I was sued by the SEC. I have never been an investment adviser or a broker dealer. I employed attorneys who advised there was no need for such licensing because we did not make trade in securities. We originated loans to small businesses with our own capital raised as an issuer. SEC entered my life very unexpectedly. My companies were seized and my assets frozen under injunction and a sealed court order. My career providing financing to small business owners came to an abrupt end.
This all happened by way of acts of SEC employees which appear, at a minimum, to meet the legal standard of gross negligence, but appear more to be fraud or gross misconduct on the part of SEC employees on close review.
I graduated college in '85 with a degree in finance and spent four years as a naval offficer thru late '89. I then worked for the U.S. Small Business Administration for two years in the early 90's after obtaining my MBA. For fifteen years I worked for banks and started my own company, with a focus on SBA lending. In late 2011 I became a director of a California chartered bank. This was after special approval from the FDIC and the California Department of Financial Institutions. With disappointment and embarrassment and in the middle of a successful turn-around I quit that position in late June 2012 on the day of a surprise injunction against my companies. I did not want to be a source to the bank's officers, directors, and investors of undesired attention.
Probably my only claims to any kind of fame before this lawsuit were earning a few medals and ribbons for my navy service, and being invited to a national talk show after I tackled a bank robber. I don't have any attorney. I have had to represent myself in a federal court against SEC and its battery of half a dozen attorneys. SEC and its employees acted at least with gross negligence (which looks more like fraud or gross misconduct - but that's a very high legal bar to meet). You need to catch the government with a smoking gun like a Rodney King video http://www.youtube.com/watch?v=SW1ZDIXiuS4 to have any chance to win a fraud lawsuit against the government.
My SEC lawsuit involves mortgage investment funds I founded and managed, with about 300 investors. These were ostensibly exempt from SEC registration per guidance from the State of California and our attorneys. Why am I in this SEC lawsuit? SEC wants the world to believe a story. However the truth is that I am in this lawsuit because an SEC CPA during an exam added DISTRIBUTIONS to members of my investment funds to INVESTMENTS of capital into the fund ("distributions" and "capital investments" are exact opposites - one reduces fund capital, the other increases fund capital). SEC's CPAs did this in a sealed and hidden lawsuit complaint with scores of false financial illustrations that they created. They overstated distributions by 54% and in that way, their Enforcement Division CPA made it look like we needed far more money to pay distributions then we actually needed. In fact, SEC used this CPA's grossly inflated numbers and made us look like we needed money from new members, and were therefore a Ponzi scheme. SEC added money that went out to money that came in. That's right - our federal agency SEC did this, and they did it in a sealed order never seen, and in which they asked for a seizure based on their phony financial illustrations. Are we all living in America or in some third world country of corrupt agencies and employees?
SEC admits its method, but its explanation is implausible. Their CPA states that he made this mistake "in good faith". This may be the biggest crock of shit lie ever used in a court of law by a federal agency CPA. His financial illustrations could never come about in error because reconciling fund tax returns and financial statements takes substantial work. There are exact and precise fund equity reconciliation methods used by SEC auditors to ensure "mistakes" like this never happen. Ask your own CPA. SEC, who is in charge of monitoring the financial statements of tens of thousands of businesses in the United States, would like the public and fund investors to believe - based upon their court filings - that their act of adding together money that went out of my investment fund to money that came into the fund was an accident.
According to the SEC, their Enforcement Division CPA is such an expert, and so knowledgeable about accounting, that his SEC job description is four pages long in order to fully describe his skills, experience, and position requirements. He holds unparalleled accounting expertise and experience with audits, analysis, and reconciling equity positions in financial statements. This SEC CPA is purportedly so good at what he does, and such an expert in accounting according to the SEC, that he has made more than $1,000,000 of taxpayer sponsored salary and wages over the past five years according to official SEC records. Why you ask has SEC done all of this? In 2012, when this lawsuit was filed under seal by SEC, they were still not over their Madoff embarrassment. It's a lot easier to target small private companies who have much more limited resources to fight SEC fraud and gross misconduct, and to generate press releases making SEC look like heroes, than it is to go after corporate executives with Goldman Sachs and other firms behind scandals like insider trading and mortgage fraud, stuff like that of the Wall Street firms who employ so many ex-SEC attorneys after they get a few years experience working for SEC, the Federal Reserve, or other federal agencies. There's more...
SEC stacked its deck of cards by asking the court to appoint a receiver who SEC falsely described as a CPA.
He is an unlicensed analyst, and not a licensed CPA at all. Imagine if you were one of the three hundred investors in these funds who had their property controlled by this persons, and then you found out almost a year into the lawsuit that this person had allowed SEC to falsely represent him. It was only after I informed the Court that the receiver is not a CPA - and not the receiver or SEC - that SEC finally admitted this. Of course SEC never told the Court they had done this in another lawsuit and with this same receiver.
I discovered this same receiver falsely advertised himself as a CPA before his first of many government lawsuits, all the way back to 2003. So SEC used false financial illustrations and falsely called the receiver a CPA. And the Court has not held them responsible for either of these things in any way. The receiver has made $10,000,000 or more in compensation from federal agency lawsuits since shortly after his false CPA advertisement and subsequent appointments. He is now under investigation by the CFA institute for falsely calling himself a CPA, which discredits both designations.
SEC's Senior Trial Counsel appears to have falsely represented the receiver as a "licensed CFA" to the California State Bar.There is no such license in the United States as a "licensed CFA".
