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SECURITIES AND EXCHANGE COMMISSION
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In the Matter of RALPH W. LEBLANC |
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OPINION OF THE COMMISSION
EXCHANGE ACT PROCEEDING
Ground for Remedial Action
Penny Stock Bar
Respondent was permanently enjoined from violating antifraud provisions of the federal securities laws based on conduct undertaken during his participation in an offering of penny stock. Held, it is in the public interest to bar respondent from participating in any offering of penny stock.
APPEARANCES:
Ralph W. LeBlanc, pro se.
William P. Hicks, for the Division of Enforcement.
Appeal filed: December 27, 2000
Last brief received: July 31, 2001
Ralph W. LeBlanc appeals from the decision of an administrative law judge in a proceeding brought under Section 15(b)(6)(A) of the Securities Exchange Act of 1934,1 in which the law judge barred LeBlanc from participating in any offering of penny stock. Under Section 15(b)(6)(A), as relevant to this matter, a person who has been enjoined from engaging in conduct in connection with the purchase or sale of a security, and who, at the time of the misconduct alleged in the injunctive proceeding, was participating in an offering of "penny stock," as that term is defined in Exchange ActSection 3(a)(51)(A) and Rule�3a51-1,2 is subject to sanction in the public interest. We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.
Under our traditional policy, as recently reviewed in our opinion in Marshall E. Melton and Asset Management & Research, Inc.,3 the remedial disciplinary action required in the public interest as the result of an injunction is based on the particular circumstances and entire record of the case. Under that policy, the allegations in a complaint in an action settled by consent may, in a subsequent proceeding before us, be given considerable weight for purposes of assessing the public interest. As detailed in Section IV below, LeBlanc has urged us to depart from our established practice and give reduced weight to the allegations in the complaint. We decline to do so, for the reasons specified in Section IV.
LeBlanc was president of and controlled Alpha Diversified Industries, Inc. ("Alpha"), a Colorado company with its principal office in Metairie, Louisiana. Robert W. Bingham, LeBlanc's long-term partner in his effort to develop and promote an engine oil purification refiner for internal combustion engines ("filter"), was the vice-president and a director of Alpha. Alpha's objective, as represented in its offering materials, was the manufacture and marketing of its filter for commercial, industrial, and consumer uses.
In or about March 1991, LeBlanc began raising funds for Alpha from the sale of its stock. Through February 1996, with Bingham's assistance, LeBlanc sold more than four million shares of Alpha common stock to more than 85 investors in over a dozen states for approximately $567,000. The shares were offered at prices ranging from $.02 to $1.00 per share and sold at prices ranging from $.02 to $.50 per share. LeBlanc personally made sales of Alpha stock and approved, along with Bingham, all offers and sales of Alpha stock in his capacity as a director of Alpha.
In making sales, LeBlanc used an August 1, 1993 private placement memorandum ("PPM"); solicitation letters and a four-page "Executive Summary" dated August 1, 1993, and a second "Executive Summary" dated March 31, 1995 (all of which he had drafted); promotional videotapes to investors in which he appeared; and other sales materials, including a "Business Plan" dated April 1, 1993. The PPM, the Executive Summaries, and the other promotional materials contained false or misleading representations about Alpha's business operations and expected future revenues, the amount of money raised in Alpha stock offerings, purported federal and state approval of such offerings, the price at which Alpha's stock would be trading in the future, the value of Alpha's filter patents, and a purported study of Alpha's product. They also omitted material information. For example:
the PPM stated that LeBlanc had assigned certain filter patents to Alpha for Alpha shares but failed to disclose that the patents would revert back to LeBlanc under certain conditions;4
the Business Plan falsely ascribed a value to the patents that was more than double the value shown in Alpha's audited financial statements, and falsely represented that the Society of Automotive Engineers ("SAE") had conducted a study of Alpha's filter; in fact, the SAE had conducted no such study;
the 1993 Executive Summary falsely stated that "the solicitation and sale of 1,500,000 shares of the Company's common stock is now approved under federal and state law"; in fact, no such approvals had been obtained;
an explanatory letter LeBlanc drafted that was sent to prospective investors with the 1993 Executive Summary falsely represented that LeBlanc and his wife personally had contributed $62,000 to Alpha; in fact, the $62,000 had come from five initial investors who were issued a total of 1.3 million shares of Alpha stock;
the 1995 Executive Summary projected, without reasonable basis, that Alpha's combined total gross revenue over the next five years could exceed $100 million; in fact, Alpha's total receipts for the years 1993 through 1995 were approximately $197,000, $173,000, and $237,000, respectively, and these receipts represented almost exclusively funds from sales of its common stock, intercompany transfers, and loans;
other materials that LeBlanc prepared and distributed falsely asserted that, as of January 1994, Alpha was delivering its filter to commercial and industrial users, having secured orders from "state and federal agencies, cab companies, major construction companies, concrete companies, school buses [sic], and the marine and offshore industries," when sales for the quarter ended December 1993 totaled $1,000 and January 1994 sales totaled $4,000; and
none of the materials disclosed to investors that, prior to the Alpha venture, LeBlanc and Bingham had been involved with other ventures to promote and sell the filter, each of which had failed.
