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SEC Findings of Fact | Securities Act Of 1933 | Stocks
SEC Findings of FactUploaded by glimmertwinsRelated InterestsSecurities Act Of 1933StocksSecurities (Finance)U.S. Securities And Exchange CommissionBroker DealerRating and Stats0.0 (0)Document ActionsDownloadShare or Embed DocumentEmbedView MoreCopyright: Attribution Non-Commercial (BY-NC)Download as PDF, TXT or read online from ScribdFlag for inappropriate contentCase 2:09-cv-00104-LDG-GWF Document 106Filed 04/02/12 Page 1 of 37
UNITED STATES DISTRICT COURT DISTRICT OF NEVADA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. MARCO GLISSON, Defendant Case No. 2:09-cv-00104-LDG-GWF PLAINTIFF SECURITIES AND EXCHANGE COMMISSION’S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW Date: Time: Place: April 9, 2012 9:00 a.m. Courtroom 6B (Hon. Lloyd D. George)
Case 2:09-cv-00104-LDG-GWF Document 106
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Plaintiff Securities and Exchange Commission (“Commission” or “SEC”) brought this civil enforcement action against defendant Marco Glisson, charging Glisson with violating the broker-dealer registration provisions of Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78o(a), and the registration provisions of Sections 5(a) and (c) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77e(a) & (c). The parties tried the issues to the Court beginning on April 9, 2012. The court having considered the matter, including the arguments of counsel, the evidence adduced at trial, and the documents on file herein, now therefore, makes the following findings of fact and conclusions of law. FINDINGS OF FACT Background 1. During 2005 through October 2006, Glisson was a resident of
Janesville, Wisconsin. At the time, Glisson was married to Alma Padilla. During 2005 through October 2006, Padilla owned a restaurant located in Janesville, Wisconsin named the “Deli Dog House.” Glisson worked part-time at the Deli Dog House in 2005 through August 2006, while working as an assembly line worker at General Motors. After Glisson’s retirement from General Motors in August 2006, he worked full-time at the Deli Dog House restaurant in Janesville until October 2006. At the end of October 2006, Glisson moved from Janesville, Wisconsin, to Las Vegas, Nevada. Glisson resided in Las Vegas from the end of October 2006 to early 2007. In April or May, 2007, Glisson moved to Naples Florida. 2. Shortly after moving to Las Vegas, Glisson met Thidarat
Tungwongsathong, at a Starbucks in Las Vegas. Tungwongsathong was a Thai national who had lived in the United States during various periods prior to 2006, and was living in Las Vegas when she met Glisson. Tungwongsathong was not
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employed while she resided in Las Vegas. Glisson was divorced from Alma Padilla on April 12, 2007. Glisson married Tungwongsathong on May 7, 2007. CMKM 3. CMKM was at all relevant times a Nevada corporation headquartered
in Las Vegas that reportedly acquired and developed mining properties in North and South America. From 1999 through October 28, 2005, CMKM’s stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was quoted on the “OTC Pink Sheets.” During this period of time, individuals could and did buy and sell shares of CMKM through registered brokers such as Ameritrade and E-Trade. CMKM’s ticker symbol was “CMKX.” 4. During the period 2005 through April 9, 2007, 1st Global Stock
Transfer LLC (“1st Global”) was the transfer agent for CMKM stock. Glisson and CMKM 5. Sometime in late 2002 or early 2003, Glisson became aware of
CMKM through the Internet. Sometime after April 2004, Glisson became a CMKM shareholder by purchasing CMKM securities in his account with Ameritrade. After his first purchase of CMKM securities, Glisson made some additional purchases and sales of CMKM stock in his Ameritrade account. After his first purchase, Glisson sold CMKM securities in his Ameritrade account when the price went up, and purchased CMKM securities in his Ameritrade account when the price went down. Glisson tried to “flip the stock,” selling when the stock went up a little bit, and buying when the stock went back down. 6. Glisson met Urban Casavant, the Chief Executive Officer of CMKM,
on several occasions in 2004 and 2005, in Las Vegas and Chicago, at IHRA race functions. For the Chicago CMKM function in 2004, Glisson catered the food for that weekend.
