INITIAL DECISION RELEASE NO. 1362

ADMINISTRATIVE PROCEEDING

FILE NO. 3-18271

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of :

:

JEFFREY D. SMITH, : INITIAL DECISION MAKING FINDINGS

JOSEPH CARSWELL, and : AND IMPOSING SANCTION BY DEFAULT

MICHAEL W. FULLARD : March 5, 2019

APPEARANCE: Robert F. Schroeder for the Division of Enforcement,

Securities and Exchange Commission

BEFORE: Carol Fox Foelak, Administrative Law Judge

SUMMARY

This Initial Decision bars Jeffrey D. Smith, Joseph Carswell, and Michael W. Fullard 

(Respondents) from the securities industry. They previously were enjoined against violations of 

various provisions of the federal securities laws. 

I. INTRODUCTION

The Securities and Exchange Commission instituted this proceeding with an Order 

Instituting Proceedings (OIP) on October 31, 2017, pursuant to Section 15(b) of the Securities 

Exchange Act of 1934. The proceeding is a follow-on proceeding based on the default judgment 

in SEC v. Smith, No. 1:16-cv-4171 (N.D. Ga. Oct. 11, 2017) enjoining all Respondents against 

violating Section 15(a) of the Exchange Act and enjoining Smith and Carswell against violating

Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b5 thereunder. 

Each Respondent’s Answer was due within twenty days of service of the OIP on him. 

See OIP at 3; 17 C.F.R. § 201.220(b). Each was served with the OIP by February 5, 2018,

1

in 

 

1 Michael W. Fullard was served by personal service on November 26, 2017; Joseph Carswell 

was served by personal service on December 13, 2017; and Jeffrey D. Smith was served by 

“leaving a copy at [his] . . . usual place of abode with [a] person of suitable age and discretion 

residing therein” on February 5, 2018. 17 C.F.R. § 201.141(a)(2)(i).

 
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accordance with 17 C.F.R. § 201.141(a)(2)(i), and failed to file an Answer. On June 19, 2018, an 

Initial Decision of Default imposed associational bars on all three Respondents. Jeffrey D. Smith, 

Initial Decision Release No. 1256, 2018 SEC LEXIS 1445 (A.L.J.).

In view of the reassignment of the proceeding, Respondents were afforded a new 

opportunity to file Answers, which were due by October 19, 2018. Jeffrey D. Smith, Admin. 

Proc. Rulings Release No. 6117, 2018 SEC LEXIS 2689 (A.L.J. Sept. 28, 2018). None filed an 

Answer, and each was ordered to show cause by November 9, 2018, why he should not be 

deemed to be in default and be barred from associating with any broker, dealer, investment 

adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized 

statistical rating organization and from participating in an offering of penny stock. Jeffrey D. 

Smith, Admin. Proc. Rulings Release No. 6269, 2018 SEC LEXIS 3006 (A.L.J. Oct. 30, 2018). 

To date, none filed an Answer to the OIP or responded to the order to show cause. Additionally, 

the Division of Enforcement filed a motion for default on October 24, 2018, requesting that 

Respondents be barred from the securities industry, and no Respondent filed an opposition. Thus, 

each has failed to answer or otherwise to defend the proceeding within the meaning of 17 C.F.R. § 

201.155(a)(2). Accordingly, Respondents are in default, and the undersigned finds that the 

allegations in the OIP are true as to them. See OIP at 3; 17 C.F.R. §§ 201.155(a), .220(f). Official 

notice pursuant to 17 C.F.R. § 201.323 is taken of the docket report and the court’s orders in SEC 

v. Smith, of the public official records of the Commission, and of Financial Industry Regulatory

Authority, Inc. (FINRA), records cited herein. See Joseph S. Amundsen, Exchange Act Release 

No. 69406, 2013 SEC LEXIS 1148, at *1 n.1 (Apr. 18, 2013), pet. denied, 575 F. App’x 1 (D.C. 

Cir. 2014).

II. FINDINGS OF FACT

Smith and Carswell were enjoined, by default, from violating Exchange Act Section 

10(b)(5) and Rule 10b-5 and Securities Act Section 17(a), and Smith, Carswell, and Fullard were 

enjoined, by default, from violating Exchange Act Section 15(a). SEC v. Smith, ECF Nos. 13, 

15.

2

 Also, Smith was ordered to pay disgorgement of $355,520 plus prejudgment interest of 

$59,995.31 and a civil penalty of $100,000; Carswell was ordered to pay disgorgement of 

$132,570 plus prejudgment interest of $22,388.69 and a civil penalty of $100,000; and Fullard 

was ordered to pay disgorgement of $23,000 plus prejudgment interest of $3,884.27 and a civil 

penalty of $5,000. Id.

