subchapter [or] the rules or regulations thereunder, . . . the Commission may bring an action in a
United States district court to seek, and the court shall have jurisdiction to impose, upon a proper
showing, a civil penalty to be paid by the person who committed such violation.” 15 U.S.C.
§77t(d)(1). Three “tiers” of penalties may be imposed: a “first tier” penalty may be imposed in
an amount “determined by the court in light of the facts and circumstances,” id. §77t(d)(2)(A); a
“second tier” penalty is appropriate “if the [defendant’s] violation . . . involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a regulatory requirement,” id. §77t(d)(2)(B);
and a “third tier” penalty is appropriate if “the [defendant’s] violation . . . involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a regulatory requirement; and [the
defendant’s] violation directly or indirectly resulted in substantial losses or created a significant
risk of substantial losses to other persons,” id. §77t(d)(2)(C).

As an initial matter, despite the lack of evidence establishing the commission of securities
violations Coppage and Wilson, the Court finds that a civil penalty is appropriate because each of
them consented that one should be imposed. With respect to civil penalties, the Order entered
against Coppage provided:

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the

imposition of a civil penalty against Coppage may be appropriate. This Court will

set the specific amount of the penalty in a separate hearing upon due notice and

motion by the Commission. At that hearing, the issue will be limited to

determining the amount of the civil penalty to be ordered and Coppage will be

precluded from denying that he violated the federal securities laws.

Coppage Injunction Order, p. 5. The Order entered against Wilson contained the same language.

See Wilson Injunction Order, p. 6. Additionally, the Consent and Stipulation signed by Wilson

provided that Wilson consented to the entry of a final judgment that, among other things, “orders

13



Injunction Order, {V; Wilson Injunction Order, {V. The orders did not set the amounts to be
disgorged or the amount of any interest or penalties; rather, the Orders provide that the Court
would set those amounts “in a separate hearing upon due notice and motion by the Commission.”
Coppage Injunction Order, {{{IV-V; Wilson Injunction Order, {{IV-V.

To facilitate resolution of the damages issues, on January 17, 2003, the SEC filed its
Damages Brief, asking the Court to order Coppage “to pay disgorgement of $2,469,403.83,
prejudgment interest of $1,323,589.44 through January 31, 2003, and a civil money penalty of
$2,469,403.83” and asking the Court to order Wilson “to pay disgorgement of $146,649.23,
prejudgment interest of $55,111.03 through January 31, 2003, and a civil money penalty of
$146,649.23.” Damages Brief, p. 11. To support these figures, the SEC submitted an affidavit
from Norman H. Jones, an accountant in the SEC’s enforcement division who reviewed the bank
records and other documents obtained in the case. Jones stated that Coppage was the signatory
on two Gateway accounts, that $4,278,304.34 in funds directly traceable to deposits from
Gateway investors were deposited into these two accounts, that $772,569.57 was transferred
from these two accounts to other defendants, that $1,036,330.94 was disbursed by order of the
Court to the Court’s registry, and that the remaining $2,469,403.80 represents ill-gotten gains
received by Coppage, though Jones could not say who ultimately obtained possession of this
money. Affidavit of Norman H. Jones in Support of Plaintiff's Brief in Support of Damages
Against Defendants Jerome Coppage and Bill Wilson, {4-8 (attached as Exhibit B to the SEC’s
Damages Brief). With regard to Wilson, Jones stated that $146,649.23 in funds directly traceable
to Gateway investors were deposited into three different Gateway accounts and then transferred

to an account Wilson held jointly with his wife, and that this amount represents ill-gotten gains



incurred in the names of Gateway-related individuals).