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When Ameritrade stopped effecting transactions in CMKM, Glisson
used an E-Trade account to buy and sell CMKM shares. 8. When Glisson bought and sold CMKM using the services of a
registered broker-dealer, Glisson did not know the identity of the person on the other side of the transaction. The price was the market price, quoted in the Pink Sheets. Glisson paid a commission, or fee, to the registered broker-dealer for each trade in CMKM that was executed in his account. The registered broker-dealer cleared the trades for Glisson, arranging for delivery of the stock and cash. The registered broker-dealer also made any arrangements with the transfer agent to issue certificates, if that was requested by Glisson. 9. Glisson monitored the performance of his CMKM securities via the
Internet and CMKM press releases. Since around April 2004, Glisson visited and participated in Internet “chat rooms” that discussed CMKM and its business, and he met people online who owned or were interested in CMKM securities through his participation in various CMKM Internet chat rooms. During 2005 through 2007, Glisson used the screen name “Deli Dog” or “Deli” when visiting and posting in various Internet chat rooms relating to CMKM and CMKM Securities. Glisson started using “delidoghouse@hotmail.com” as his email address in 2001, and has continued to use this address into 2011. The Deregistration of CMKM Stock 10. On March 3, 2005, the Commission issued an Order of Suspension of
Trading pursuant to Section 12(k) of the Securities Exchange Act of 1934, which suspended trading in the securities of CMKM Diamonds, Inc., a/k/a Casavant Mining Kimberlite International, Inc., for a period from March 3, 2005 through March 16, 2005. The Order recited that questions had been raised “about the adequacy of publicly available information concerning, among other things,
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CMKM Diamonds’ assets and liabilities, mining and other business activities, share structure and stock issuances, and corporate management. Since the fiscal year ending December 31, 2002, CMKM Diamonds has been delinquent in its periodic filing obligations under Section 13(a) of [the Exchange Act]. The Commission is concerned that CMKM Diamonds may have unjustifiably relied on a Form S-8 to issue unrestricted shares. The Commission is also concerned that CMKM Diamonds and/or certain of its shareholders may have unjustifiably relied on Rule 144(k) of the [Securities Act] in conducting an unlawful distribution of its securities that failed to comply with the resale restrictions of Rules 144 and 145 of the Securities Act.” (Exhibits 401 & 402.) 11. On March 16, 2005, the Commission issued an Order Instituting
Administrative Proceeding and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934 in the Matter of CMKM Diamonds, Inc., Respondent. (Exhibit 403.) 12. On July 12, 2005, an administrative law judge issued an Initial
Decision in the Matter of CMKM Diamonds, Inc., which after reciting factual and legal findings, ordered that “pursuant to Section 12(j) of the Securities Exchange Act of 1934, the registration of each class of securities of CMKM Diamonds, Inc. is hereby REVOKED.” (emphasis in original). (Exhibit 404.) 13. On October 28, 2005, the Commission issued an Order which made
final the initial decision of the administrative law judge. The October 28, 2005 Order stated: “Notice is hereby given that the initial decision of the administrative law judge has become a final decision of the Commission with respect to CMKM Diamonds, Inc. The order contained in that decision revoking the registration of the securities of CMKM Diamonds, Inc. is hereby declared effective.” Thus, the registration of each class of CMKM securities was revoked. (Exhibit 5.)