Yet another false licensing description by the SEC. Are you getting a picture of the pattern of how deep SEC's fraud and misconduct runs?
SEC asked the Court to waive bonding requirements for the receiver for reasons unknown. And yet,SEC proclaims itself the Investor's Advocate. This statement makes a mockery of any concept of good faith of government agencies and employees. I have recently filed requests with the CA State Bar to sanction the receiver's attorneys for twice allowing him to be falsely represented by SEC as a "licensed CPA", which was clearly an obstruction of justice. I anticipated a CPA would review the books and records of my funds and quickly invalidate SEC's gross misrepresentations. Instead an unlicensed analyst, who falsely advertised himself a CPA before his first SEC appointment, and who has failed to correct on his own volition SEC's false licensing descriptions, has been the party chosen by the court for this fiduciary position at SEC's self-serving bequest.
The other SEC lawsuit in which they falsely called the receiver a CPA involved the same SEC CPA who made up the financial illustrations about my companies, the same SEC trial attorney, the same receiver, and the same attorney for the receiver. Can you smell the foul stench here? Independent of my own court filings, investors have stated in court filings that the receiver appears to be an arm of the SEC. The receiver tried, but failed to have the Court Order me to discontinue communicating with investors. Many scores of fund investors have asked the Court to dismiss the receiver. By the score they swear in court declarations of their belief in fraud or gross misconduct of SEC, and have asked the Court to allow the funds to commence operations again under my plan of reorganization. The will of fund investors - those who have been affected the most - has not been listened to by the court. Since SEC had all of my personal bank accounts frozen I have been forced to represent myself in court. Fund investors early in this lawsuit picked up on the foul stench coming from SEC and the receiver and have consistently provided sworn declarations and letters to the court of their belief of Constitutional violations of SEC and the receiver in this lawsuit. The judge cast these court submissions aside with little, or no, explanation.
A federal judge liberally construes as facts the presentations of SEC, a federal agency, yet sceptically views the presentations of a party without attorneys and who has been representing themselves, and who was also prejudicially labeled by design of SEC in sealed court submissions a "Ponzi". Federal judges are going to look the other way at a receiver's and SEC's false licensing misconduct when they have become familiar faces to each other while attending the same conferences and commonly sitting with each other on the same panels over the years. SEC fights dirty, and is a schoolyard bully
SEC does not like any party fighting back against them. Their legal actions are usually settled at the time that they are announced (i.e., see http://www.sec.gov/litigation/admin/2014/34-73064.pdf). I uncovered the truth about their false financial illustrations and their false licensing of their receiver. So what has SEC done to keep me from informing investors about this? They tried to sanction me for filing court pleadings all of this. SEC even made an outrageous claim to the court that I was witness tampering with my own wife. A magistrate (not the same judge as involved in the lawsuit) denied SEC's request after only 19 minutes of court hearings. This was in spite of SEC's hundreds of pages of legal pleadings and citations, and a half dozen SEC attorneys working feverishly on their legal filings for weeks before the court hearing. SEC attorneys are so callous and so low-handed that their lead attorneys, Lynn Dean, put the obituary of my wife's recently deceased father into Dean's exhibits of their court papers when they were trying to depose her.
SEC and its Administrative Kangaroo Court SEC runs a kangaroo administrative court system to gain through their back door what they cannot or have not accomplished in civil court. Their administrative judges appear to rubber stamp requests of their own employees, and ignore gross misconduct of their own employees. For the past half year I have been forced to spend countless hours preparing and submitting pleadings to SEC's so-called law judge, or if not I lose whatever rights I might be able to assert in SEC's kangaroo court (Submission 1, Submission 2, Submission 3, Submission 4, Submission 5, Submission 6).
A legal scholar, Philip Hamburger of Columbia University, within the past few months published the book "Is Administrative Law Unlawful" showing questionable Constitutional basis to Agency court systems, and in fact shows how similar kangaroo courts in history have led to the downfall of societies (the Roman Empire no less) from the insularity and insurrections these courts cause; see attached article from the Economist. There is an excellent recent example of fraud or misconduct which occurs with agency administrative law. A few years ago Pacific Gas & Electric had a massive gas line explosion that killed many people in San Bruno, CA. This utility is one of the largest in the country, and with a stock market capitalization of billions of dollars. The Daily Post ran a story on 9-16-14 of how executives from this utility and senior public employees from the state agency are collaborating in civil, if not criminal, misconduct to influence administrative law decisions in PG & E's favor.
The five elected Commissioners and the Secretary of the SEC will shortly review my petition to rebut their administrative proceedings, and which boils these issues down to the essential elements. If the Commissioners and the Secretary do not agree that there has been very questionable conduct by SEC Enforcement personnel, then capitalism is surely on its way to a slow and painful death in the U.S. at the hands of the regulators ("SEC") of capital markets.
Wrap up No private party, only a federal agency, could ever have this done and gotten away with it for so long now. Thank you (Congratulations?) for making it this far. SEC employee misconduct or gross negligence (fraud?), and that of the receiver, is broad and ongoing in this lawsuit. If you want to see the many technical and legal issues behind my appeal filing with the 9th Circuit, here they are. I am not an attorney, so these issues are pretty easy to follow, and I encourage you to read through these. I expect to see a date for oral arguments within a few months, or a decision on my appeal(s). If you want to write me with your comments, you can reach me at: