Initial Decision Release No. 1372

Administrative Proceeding

File No. 3-18130

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of

Jeffrey Gainer

Initial Decision of Default

April 10, 2019

Appearances: Christopher H. White, Timothy Leiman, and 

Charles Kerstetter for the Division of Enforcement,

Securities and Exchange Commission

Jeffrey Gainer, pro se

Before: James E. Grimes, Administrative Law Judge

Summary

I grant the Division of Enforcement’s motion for default and sanctions.

Respondent Jeffrey Gainer is barred from associating with a broker, dealer, 

investment adviser, municipal securities dealer, municipal advisor, transfer 

agent, or nationally recognized statistical rating organization or from 

participating in an offering of penny stock.

Procedural Background

The Securities and Exchange Commission initiated this proceeding in 

August 2017, when it issued an order instituting proceedings (OIP) under 

Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the 

Investment Advisers Act of 1940.

1 This proceeding is a follow-on proceeding 

 

1 OIP at 1; see 15 U.S.C. §§ 78o(b), 80b-3(f).
2

based on Gainer’s conviction in the United States District Court for the 

Northern District of Ohio for selling unregistered securities.

2

Gainer was served with the OIP in September 2017.

3 I held a telephonic 

prehearing conference in November 2018, attended by Gainer and counsel for 

the Division.4 During the conference, I gave Gainer until November 26, 2018, 

to file an answer to the OIP.5 I also established a motions schedule.6 Gainer 

never filed an answer. The Division filed a dispositive motion in December 

2018.

In February 2019, I ordered Gainer to show cause why this “proceeding 

should not be determined against him on default.”7 Gainer did not respond to 

the order to show cause.

Findings of Fact

The findings and conclusions in this initial decision are based on the 

record and on facts officially noticed under Commission Rule of Practice 323, 

 

2 See United States v. Abdallah, No. 1:15-cr-231 (N.D. Ohio); OIP at 2. The 

OIP also refers to an injunctive action the Commission filed against Gainer 

but does not allege a resolution to that action. See OIP at 2; SEC v. Abdallah, 

No. 1:14-cv-01155 (N.D. Ohio).

3 See Letter from Christopher H. White, Exs. 2–4 (Oct. 15, 2018). This 

administrative proceeding was previously assigned to another administrative 

law judge who issued an initial decision in 2017. See Jeffrey Gainer, Initial 

Decision Release No. 1221, 2017 WL 5067459 (ALJ Nov. 2, 2017). Following 

the decision in SEC v. Lucia, 138 S. Ct. 2044 (2018), the Commission 

remanded all pending cases and ordered that they be reassigned. Pending 

Admin. Proc., Securities Act of 1933 Release No. 10536, 2018 WL 4003609, at 

*1 (Aug. 22, 2018). This proceeding was reassigned to me in September 2018.

Pending Admin. Proc., Admin. Proc. Rulings Release No. 5955, 2018 SEC 

LEXIS 2264, at *2–3 (ALJ Sept. 12, 2018).

4 See Jeffrey Gainer, Admin. Proc. Rulings Release No. 6335, 2018 SEC 

LEXIS 3243, at *1 (ALJ Nov. 16, 2018).

5 Id.

6 Id. at *1–2.

7 See Jeffrey Gainer, Admin. Proc. Rulings Release No. 6464, 2019 SEC 

LEXIS 205 (ALJ Feb. 15, 2019).
3

17 C.F.R. § 201.323.8 Because he failed to answer the OIP, Gainer is in 

default.9 As a result of Gainer’s default, I have accepted as true the factual 

allegations in the OIP.10 In making the findings below, I have applied 

preponderance of the evidence as the standard of proof.11 

Gainer was associated with PrimeSolutions Securities, Inc., from 

October 2010 through May 2014.12 From 1999 until 2016, PrimeSolutions 

was registered with the Commission as a broker-dealer.13 During that time, it 

was also registered as an investment adviser with a number of states.14

In May 2014, the Commission filed an injunctive complaint against 

Gainer and five other defendants.15 The Commission alleged that Gainer 

violated registration and antifraud provisions of the Securities Act and the 

Exchange Act.16 Gainer later executed a consent to judgment in which he 

agreed that he could not contest in a later administrative proceeding the 

factual allegations in the injunctive complaint.17 I thus rely on the allegations 

in the complaint in making factual findings in this initial decision.

