injunction against future violations of those provisions. On October 21, 1999, Galluzzi was enjoined based on the Commission's motion for summary judgement and ordered to pay $258,382 in disgorgement plus prejudgement interest.9
The District Court found that, during the 1980s and 1990s, Galluzzi was a consultant to various municipal and county governments in the State of New Jersey. The court further found that Galluzzi received several hundred thousand dollars in undisclosed bribes and "kickbacks" from firms seeking to underwrite municipal securities offerings by these governments. Galluzzi did not appeal from the injunctive action.
On May 28, 1999, the United States Court of Appeals for the Third Circuit affirmed Galluzzi's criminal conviction.10 The Third Circuit stated that "Galluzzi used his professional position to defraud Irvington and Essex County of his services as an unbiased and impartial advisor." The Third Circuit also expressly affirmed the District Court's finding that Galluzzi had given false testimony.
On May 25, 2000, the Commission instituted this proceeding against Galluzzi seeking a bar based on both the criminal conviction and the injunction. By order dated November 7, 2000, the law judge directed the Division to provide Galluzzi access to the Division's investigative files, pursuant to Commission Rule of Practice 230.11 In addition, the Division was directed to provide a list of any materials it intended to withhold from Galluzzi pursuant to Rules of Practice 230(b) and (c).12 The law judge subsequently found that the Division properly claimed privilege for all but one of the 132 documents for which the Division asserted privilege.
On May 22, 2001, the Division, with leave of the law judge, filed a motion for summary disposition pursuant to Rule of Practice 250.13 On June 1, 2001, the law judge issued an order setting a date by which Galluzzi was to file his opposition to the Division's motion. In that order, the law judge stated that, if Galluzzi, who was pro se, wanted an "in-person hearing, he should so state in his opposition," and identify prospective witnesses to be called. The law judge also discussed with Galluzzi, during prehearing conferences in April and June 2001, the implications of the Division's motion and, among other things, directed Galluzzi to address what sanction, if any, was in the public interest. Although Galluzzi filed a response to the Division's motion for summary disposition, he neither requested a hearing nor identified prospective witnesses.
On August 7, 2001, the law judge granted the motion for summary disposition, finding that there were no "contested genuine and material issues of fact or law."14 The law judge also held that Galluzzi waived his opportunity for an in-person hearing.15 The law judge further held that there was "no mitigating evidence and no rehabilitative evidence in this case."16 The law judge concluded that "the public interest plainly warrants the relief sought by the Division," i.e., a bar from the industry.
III.
A. Galluzzi has not challenged the law judge's holding regarding waiver of the hearing. We find that the law judge properly granted summary disposition. Sections 15(b)(6)(A)(ii) and (iii) of the Exchange Act17 authorize the Commission to impose sanctions in the public interest against any person associated with a broker-dealer who, among other things, was (a) convicted within 10 years of certain enumerated crimes including securities fraud, mail fraud, and wire fraud, or (b) enjoined from any conduct in connection with the purchase or sale of a security. Galluzzi does not dispute that he was convicted of mail fraud and wire fraud or that he was enjoined from conduct in connection with the purchase or sale of a security.18
Galluzzi, rather, asserts that there were errors in the District Court's decision in the injunctive proceeding.19 Galluzzi claims that the District Court misapplied the doctrine of collateral estoppel in granting the Commission staff's motion for summary judgement based on Galluzzi's criminal conviction because securities fraud, the basis of the injunctive action, was not charged in the criminal proceeding.
