Opinion
CV-21-00075-PHX-JJT
10-18-2022
Securities and Exchange Commission, Plaintiff, v. Jacob C. Glick, Defendant.
FINAL JUDGMENT AS TO DEFENDANT JACOB C. GLICK
HONORABLE JOHN J. TUCHI UNITED STATES DISTRICT JUDGE
At issue is the Motion of Plaintiff Securities and Exchange Commission (“SEC”) for Remedies as to Defendant Jacob C. Glick (Doc. 40). In its Order dated June 6, 2022, the Court granted Plaintiff's request to file the instant motion separately from its Motion for Summary Judgment and gave Defendant 30 days after service of any Motion for Remedies to file an Opposition. (Doc. 31.) Plaintiff filed the instant motion on September 13, 2022. The time to oppose the motion lapsed on October 13, 2022, and Defendant has filed no Opposition. Local Rule 7.2(i) provides that “if the unrepresented party or counsel does not serve and file the required answering memoranda, . . . such noncompliance may be deemed a consent to the denial or granting of the motion and the Court may dispose of the motion summarily.” Accordingly, the Court deems Defendant's failure to file an Opposition to Plaintiff's Motion for Remedies as a consent to the granting of the motion.
In its August 15, 2022 Order granting Plaintiff's Motion for Summary Judgment (Doc. 39), the Court found that Defendant violated: (1) Section 206(1) of the Investment Advisers Act of 1940 (“Advisers Act”), 15 U.S.C. § 80b-6(1); (2) Section 206(2) of the Advisers Act, 15 U.S.C. § 80b-6(2); (3) Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5(b) thereunder, 17 C.F.R. § 240.10b-5(b); (4) Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5(a) and 10b-5(c) thereunder, 17 C.F.R. §§ 240.10b-5(a) & 240.10b-5(c); and (5) Section 204 of the Advisers Act, 15 U.S.C. § 80b-4, and Rule 204-2 thereunder, 17 C.F.R. § 275.204-2, by aiding and abetting. The Court permanently enjoined Defendant and his agents from violating these same provisions. The Court stated that it would enter final judgment after it reached a decision regarding remedies.
In its Motion for Remedies, Plaintiff requests that the Court order Defendant to pay, as a result of his violations of the aforementioned provisions, disgorgement in the amount of $116,594 plus prejudgment interest of $26,314 and civil penalties in the amount of $725,140. (Doc. 40 at 1-5.) The Court will discuss these remedies in turn.
The Court is persuaded that Plaintiff's disgorgement figure of $116,594 “reasonably approximates the amount of unjust enrichment” that Defendant received as a result of his illegal conduct. See SEC v. Platforms Wireless Int'l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010). The SEC's disgorgement figure is well-supported by the evidence and is reasonable, as it includes Defendant's ill-gotten gains from misleading and defrauding multiple advisory clients, less the value of certain ill-gotten gains that have been repaid. (See Doc. 40 at 1-2; Doc. 40-1, Decl. of Theresa M. Melson, at ¶¶ 4-5; Doc. 40-2, Decl. of Daniel J. F. Peabody, at ¶¶ 4-10; Doc. 35, SEC's Separate Statement of Undisputed Facts, at ¶¶ 35, 46-49, 58-59.) Defendant has failed meet his burden to rebut the SEC's disgorgement figure and demonstrate that it is not a reasonable approximation. See Platforms Wireless, 617 F.3d at 1096. Indeed, Defendant has entirely failed to respond. Finally, prejudgment interest of $26,314 is appropriate to ensure that Defendant, as the wrongdoer, does not profit from the illegal activity. See SEC v. Janus Spectrum, LLC, Case No. CV-15-609-PHX-SMM, 2017 WL 4870377, at *13 (D. Ariz., Aug. 8, 2017) (citing SEC v. Manor Nursing Ctr., Inc., 458 F.2d 1082, 1105 (2d Cir. 1972)); see also Doc. 40-1 at ¶ 6.