 

8 I take official notice of the docket in SEC v. Abdallah and the orders the 

district court has issued.

9 See 17 C.F.R. §§ 201.155(a), .220(f).

10 See 17 C.F.R. § 201.155(a). 

11 See John Francis D’Acquisto, Advisers Act Release No. 1696, 1998 WL 

34300389, at *2 (Jan. 21, 1998).

12 OIP at 1.

13 Id.

14 Id.

15 Complaint, SEC v. Abdallah, 1:14-cv-01155-SO (N.D. Ohio May 29, 

2014), ECF No. 1.

16 Id. at 26–29. The complaint alleged that Gainer violated sections 5(a) 

and (c) and 17(a)(1), (2), and (3) of the Securities Act and 10(b), 15(a)(1), and 

Rule 10b-5 of the Exchange Act.

17 Consent of Jeffrey Gainer at 4, SEC v. Abdallah, 1:14-cv-01155-SO (N.D. 

Ohio Sept. 21, 2017), ECF No. 318-3; Siris v. SEC, 773 F.3d 89, 96 (D.C. Cir. 

2014) (“Whether or not issues established in the consent judgment were 

‘actually litigated’ for purposes of [collateral] estoppel, the Commission’s 

application of factual preclusion in the follow-on proceeding was appropriate 

(continued...)
4

Gainer was part of a Ponzi scheme run by Thomas Abdallah and

Kenneth Grant. Abdallah and Grant induced investors to invest in KGTA 

Petroleum, Ltd., by guaranteeing high returns and promising investment 

funds would flow through an escrow account monitored by attorney Mark 

George.18 Abdallah and Grant told investors KGTA bought crude oil and fuel 

at a discount for sale to corporate customers.19 In 2012, Abdullah and Grant 

began offering investment in KGTA—promissory notes or investments 

referred to as “agreement[s]” or “joint venture[s]”—with a guaranteed 

monthly rate of return of between two and four percent.20

In reality, KGTA had no storage facilities and no way to transport oil or 

fuel.21 Its alleged fuel sales were fake and it did not generate any revenue 

from the sale of oil or fuel.22 Additionally, funds did not flow through an 

escrow account.23 Instead, George paid funds directly to KGTA, which were 

used to pay fake returns.24 Grant and Abdullah also used investor funds for 

their own benefit.25

Grant and Abdullah mostly offered investment in KGTA notes through 

Gainer and Jerry Cicolani, who were registered representatives with broker -

dealer PrimeSolutions.26 Gainer and Cicolani were instrumental in the 

investment process. They “found investors for KGTA, set up meetings with 

Grant and Abdallah, relayed information about KGTA to prospective 

investors, and obtained investor signatures on the agreements that 

 

because the judgment unambiguously barred Siris from making any future 

challenge to the allegations in the [civil] complaint.”); Marshall E. Melton, 

Advisers Act Release No. 2151, 2003 WL 21729839, at *9 (July 25, 2003); 17 

C.F.R. § 202.5(e).

18 Complaint at 1–2.

19 Complaint at 7–8.

20 Id. at 8.

21 Id.

22 Id. at 9.

23 Id. at 2, 11

24 Id. at 2–3, 11–12.

25 Id. at 12, 14.

26 Id. at 3; OIP at 1.
5

memorialized the investment.”