In March 1999, on the basis of the foregoing facts as alleged in the Commission's injunctive complaint,5 LeBlanc was permanently enjoined by the United States District Court for the Eastern District of Louisiana, with his consent, from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.6
On September 30, 1999, the Commission instituted an administrative proceeding under Exchange Act Section 15(b)(6)(A), based on the injunction, to determine whether a penny stock bar should issue against LeBlanc.
At the administrative hearing, LeBlanc testified that counsel had advised Alpha on the contents of the Alpha PPM at issue in the injunctive action, but that LeBlanc himself prepared and sent certain of the solicitation materials described above, including the Executive Summaries, to prospective investors at their request. According to his testimony, he did so because these investors could not understand the "jargon" in the PPM. LeBlanc conceded that he did not seek or obtain from Alpha's attorney approval of these additional solicitation materials, but offered that he had failed to do so "[o]ut of ignorance."
LeBlanc explained that the injunction stemmed from his lack of understanding of the registration process. LeBlanc further stated that, until the injunctive action was filed, he believed that his activities were in full compliance with the securities laws. LeBlanc testified that he has learned from these experiences, and undertook to remain fully compliant with the securities laws in the future.
LeBlanc also testified in support of the efficacy of Alpha's filter. LeBlanc noted his success in product placement since 1999, introduced documentation in support of these claims,7 and asked for "a second chance to bring this technology into the marketplace."
The legal predicates for this Section 15(b)(6)(A) proceeding are undisputed. First, LeBlanc is subject to an injunction from engaging in conduct in connection with the purchase or sale of a security. Second, that injunction was issued in connection with LeBlanc's participation in the offering of a "penny stock."
It is uncontested that, during the period charged in the injunctive complaint, Alpha stock was a "penny stock." LeBlanc conceded this in his Answer to the Order Instituting Proceedings, and offered testimony before the law judge that supports this conclusion. Alpha stock is an equity security that, during the period at issue inthe injunctive complaint, sold at prices ranging from $.02 to $1.00 per share. In general, equity securities priced at less than $5 are "penny stocks."8 Alpha stock did not qualify for specified exclusions to the "penny stock" definition set forth in the Exchange Act or Exchange Act Rule 3a51-1. For example, as LeBlanc testified, Alpha shares have not been registered or approved for registration on any exchange, or for quotation on Nasdaq, and no transaction reporting plan regarding Alpha stock has been filed with the Commission.9
It also is uncontested that, during the time period charged in the injunctive complaint, LeBlanc served as the president, chairman of the board of directors, and a controlling shareholder of Alpha, the issuer of Alpha shares, and was selling Alpha shares. Thus, LeBlanc, at the time of his misconduct, was a "person participating in an offering of 'penny stock'" that is, a "person who [was] engage[d] in activities with a[n] . . . issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock."10
LeBlanc nonetheless disputes Section 15(b)(6)(A)(iii)'s applicability here. LeBlanc renews on appeal his assertion, first made in an unsuccessful motion to dismiss filed with the law judge, that, as a matter of law, Section 15(b)(6)(A)(iii) cannot apply to him. LeBlanc contends that the penny stock bar provision must be "read in pari materia with Sec[tion] 15(b)(4)," and that its "correct reading" is that a participant in an offering of penny stock can be sanctioned "only if he has a previous recidivist history (as outlined in Sec[tion] 15(b)(4)) as a broker, dealer, or associated person and it is in the public interest."11 This is not correct. Section 15(b)(6)(A)(iii) authorizes the Commission to bar "any person," whether or not a broker-dealer or associated person, from participating in a penny stock offering, if such person has been enjoined from any action, conduct, or practice specified in Section15(b)(4)(C).12 Section 15(b)(4)(C) includes injunctions against any activity in connection with the purchase or sale of any security. The plain and unambiguous meaning of these provisions is that any such enjoined person (whether or not a broker or dealer or associated person) is subject to a sanction. As the Ninth Circuit noted in Koch v. SEC,13 the Act "gave the SEC authority it did not previously have: the power to bar unfit individuals from participation in any penny stock offering," regardless of whether those individuals are associated, or are seeking to become associated, with broker-dealers.14