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At all times subsequent to October 28, 2005, CMKM has not had a
registration statement filed and declared effective under the Securities Act or the Exchange Act. 15. Glisson learned that CMKM’s registration had been revoked, and its
stock delisted, on or about the date the announcement was posted. Glisson understood that CMKM had not filed a Form 15. Glisson understood that CMKM stock was no longer “tradeable,” and he could not buy or sell CMKM through a registered broker or dealer. Glisson understood that his holdings of CMKM, which he estimated to be about 700 million shares, were deemed worthless. Glisson’s Transactions in CMKM Stock 16. securities. 17. Glisson has never registered, or applied to be registered, with the SEC Glisson tried to make a profit when he bought and/or sold CMKM
as a securities broker or dealer. 18. 19. Glisson has never been employed by a registered broker or dealer. At all times from December 2005 through 2010, there was no
registration statement in effect for any of the CMKM stock bought and sold by Glisson. A. Glisson’s CMKM Stock Transactions from 2005 to 2007 20. Beginning in December 2005, Glisson began buying and selling
deregistered CMKM stock with persons he contacted through the Internet. Glisson bought and sold deregistered CMKM from December 2005 through May 2006, when he stopped after being contacted by attorneys for the SEC and the Wisconsin Department of Financial Institutions (“DFI”). In a letter dated June 6, 2006, an attorney for Glisson contacted the DFI. In that letter, Glisson’s attorney stated that Glisson “operated as a sole proprietor in connection with such transactions” in
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CMKM stock. The attorney also stated: “Further, you are advised that Mr. Glisson has ceased such activities.” (Exhibit 9.) The letter to the DFI was transmitted, in turn, to the SEC, under cover of a letter dated July 7, 2006. (Exhibit 8.) 21. Glisson resumed effecting transactions in CMKM shares in September
2006, and bought and sold deregistered shares until April 2007. On or about April 9, 2007, CMKM instructed its transfer agent, 1st Global, to immediately cease all transfers and issuance of CMKM securities. 22. In connection with a motion for summary judgment in this case filed by
plaintiff in 2009, Glisson submitted a declaration to this Court, under oath. In that declaration, Glisson stated that he had “no intention to purchase or sell any shares of any public company including without limitation CMKM at any time in the future; and I will so testify in person at the trial of this case where I can demonstrate to the satisfaction of the Court that I mean what I say about such future conduct.” (Exhibit 141 & Docket No. 28 in this Court’s file.) Shortly after Glisson’s declaration was filed and while the summary judgment motion was pending, in early 2010 Glisson resumed selling deregistered CMKM securities to persons he met through the Internet and chat rooms. Glisson realized revenues of approximately $1.6 million from these 2010 sales. Glisson did not advise the Court that he was engaging in conduct contrary to his sworn statement to this Court. 23. Glisson developed procedures for buying and selling deregistered
CMKM shares. In December 2005, Glisson contacted 1st Global, which was CMKM’s transfer agent, and asked if the firm was willing to perform transfer agent services for him with respect to purchases and sales of CMKM stock. Glisson spoke to Helen Bagley, who he knew as the owner of 1st Global. In response to Glisson’s request, 1st Global agreed to cancel and re-issue CMKM stock certificates in accordance with Glisson’s instructions.
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Glisson did not consult with an attorney for advice about whether it
was legal to purchase and sell CMKM stock before he began to engage in transactions in CMKM stock in December 2005. Glisson did not consult with an attorney for advice about whether it was legal to purchase and sell CMKM at any time thereafter through at least August 2007. 25. Both to find sellers and buyers, Glisson posted on the Internet that he
was buying shares, or selling shares, of CMKM. Glisson used the alias “Deli Dog” when visiting various chat rooms. Glisson found buyers and sellers of CKMK securities through his visits to various chat rooms from December 2005 through April 2007. Glisson also found sellers and buyers of unregistered CMKM securities through referrals from his suppliers and customers. 26. Glisson went to the chat room Pal Talk, which has multiple “rooms.”
Glisson regularly visited Pal Talk rooms called “Pro CMKX” and “The Belgium’s Room,” and other chat rooms, where he exchanged posts about CMKM. Glisson visited another chat room named Pro Board, where he also used the alias “Deli Dog.” Glisson also visited a chat room named Willy Wizard’s Underground, where he used the alias “Deli Dog” and participated in chats relating to CMKM securities. 27. In the Internet chat rooms, Glisson posted that he was buying and
selling CMKM stock, and posted his telephone number. Persons who wanted to talk to Glisson about the purchase and sale of CMKM stock usually called Glisson or sent him an email to inquire about his interest in and the terms of any such transaction. 28. During the period between December 2005 and at least August 2007,
Glisson talked to CMKM shareholders every day. Every day Glisson met with CMKM shareholders face to face, on the computer, and/or on the telephone.
