Gibson v. S.E.C.
| Decision Date | 11 March 2009 |
| Docket Number | No. 08-3377.,08-3377. |
| Citation | 561 F.3d 548 |
| Parties | Jeffrey L. GIBSON, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Timothy R. Simonds, Presley & Simonds, Chattanooga, Tennessee, for Petitioner. Allan Armistead Capute, Securities and Exchange Commission, Washington, D.C., for Respondent.
Before GUY, CLAY, and COOK, Circuit Judges.
Jeffrey L. Gibson seeks review of the February 4, 2008 order of the Securities and Exchange Commission, which affirmed the administrative law judge's issuance of a lifetime bar precluding Gibson from associating with any broker or dealer pursuant to § 15(b) of the Securities Exchange Act of 1934 and from associating with any investment adviser pursuant to § 203(f) of the Investment Advisers Act of 1940. For the reasons that follow, we DENY Gibson's petition for review.
On August 5, 2005, the SEC Division of Enforcement ("the Division") filed a civil action against Jeffrey L. Gibson and Investment Property Management, LLC, ("IPM") in the United States District Court for the Northern District of Georgia, alleging that Gibson misappropriated approximately $450,000 of investor funds generated from the sale of limited partnership interests in American Car Wash Fund, LP.
On February 9, 2006, Gibson signed a consent agreement, in which he agreed to the entry of a final judgment holding Gibson and IPM jointly and severally liable for the disgorgement of $427,701.73 in investor funds. It was agreed that the judgment would impose a civil penalty of $25,000 pursuant to § 20(d) of the Securities Act of 1933 ("Securities Act") and § 21(d)(3) of the Securities Exchange Act of 1934 ("Exchange Act"), and that it would permanently enjoin Gibson from violating § 17(a) of the Securities Act, 15 U.S.C. 77q(a) (); § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) (); Exchange Act Rule 10b-5, 17 C.F.R. 240.10b-5 (); and § 206 of the Investment Advisers Act of 1940 ("Advisers Act"), 15 U.S.C. § 80b-6 (). The district court entered final judgment against Gibson in accordance with the terms set forth in the consent agreement.
On June 5, 2006, the Division filed an order instituting a follow-on administrative proceeding before the Securities and Exchange Commission, seeking remedial sanctions against Gibson pursuant to pursuant to § 15(b) of the Exchange Act and § 203(f) of the Advisers Act.1 After two pre-hearing conferences, the Division filed a motion for summary disposition, and on September 22, 2006, an administrative law judge ("ALJ") granted the Division's motion, imposing a lifetime bar precluding Gibson from associating any securities broker, dealer, or investment adviser. Gibson appealed that decision to a panel of the Securities and Exchange Commission ("the Commission"), and the Commission affirmed the ALJ's decision on February 4, 2008.2 Gibson filed a timely notice of appeal, seeking this Court's review of the Commission's judgment.
In the consent agreement signed by Gibson in the underlying federal court proceedings, Gibson acknowledged that "the Court's entry of a permanent injunction may have collateral consequences" and agreed that "[i]n any disciplinary proceeding before the Commission based on the entry of the injunction in this action, [he] shall not be permitted to contest the factual allegations of the Complaint [filed in district court] in this action." (Joint Appendix ("J.A.") at 58.) As a result, we will take the facts alleged in the aforementioned district court complaint ("the Complaint") as true for purposes of our review.
The Complaint alleged that Gibson, a resident of Tennessee, was a certified financial planner, a registered representative of a broker-dealer, and part owner of IPM, a limited liability company. In November 2002, Gibson formed American Car Wash Fund, LP ("ACW") to buy and manage coin-operated car-wash operations in northern Georgia. Through IPM, Gibson sold 43 limited-partnership interests in ACW, raising approximately $875,000. Approximately 38 of the limited partners were also clients of Gibson's advisory business.
Gibson provided a private placement memorandum ("PPM") to prospective investors which stated that after organizational expenses were satisfied, investors' funds would be invested in money market funds or government securities until the funds could be invested in projects. According to the Complaint, however, almost as soon as Gibson began selling interests in ACW, he began misappropriating investor funds for his own use. Gibson wrote checks payable to cash on ACW bank accounts, misappropriating approximately $450,000. The Complaint stated that Gibson's actions were contrary to representations made by Gibson and exceeded any payments to which Gibson and IPM may have been entitled under the PPM. The PPM was never amended to reflect the actual use of the funds.