As for civil penalties, federal securities law provides for three tiers of penalties for violations of the Securities Act and the Advisers Act, with the amount of the penalty “determined by the court in light of the facts and circumstances.” 15 U.S.C. §§ 78u(d)(3)(B), 80b-9(e)(2). Second-tier and third-tier penalties may be imposed for violations that involve “fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement,” with third-tier penalties further requiring that “such violation directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons.” Id. The Ninth Circuit has articulated five factors for courts to consider in determining the appropriate amount of penalties: (i) the degree of scienter involved; (ii) the isolated or recurrent nature of the infraction; (iii) the defendant's recognition of the wrongful nature of his conduct; (iv) the likelihood that, based on the defendant's occupation, future violations might occur; and (v) the sincerity of the defendant's assurances against future violations. SEC v. Murphy, __F.4th __, 2022 WL 4866712, at *10 (9th Cir. 2022) (citing SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980)). Applying these factors, Plaintiff asserts that Defendant should pay three inflation adjusted third-tier penalties of $207,183 and one inflation adjusted second-tier penalty of $103,591, for a total amount of $725,140. (Doc. 40 at 2-5; Doc. 40-1 at ¶ 7, and Ex. 4.)
The Court agrees with Plaintiff's analysis of the appropriate civil penalties. In its August 15, 2022 Order, the Court discussed the Murphy factors in the context of granting a permanent injunction against Defendant and his agents. (Doc. 39 at 2.) For the same reasons stated in that Order, the Court finds the Murphy factors weigh in favor of imposing significant penalties for Defendant's violations. The Court further finds that three of these violations resulted in substantial losses or created a significant risk of substantial losses to other persons, warranting the imposition of third-tier penalties.
As set forth in Plaintiff's Motion for Summary Judgment (Doc. 34) and its Motion for Remedies, Defendant breached his fiduciary duty and violated Sections 206(1) and 206(2) of the Advisers Act and obtained $49,594 in advisory fees by defrauding his Advanced Practice Advisors, LLC (“APA”) advisory clients and placing their funds in unsuitable investments that resulted in over $1.9 million in losses despite Defendant's representations and his fiduciary duty to place their money in only suitable investments. Additionally, Defendant violated Sections 206(1) and 206(2) of the Advisers Act and breached his fiduciary duty when he obtained $67,000 in ill-gotten gains by defrauding an elderly widowed advisory client by, among other things, using over half of her $675,000 investment to pay his personal and other expenses and by placing the remaining funds in a long-term, illiquid, unsuitable real estate investment that returned no profits to her. Defendant breached his fiduciary duty and violated Sections 206(1) and 206(2) of the Advisers Act when he enticed two of his advisory clients to invest in a fraudulent private placement offering through material misrepresentations and omissions and when he subsequently defalcated or embezzled their $250,000 investment for his personal use. Defendant violated Section 10(b) of the Exchange Act and Rule 10b-5(b) and obtained the $250,000 investment from these advisory clients by making material misrepresentations and omissions in soliciting their investment in the fraudulent private placement offering and by misappropriating their funds for his personal use. Further, Defendant violated Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) by engaging in a scheme to defraud the advisory clients who invested $250,000 in his private placement offering by concealing his fraudulent conduct and continuing to make material misrepresentations and omissions to them, including by making payments to them using some of their own principal investment and by repaying them with funds he obtained from another client.
Finally, Defendant violated Section 204(a) of the Advisers Act and Rule 204-2(a)(7) by using his personal cellphone to give investment advice via text message to advisory clients and then destroying those communications when he sold his cellphone, despite being repeatedly instructed by APA that he was required to preserve client communications regarding investment advice. The Court agrees with Plaintiff that although this constituted “reckless disregard of a regulatory requirement,” it arguably did not result in substantial losses or a significant risk of such losses. See 15 U.S.C. § 80b-9(e)(2).
In sum, three third-tier penalties of $207,183 are warranted for Defendant's violations of Sections 206(1) and 206(2) of the Advisers Act, Section 10(b) of the Exchange Act and Rule 10b-5(b), and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c), which resulted in either substantial losses or a significant risk of such losses. One second-tier penalty of $103,591 is warranted for Defendant's violation of Section 204(a) of the Advisers Act and Rule 204-2(a)(7), which arguably did not result in either substantial losses or a significant risk of such losses. In total, Defendant shall pay civil penalties in the amount of $725,140, in addition to disgorgement of $116,594 and prejudgment interest of $26,314.
