Sec. & Exch. Comm'n v. Gordon

• Decision Date: 28 September 2011
• Docket Number: Case No. 09–CV–0061–CVE–FHM.
• Citation: 822 F.Supp.2d 1144
• Parties: SECURITIES and EXCHANGE COMMISSION, Plaintiff, v. George David GORDON, Joshua Wayne Lankford, and Dean Joseph Sheptycki, Defendants.
• Court: U.S. District Court — Northern District of Oklahoma

822 F.Supp.2d 1144

SECURITIES and EXCHANGE COMMISSION, Plaintiff,

v.George David GORDON, Joshua Wayne Lankford, and Dean Joseph Sheptycki, Defendants.

Case No. 09–CV–0061–CVE–FHM.

United States District Court, N.D. Oklahoma.

Sept. 28, 2011.

Alan Marc Lieberman, Matthew L. Skidmore, Securities and Exchange Commission, Washington, DC, for Plaintiff.

George David Gordon, Texarkana, TX, pro se.

OPINION AND ORDER

CLAIRE V. EAGAN, Chief Judge.

Now before the Court is Plaintiff's Motion for Summary Judgment (Dkt. # 84). Plaintiff Securities and Exchange Commission (SEC) argues that defendant George David Gordon is barred from relitigating issues that were conclusively decided in his criminal prosecution, and that the SEC is entitled to summary judgment under the doctrine of collateral estoppel. Gordon responds that the issues resolved in his criminal case were not identical to the issues raised in this civil action, and that he did not have a full and fair opportunity to litigate any issue in the criminal case. Dkt. # 96.

I.

On January 15, 2009, the United States Attorney for the Northern District of Oklahoma filed a 24 count indictment alleging that Gordon, Richard Clark, Joshua Wayne Lankford, Dean Sheptycki, and James Reskin engaged in an illegal “pump and dump” scheme to artificially inflate the price of certain target stocks and later sell their own stock in the target companies at inflated prices. United States of America v. Gordon et al., 09–CR–13–JHP (N.D.Okla.). Gordon was charged with conspiring to commit an offense against the United States in violation of 18 U.S.C. § 371 (count one), wire fraud in violation of 18 U.S.C. § 1343 (counts two to ten and count twenty-three), violations of section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b–5 promulgated thereunder (counts eleven to fifteen), engaging in monetary transactions in criminally derived property in violation of 18 U.S.C. § 1957(a) (counts sixteen to twenty-one), making false statements to the SEC in violation of 18 U.S.C. § 1001 (count twenty-two), and tampering with a witness in violation of 18 U.S.C. § 1512. Dkt. # 84–1, at 1–30.

The government alleged that Gordon and the other defendants targeted three companies—National Storm Management Group, Inc. (NLST), Deep Rock Oil and Gas, Inc. (DPRK), and Global Beverage Solutions, Inc. (GBVS) (collectively the Target Stocks)—for a pump and dump scheme to manipulate the market for the Target Stocks and sell their own stock at inflated prices. NLST was a storm reconstruction company with no publicly traded stock, but it merged with a shell company, “18th Letter, Inc.,” that had no assets but did have stock available for trading. Dkt. # 84–1, at 3. This process is called a reverse merger. DPRK was formed through a reverse merger between Cherokee Energy Services of Tulsa, Inc. and a shell company called Deep Rock Oil and Gas LLC. Dkt. # 84–1, at 3. Following the reverse merger, DPRK had stock available for public sale. GBVS was formerly known as Pacific Peak Investments, but changed its name to GBVS on October 10, 2005 and had publicly available stock under that name. Id. Gordon was an attorney and licensed accountant in Tulsa, Oklahoma, and the government alleged that Gordon authored or caused to be issued false opinion letters allowing the removal of restrictions on the trading of NLST and DPRK stock. Id. at 9–10. The government alleged that Gordon and others gained control of GBVS by purchasing millions of shares of GBVS stock. Id. at 10. Gordon and his co-defendants engaged in stock transactions to create a trading history for the Target Stocks and sent out false promotional materials such as fax and e-mail blasts to “pump” the Target Stocks. Id. at 11–14. The government alleged that, beginning in September 2005, the conspirators began selling their stock in the target companies at inflated prices. In particular, Gordon began selling his shares of NLST and GBVS at inflated prices. Id. at 14–15. On September 20, 2005, Gordon gave a false statement to the SEC concerning his knowledge of fax blasts promoting DPRK stock. Id. at 17. These actions formed the basis for the conspiracy claim against the defendants and for the alleged violations of § 10b of the Exchange Act and Rule 10b–5.