Finally, the Court must consider the defendants’ arguments concerning financial hardship.
Both Coppage and Wilson have argued that the Court should waive the civil penalty because
neither has the financial resources to pay it. A defendant’s finances may be relevant, to some
extent, in determining the size of the civil penalty. See SEC v. Parks, 222 F. Supp. 2d 1124,
1134 (C.D. Ill. 2002); SEC v, Robinson, No. 00 Civ 7452 RMB AJP, 2002 WL 1552049, at *12
(S.D.N.Y. July 16, 2002); SEC v. McCaskey, No. 98CIV615S3SWKAIP, 2002 WL 850001, at
*15 (S.D.N.Y, March 26, 2002). The financial information provided by Coppage and Wilson
shows that neither has substantial assets and both have modest incomes. But they are not
destitute, and they both received a lot of money from defrauded investors, even if they now have
little or nothing to show for it. Based on the facts and circumstances as presented, the Court
finds that a significant first tier penalty is appropriate. According, the Court will impose a first
tier penalty on each defendant in the amount of approximately one-half his pecuniary gain:
$40,000 as to Coppage and $46,000 as to Wilson.

Conclusion

For the reasons set forth in this Opinion, the Court orders Jerome Coppage to pay a first
tier civil penalty in the amount of $40,000.00 and orders Bill Wilson to pay a first tier civil
penalty in the amount of $46,000. The Clerk is directed to enter a separate judgment as to each

defendant. The SEC’s request for relief is otherwise denied.

Dated: May 21, 2003 AN MDG

MATTHEW F. KE! LY
United States District Jufge

17


received these sums from accounts held by or associated with the Gateway Association. And, in
fact, Coppage and Wilson concede that they received these sums from Gateway-associated
accounts. The relevant question for our purposes is whether money obtained from investors is
necessarily subject to disgorgement, something the SEC seems to have assumed. On the record
that has been submitted to the Court, the answer is no.

Implicit in the disgorgement analysis is the notion that the person ordered to cough up the
money actually received the money unjustly, i.c., that he received the money by means of a
violation of the securities laws or through fraud or some other wrongdoing. The cases make
clear that the remedy is designed to strip a wrongdoer of his unjust enrichment or illegal profits;
the remedy is not designed to punish. See, e.g., First City Financial, 890 F.2d at 1230-31
(“[d]isgorgement is . . . designed to deprive a wrongdoer of his unjust enrichment”;
“disgorgement may not be used punitively”); First Jersey Securities, 101 F.3d at 1474 (“The

primary purpose of disgorgement . . . is to deprive violators of their ill-gotten gains ....”). The

m9 46 29 «6

very language used in the cases — e.g., “unjust enrichment,” “ill-gotten gains,” “wrongdoer” ~
emphasizes that the remedy is imposed against the people who violate the securities laws, not
simply the people who possess money obtained through violations committed by others. The
SEC essentially concedes in its damages brief that disgorgement is appropriate only as against
“wrongdoers,” those who violated the law. See Damages Brief, pp. 7-8. Thus, before we can
order disgorgement, we need some evidence that these particular defendants violated the

securities laws, participated in the fraud or otherwise engaged in some wrongdoing. The SEC

has offered no such evidence.

To support its damages claim, the SEC has established that Coppage and Wilson attended



received by Defendant Coppage in connection with his involvement with Gateway.” SEC’s
Supplement Brief in Support of Disgorgement, Prejudgment Interest and Civil Penalties Against
Defendants Jerome Coppage and Bill Wilson (“Supplemental Damages Brief”), p. 3. The SEC
supported its new disgorgement figure with a summary chart and with bank records showing the
transfers made from Gateway accounts to accounts held by Coppage or by Sextant
Administrative Medical Management, of which Coppage was the President and Secretary. Along
with the disgorgement, the SEC asked the Court to order Coppage to pay prejudgment interest
through February 28, 2003 in the amount of $81,632.88 and a third tier civil penalty in an amount
equal to the disgorgement amount ($183,914.31). The SEC stood firm with respect to Wilson,
repeating its request for a disgorgement order and a civil penalty in the amount of $146,649.23,
plus prejudgment interest through February 28, 2003 in the amount of $55,111.03. Notably
absent from the SEC’s supplemental brief is any analysis of why these sums constitute “ill-gotten
gains” or “unjust enrichment” subject to disgorgement. The second brief, like the initial
Damages Brief, assumes without discussion or analysis that this is so.