27 Gainer brought in 16 investors who invested 

over $9.6 million.28 Gainer led investors to believe that because KGTA presold oil and fuel at the time of each purchase and transactions were 

conducted through an escrow, the risk of loss was minimal.29

There was no registration statement in effect, however, when Gainer 

offered and sold KGTA notes.30 And Gainer did not sell KGTA notes through 

his broker-dealer; he instead acted as an unregistered broker-dealer, did not 

tell his broker-dealer that he was selling KGTA notes, and pocketed the 

proceeds.31

Gainer also acted recklessly when he offered and sold the notes while 

knowing of red flags that marked KGTA as a fraud.32 In particular, any 

securities industry professional with Gainer’s level of experience would have 

known that the returns he guaranteed to investors were “too good to be true” 

and indicative of fraud.33 Gainer also failed to tell investors that he was paid 

fees out of funds that purportedly would otherwise have gone to investors as 

returns.

34 KGTA eventually raised over $20 million,35 and Gainer reaped $3 

million in fees from KGTA.36 His investors lost over $7.2 million.37

Based on the foregoing, Gainer was indicted and charged with various 

offenses. In July 2016, he agreed to plead guilty to selling unregistered 

securities, in violation of Section 5 of the Securities Act.38 The district court 

 

27 Complaint at 3; see id. at 10.

28 Id. at 10.

29 Div. Ex. 2 at 15.

30 Complaint at 3. 

31 Id. at 4; Div. Ex. 2 at 16.

32 Complaint at 4, 20–21.

33 Id. at 21.

34 Id. at 4.

35 Id. at 2.

36 Div. Ex. 2 at 17.

37 Id.

38 Id. at 3; see 15 U.S.C. § 77e.
6

imposed judgment in October 2016, sentencing Gainer to 52 months’ 

imprisonment and ordering him to pay, joint and several with his 

codefendants, $7 million in restitution.39

In October 2017, the United States District Court for the Northern 

District of Ohio permanently enjoined Gainer from violating Sections 5 and 

17(a) of the Securities Act, Section 10(b) and 15(a)(1) of the Exchange Act, 

and Exchange Act Rule 10b-5.40 The court also found him liable for over $1.6 

million in disgorgement plus interest in excess of $250,000, but the court 

deemed this satisfied by the restitution ordered in the criminal case.

41

Conclusions of Law

The Exchange Act gives the Commission authority to impose a collateral 

bar42 against Gainer if, as is relevant here, (1) he was associated with a 

broker or dealer or investment adviser at the time of the misconduct at issue; 

(2) he was convicted within the ten years preceding the issuance of the OIP of 

a felony involving the purchase or sale of any security; and (3) imposing a bar 

is in the public interest.43 

The first factor is met in this case. At all relevant times, Gainer was 

associated with a broker-dealer and with an investment adviser.44

 

39 Div. Ex. 1 at 2, 5.

40 Judgment as to Defendant Jeffrey Gainer at 1–4, SEC v. Abdallah, 

No. 1:14-cv-01155 (N.D. Ohio Oct. 27, 2017), ECF No. 328.

41 Id. at 5. The OIP alleges that the Commission filed a complaint against 

Gainer and describes the allegations in the complaint. OIP at 2. Although the 

OIP does not allege the fact of the injunction because the district court issued 

its order enjoining Gainer after the Commission issued the OIP, the 

Commission may consider matters not recited in an OIP when assessing the 

public interest. See Toby G. Scammell, Advisers Act Release No. 3961, 2014 

WL 5493265, at *4 & n.22 (Oct. 29, 2014).

42 A collateral bar, also referred to as an industry bar, is a bar that 

prevents an individual from participating in the securities industry in 

capacities in addition to those in which the person was participating at the 

time of his or her misconduct. See Scammell, 2014 WL 5493265, at *1 & n.1. 

43 15 U.S.C. §§ 78o(b)(4)(B)(i), (6)(A)(ii), 80b-3(e)(2)(A), (f).

44 OIP at 1. The definition of the term investment adviser applies 

regardless of whether an adviser is registered with the Commission or a state 

(continued...)
7

Turning to the second factor, Gainer was convicted in 2016, within the 

ten years preceding the issuance of the OIP.45 Because felonies are those 

offenses punishable by more than one year in prison,46 and Gainer was 

sentenced to 52 months’ imprisonment,47 Gainer was convicted of a felony. 