The Court now enters Final Judgment as to Defendant Jacob C. Glick:
I.
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant is permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security:
(a) to employ any device, scheme, or artifice to defraud;
(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant's officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a).
II.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is permanently restrained and enjoined from violating, directly or indirectly, Section 206 of Advisers Act by use of the mails or means and instrumentalities of interstate commerce:
(a) to employ devices, schemes or artifices to defraud clients or prospective clients; or
(b) engage in transactions, practices, or courses of business which operate as a fraud or deceit upon clients or prospective clients.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant's officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a).
III.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is permanently restrained and enjoined from aiding and abetting any violation of Section 204 of the Advisers Act, and Rule 204-2(a) thereunder, by failing to make and keep required books and records related to an investment advisory business.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant's officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or participation with Defendant or with anyone described in (a).
IV.
IT HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for disgorgement of $116,594, representing net profits gained as a result of the conduct alleged in the Complaint and as set forth in the SEC's Motion for Summary Judgement and its Motion for Remedies, together with prejudgment interest thereon in the amount of $26,314, and a civil penalty in the amount of $725,140 pursuant to the Securities Act and the Advisers Act. See 15 U.S.C. §78u(d)(3); 15 U.S.C. 80b-9(e). Defendant shall satisfy this obligation by paying the Securities and Exchange Commission within 30 days after entry of this Final Judgment.
Defendant may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from a bank account via Pay.gov through the SEC website at http://www.sec.gov/about/offlces/ofm.htm. Defendant may also pay by certified check, bank cashier's check, or United States postal money order payable to the Securities and Exchange Commission, which shall be delivered or mailed to
Enterprise Services Center
Accounts Receivable Branch
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
and shall be accompanied by a letter identifying the case title (SEC v. Jacob C. Glick), the civil action number (No. CV-21-00075-PHX-JJT), and the name of this Court (USDC: District of Arizona); “Jacob C. Glick” should be identified as the defendant in this action; and specifying that payment is made pursuant to this Final Judgment.
The Commission may enforce the Court's judgment for disgorgement and prejudgment interest by using all collection procedures authorized by law, including, but not limited to, moving for civil contempt at any time after 30 days following entry of this Final Judgment.
The Commission may enforce the Court's judgment for penalties by the use of all collection procedures authorized by law, including the Federal Debt Collection Procedures Act, 28 U.S.C. § 3001 etseq., and moving for civil contempt for the violation of any Court orders issued in this action. Defendant shall pay post judgment interest on any amounts due after 30 days of the entry of this Final Judgment pursuant to 28 U.S.C. § 1961. The Commission shall hold the funds, together with any interest and income earned thereon (collectively, the “Fund”), pending further order of the Court.
The Commission shall send the funds paid pursuant to this Final Judgment to the United States Treasury, or, if the Commission determines it is feasible, the Commission may propose a plan to distribute all or part of the Fund subject to the Court's approval. Such a plan may provide that the Fund shall be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. The Court shall retain jurisdiction over the administration of any distribution of the Fund and the Fund may only be disbursed pursuant to an Order of the Court.
Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil penalties pursuant to this Judgment shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Defendant shall not, after offset or reduction of any award of compensatory damages in any Related Investor Action based on Defendant's payment of disgorgement in this action, argue that he is entitled to, nor shall he further benefit by, offset or reduction of such compensatory damages award by the amount of any part of Defendant's payment of a civil penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty Offset, Defendant shall, within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this Judgment. For purposes of this paragraph, a “Related Investor Action” means a private damages action brought against Defendant by or on behalf of one or more investors based on substantially the same facts as alleged in the Complaint in this action.
V.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that any debt for disgorgement, prejudgment interest, civil penalty or other amounts due by Defendant under this Final Judgment entered in connection with this proceeding, is a debt for the violation by Defendant of the federal securities laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 523(a)(19).
VI.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment.
VII.
IT IS FURTHER ORDERED that there being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, the Clerk is ordered to enter this Final Judgment forthwith and without further notice, and to close this matter.