LeBlanc also claims that Congress intended that we exercise our penny stock bar authority solely against "egregious" recidivist violators of the federal securities laws who have turned to penny stock promotion and that, as a non-recidivist, he therefore should not be the subject of that authority. It is true that Congress adopted the Penny Stock Reform Act of 1990, of which Section 15(b)(6)(A)(iii) is a part, "in order to 'curb[ ] the pervasive fraud and manipulation in the penny stock market,'"15 and the relevant House Report notes that a primary reason for "[t]his growth of fraud and abuse in the penny stock market," was the presence of "an extraordinary number of market participants who are repeat offenders of state or federal securities laws, other convicted felons, and persons having strong ties to organized crime."16 Congress,however, enacted a statutory provision that, by its express terms, is not limited to the "recidivist criminal element," as LeBlanc suggests.17 Rather, as set forth above, Section 15(b)(6)(A)(iii), as enacted, applies to any person participating, or who at the time of the misconduct was participating, in an offering of penny stock.
Although LeBlanc expressly agreed in consenting to the injunction "not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegations in the Complaint or creating the impression that the Complaint is without factual basis,"18� LeBlanc now urges us to give reduced weight to the allegations in the injunctive complaint, claiming that the consent judgment was "tainted." We decline to do so.
LeBlanc's claim of "taint" is unsupported. LeBlanc contends that the Division obtained the settlement by "ethically questionable" means because "the Division did not clearly tell [him] or his counsel that the Settlement of the Federal Court action was not resolving all outstanding matters between [them] and that this Administrative action was a possibility." He asserts that the Division had "a moral, if not legal, obligation . . . to . . . make it clear that further legal action, such as this administrative action, is a possibility," and claims that he would not have agreed to the settlement if he had known that the Commission could commence this proceeding.
The consent order, by its express terms, resolved only the Commission's injunctive action. LeBlanc was obligated to familiarize himself with the terms of the consent order he signed and with thepotential collateral consequences of settling an injunctive action, as have other defendants.19 It was not the Division's obligation to advise LeBlanc of the legal consequences of his consent.20 LeBlanc does not claim that the Division staff misrepresented to him or to his counsel that settling the injunctive action would resolve all possible future actions by the Commission against him arising out of the facts set out in the complaint. Nor does LeBlanc point to anything in the settled order that would lead him to believe that the Commission would decline to institute a subsequent administrative proceeding against him. We see no merit in LeBlanc's claim.
LeBlanc also appears to be raising a claim of selective prosecution. LeBlanc contends that the Division brought this proceeding against him because it "has been bent on prosecuting first time offenders to the full letter of the law," and that it was not Congress's intent in enacting the Penny Stock Reform Act to "drive any Respondent and his family to the brink of personal and corporate bankruptcy." He asserts that "in many instances the Enforcement Division of the SEC does over step its boundaries in order to prevail," and that these "abuses of the SEC" are perhaps motivated by "vengeance."
The Supreme Court has stated that "the conscious exercise of some selectivity in enforcement is not in itself a federal constitutional violation."21 At a minimum, a party seeking to assert such a claim must show that he or she was singled out for enforcement while others who were similarly situated were not, and that his or her prosecution was motivated by arbitrary or unjust considerations such as race, religion, or the desire to prevent the exercise of a constitutionally protected right.22� LeBlanc has not so supported his claim, and we find it to be without merit.