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Everywhere Glisson went he met with CMKM shareholders. When Glisson gathered with other CMKM shareholders they talked about CMKM shareholders, meetings, about the company, about each other, and what was going on in their lives. 29. People who wanted to sell their CMKM shares contacted Glisson
through Pal Talk, Internet, e-mail, and telephone. Glisson posted his telephone number on the Internet and made it known that he was willing to purchase CMKM shares. He did not post a price on the Internet, and never discussed price until he was contacted. There was a board called the “66 Board” that Glisson would call “bashers.” These were people who wanted to sell their CMKM stock. Glisson purchased stock from people on the “66 Board.” 30. Glisson typically offered to buy CMKM stock for “trip one,” or
$0.0001 per share. However, Glisson also paid “trip two” ($0.0002) up to “trip five” ($0.0005) for deregistered CMKM stock during the period from December 2005 through April 2007. 31. Before buying deregistered CMKM stock, Glisson verified with 1st
Global that the certificate was valid. 32. After verifying that the certificate was valid, Glisson would instruct
the seller to send him the certificate and Glisson would send the money, either by cashier’s check or by wire. Glisson would wire the money from whatever financial institution he was working out of at the time, either Blackhawk or BofA. 33. Glisson bought CKM stock in transactions with individuals in the United
States and Canada. Glisson used the Internet, the telephone, mail, and bank wire services to effect his purchases of CMKM stock, in interstate commerce. Glisson sometimes paid for his purchases of CMKM stock using wire transfer facilities. 34. During the period from December 2005 through May 2006, Glisson
sometimes used written agreements to set forth the terms of his purchases of
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CMKM stock, which were titled “Stock Sell-Purchase Agreement.” Joint Pretrial Order, Section III (Admitted Facts) at ¶ 22. See also Joint Exhibits 3233, 3234, 3235, 3236, 3237, 3238, 3243, 3245, 3246, 3091, 3092, 3252, and 3253. Glisson developed the agreement to use for his CMKM stock purchases. 35. Also during this period, Glisson had some sellers execute letters
waiving all rights to any dividends or cash settlements associated with the CMKM stock he was purchasing. Joint Pretrial Order, Section III (Admitted Facts) at ¶ 22. See also Joint Exhibits 3231, 3232, 3239, 3240, 3241, 3242, 3244, 3247, 3248, 3250, and 3254. 36. Glisson was assisted in finding CMKM stock by individuals he met
through the internet, who procured stock for Glisson. Two such individuals are Steven Brewer and Michael Wright. 37. For the period between December 2005 through April 2007, when
Glisson was contacted by a prospective purchaser of CMKM stock, Glisson typically provided such prospective purchasers with (1) his contact information, (2) a price schedule for CMKM securities setting prices of between $0.0003 to $0.00025 per share depending on the number of shares being purchased, and (3) payment instructions including wire transfer information and an address for mailing payment. 38. After Glisson received a communication from a person who wanted to
purchase CMKM securities, Glisson required payment before consummating the transaction. Glisson charged a $50 fee for each CMKM certificate that he sold, during all relevant periods, including December 2005 through April 2007, and 2010. 39. Typically, after receiving payment, Glisson sent a letter of instruction
to the transfer agent to cancel one certificate and issue new certificates to the purchasers of such stock per Glisson’s letter of instruction. The transfer agent
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usually was asked to send the newly issued certificates to Glisson, or to hold them for pick-up. 40. From December 2005 through April 2007, Glisson sent instructions to
1st Global using Federal Express or U.S. Mail overnight services. 1st Global charged Glisson a fee of between $16.50 and $17.50 for each certificate that Glisson requested be cancelled, and between $16.50 and $17.50 for each new certificate that Glisson had issued. 41. When Glisson received the CMKM stock certificates from the transfer
agent, he made a copy and then sent the stock certificates to the buyers. Glisson also filled out a CMKM Task Force registration form for each new certificate, and when he got a large amount of such forms, Glisson put the CMKM Task Force registration forms into an envelope and shipped them to the CMKM Task Force. 42. The CMKM Task Force recorded owners of CMKM certificates in an