On February 10, 2009, the SEC filed this civil enforcement action against Gordon, Sheptycki, and Lankford alleging violations of section 10(b) of the Exchange Act and Rule 10b–5, as well as violations of sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. Dkt. # 2. Gordon retained counsel to represent him in this case and filed a motion to dismiss (Dkt. # 9), which was denied. Dkt. # 19. The United States filed a motion to intervene and asked the Court to stay this civil enforcement action while the related criminal case was pending, and Gordon opposed the United States' request to stay this case. The SEC did not oppose the United States' motion to stay. The Court allowed the United States to intervene and granted the motion to stay the civil proceedings. The Court found that one of the key factors supporting a stay was the overlap of issues between the civil and criminal cases:

Here, both the civil complaint and the indictment allege that Gordon and his codefendants perpetrated a “pump and dump” scheme involving the same three Target Stocks and the same manipulative means. Both allege identical conduct in obtaining control of the Target Stocks, engaging in coordinated trading, and promoting the companies through false and misleading advertisements. The Court finds that there is a complete overlap of issues between the civil and criminal cases.

Dkt. # 26, at 7. The Court also noted that staying the civil case “would avoid a duplication of efforts and a waste of judicial time and resources.” Id. at 9.

The criminal case proceeded to trial and Gordon was convicted on 23 of the 24 charges alleged in the indictment.¹ Gordon was sentenced to a total of 188 months imprisonment and was ordered to pay $6,150,136.79 in restitution. Dkt. # 84–1, at 36. The court also entered a joint and several criminal forfeiture money judgment against Gordon and Clark in the amount of $43,927,809.95, because the government established at trial that this amount represented the “stock sale proceeds traceable to the conspiracy.” United States of America v. Gordon et al., 09–CR–13–JHP (N.D.Okla.), Dkt. # 313, at 2. The SEC asked the Court to lift the stay of the civil enforcement proceedings and Gordon opposed the SEC's motion to lift the stay. Gordon stated that he had appealed his criminal convictions and anticipated that his convictions would be set aside on appeal. Dkt. # 28, at 2. The Court granted the SEC's motion to lift the stay and entered a scheduling order. Gordon's attorneys filed a motion to withdraw as counsel, because Gordon owed his attorneys a considerable sum for their work in the related criminal case and Gordon had no assets with which to pay them. Dkt. # 29. The Court allowed Gordon's attorneys to withdraw as counsel of record, and gave Gordon 20 days to obtain new counsel or notify the Court that he would represent himself. Dkt. # 30. Gordon filed a notice stating that he would represent himself. Dkt. # 36. He filed a counterclaim (Dkt. # 38) and a motion to compel (Dkt. # 81) seeking the production of documents allegedly seized from his law office in 2007. However, the Court determined that discovery should be stayed, because the SEC had stated that it would file a motion for summary judgment asserting that defendant was prohibited from relitigating any factual issue in this civil enforcement proceeding under the doctrine of collateral estoppel. Dkt. # 80.

The SEC filed its motion for summary judgment (Dkt. # 84) and argued that all factual issues necessary to resolution of its claims in this civil enforcement proceeding were conclusively resolved against Gordon in the related criminal case. At a minimum, the SEC has identified the following allegations that were made in the indictment in the criminal case and in the complaint in this civil enforcement action:

Defendant is charged with a pump and dump scheme to manipulate the share prices of three penny stocks traded on the over-the-counter market; [NLST], [DPRK], and [GBVS]....

The scheme was perpetrated from spring 2005 through December 2006.

Gordon used nominee brokerage and bank accounts to conceal the fraud.

Gordon utilized fraudulent legal opinion letters to cause the transfer agent to remove the restrictive legends from NLST and DPRK share certificates so that these shares could be freely traded.

The legal opinion letters were fraudulent because they misrepresented the identities of the owners of the shares and the length of time the shares were owned.

Gordon engaged in matched order trading that had no legitimate economic purpose and was intended to artificially increase the share price of DPRK.

Gordon directed the public promotion of the Target Stocks through the mass distribution of spam emails recommending the purchase of the Target Stocks.

At the same time Gordon was conducting the mass marketing promotion of the Target Stocks through spam emails and Magalogs recommending the purchase of the shares, he sold shares of NLST, DPRK, and GBVS at artificially inflated prices.

Gordon and Lankford coordinated their sales of the Target Stocks to avoid flooding the market and provided buy-side support to maintain the artificially inflated share prices.

Gordon sold NLST shares between August 2005 and October 2005; DPRK shares between August 2005 and March 2006; and, GBVS shares between December 2005 and December 2006.

Gordon's scheme derived illegal trading profits from the sale of the Target Stocks.

Dkt. # 84–1, at 45–46.² The SEC asks the Court to award disgorgement of $40,072,806.97 and prejudgment interest of $10,307,489.92, a civil monetary penalty in an amount determined by the Court, and injunctive relief.

II.

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