Coppage’s supplemental submission reiterates his claim that the money he received from
Collins or Gateway represented repayments of loans and not ill-gotten gains. This time, Coppage
submitted a declaration and copies of checks he had written to Collins between 1994 and
September 1997, all before the Gateway scheme is alleged to have begun. See Second
Declaration of Jerome Coppage and Exhibit 1 attached thereto (attached as Exhibit B to
Supplemental Brief of Defendant Jerome Coppage in Opposition to the SEC’s Request for
Disgorgement, Prejudgment Interest and Civil Penalties). According to Coppage, the checks

evidence that he lent Collins approximately $144,762.00, which means that the repayment of



received by Wilson. Id., J9-14.

Coppage filed a brief in response to the SEC’s Damages Brief, arguing that any money he
received from Collins or from the Gateway accounts represented repayments of loans he
previously made to Collins. Coppage provided no documentary evidence to support this claim,
though the transcript of his testimony before the SEC is generally consistent with his explanation.
See SEC’s Damages Brief, Exhibit C. Wilson also filed a brief in response to the SEC’s
Damages Brief, arguing that any money he received from Gateway accounts represented salary
and reimbursements for business-related expenses. He submitted an affidavit swearing under
oath that this was true, and he provided copies of Visa and American Express statements and
phone bills that purportedly reflected outlays he made on behalf of Gateway and its principals.

On February 13, 2003, the Court held a hearing to address the issues raised in the parties’
damages briefs. The Court expressed some concern that the parties had failed to provide any
analysis of the legal standards to be applied in assessing the equitable remedies requested and
also that it was being asked to make findings concerning matters about which it had heard no
evidence. At the hearing, the Court directed the parties to submit supplemental briefs on
damages, specifically addressing key legal points, including the question of what constitutes “‘ll-
gotten gains” within the meaning of the securities laws. The Court also directed the parties to
address its evidentiary concerns and to advise the Court as to whether they thought the Court was
required to hear evidence before fixing the damages amounts to be paid by the defendants.

Consistent with the Court’s directives, the parties all filed supplemental briefs. In its
supplemental brief, the SEC came down quite a bit off its disgorgement number for Coppage,

seeking $183,914.31 — the amount the SEC contends “that it can prove with certainty were



necessary on the damages issues, and each waived any right they may have had to present further
evidence on the nature and amount of damages to be ordered by the Court. See Joint Submission
of Coppage and the SEC, p. 3; Joint Submission of Wilson and the SEC, p. 3. Thus, the parties
all agree that the Court now has everything it needs to decide the damages questions; the purpose
of this Memorandum Opinion and Order is to do just that.

We turn first to the SEC’s request for orders of disgorgement. “Disgorgement is an
equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others
from violating the securities laws.” SEC v. First City Financial Corp., Ltd., 890 F.2d 1215, 1230
(D.C. Cir. 1989) (citations omitted). The district court has broad discretion in deciding whether
to award disgorgement at all and, if awarded, in fixing the amount to be disgorged. SEC v. First
Jersey Securities, Inc., 101 F.3d 1450, 1474-75 (2d Cir. 1996); SEC v. Loren, 76 F.3d 458, 462
(2d Cir. 1996). If ordered, the disgorgement amount must be “a reasonable approximation of
profits causally connection to the violation.” SEC v. Patel, 61 F.3d 137, 139 (2d Cir. 1995)
(citing First City Financial, 890 F.2d at 1231). The SEC bears the burden of proving that its
disgorgement figure reasonably approximates the amount of unjust enrichment; if it satisfies its
burden, the defendant must come forward to demonstrate that the SEC’s disgorgement figure is
not a reasonable approximation. First City Financial, 890 F.2d at 1232.