And because he was convicted of selling unregistered securities, his offense 

“involve[ed] the purchase or sale of any security.”48 The second factor is thus 

met. 

To determine whether imposing a collateral bar would be in the public 

interest, I must weigh the public-interest factors set forth in Steadman v. 

SEC.

49 These include: 

the egregiousness of the respondent’s actions, the 

isolated or recurrent nature of the infraction, the degree 

of scienter involved, the sincerity of the respondent’s 

assurances against future violations, the respondent’s 

recognition of the wrongful nature of his conduct, and 

the likelihood that the respondent’s occupation will 

present opportunities for future violations.50

 

securities regulator. See 15 U.S.C. § 80b-2(a)(11); cf. Robert Radano, Advisers 

Act Release No. 2750, 2008 WL 2574440 (June 30, 2008) (imposing sanctions 

under Advisers Act Section 203 in the case of an adviser registered with the 

state of Connecticut).

45 Div. Ex. 1.

46 See 18 U.S.C. § 3559(a).

47 Div. Ex. 1 at 2; see 15 U.S.C. § 77x (“Any person who willfully violates 

any of the provisions of this subchapter ... shall upon conviction be fined not 

more than $10,000 or imprisoned not more than five years, or both.”).

48 15 U.S.C. §§ 78o(b)(4)(B)(i), 80b-3(e)(2)(A).

49 603 F.2d 1126, 1140 (5th Cir. 1979), aff’d on other grounds, 450 U.S. 91 

(1981); see Gary M. Kornman, Securities Act Release No. 59403, 2009 WL 

367635, at *6 (Feb. 13, 2009), pet. denied, 592 F.3d 173 (D.C. Cir. 2010).

50 David R. Wulf, Exchange Act Release No. 77411, 2016 WL 1085661, at 

*4 (Mar. 21, 2016).
8

The Commission also considers the deterrent effect of administrative 

sanctions.51 The public interest inquiry is “flexible” and “no one factor is 

dispositive.”52 

Before imposing a collateral bar, an administrative law judge must 

determine, based on the evidence presented, whether a bar “is necessary or 

appropriate to protect investors and markets.”53 I must therefore “‘review 

[Gainer’s] case on its own facts’ to make findings regarding [his] fitness to 

participate in the industry in the barred capacities.”54 A decision to impose a 

collateral bar “should be grounded in specific ‘findings regarding the 

protective interests to be served’ by barring the respondent and the ‘risk of 

future misconduct.’”

55 

It is apparent that the public interest weighs in favor of imposing a bar. 

The Commission has remarked that “[t]he securities industry presents 

continual opportunities for dishonesty and abuse, and depends heavily on the 

integrity of its participants and on investors’ confidence.” 56 It has also 

explained that “because ‘[f]idelity to the public interest requires a severe 

sanction when a respondent’s misconduct involves fraud,’ in most fraud cases 

the Steadman factors, such as egregiousness, scienter, and opportunity for 

 

51 Id. General deterrence is relevant but not determinative of whether the 

public interest weighs in favor of imposing a collateral bar. See Peter Siris, 

Exchange Act Release No. 71068, 2013 WL 6528874, at *11 n.72 (Dec. 12, 

2013), pet. denied, 773 F.3d 89 (D.C. Cir. 2014). 

52 Conrad P. Seghers, Advisers Act Release No. 2656, 2007 WL 2790633, at 

*4 (Sept. 26, 2007), pet. denied, 548 F.3d 129 (D.C. Cir. 2008).

53 Ross Mandell, Exchange Act Release No. 71668, 2014 WL 907416, at *2 

(Mar. 7, 2014) (quoting John W. Lawton, Advisers Act Release No. 3513, 2012 

WL 6208750, at *9 (Dec. 13, 2012)), vacated in part on other grounds, 

Exchange Act Release No. 77935, 2016 WL 3030883 (May 26, 2016). 