As an initial matter, the District Court's opinion in the injunctive action stated that "Galluzzi does not dispute that the SEC is entitled to summary judgement on its § 10(b) claim." In any event, a party cannot challenge his injunction or criminal conviction in a subsequent administrative proceeding.20 Galluzzi had the opportunity to challenge the District Court's decisions by appealing to the appropriate United States Court of Appeals. He appealed his conviction, but the Court of Appeals ruled against him. Galluzzi did not appeal the injunctive action.21 He cannot re-litigate the issues adjudicated by the District Court here.22
B. Galluzzi contends that he was denied due process because the Commission's staff denied him access to documents in its files that were shared with the United States Attorney's office that prosecuted the criminal case against him. According to Galluzzi, "[t]he blatant, coordinated unprotected providing of documents by the S.E.C. to the U.S. Attorney [which was] compounded by denying the defendant discovery of this same material, [constitutes] AGENCY BAD FAITH" (emphasis in original).23 For example, Galluzzi argues that his Fifth Amendment right against self-incrimination was violated because the Division forwarded "privileged" depositions taken by the Division in June and July 1995 to the Office of the U.S. Attorney which were used against Galluzzi in the criminal proceeding.24
Galluzzi raised similar claims of government bad faith before the Third Circuit in connection with the appeal of his criminal conviction. The Third Circuit found no merit in his claim that the cooperation between the Division's staff and the U.S. Attorney's office was improper, noting among other things that "Galluzzi does not specify how he was prejudiced by the government's conduct [nor] identify . . . specific conduct by the government that took advantage of the parallel proceeding . . . ."25 Galluzzi has similarly failed to specify before us how he was prejudiced by the staff's actions.
Galluzzi argues that the Commission should reverse the law judge's decision regarding access to the Division's files and grant him access without restriction. We find no support for Galluzzi's claim that he was improperly denied discovery of Division files. Following the institution of administrative proceedings,26 the Division provided Galluzzi's representative27 access to its investigative files, except for 132 documents the Division claimed were protected from disclosure by privilege. Each of the purportedly privileged documents was identified, along with the applicable claimed privilege, in a written "privilege log" that the Division provided to Galluzzi. Galluzzi subsequently sought disclosure of all of the 132 documents. In response, the law judge directed the Division to file an affidavit and a pleading in support of the claimed privileges.
The Division opposed Galluzzi's document request based on Galluzzi's failure to establish that the documents had any relevance to the issues in the case or that the production of the documents was likely to lead to the production of evidence that would be relevant.28 The Division further contended that the documents were protected from disclosure by one or more privileges, including the work product doctrine29 and the attorney-client privilege.30 A Division staff member also executed a declaration, under penalty of perjury, detailing the nature of the documents, and the circumstances under which they were created and maintained, to support the Division's claims of privilege. The law judge denied Galluzzi's discovery request except as to one document, which the Division subsequently provided to Galluzzi.31
Although Galluzzi characterizes the Division's claims of privilege as the "ultimate fiction," he fails to establish a basis for rejecting them as to any document. Nor does he suggest how the undisclosed documents are relevant to the matters at issue in this proceeding, i.e., the fact of his conviction and injunction and the public interest in excluding him from the securities industry. Under the circumstances, there is no basis for disturbing the law judge's determination.
IV.
In determining the need to impose sanctions, we are guided by the following factors:
[T]he egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations.32
Galluzzi's misconduct was extensive and evidenced a high degree of scienter. Over several years, he abused his position of public trust as a financial adviser to various local governments by accepting hundreds of thousands of dollars in bribes and kickbacks in return for help in steering official public business to certain securities firms. Galluzzi also was found to have obstructed the staff's investigation by giving false testimony. The District Court expressly found, in granting the injunction, that the Commission "allege[d], and defendant [did] not deny, that Galluzzi made material misstatements and omissions with scienter in connection with the purchase or sale of securities."33 As a result of his actions, Galluzzi was sentenced to several years in prison, ordered to pay over one half million dollars in disgorgement and restitution, and enjoined from future violations of antifraud provisions of the securities laws.
Galluzzi continues to insist that he is a victim of government misconduct. Galluzzi's failure to acknowledge guilt or show remorse indicates to us that we cannot expect rehabilitation in the near future. Although Galluzzi is not currently licensed,34 there is no assurance that he will not try to reenter the securities business.35 Under the circumstances, we believe that it is appropriate in the public interest that he be barred.
An appropriate order will issue.36
By the Commission (Chairman PITT and Commissioners GLASSMAN, GOLDSCHMID, and CAMPOS); Commissioner ATKINS not participating.
Jonathan G. Katz
Secretary
Admin. Proc. File No. 3-10209
In the Matter of JOSEPH P. GALLUZZI
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ORDER IMPOSING REMEDIAL SANCTION
On the basis of the Commission's opinion issued this day, it is
ORDERED that Joseph P. Galluzzi be, and he hereby is, barred from association with any broker or dealer.
By the Commission.