LeBlanc also asserts that the law judge committed prejudicial error. LeBlanc claims that the law judge unfairly "induced justifiable reliance to [LeBlanc's] detriment by causing [LeBlanc] to rest his case without the presentation of more witnesses and other evidence." Specifically, LeBlanc represents that, during an off-the-record bench conference called by the law judge "[a]fter the hearing was only partially complete," the law judge expressed the view that a sanction short of a bar would be appropriate. LeBlanc asserts that, in response to the law judge's comments, he rested his case and the law judge, in turn, adjourned the hearing, with the parties' consent, in order for the Division to seek the Commission's approval of a proposed settlement.23� We assume for the purpose of resolving thisclaim of law judge error that the law judge made the off-the-record comments that LeBlanc now attributes to him.
LeBlanc asserts that, "[b]ut for the words of Judge Mahoney at this bench conference," he would have presented more witnesses and testimony concerning the advisability of a lesser sanction. LeBlanc nonetheless rested his case for a second time once he learned, in a subsequent appearance before the law judge, that the Commission had rejected the settlement offer, and after the law judge offered him the opportunity to resume the evidentiary hearing.
In our view, simply put, LeBlanc gambled on a course of action. His complaints about the outcome of that gamble are unavailing.24 LeBlanc and his counsel made the tactical decision to decline the law judge's invitation to present additional testimony after the parties and the law judge learned that a settlement offer had been rejected, assertedly operating under the (mistaken) belief that the law judge would not impose on LeBlanc a penny stock bar. The law judge had made no promises with respect to the outcome here. Indeed, a law judge's expression, during the course of a hearing, of preliminary views cannot reasonably be relied upon as conclusive, as the law judge has not yet had the benefit of full consideration of the record and has not yet reviewed the post-hearing briefs of the parties. Moreover, even if LeBlanc and his counsel were convinced that the law judge would be lenient, it was incumbent upon them to ensure --should the matter come before the Commission on review -- that all evidence was presented in support of their claim that LeBlanc should not be barred from participating in further offerings of penny stock.25 In sum, we find nothing prejudicial in the conduct of this proceeding.26�
When Congress grants an agency the responsibility to impose sanctions to achieve the purposes of a statute, "the relation of remedy to policy is peculiarly a matter for administrative competence."27 Consistent with our traditional approach, in determining sanctions, including whether to impose a penny stock bar in a remedial proceeding that follows an injunction, we consider a range of relevant factors, including: the seriousness of the violation; the isolated or recurrent nature of the violation; the respondent's state of mind; the sincerity of the respondent's assurances against future violations; the respondent's recognition of the wrongful nature of the misconduct; the respondent's opportunityto commit future violations; the age of the violation; and the degree of harm to investors and the marketplace resulting from the violation.28
The law judge barred LeBlanc from participating in any offering of penny stock. LeBlanc argues that a bar is excessive under the circumstances. He urges the Commission to consider his asserted remorse and successful efforts to comply with federal securities law requirements since he was enjoined in March 1999, and his promise to follow securities counsel's direction in all future securities offerings.29 He also points to the asserted legitimacy of his company and its product30� as compared to the "sham" products of other penny stock companies; the assertedly substantial positive events that have occurred in Alpha's business since issuance of the consent injunction; and his claim that, within the organization, only he can sell stock in Alpha.
The allegations supporting the consent injunction reflect that LeBlanc repeatedly made false and misleading statements to prospective Alpha investors over an extended time period -- this was egregious, scienter-based misconduct. The suggestion that his wrongdoing was the result of ignorance of the federal securities laws requirements rings hollow -- special competence in regulatory requirements is not required in order to know that one should not make false and misleading statements.
LeBlanc testified that, if permitted to do so, he intends to raise additional capital for Alpha by selling securities pursuant to the Commission's Regulation D.31� Accordingly, he will be presentedwith opportunities for future violations. While the injunction dates back to 1999 and the misconduct occurred earlier, LeBlanc's actions affected more than 85 investors and resulted in fraudulent sales totaling over a half million dollars. A bar will serve both as a deterrent to others and as a means of protecting the public from further risk of fraudulent conduct by one who has demonstrated repeatedly his disregard for the truth. Thus, we have determined to bar LeBlanc from participating in any offering of penny stock.32�
An appropriate order will issue.33�
By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID, and ATKINS); Commissioner CAMPOS not participating.