54 Id. (quoting McCarthy v. SEC, 406 F.3d 179, 188 (2d Cir. 2005)). 

55 Id. (quoting McCarthy, 406 F.3d at 189–90); see also Lawton, 2012 WL 

6208750, at *9 (“[T]he Commission must consider not only past misconduct, 

but the broader question of the future risk the respondent poses to 

investors.”), vacated in part on other grounds, Advisers Act Release No. 4402, 

2016 WL 3030847 (May 27, 2016).

56 Seghers, 2007 WL 2790633, at *7.
9

future misconduct, will weigh in favor of a bar.”57 It is therefore the case 

“that ‘antifraud injunctions merit the most stringent sanctions and that [the] 

foremost consideration must ... be whether [the] sanction protects the trading 

public from further harm.’”

58

Bearing these observations in mind, and considering the Steadman

public-interest factors, I find that Gainer’s conduct was egregious. Gainer 

played an instrumental role in a Ponzi scheme that cost investors millions. 

Gainer personally misrepresented or omitted material facts while inducing 

investors to invest. Gainer’s willing participation in a fraudulent scheme and 

willingness to pursue his own financial gain to the serious detriment of his 

investors shows that he should not be allowed to interact with investors and 

that excluding him from the securities industry would best serve the 

Commission’s interest in protecting the investing public. 

Additionally, the notes Gainer sold were unregistered. Worse, when he 

sold them, Gainer hid the sales from his broker-dealer. In doing so, Gainer 

acted as an unregistered broker and engaged in the prohibited practice of 

“selling away.” And selling away is prohibited because it “deprives investors 

of a brokerage firm’s oversight, due diligence, and supervision,” which are 

“protections investors have a right to expect,”59 and instead subjects investors 

to “the hazards of unmonitored sales, while” leaving the broker-dealer 

“expos[ed] to loss and litigation.”60

Notably, the securities registration requirements in Securities Act 

Section 5 and the broker-dealer registration requirements in Exchange Act 

Section 15 are central to the Commission’s investor-protection mission.61 In 

 

57 Siris, 2013 WL 6528874, at *11 n.71 (alteration in original) (internal 

citation omitted) (quoting Jeffrey L. Gibson, Exchange Act Release No. 57266, 

2008 WL 294717, at *7 (Feb. 4, 2008)).

58 Mark Feathers, Exchange Act Release No. 73634, 2014 WL 6449870, at 

*3 (Nov. 18, 2014) (alterations in original) (quoting Tzemach David Netzer 

Korem, Exchange Act Release No. 70044, 2013 WL 3864511, at *5 (July 26, 

2013)). 

59 Anthony H. Barkate, Exchange Act Release No. 49542, 2004 WL 762434, 

at *5 (Apr. 8, 2004)

60 Keith L. Mohn, Exchange Act Release No. 42144, 1999 WL 1036827, at 

*6 (Nov. 16, 1999)

61 See Allen M. Perres, Securities Act Release No. 10287, 2017 WL 280080, 

at *3 (Jan. 23, 2017), pet. denied, 695 F. App’x 980 (7th Cir. 2017); Joseph J. 

(continued...)
10

particular, by selling unregistered securities in violation of Section 5 of the 

Securities Act, Gainer deprived investors of information they needed to make 

informed investment decisions.62 Given that KGTA was a sham that was 

operated as a Ponzi scheme, Gainer’s unregistered sales were particularly 

harmful. Gainer’s criminal sentence and the district court’s restitution order 

serve to underscore the seriousness of Gainer’s misconduct.