effort to confirm the CMKM shares that were validly issued and outstanding. The CMKM Task Force was not an official governmental entity, but rather was something affiliated with CMKM. 43. Numerous letters of instruction were sent by Glisson to 1st Global, to
transfer of billions of shares of deregistered CMKM stock. During the period from December 2005 to May 2006, Glisson sent over 70 letters of instruction to the transfer agent to direct the transfer of more than 8 billion shares of CMKM stock. A summary of the letters shows that Glisson transferred CMKM stock to hundreds of buyers or other recipients. 44. Although Glisson sold CMKM stock again from September 2006
through April 2007, Glisson produced letters of instruction to the stock transfer agent only for the period from September 2006 to January 2007. Glisson sent approximately 19 letters to the transfer agent during that period. A summary of the
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letters shows that Glisson directed the transfer of over 35 billion shares in that four month period, to over a thousand buyers or other recipients. 45. In late 2006, Glisson “parked” large amounts of CMKM stock with
Tungwongsathong because he was in the process of divorcing Padilla. 46. Glisson posted in Internet chat rooms and expressed the opinion to
potential purchasers of CMKM that it was the stock of a lifetime and a great opportunity, or that once they bought and the shares were registered with the CMKM Task Force, they just had to sit back and wait for the assets to be given out. 47. Glisson told prospective purchasers that they may be running out of
time if there was some cash payout in the next 30 to 60 days, or that time was running out, or that he was getting low on shares. Glisson told prospective purchasers in early 2006 to expect a payout in May or June. 48. Glisson told prospective purchasers that the more CMKM shares they
purchased, the better price he would give them. 49. Some of the people to whom Glisson sold CMKM stock in 2005-2007
were people that Glisson did not know and never met. 50. Some of the people from whom Glisson purchased CMKM shares
were people that Glisson did not deal with directly. For example, Glisson purchased shares held in the name of a third party, Monte Verde Holdings and/or Rendal Williams, who Glisson did not know and to whom he never spoke. Glisson purchased the Monte Verde/Rendal Williams shares from Steven Brewer. Glisson knew that Rendal Williams was the officer of a joint venture partner of CMKM. 51. In 2007, Glisson and Tungwongsathong purchased shares in
Wordsmith Media, Inc. On or about August 13, 2010, Wordsmith Media announced that it had received approval from the Financial Industry Regulatory
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Authority (“FINRA”) to quote its common stock on the “OTC Pink Sheets” under the ticker symbol WDIS. 52. In December 2005, there were approximately five accounts at
Blackhawk Community Credit Union (“BCU”) associated with either Glisson, Padilla, or Deli Dog House. A sixth account was opened in May 2006. Of these accounts, transactions related to CMKM securities occurred in three accounts: (1) Account No. ##8307, primary account holder Marco Glisson, held jointly with Alma Padilla (“BCU 8307 Account”); (2) Account No. ##3788 held in the name of Alma Padilla (“BCU 3788 Account”); and (3) Account No. ##7650 held in the name of Marco Glisson (“BCU 7650 Account”). The BCU 8307 Account was closed on May 11, 2006, and the BCU 7650 Account was opened on the same date. 53. Glisson directed deposits and withdrawals into the BCU 8307
Account, BCU 3788 Account, and BCU 7650 Account, relating to purchases and sales of CMKM securities. 54. Beginning in December 2005 through at least November 2006,
Glisson instructed persons who purchased CMKM stock from him to wire funds to, at various times, the BCU 3788 Account, the BCU 8307 Account, and after May 2006, the BCU 7650 Account. In accordance with Glisson’s instructions, individuals who purchased CMKM securities from Glisson during this period wired funds into the accounts Glisson specified, or sent checks to Glisson which were then deposited into one of the three accounts. 55. Most of the incoming wire transfers shown on Exhibit 16 are from
persons who purchased CMKM shares from Glisson. Exhibit 16 lists approximately 497 wire transfers into the three accounts, which total $1,960,844.60. These incoming wire transfers are proceeds from Glisson’s sale of CMKM shares.