Jonathan G. Katz
Secretary
In the Matter of RALPH W. LEBLANC |
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ORDER IMPOSING REMEDIAL SANCTION
On the basis of the Commission's opinion issued this day, it is
ORDERED that Ralph W. LeBlanc be barred from participating in any offering of penny stock, including acting as a promoter, finder, consultant, or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock; or inducing or attempting to induce the purchase or sale of any penny stock.
By the Commission.
Jonathan G. Katz
Secretary
| 1 | 15 U.S.C. § 78o(b)(6)(A). |
| 2 | Exchange Act Section 3(a)(51)(A) states:
The term "penny stock" means any equity security other than a security that is-- (i) registered or approved for registration and traded on a national securities exchange that meets such criteria as the Commission shall prescribe by rule or regulation for purposes of this paragraph; (ii) authorized for quotation on an automated quotation system sponsored by a registered securities association, if such system (I) was established and in operation before January 1, 1990, and (II) meets such criteria as the Commission shall prescribe by rule or regulation for purposes of this paragraph; (iii) issued by an investment company registered under the Investment Company Act of 1940; (iv) excluded, on the basis of exceeding a minimum price, net tangible assets of the issuer, or other relevant criteria, from the definition of such term by rule or regulation which the Commission shall prescribe for purposes of this paragraph; or (v) exempted, in whole or part, conditionally or unconditionally, from the definition of such term by rule, regulation, or order prescribed by the Commission. 15 U.S.C. § 78c(a)(51)(A). In general, under Rule 3a51-1, certain equity securities -- including securities priced at five dollars or more, securities subject to last sale reporting and listed on a national securities exchange or quoted on Nasdaq, and securities of an issuer that meets either a minimum net tangible assets or revenues test -- are excluded from the definition of "penny stock." 17 C.F.R. § 240.3a51-1. |
| 3 | Exchange Act Rel. No. 48228 (July 25, 2003), __ SEC Docket ____. |
| 4 | These conditions included Alpha's bankruptcy, the appointment of a receiver or a trustee, or an assignment of assets for the benefit of creditors, whether voluntary or involuntary. |
| 5 | SEC v. Alpha Diversified Indus., Inc., Civil Action No. 97-2814 "B," Section E-3 (E.D. La.), discussed in Lit. Rel. No. 15493 (Sept. 15, 1997), 65 SEC Docket 1236. |
| 6 | 15 U.S.C. § 77q(a), 15 U.S.C. § 78j(b), and 17 C.F.R. § 240.10b-5.
Section 17(a) makes it unlawful for any person to "employ any device, scheme, or artifice to defraud; . . . to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or . . . to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser" in connection with the offer or sale of securities. Section 10(b) makes it unlawful for any person to "use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of" the Commission's rules. Rule 10b-5 makes it unlawful for any person to "employ any device, scheme, or artifice to defraud" or to "engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." LeBlanc also was ordered to pay disgorgement in the amount of $161,403, plus prejudgment interest. The court waived payment of disgorgement and prejudgment interest, and further declined to impose a civil penalty on LeBlanc, based upon LeBlanc's sworn statement of financial condition and other supplementary material LeBlanc submitted. Lit. Rel. No. 16108 (Apr. 7, 1999), 69 SEC Docket 1572. |
| 7 | LeBlanc introduced documentation reflecting that Alpha's gross sales for 1999 were $62,861.96. LeBlanc testified that he has spoken to representatives of the United States Government, particularly the U.S. Navy, about his filters. He estimated sales to all sources of between $250,000 and $300,000 in 2000. LeBlanc further testified that Texaco, Inc. had expressed an interest in his product, and that Texaco estimated that it ultimately may buy millions of dollars of the product. In support of this claim, a Texaco engineer testified before the law judge that the company was given a few units on a test basis, with good results, and has purchased some additional units, and that LeBlanc would be presenting the product to a gathering of Texaco mechanics. |
| 8 | See Exchange Act Rule 3a51-1(d). |
| 9 | See Rule 3a51-1(a), (e). |
| 10 | 15 U.S.C. § 78o(b)(6)(C). |