The SEC asks the Court to order Coppage to disgorge $183,914.31; it argues that this
sum represents the amount of Gateway-related funds that went directly to Coppage. With respect
to Wilson, the SEC asks the Court to order disgorgement in the amount of $146,649.23, which
represents the total amount Wilson received from Gateway accounts. As explained above, the

SEC has offered documentary evidence to substantiate its claims that Coppage and Wilson


Migqate Order Form (9697)
a

United States District Court, Northern District of Illinois

ssigned J Sitting Judge if Oth
nad essai Judge Matthew F. Kennelly than Assigned Judge
CASE NUMBER 01 C 3085 DATE 5/21/2003
CASE SEC vs. Collins
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.)

MOTION:

DOCKET ENTRY:

(1) Oo Filed motion of [ use listing in “Motion” box above.]

(2) og Brief in support of motion due

(3) Oo Answer brief to motion due. . Reply to answer brief due___

(4) a Ruling/Hearing on___setfor___—__at

(5) oO Status hearing[held/continued to] [set for/re-set for]on__—setfor_— at

(6) a Pretrial conference[held/continued to] (set for/re-set forlon__setfor__— ss at__

(7?) oO Trial[set for/re-set for] on___at

(8) Oo [Bench/Jury trial] [Hearing] held/continued to at

(9) Qa This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) (Local Rule 41.1 COFRCP41(a)(1) (1 FRCP41(a)(2).

qo) {Other docket entry] For the reasons set forth on the attached Memorandum Opinion and Order,

the Court orders Jerome Coppage to pay a first tier civil penalty in the amount of $40,000.00 and orders
Bill Wilson to pay a first tier civil penalty in the amount of $46,000. Separate judgment is entered as to
each defendant. The SEC’s request for relief is otherwise denied.

al) a [For further detail see order (on reverse side of/attached to) the original minute order.]

No notices required, advised in open court. Document
Number

No notices required.
‘) umber of notices

Notices mailed by judge’s staff. ¢

Notified counsel by telephone. W

vu | Docketing to mail notices.

Mail AO 450 form.

keting dg\t} initials

Copy to judge/magistrate judge

date maited notice
courtroom

ORG deputy’s
initials

Date/time,received in
central Clerk's Office rating deputy initials

US. DIS ICT COURT



language of the consents each signed, we cannot rely on those allegations to prove the point.!
Specifically, the SEC has offered no evidence that Coppage and Wilson knowingly participated
in the alleged fraud or that they even knew that Gateway’s investment program was a complete
scam — indeed, the evidence submitted by the SEC does not even permit the Court to make a
finding with regard to Coppage and Wilson that Gateway’s investment program was a complete
scam.’ Through Norman Jones, the SEC’s accountant, the SEC has established that Coppage
and Wilson received money that could be traced directly back to people who invested in the
Gateway Association. But even if we accept that the Gateway Association was a complete scam
and that Collins and others obtained money from investors through fraud, the SEC has cited no
case holding — or even hinting — that receipt of money obtained through someone else’s securities
laws violations is a sufficient basis to order disgorgement, especially where there is no evidence
showing that the recipient even knew about those violations. Ordering disgorgement in a
situation such as this would seem to be entirely at odds with the established purposes of
disgorgement, Absent some evidence that Coppage and Wilson either knew about the fraud or
participated in the fraud, disgorgement would be punitive based on the record submitted to the

Court.

' Jones’ conclusory statements in his affidavit regarding “ill-gotten” gains are
unsupported, and in any case he lacks the requisite personal knowledge to opine on whether the
gains were actually ill-gotten.