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Glisson used funds from the three accounts included in Exhibit 16 to
purchase CMKM shares from third parties. Exhibit 16 lists approximately 56 separate wire transfers out of the three accounts, which total $1,522,632.00. A November 17, 2006 wire transfer in the amount of $105,000.00 from the 7650 Account was to one of Tungwongsathong’s accounts, held POD Glisson, at BofA, BofA 9145 Account. 57. In August 2006, Tungwongsathong opened two bank accounts at
BofA in Las Vegas: (1) the BofA 3830 Account, and (2) the BofA 9145 Account, which were designated as “Individual” accounts. In or around November 2006, Tungwongsathong designated Glisson as Payable on Death (“POD”) beneficiary of both accounts. At about the same time, Tungwongsathong changed the address for the account statements to the address of Glisson’s apartment in Las Vegas, at 2200 S. Fort Apache Rd., Apt. 2017, Las Vegas, Nevada. (Exhibit 49.) Shortly after Tungwongsathong changed the designation and address on her accounts, Glisson transferred $105,000 from his 7650 Account at Blackhawk to the BofA 9145 Account. 58. In late 2006 through at least May 2007, Tungwongsathong had two
accounts at Bank of America (“BofA”): (1) Interest Checking Account, Account No. #### #### 3830 (“BofA 3830 Account”); and (2) Balance Rewards Money Market, Account No. #### #### 9145 (“BofA 9145 Account”). Beginning in November 2006, Glisson instructed persons who purchased CMKM stock from him to make payments to Tungwongsathong by check or money order, or to wire funds to Tungwongsathong. In accordance with Glisson’s instructions, individuals who purchased CMKM securities from Glisson during this period sent payments as Glisson specified. These payments were deposited into the BofA 9145 Account, which was POD Glisson.
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Between November 2006 and May 2007, numerous deposits were
made into the BofA 9145 Account by Glisson, or at his direction, of checks and money orders that Glisson received through the mail from people who were purchasing CMKM stock from him. (See, e.g., Exhibits 49, 50, 51, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 82, 85, 86, 87, 88, 89, 90, 91, 92, and 93.) In addition, at Glisson’s direction, at least two people who purchased CMKM securities from Glisson were instructed by him to wire funds into the BofA 9145 Account. (See, e.g., Exhibit 68.) 60. Between December 2005 and May 2007, Glisson received gross
proceeds from sales of CMKM stock of at least $4,410,635.65. 61. Between December 2005 and May 2007, Glisson expended
$1,644,985 to purchase CMKM stock. 62. Between December 2005 and May 2007, Glisson netted at least
$2,765,650 from his sales of CMKM securities. B. Glisson’s 2010 CMKM Stock Transactions 63. In 2010, Glisson resumed his activities as an unregistered dealer in
CMKM securities, and sold CMKM securities for his own account as part of a regularly conducted business activity. Glisson used means and instrumentalities of interstate commerce to effect transactions in CMKM stock. 64. In 2010, Glisson continued to use “Deli Dog” as his alias when he
posted in Internet chat rooms about CMKM, and used the Deli Dog email address when communicating with people who wanted to buy CMKM stock from him. 65. In April 2010, CMKM contracted with Transfer Online to perform
transfer agent services for CMKM stock, which allowed for the cancellation and issuance of CMKM securities held in certificate form. 66. In connection with his 2010 CMKM sales, Glisson corresponded via
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email with prospective purchasers of CMKM securities. (See Exhibits 127 and 140.) Glisson sent, or caused to be sent, communications to CMKM’s new transfer agent, Transfer Online, which contained instructions for the transfer of CMKM shares to third parties. (See, e.g., Exhibits 97 to 110.) 67. In 2010, Tungwongsathong had three bank accounts at Sun Trust Bank
in Florida: (1) Account No. #########8392 (“ST 8392 Account”); (2) Account No. #########8651 (“ST 8651 Account”); and (3) Account No. #########2437 (“ST 2437 Account”). Glisson was designated as a Payable on Death (“POD”) beneficiary on each of the accounts. The ST 8392 Account and ST 8651 Account were both active as of May 2008. The ST 2437 Account was opened in or around July 15, 2010. The address on the statements for all three accounts was 3823 Tamiami Trail East, #567, Naples, Florida 34112-6224, which was a rented mailbox Glisson used to receive his mail. (See Exhibits 406-1 to 406-6.) 68. For his sales of CMKM stock in 2010, Glisson directed purchaser to
make payments to Tungwongsathong. 69. Glisson deposited, or caused to be deposited, proceeds from 2010