| 11 | LeBlanc urges that the fact that Congress included the Penny Stock Reform Act amendments in a section of the Exchange Act titled "Registration and Regulation of Brokers and Dealers," rather than including the amendments in a stand-alone section applicable solely to non-registered persons, "suggests that some causal connection was desired with the existing law." LeBlanc asserts that that causal connection is a troubled recidivist prior history as a registered broker-dealer or associated person. |
| 12 | Section 15(b)(6)(A), in contrast, authorizes the Commission to censure, place limitations on the activities or functions of, or suspend or bar from association with a broker or dealer, in response to specified misconduct, only those "person[s] who [are] associated, who [are] seeking to become associated, or [who], at the time of the alleged misconduct . . . [were] associated or seeking to become associated with a broker or dealer." 15 U.S.C. §78o(b)(6)(A). |
| 13 | 177 F.3d 784, 788 (9th Cir. 1999). |
| 14 | See also Benjamin G. Sprecher, 52 S.E.C. 1296, 1299 n.16 (1997) ("[Respondent] is not . . . a registered person under Section 15(b) of the Exchange Act, or a person affiliated with a registrant. However, the Remedies Act amendment to Section 15(b) of the Exchange Act expanded this Commission's authority over persons, such as [Respondent] who participate in penny stock offerings."). |
| 15 | Koch, 177 F.3d at 787 (quoting H.R. Rep. No. 101-617, at 7 (1990), reprinted in 1990 U.S.C.C.A.N. 1408, 1408-09). |
| 16 | H.R. Rep. No. 101-617 at 10, CCH Fed. Sec. L. Rptr. No. 1424, Part II at 156 (Dec. 6, 1990). |
| 17 | As the Division persuasively argues, "Respondent . . . has offered some quotations [from the Congressional Record] in which the speakers mention the problem of brokers reappearing in penny stock offerings after being barred from association as brokers. None of the quotations offered in any way suggests that the bill was limited to such persons. One quotation . . . not quoted by the Respondent is 'In S. 647, the most important provision is the one authorizing the SEC, for the first time, to prohibit securities law violators from being associated in any way with an offering of penny stock' Cong. Rec. at H8534 (Oct. 1, 1990). Obviously, the term 'securities law violators' connotes a broader class of persons than the strained construction urged by the Respondent." |
| 18 | LeBlanc further agreed, as do all settling respondents, to comply with the Commission's policy set out in 17 C.F.R. § 202.5(e) "not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings." |
| 19 | See, e.g., SEC v. Williams, 884 F. Supp. 28, 30 (D. Mass. 1995) (in the analogous context of follow-on administrative proceedings against broker-dealers, defendants argued that "hardly a week goes by in which the Commission does not use an injunction to bar a broker from ever again being in the securities business"). |
| 20 | In support of his claim, LeBlanc seeks to adduce as additional evidence under Rule 452 of the Commission's Rules of Practice, 17 C.F.R. § 201.452, an affidavit of his counsel in the injunctive proceeding, signed after issuance of the initial decision in the instant proceeding, and related material. The materials suggest that LeBlanc believed that the civil settlement would resolve all possible proceedings against him, but not that any Commission staff member so advised him. LeBlanc rationalizes the lateness of the submission on the ground that the significance of the materials was not made clear to him until the law judge rendered a decision that was plainly unfair to him. The Division opposes LeBlanc's motion, but also has offered its own affidavits to rebut LeBlanc's new evidence, on the condition that, should LeBlanc's evidence not be accepted, the Division's motion should be deemed withdrawn. We deny LeBlanc's motion and treat the Division's motion as withdrawn. LeBlanc has failed to establish, as required by Rule 452, both that the evidence is material and that reasonable grounds exist for his failure to adduce on a timely basis this previously-available material. |
| 21 | Oyler v. Boles, 368 U.S. 448, 456 (1962). |
| 22 | Russo Sec., Inc., Securities Exchange Act Rel. No. 44186 (Apr. 17, 2001), 75 SEC Docket 1124A, 1124P; Michael Markowski, 51 S.E.C. 553, 559 n.23 (1993), petition for review denied and order aff'd, 34 F.3d 99 (2d Cir. 1994). |
| 23 | LeBlanc seeks to adduce as additional evidence the affidavits of his counsel and another attorney also present during the evidentiary hearing, and a memorandum to file prepared by his counsel, that, read together, represent that, at the off-the-record conference, the law judge expressed his opinion that something short of the outright bar sought by the Division was required in the public interest. The Division opposes LeBlanc'smotion.