? The Court is aware that Richard Collins pled guilty to criminal charges arising out of
his conduct in the Gateway scheme, and that the plea agreement reached in Collins’ criminal case
states that Gateway’s investment program never existed. See Plea Agreement filed April 29,
2003 in United States v. Collins, No. 02 CR 831 (N.D. Ill.). But the statements in that agreement
are hearsay as to these defendants, and, in any event, the SEC has not attempted to prove its case
here with any evidence obtained through the criminal matter; as explained, it hasn’t offered any
evidence at all.

11


Gateway promotional meetings and that Wilson sent out letters promoting the Gateway
Association. See Transcript of Testimony Given By Jerome Coppage on February 24, 2000, pp.
73-76 (attached as Exhibit C to the SEC’s Damages Brief); Letter from Bill Wilson (attached as
Exhibit D to the SEC’s Damages Brief). These facts, without more, do not show that Coppage
and Wilson violated any securities laws or committed any wrongdoing; among other things, they
do not reveal the requisite intent. In its first brief on damages, the SEC argued that Coppage and
Wilson both attended Gateway promotional meetings and that, at those meetings, they made
numerous material misrepresentations and omitted to state material facts to investors in Gateway.
See Damages Brief, p. 3. These allegations are closer to the mark. But the evidence cited by the
SEC to support those statements shows only that Coppage and Wilson attended the meetings.
See Transcript of Coppage Testimony, pp. 25-29, 73-76 (attached as Exhibit C to the SEC’s
Damages Brief). The SEC offered no evidence that Coppage and Wilson ever made any
misrepresentations — at the meetings or anywhere else — let alone that they did so knowingly.
Similarly, although the SEC submitted a letter written by Bill Wilson on behalf of the Gateway
Association, see Letter from Bill Wilson (attached as Exhibit D to the SEC’s Damages Brief), it
offered no evidence giving context to the letter. Thus we have no basis to conclude that the letter
contained any misrepresentations or that it omitted to state material facts, and in any event the
SEC has offered no evidence of Wilson’s intent.

It is true that the SEC’s complaint alleges that Coppage and Wilson violated the securities

laws. But the allegations have not been supported in the materials provided to us, and given the

10



those loans cannot constitute ill-gotten gains. Coppage makes no argument concerning the
remaining $39,152.31 the SEC says he received.

In his supplemental brief, Wilson concedes that he received $146,649.23, and he again
claims that Gateway paid him the money as salary and to reimburse him for business-related
expenses he had charged or incurred on behalf of Gateway principals. Wilson submitted a
second affidavit, which says pretty much what the first affidavit said, along with some additional
credit card itemizations and a partially hand-written summary document listing the salary
payments and the expense reimbursements; he claims that $40,140.00 of the $146,649.23 was
salary and the remaining $106,509.23 was reimbursements.

On March 11, 2003, the parties filed a second round of supplemental submissions.
Coppage and the SEC submitted a joint filing stating that, because of some accidental double
counting, the aggregate amount of the checks submitted in support of Coppage’s position that he
loaned Collins money is $103,966.00, not $144,762.00. See Joint Submission of Coppage and
the SEC, p. 2. The SEC continues to take the position that none of the $183,914.31 paid to
Coppage were loan repayments. With respect to Wilson, the March 11 submissions really do not
change anything: Wilson and the SEC agree that Wilson received $146,649.23; Wilson argues
that $40,140.00 of that was for salary and $106,509.23 was reimbursements for Gateway-related
expenses; the SEC argues that Wilson should be required to disgorge the entire amount and that
he should not receive credit for any of the charges reflected on credit card statements he
submitted because those statements raise more questions than they answer. See Joint Submission
of Wilson and the SEC, pp. 2-3.