The misconduct on which the injunctions were based occurred in 2012 and 2013. OIP at 

2. Smith, Carswell, and Fullard acted as unregistered broker-dealers in connection with 

soliciting, offering, and selling interests in a fraudulent prime bank scheme. Id. Using two 

fictitious companies (Atlanta Capital LLC and Capital Funding, LLC), their activities defrauded

at least four known investors out of at least $775,000. Id. Smith and Carswell promised 

investors returns of as much as 35% per week and assured them that the transactions were riskfree. Id. Fullard acted as a finder for them and referred at least one victim investor to them. Id. 

 

2 A Corrected Final Judgment, dated December 20, 2017, is ECF No. 15. ECF Nos. 13 and 15 

are attached to the Division’s motion as Exhibits J and K, respectively.

 
3

After investment proceeds came in, they were disbursed to Smith, Carswell, and Fullard, in some 

cases just hours after the funds were received. Id. 

III. CONCLUSIONS OF LAW

 

Smith, Carswell, and Fullard have each been enjoined “from engaging in or continuing 

any conduct or practice in connection with . . . the purchase or sale of any security” within the 

meaning of Sections 15(b)(4)(C) and 15(b)(6)(A)(iii) of the Exchange Act. 

IV. SANCTION

Collateral bars will be ordered. 

A. Sanction Considerations

The Commission determines sanctions pursuant to a public interest standard. See 15 

U.S.C. §§ 78o(b)(6). The Commission considers factors including:

the egregiousness of the defendant’s actions, the isolated or recurrent nature of the 

infraction, the degree of scienter involved, the sincerity of the defendant’s 

assurances against future violations, the defendant’s recognition of the wrongful 

nature of his conduct, and the likelihood that the defendant’s occupation will present 

opportunities for future violations.

Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979) (quoting SEC v. Blatt, 583 F.2d 1325, 1334 

n.29 (5th Cir. 1978)), aff’d on other grounds, 450 U.S. 91 (1981). The Commission also 

considers the age of the violation and the degree of harm to investors and the marketplace 

resulting from the violation. Marshall E. Melton, Advisers Act Release No. 2151, 2003 SEC 

LEXIS 1767, at *5 (July 25, 2003). Additionally, the Commission considers the extent to which 

the sanction will have a deterrent effect. Schield Mgmt. Co., Exchange Act Release No. 53201, 

2006 SEC LEXIS 195, at *35 & n.46 (Jan. 31, 2006). The public interest requires a severe 

sanction when a respondent’s past misconduct involves fraud because opportunities for 

dishonesty recur constantly in the securities business. See Vladimir Boris Bugarski, Exchange 

Act Release No. 66842, 2012 SEC LEXIS 1267, at *18 n.26 (Apr. 20, 2012); Richard C. 

Spangler, Inc., Exchange Act Release No. 12104, 1976 SEC LEXIS 2418, at *34 (Feb. 12, 

1976). 

B. Sanction

As described in the Findings of Fact, the conduct of Smith, Carswell, and Fullard was 

egregious and recurrent. Over a period of two years, each participated in a prime bank fraud

scheme that defrauded at least four known investors out of at least $775,000. Scienter is an 

element of the antifraud violations against which Smith and Carswell were enjoined. Smith’s illgotten gains from the scheme amounted to $355,520; Carswell’s, $132,570; and Fullard’s, 

$23,000. None has made assurances against future violations, acknowledged the wrongful 

nature of his conduct, or even responded to the charges in SEC v. Smith or this proceeding. Each 

one’s occupation, if he were allowed to continue it in the future, would present opportunities for 
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future violations. Absent a bar, each could engage in the securities industry. The violations are 

relatively recent. The $775,000 of which four investors were defrauded is a measure of the 

direct harm caused by their business to the marketplace. Further, as the Commission has often 

emphasized, the public interest determination extends beyond consideration of the particular 

investors affected by a respondent’s conduct to the public-at-large, the welfare of investors as a 

class, and standards of conduct in the securities business generally. See Christopher A. Lowry, 

Investment Company Act of 1940 Release No. 2052, 2002 SEC LEXIS 2346, at *20 (Aug. 30, 

2002), aff’d, 340 F.3d 501 (8th Cir. 2003); Arthur Lipper Corp., Exchange Act Release No. 11773, 

1975 SEC LEXIS 527, at *52 (Oct. 24, 1975). A violation involving dishonesty requires a bar, 

and because of the Commission’s obligation to maintain honest securities markets, an industrywide bar is appropriate. 