Jonathan G. Katz
Secretary
__________________________
| 1 | 15 U.S.C. § 78j(b). |
| 2 | 17 C.F.R. § 240.10b-5. |
| 3 | 18 U.S.C. §§ 1341 and 1346. |
| 4 | 18 U.S.C. §§ 1343 and 1346. |
| 5 | 18 U.S.C. § 666. |
| 6 | 18 U.S.C. § 1952. |
| 7 | U.S. v. Galluzzi, Case Number 96-640 (D.N.J. April 24, 1998). |
| 8 | Galluzzi is currently serving his sentence at the Federal Prison Camp in Allenwood, Pennsylvania. |
| 9 | SEC v. Galluzzi, Civ. No. 97-76 (D.N.J. Oct. 21, 1999). In granting the injunction, the District Court, which had also presided over Galluzzi's criminal trial, stated that "[t]he underlying factual allegations of the SEC's complaint are the same as those of the indictment." |
| 10 | U.S. v. Galluzzi, Case No. 98-6351 (3d Cir. May 28, 1999), cert. denied, 528 U.S. 1048 (1999). |
| 11 | 17 C.F.R. § 201.230(a). Rule 230(a) requires the Division to make its investigative files available to opposing parties. The Division represented that they made approximately 97 boxes of materials available to Galluzzi's representative. |
| 12 | 17 C.F.R. §§ 201.230(b) and (c). Rule 230(b) authorizes the Division to withhold documents from its investigative files that are "privileged" or that constitute "attorney work product" and will not be offered in evidence. See nn. 28, 29, infra. Rule 230(c) authorizes the law judge to order the Division to provide opposing parties with a list of documents that have been withheld. |
| 13 | 17 C.F.R. § 201.250. Under Rule of Practice 250, a motion for summary disposition may be granted "if there is no genuine issue with regard to any material fact and the party making the motion is entitled to a summary disposition as a matter of law." 17 C.F.R. § 201.250(b). |
| 14 | Joseph P. Galluzzi, Initial Dec. Rel. No. 187 (Aug. 7, 2001), 75 SEC Docket 1729, 1733. |
| 15 | We recently upheld a bar, which had been imposed on a respondent who had been convicted of securities fraud, based on a motion for summary disposition, finding that "[a]bsent extraordinary mitigating circumstances, such an individual cannot be permitted to remain in the securities industry." John S. Brownson, Exchange Act Rel. No. 46161 (July 3, 2002), __SEC Docket ____. Summary disposition is equally appropriate under the circumstances of this case, even if Galluzzi had not waived a hearing before the law judge. |
| 16 | Id. at 1735. |
| 17 | 15 U.S.C. §§ 78o(b)(6)(A)(ii) and (iii). |
| 18 | See Charles Phillip Elliott, 50 S.E.C. 1273, 1274 (1992)(conviction and injunction "each serves as an independent basis, if the public interest warrants, to bar [respondent] from association with any broker or dealer"), aff'd, 36 F.3d 86 (11th Cir. 1994)(per curiam). |
| 19 | Galluzzi also asks that the Commission "initiate" action to terminate the injunction. We decline to do so. |
| 20 | See, e.g., Demitrios Julius Shiva, 52 S.E.C. 1247, 1249 (1997) (rejecting attempts to challenge basis for injunction and noting that "we have long refused to permit a respondent to re-litigate issues that were addressed in a previous civil proceeding against the respondent"). See also Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1108 (D.C. Cir. 1988) (holding that issues that could have been adjudicated in prior injunctive proceeding could not be relitigated in appeal of subsequent administrative proceeding), cert. denied, 488 U.S. 869 (1989).