Finally, in the March 11 submissions, the parties stated that no evidentiary hearing was



an order permanently enjoining him from violating Section 10(b) of the Exchange Act, Rule 10b-
5 and Sections 5 and 17(a) of the Securities Act and granting the SEC other equitable relief,
including disgorgement and civil penalties. See Consent & Stipulation of Jerome Coppage
(attached as Exhibit F to the SEC’s Damages Brief). Wilson signed a similar document on
December 12, 2002. See Consent and Stipulation of Bill Wilson (attached as Exhibits H to the
SEC’s Damages Brief). In signing these documents, Coppage and Wilson admitted only the
jurisdictional allegations of the complaint; they neither admitted nor denied the substantive
allegations concerning their roles in the Gateway scheme, and in fact the Consents are completely
silent as to what role either defendant played in the scheme. See Coppage Consent & Stipulation,
(2; Wilson Consent & Stipulation, {2.

On November 17, 2001 and December 19, 2002, the Court entered “Orders of Permanent
Injunction and Other Equitable Relief” against Coppage and Wilson respectively. Like the
Consents, the Orders do not spell out what role, if any, the defendants played in the Gateway
scheme; nor do they specify how the defendants violated the securities laws; the Orders simply
describe the various types of relief awarded to the SEC against each defendant. In addition to
permanently enjoining Coppage and Wilson from violating Section 10(b) of the Exchange Act,
Rule 10b-5 and Sections 5 and 17(a) of the Securities Act, the Orders require Coppage and
Wilson to “disgorge all ill-gotten gains received as a result of the conduct alleged in the
Commission’s Complaint, plus prejudgment interest on that amount.” Order of Permanent
Injunction and Other Equitable Relief Against Jerome Coppage, {IV; Order of Permanent
Injunction and Other Equitable Relief Against Bill Wilson, {IV. They also provide that “the

imposition of a civil penalty against Coppage [and Wilson] may be appropriate.” Coppage



Defendant to pay a civil penalty in an amount to be set by the Court upon motion by the
Commission ....” Wilson Consent & Stipulation, §2(c). The document Coppage signed was
not quite as explicit; it provided simply that Coppage consented to the entry of the Order quoted
above, without describing the specific forms of equitable relief to be ordered. See Coppage
Consent & Stipulation, 2. But in both cases, the Court finds that the defendant agreed to pay a
civil penalty.?

The lack of evidence concerning the nature of the alleged violations does, however,
impact which “tier” is implicated. To impose a third tier penalty, which is what the SEC seeks,
or to impose a second tier penalty, the Court must find that Coppage and Wilson violated the
securities laws in a manner that involved “fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement.” 15 U.S.C. §77t(d)(2)(B), (C). As explained above, the
SEC has presented no evidence to support such a finding. The SEC argued that Coppage and
Wilson made fraudulent misrepresentations to investors, but it provided no evidence to back that
up. Thus, any penalty must be imposed under the first tier.

The amount of a penalty imposed under the first tier “shall not exceed the greater of (i)
$5,000 for a natural person . . . or (ii) the gross amount of pecuniary gain to such defendant as a
result of the violation.” 15 U.S.C. §77t(d)(2)(A). Notably, here we are concerned with

“pecuniary gain,” which, as contrasted with “ill-gotten gains,” need not involve any wrongdoing

3 The Orders also required Coppage and Wilson to pay disgorgement, which at first blush
suggests that the Court is being inconsistent in addressing the various forms of equitable relief.
Not so. The Orders required Coppage and Wilson to disgorge all ill-gotten gains received as a
result of the conduct alleged in the Commission’s Complaint .. . .’ Coppage Injunction Order, p.
4; Wilson Injunction Order, p. 4 (emphasis added). As explained above, the SEC failed to show
that Coppage or Wilson received any “ill-gotten” gains, leading to the inescapable conclusion
that the amount to be disgorged was exactly zero.