We have determined to accept the evidence under Rule 452 of our Rules of Practice on the grounds that LeBlanc has demonstrated that the additional evidence is material to his claim of prejudicial error and that there were reasonable grounds for failure to adduce such evidence previously, given LeBlanc's view that he was not aware of the significance of the colloquy with the law judge until the law judge's decision issued. |
| 24 | We rejected an analogous claim in Russo Sec., Inc., 75 SEC Docket 1124A. There, respondents wanted the record reopened and witnesses' testimony adduced with respect to an alleged accounting adjustment. Respondents acknowledged that, before the law judge, they had withdrawn their defense of that adjustment, but advised that the withdrawal was based "solely upon the total failure of the Enforcement Division's case." Our response in Russo is equally applicable here: "Respondents' hearing strategy does not warrant reopening the record in this proceeding. As we have previously stated, 'Public policy considerations favor the expeditious disposition of litigation, and a respondent cannot be permitted to gamble on one course of action and, upon an unfavorable decision, to try another course of action.'" Id. at 1124Q & n.49 (citing David T. Fleischman, 43 S.E.C. 518, 522 (1967)). |
| 25 | The Commission's rejection of the offer of settlement should have been an indication of the importance of including in the record, for the Commission's review on any appeal, all available evidence in support of an appropriate sanction in the public interest. |
| 26 | LeBlanc also asserts that the initial decision erroneously states, among other things, the proper designation of the Commission's Atlanta office, omits certain information about LeBlanc's undergraduate concentration, and fails to state that Alpha's products had an "advanced" design. He also takes exception to the law judge's asserted failure, among other things, to specify in his initial decision precisely how LeBlanc felt the Division's investigation had hampered Alpha's sales, and to the law judge's finding that LeBlanc "had never been [previously] charged," when LeBlanc had requested a finding that LeBlanc "is not a recidivist of any type." We see no prejudice to LeBlanc from these or other asserted errors, omissions, or failures. Further, we have engaged in a de novo review of the record and have come to our own conclusions about what the public interest requires here. |
| 27 | Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 185 (1973) (quoting American Power Co. v. SEC, 329 U.S. 90, 112 (1946)); Brian A. Schmidt, Exchange Act Rel. No. 45330 (Jan. 24, 2002), 76 SEC Docket 2255, 2272; Seaboard Inv. Advisers, Inc., IA Act Rel. No. 1918 (Jan. 10, 2001), 74 SEC Docket 201, 207. |
| 28 | Marshall E. Melton, ___ SEC Docket at ____, n.3, and cases therein cited. |
| 29 | LeBlanc testified before the law judge that he has retained the legal services of a former staff attorney in the Commission's Atlanta District Office, as securities counsel for any permitted Regulation D offering, and that, during any offering period in which LeBlanc would have continuing interaction with customers, "On every question that [he] could possibly have, [he] will consult with [this attorney]." |
| 30 | LeBlanc emphasizes the public interest in "the raising of capital by small minority owned business . . . especially one that has a product that promotes oil efficiency." |
| 31 | 17 C.F.R. §§ 230.501-508. LeBlanc explained that Alpha has an immediate need for capital to expand its sales, buy inventory, pay deposits to its suppliers, and hire installers for itsfilter. He testified that he attempted to get bank loans, but was rejected because the bank still viewed Alpha as a "start-up" and because Alpha's current level of sales would not justify a loan. |
| 32 | LeBlanc attached several new documents to his brief relating to Alpha's contracts with government entities, and the status of several of its oil filters, but has not made the requisite motion to adduce these documents, let alone shown with particularity that they are material and that there were reasonable grounds for failure to adduce it previously. See Rule 452 of the Commission's Rules of Practice. Many of them, including a 1991 Business Week article, were available during the administrative hearing and could have been offered at that time. Even those that are dated subsequent to the hearing, such as a letter dated June 18, 2001 from Texaco's engineer and various unauthenticated testimonials from purchasers of Alpha's oil filters, relate information similar to that already admitted. We decline to adduce these additional documents. |
| 33 | We have considered all of the parties' contentions. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion. |
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