As discussed further below, Galluzzi also challenges the validity of certain allegations made in the criminal indictment and the validity of his criminal conviction because of what he claims was improper cooperation between the Division's staff and the U.S. Attorney. Galluzzi's conviction is equally immune to attack in this proceeding. See, e.g., Ira W. Scott, 53 S.E.C. 862, 866 (1998) (rejecting respondent's claim that he had been "'wrongfully convicted'" and holding that "'[a] criminal conviction cannot be collaterally attacked in an administrative proceeding.'") (quoting William F. Lincoln, 53 S.E.C. 452, 455 (1998)); Alexander V. Stein, 52 S.E.C. 296, 301 (1995) (respondent in administrative proceeding could not challenge validity of underlying conviction). |
| 21 | Galluzzi asserts in his brief that "Petitioner's avenues of appeal are still open and actively being pursued." Although Galluzzi concedes that the "direct appeal" of his conviction was denied, he claims vaguely that he is still appealing "the sentencing." The Division represented in its brief that the Division was "unaware of any pending appeals," and Galluzzi does not substantiate his claim of pending appeals. In any event, the pendency of an appeal does not preclude us from acting to protect the public interest. See Charles Phillip Elliott, 50 S.E.C. at 1276 (declining to delay derivative administrative proceeding pending appeal of underlying conviction). |
| 22 | See Shiva, 52 S.E.C. at 1249 ("The doctrine of collateral estoppel precludes this Commission from reconsidering . . . factual issues that were actually litigated and necessary to the Court's decision to issue the injunction."). |
| 23 | Galluzzi states that he is not seeking "to re-litigate his criminal conviction, but to unveil to the Commission the unethical action, by the Division, which [is] totally against the public interest." As discussed, Galluzzi is barred from challenging his criminal conviction here. |
| 24 | Galluzzi also complains that, during settlement negotiations in the injunctive proceeding, Division staff members "threatened" him by stating that, if Galluzzi did not agree to the Division's proposed settlement, the Division would move for summary judgement. When Galluzzi refused, the Division, in Galluzzi's words, "followed through with [its] threat, filed a Motion for Summary Judgement, and was successful." Such action, according to Galluzzi, caused him "irreparable harm" because it resulted in denying him access to Commission files. We see nothing improper in the Division's actions. Moreover, here, as noted above, Galluzzi was given access to boxes of materials. See n.11, supra. |
| 25 | It has been held that "[e]ffective enforcement of the securities laws requires that the SEC and Justice be able to investigate possible violations simultaneously." SEC v. Dresser Industries, Inc., 628 F.2d 1368, 1377 (D.C. Cir. 1980), cert. denied, 449 U.S. 993. Moreover, the securities laws "explicitly empower the SEC to investigate possible infractions of the securities laws with a view to both civil and criminal enforcement, and to transmit the fruits of its investigations to Justice in the event of potential criminal proceedings." Id. at 1376. |
| 26 | Galluzzi also argues that the Division improperly denied him access to its investigative files, pursuant to Commission Rule of Practice 230, prior to the institution of proceedings when it provided him with a draft "order instituting proceedings" in connection with settlement negotiations. However, the Rules of Practice are applicable only after the institution of proceedings. |
| 27 | Galluzzi, by that time, was incarcerated and unable to review the documents himself. |
| 28 | See 17 C.F.R. § 201.230(b)(iv) (hearing officer may grant leave to withhold documents "as not relevant to the subject matter of the proceeding"). |
| 29 | The work product doctrine "protects trial preparation materials from discovery." Jeff Anderson, The Work Product Doctrine, 68 Cornel L. Rev. 760, 762 (1983). See also Hickman v. Taylor, 329 U.S. 495, 512 (1947) ("the general policy against invading the privacy of an attorney's course of preparation is so well recognized and so essential to an orderly working of our system of legal procedure that a burden rests on the one who would invade that privacy to establish adequate reasons to justify production"). |
| 30 | See, e.g., Fisher v. U.S., 425 U.S. 391, 403 (1976)("Confidential disclosures by a client to an attorney made in order to obtain legal assistance are privileged."). |
| 31 | The law judge found the Division's "invocation of privilege to be well supported." The law judge therefore found it unnecessary to consider the Division's alternative ground that the documents were not relevant. |
| 32 | Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). |
| 33 | Galluzzi specifically challenged this finding by the District Court before the law judge. As is discussed, he is collaterally estopped from doing so. |
| 34 | Galluzzi states that he "surrendered" his NASD Series 7 and Series 63 licenses in 1996. |
| 35 | Although Galluzzi objects to a bar on appeal, at some points before the law judge Galluzzi appeared to accept the propriety of a bar. For example, during one of the pre-hearing conferences, after the Division had raised the possibility of moving for summary disposition, Galluzzi stated that he "had no concern about being barred from" any business activity that "requires an SEC license." |
| 36 | We have considered all of the arguments advanced by the parties. We reject or sustain them to the extent that they are inconsistent or in accord with the views expressed herein. |
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Modified: 08/23/2002