14



if this is true, it would still be a “gain” in the sense that his financial pool actually grew as a
result of receiving it. As to the latter, however, if Wilson is right, that $106,509.23 would not
represent any gain; getting the money would simply bring him back to zero, because he had
already spent the money from his own financial resources. To support his claim on this issue,
Wilson submitted a sworn affidavit stating that “the office charged a total of $104,589.98 to my

39 «6,

cards, and $1919.25 came out of my pocket for” “expenses for the office, employees, and the
principals of Gateway.” Wilson Affidavit, 494-5 (attached as Exhibit B to Wilson’s
Supplemental Brief In Opposition to Disgorgement). Wilson provided credit card statements
purportedly reflected the various expenses he charged, but the statements do not establish that the
charges were incurred for Gateway-related items or trips. Some of the air travel expenses include
the passenger’s name, and the Court is at least able to discern that the person for whom Wilson
bought the ticket was associated with Gateway. This, especially in the absence of any conflicting
evidence from the SEC, is enough to show that some of these expenses were incurred for
Gateway-related business. But most of the statement entries are less clear; the Court is unable to
tell what exactly the expenditure covers or whether it was made in connection with Gateway.

The SEC provided the Court with no evidence to rebut Wilson’s affidavit or documentary
evidence, however; it simply states that it believes the statements raise more questions than they
answer. Based on its review of the credit card statements and Wilson’s affidavit, together with
the other record evidence and the arguments made by the parties, the Court finds that the amount
of Wilson’s pecuniary gain is $92,609.99 ($40,140.00 + $106,509.23 - $54,039.24), the amount

he received from investor funds, less the amounts the Court finds represented reimbursements of

Gateway expenses (in other words, the amounts Wilson has shown were charges indisputably

16



Jerome Coppage and Bill Wilson. According to the SEC, Coppage, an insurance agent, was “a
partner in Gateway [who] signed investment agreements on behalf of Gateway” and was “a
signatory on numerous bank accounts that held investor funds”; “[h]e attended investor meetings
with other Gateway promoters, making numerous material misrepresentations and omitting to
state material facts to investors in Gateway.” Complaint, (12; Brief in Support of Disgorgement,
Prejudgment Interest and Civil Penalties Against Defendants Jerome Coppage and Bill Wilson
(“Damages Brief”), p. 3. Wilson was “the president of Gateway and signed investment
agreements on behalf of Gateway,” Complaint, 411; the SEC alleges that, like Coppage, Wilson
“attended investor meetings with other Gateway promoters making numerous material
misrepresentations and omitting to state material facts to investors in Gateway.” Damages Brief,
p. 3.

The SEC’s complaint alleged that Coppage and Wilson, through their participation in the
Gateway scheme, violated section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.
§78}(b), Rule 10b-5, 17 C.F.R. §240.10b-5, and sections 5(a), 5(c) and 17(a) of the Securities Act
of 1933, 15 U.S.C. §§77e(a), 77e(c) and 77q(a). The complaint sought permanent injunctions
prohibiting Wilson and Coppage from directly or indirectly “offer[ing] and sell[ing] securities
when no registration statement is filed or is in effect as to such securities and when no exemption
from registration is available.” Complaint, Relief Requested Section, {IV. It also sought orders
directing Wilson and Coppage to “disgorge all illegal gains, together with prejudgment interest”
and to “pay civil money penalties, pursuant to Section 20(d) of the Securities Act [15 U.S.C.
§77t(d)] and 21 (d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)].” Jd., {JV-VI.

On November 6, 2001 Coppage signed a Consent and Stipulation, agreeing to the entry of



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,
vs.

RICHARD J. COLLINS, d/b/a Capital
Investment Concepts, Ltd., Cutting Edge
Marketing, Light of the World, and
Midwest Financial Funds; BILL WILSON;
JEROME COPPAGE; THE GATEWAY
ASSOCIATION; and THE GATEWAY
ASSOCIATION (ILLINOIS),

Defendants,
and
DAVID MORGENSTERN; WILLIAM J.
WINDSOR; LINDA A. FEHL; MALCOLM
SILVERMAN; JANET COLLINS; and
CHRISTINE TODD,

Relief Defendants.

we SSS SS SS SS SS we SS SS Serer

Case No. 01 C 3085

DOCKETED

MAY 27 2003

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

According to the complaint filed by the Securities and Exchange Commission, the

defendants in this securities fraud case participated, to one degree or another, in a fictitious

“prime bank” investment program known as “The Gateway Association Inc.” Gateway’s

investment program promised huge profits to lure more than 400 investors in, ultimately bilking

them out of more than ten million dollars. Along with the scheme’s mastermind, Richard J.