The Commission considers fraud to be especially serious and to subject a respondent to 

the severest of sanctions. Marshall E. Melton, 2003 SEC LEXIS 1767, at *29-30. Indeed, from 

1995 to the present, there have been over fifty litigated follow-on proceedings based on antifraud 

injunctions or convictions in which the Commission issued opinions, and all of the respondents 

were barred3– at least fifty unqualified bars and three bars with the right to reapply after five 

years.

4

 Further, in every such case that followed the statutory provision of collateral bars, the 

Commission imposed a collateral bar rather than an industry specific bar, reasoning that the 

antifraud provisions of the securities laws apply broadly to all securities-related professionals 

and violations demonstrate unfitness for future participation in the securities industry, even if the 

disqualifying conduct is not related to the professional capacity in which the respondent was 

acting when he or she engaged in the misconduct underlying the proceeding. See John W. 

Lawton, Advisers Act Release No. 3513, 2012 SEC LEXIS 3855, at *42-43 (Dec. 13, 2012), 

vacated in part on other grounds, Advisers Act Release No. 4402, 2016 SEC LEXIS 1926 (May 

27, 2016). While Smith and Carswell were enjoined against fraud, Fullard was enjoined only 

against violation of the registration provisions. However, by acting as finder for, and

unregistered broker-dealer with, Smith and Carswell, Fullard was an integral part of the prime 

bank fraud scheme. 

The time period – in 2012 and 2013 – of Respondents’ violative conduct does not run 

afoul of the court’s ruling in Bartko v. SEC, 845 F.3d 1217 (D.C. Cir. 2017), that a collateral bar 

cannot be imposed when the violative conduct on which a follow-on proceeding was based 

 

3

In the cases authorized before the effective date of the Dodd-Frank Act, which authorized 

collateral bars, the Commission imposed industry-specific bars, such as a bar from association 

with an investment adviser on a respondent who had been associated with an investment adviser 

at the time of his violation. 

4

Those three were Richard J. Puccio, Exchange Act Release No. 37849, 1996 SEC LEXIS 2987

(Oct. 22, 1996), Martin B. Sloate, Exchange Act Release No. 38373, 1997 SEC LEXIS 524

(Mar. 7, 1997), and Robert Radano, Advisers Act Release No. 2750, 2008 SEC LEXIS 1504

(June 30, 2008). The Commission’s opinions do not make clear the factors that distinguished 

these cases from those in which unqualified bars were imposed, but there is little difference 

between a “bar” and a “bar with the right to reapply in five years.” 
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ended before the July 22, 2010, effective date of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act. 

V. ORDER

IT IS ORDERED that, pursuant to Section 15(b) of the Securities Exchange Act of 1934:

Jeffrey D. Smith IS BARRED from associating with any broker, dealer, investment 

adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized 

statistical rating organization and from participating in an offering of penny stock;

5

Joseph Carswell IS BARRED from associating with any broker, dealer, investment 

adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized 

statistical rating organization and from participating in an offering of penny stock; and

Michael W. Fullard IS BARRED from associating with any broker, dealer, investment 

adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized 

statistical rating organization and from participating in an offering of penny stock.

This Initial Decision shall become effective in accordance with and subject to the 

provisions of Rule 360 of the Commission’s Rules of Practice, 17 C.F.R. § 201.360. Pursuant to 

that Rule, a party may file a petition for review of this Initial Decision within twenty-one days 

after service of the Initial Decision. A party may also file a motion to correct a manifest error of 

fact within ten days of the Initial Decision, pursuant to Rule 111 of the Commission’s Rules of 

Practice, 17 C.F.R. § 201.111. If a motion to correct a manifest error of fact is filed by a party, 

then a party shall have twenty-one days to file a petition for review from the date of the 

undersigned’s order resolving such motion to correct a manifest error of fact. The Initial 

Decision will not become final until the Commission enters an order of finality. The 

Commission will enter an order of finality unless a party files a petition for review or a motion to 

correct a manifest error of fact or the Commission determines on its own initiative to review the 

Initial Decision as to a party. If any of these events occur, the Initial Decision shall not become 

final as to that party.6

/S/ Carol Fox Foelak 

Carol Fox Foelak

Administrative Law Judge

 

5 A respondent subject to a penny stock bar is barred from acting as a promoter, finder, 

consultant, or agent; or otherwise engaging 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, pursuant to Exchange Act Section 15(b)(6)(A), (C).

6 A respondent may also file a motion to set aside a default pursuant to 17 C.F.R. § 201.155(b). 

See Alchemy Ventures, Inc., Exchange Act Release No. 70708, 2013 SEC LEXIS 3459, at *13 & 

n.28 (Oct. 17, 2013); see also David Mura, Exchange Act Release No. 72080, 2014 SEC LEXIS 

1530 (May 2, 2014).