Gainer’s conduct was not isolated. Gainer participated in the scheme 

from October 2012 through March 2014.63 During that time, Gainer brought 

in 16 investors who invested over $9.6 million.64

Gainer also acted with scienter. In his plea agreement, he admitted 

knowing “that federal securities laws prohibited him from offering or selling 

any securities, except those sold through a broker-dealer.”65 Gainer also 

concealed his involvement with KGTA by directing that fees be paid to his 

wife and others on his behalf.66

Additionally, scienter includes extreme recklessness, which is “extreme 

departure from the standards of ordinary care ... which presents a danger of 

misleading buyers or sellers that is either known to the [respondent] or is so 

obvious that the actor must have been aware of it.”67 Here, “[a]ny financial 

industry professional” in Gainer’s position “would have known that [the] 

exorbitant, guaranteed return[s]” Gainer promised were “too good to be 

true.”68 Additionally, Gainer “recklessly disregarded ... ‘red flags’ that” 

should have alerted him that KGTA was a sham and “reckless[ly] 

 

Fox, Securities Act Release No. 10328, 2017 WL 1103693, at *3 (Mar. 24, 

2017).

62 See Perres, 2017 WL 280080, at *3.

63 Complaint at 10.

64 Id. 

65 Ex. 2 at 17.

66 Id. at 16.

67 Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634, 639 (D.C. Cir. 2008)

(emphasis omitted) (quoting SEC v. Steadman, 967 F.2d 638, 641 (D.C. Cir. 

1992)).

68 Complaint at 21.
11

disregard[ed] ... the truth of the statements [he] made to investors about 

KGTA’s business.”69

Gainer has not made assurances against future misconduct. Although he 

pleaded guilty, thereby showing an appreciation for the wrongfulness of his 

conduct, and participated in the prehearing conference in this proceeding, he 

did not answer the OIP, oppose the Division’s dispositive motion, or respond 

to the order to show cause.

Additionally, allowing Gainer to remain in the securities industry would 

present him with future opportunities for further misconduct and would put 

the investing public at risk. This determination is supported by my finding 

that Gainer’s conduct was egregious.70 

Finally, imposing a collateral bar will serve the Commission’s interest in 

deterring others from engaging in similar misconduct. 

In light of the factors discussed above, I find that it is in the public 

interest to impose a collateral and penny-stock bar against Gainer. 

Order

The Division of Enforcement’s renewed motion for sanctions by default is 

GRANTED. 

Under Section 15(b) of the Securities Exchange Act of 1934 and Section 

203(f) of the Investment Advisers Act of 1940 Jeffrey Gainer is BARRED 

from associating with a broker, dealer, investment adviser, municipal 

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

statistical rating organization.

Under Section 15(b) of the Securities Exchange Act of 1934, Jeffrey

Gainer, is BARRED from participating in an offering of penny stock, 

including acting as a promoter, finder, consultant, agent, or other person who 

engages in activities with a broker, dealer, or issuer for purposes of the 

 

69 Id. at 21–22.

70 See Geiger v. SEC, 363 F.3d 481, 489 (D.C. Cir. 2004) (holding that a 

finding of egregiousness “justifies the inference” that misconduct will recur); 

Warwick Capital Mgmt., Inc., Advisers Act Release No. 2694, 2008 WL 

149127, at *11 (Jan. 16, 2008) (“The existence of a violation raises an 

inference that the violation will be repeated, and where the misconduct 

resulting in the violation is egregious, the inference is justified.”).
12

issuance of trading in any penny stock, or inducing or attempting to induce 

the purchase or sale of any penny stock.

This initial decision will become effective in accordance with and subject 

to the provisions of Rule 360.71 Under 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 111.72 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 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 occurs, the initial decision shall not 

become final as to that party.

Gainer may move the Commission to set aside the default under Rule of 

Practice 155(b), which permits the Commission, at any time, to set aside a 

default for good cause, in order to prevent injustice and on such conditions as 

may be appropriate.73 A motion to set aside a default shall be made within a 

reasonable time, state the reasons for the failure to appear or defend, and 

specify the nature of the proposed defense in the proceeding.74 Such motion, if 

filed, should be directed to the Commission, as the hearing officer may only 

set aside a default “prior to the filing of the initial decision.”75

_______________________________

James E. Grimes

Administrative Law Judge

 

71 See 17 C.F.R. § 201.360. 

72 See 17 C.F.R. § 201.111. 

73 17 C.F.R. § 201.155(b). 

74 Id.

75 Id.