Collins, the Association and other Association-related entities, the SEC named as defendants



In sum, the SEC’s arguments concerning disgorgement simply assume that money
obtained from Gateway-related accounts is all ill-gotten gains. While the Court can easily
envision a scenario in which this would be the case, on the record presented we have no basis to
conclude that this holds true for Coppage and Wilson, whose role in the scheme has never been
explained or substantiated. Based on the evidence submitted, the Court finds that the SEC has
failed to meet its burden of showing that the money Coppage and Wilson received was causally
related to any wrongdoing and therefore declines to order disgorgement against these defendants.
See First City Financial, 890 F.2d at 1231 (“the court may exercise its equitable power only over
property causally related to the wrongdoing.”). Our decision not to order disgorgement also
resolves the SEC’s request for prejudgment interest on the disgorgement amounts.

It may very well be that Coppage and Wilson did violate the securities laws and that our
ruling today allows them to keep money that was fleeced from innocent investors. But if this is
so, the result obtained because the SEC failed to present the evidence necessary to make out a
case against these two defendants. The SEC may have believed that if it threw out enough
general allegations about the Gateway Association, the Court would find the whole mess
sufficiently foul smelling to order anyone even remotely associated with the scheme to pay up.
That is not the way things work. To win a judgment, a party must present evidence to support its
contentions, and the SEC failed to do so. The fact that the Court had already entered injunction
orders does not relieve the SEC of that responsibility.

In addition to disgorgement, the SEC seeks civil penalties from Coppage in the amount of
$183,914.31 and from Wilson in the amount of $146,649.23. The Securities Act provides that

“{w]henever it shall appear to the Commission that any person has violated any provision of this

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on the part of the recipient. See Black’s Law Dictionary, p. 686 (7" ed. 1999) (defining
“pecuniary gain” to mean “[a] gain of money or of something having monetary value”),
Although the SEC has offered no evidence from which the Court could conclude that Coppage
and Wilson obtained “ill-gotten gains,” it has offered evidence showing that they each received
some measure of pecuniary gain through their involvement with the Gateway Association.

The evidence shows that Coppage received $183,914.31 from Gateway-related accounts.
Coppage argues, however, that $103,966.00 of that constituted repayments of loans he had
previously made to Collins. If this were true, these amounts would simply return Coppage to the
financial position he enjoyed before loaning money to Collins; they would not represent
pecuniary gain to Coppage. And Coppage has supported his claim with copies of checks he
wrote to Collins before the Gateway scheme is alleged to have begun and with a sworn
declaration stating that the checks reflect loans he made to Collins. The SEC “strongly contests”
that Coppage made any loans to Collins and “strongly contests” that the money Coppage received
from Gateway had anything to do with any loans. See Submission of the SEC is Support of its
Request for Disgorgement, Prejudgment Interest and Civil Penalties Against Defendant Jerome
Coppage, {]3. Yet it offers no evidence to rebut Coppage’s declaration or to undermine the
evidence he submitted. Accordingly, the Court finds that the amount of Coppage’s pecuniary
gain is $79,948.31 — the amount Coppage received less the amounts that the evidence reflects
constituted repayment of loans.

With respect to Wilson, the evidence shows that he received $146,649.23 from Gateway-
related accounts. Wilson argues, however, that $40,140.00 of this was salary and that the

remaining $106,509.23 was reimbursement for business-related expenses. As to the former, even

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