The Complaint alleged that the misappropriations continued up to the time the Complaint was filed. The Complaint also alleged that subsequent to selling the partnership interests in ACW, Gibson and IPM sought to "lull investors into believing that their investments [were] profitable and to conceal the misappropriation of funds" by sending letters to the investors describing "annualized rates of return, dividends and purchases of various properties," without disclosing "the ongoing misuse of proceeds by" Gibson and IPM. (J.A. at 43.)
After Gibson executed a consent agreement, the district court permanently enjoined Gibson from violating the antifraud provisions of the securities laws, ordered him to pay a civil penalty of $25,000 and to disgorge $427,701.73 in misappropriated funds, and enjoined Gibson and IPM from serving as a general partner or otherwise controlling ACW. Gibson subsequently liquidated assets purchased with the misappropriated investors' funds and used the proceeds to pay the court-ordered civil penalty and disgorgement.
On June 6, 2006, the Division initiated a follow-on administrative proceeding before the Securities and Exchange Commission pursuant to Exchange Act § 15(b) and Advisers Act § 203(f). After two pre-hearing conferences, the Division moved for summary disposition pursuant to Commission Rule of Practice 250, relying on the allegations of the aforementioned district court Complaint. Gibson filed a response, attaching his own declaration and declarations from 31 ACW investors. Gibson's declaration stated that he had a clean disciplinary record, that he cooperated with the Commission's investigation, and that he paid the fine and disgorgement ordered by the district court. In each individual investor declaration, the investor indicated that he or she had reviewed Gibson's answer to the Complaint, agreed to "approve and ratify" all of Gibson's actions with respect to ACW, and wanted Gibson to continue to act on his or her behalf as investment adviser. (J.A. at 162.) These declarations appear to be preprinted forms that allow only for the investors' initials and signatures.
The ALJ granted the Division's motion for summary disposition, finding that Gibson had failed to create a genuine dispute of material fact. After concluding that Gibson's misappropriation of investor funds demonstrated a lack of honesty and judgment which made him unsuited to function in the securities industry, the ALJ held that the public interest required that Gibson be barred.
Gibson appealed the ALJ's decision to a panel of the Securities and Exchange Commission ("the Commission"). After discussing the uncontested factual allegations in the Complaint (which were in turn, taken as true by the ALJ and the Commission) and the relevant statutory provisions, the Commission concluded that there were significant doubts about Gibson's fitness to remain in the securities industry. The Commission held that the ALJ correctly concluded that there was no issue with regard to any material fact and that imposing a lifetime bar against Gibson would serve the public interest. The Commission therefore affirmed the ALJ's issuance of a lifetime bar precluding Gibson from associating with any securities broker, dealer, or investment adviser pursuant to § 15(b) of the Exchange Act and § 203(f) of the Advisers Act. Gibson now seeks our review of the Commission's order.
Our review of an order of the Commission is governed by the Administrative Procedure Act, 5 U.S.C. § 701, et seq. See MFS Sec. Corp. v. SEC, 380 F.3d 611, 617 (2d Cir.2004). This Court must affirm if the Commission's findings of facts are supported by substantial evidence. Id. We uphold the Commission's legal conclusions unless they are "`arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[.]'" Id. (quoting 5 U.S.C. § 706(2)(A)); see also Seghers v. SEC, 548 F.3d 129, 132 (D.C.Cir.2008).
Gibson first argues that the Commission committed reversible error by affirming summary disposition in the case against him without first holding an evidentiary hearing.
SEC Rule 201.250 of the Commission's Rules of Practice ("Rule 250") provides that a hearing officer is entitled to "grant the motion for summary disposition 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 (2009).
Gibson argues that summary disposition of disciplinary cases is normally not appropriate under Rule 250, and that it was not appropriate here, because there was a genuine issue with regard to facts that mitigate his misconduct. He cites to the commentary to Rule 250, which...
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