sales of CMKM stock into the ST 8651 Account, which was POD Glisson. 70. In 2010, Glisson regularly used the Internet, telephones, and mail to
communicate with purchasers of CMKM securities. (See, e.g., Exhibits 127 and 140.) 71. In 2010, Glisson regularly communicated with the new transfer agent
for CMKM, Transfer Online, using the mails, Internet, and telephone, to transfer CMKM shares to those who purchased from him. 72. In April 2010, Glisson admitted to a third party that he sold over
$200,000 of CMKM stock in a single week; he wanted to “dump” some of his CMKM stock while there was some excitement about a lawsuit that had been filed by some CMKM shareholders; that he was in the business of selling CMKM
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securities; and that he needed a place to “park” $400,000. Glisson’s Failure to Preserve Relevant Files 73. The Commission issued a subpoena to Glisson on March 15, 2007,
which required Glisson to produce documents and to testify. Glisson printed out about 176 pages of emails and other documents at some point after he received the subpoena. However, shortly thereafter, in May 2007, Glisson claimed that his laptop computer went missing from his vehicle at a race event he was attending in Rockingham, North Carolina. Glisson testified that the computer had CMKM related documents on it when it went missing, and which may not have been printed. Glisson testified that his ex-wife, Alma Padilla, had misplaced another laptop that he would have used prior to October 2006, and would not let him have access to the desktop computer he left in Wisconsin. 74. At his deposition in 2011, Glisson reported that the laptop computer
he had used for the prior couple of years had crashed and “the hard drive burned up” in mid-December 2010 – at about the time that the Commission was moving to re-open discovery. Glisson testified that as a result he was able to recover “very little” from that laptop. 75. Glisson’s failure to retain or secure these computers made it
impossible for Glisson to comply with his obligations to preserve and then produce all relevant documents in response to validly issued subpoenas.1 CONCLUSIONS OF LAW A. Glisson Violated Section 15(a)(1) Of The Exchange Act By Acting As An Unregistered Broker And Dealer 76.
See, e.g., Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (giving jury instruction that jury is to take adverse inference from fact that party did not preserve relevant emails).
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It shall be unlawful for any broker or dealer which is either a person other than a natural person or a natural person not associated with a broker or dealer which is a person other than a natural person (other than such a broker or dealer whose business is exclusively intrastate and who does not make use of any facility of a national securities exchange) to make use of the mails or any means of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) unless such broker or dealer is registered in accordance with subsection (b) of this section. 15 U.S.C. § 78o(a)(1). 77. Scienter is not an element of a violation of Section 15(a). See SEC v.
Offill, 2012 WL 246061, at *5 (N.D. Tex. Jan. 26, 2012); SEC v. Radical Bunny, LLC, Case No. CV-09-1560-PHX, 2011 WL 1458698, at *6 (D. Ariz. April 12, 2011) (citing SEC v. Alliance Leasing Corp., No. 98-CV-1810-J (CGA), 2000 WL 35612001, at *6 (S.D. Cal. Mar. 20, 2000)). 78. The broker-dealer registration requirement of the Exchange Act is
intended to protect investors against manipulation of stock prices through regulation of transactions upon securities exchanges and in over-the-counter markets. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195 (1976) (citing S. Rep. No. 792, 73d Cong., 2d Sess., 1-5 (1934)). The requirement that brokers and dealers register is of the utmost importance in effecting the purposes of the Exchange Act. The registration requirement enables the SEC to exercise discipline over those who may engage in the securities business and it establishes necessary
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standards with respect to training, experience, and records. See, e.g., Regional Properties, Inc. v. Financial and Real Estate Consulting Co., 678 F.2d 552, 561 (5th Cir. 1982) (citing Eastside Church of Christ v. National Plan, Inc., 391 F.2d 357, 362 (5th Cir. 1968)). 79. Many legitimate brokerage firms operate as both brokers and dealers,
and because both brokers and dealers are subject to the registration requirements under the federal securities laws, the term “broker-dealer” is frequently used in the securities industry almost interchangeably with the terms “broker” and “dealer,” with little distinction given to the different type of trading activities involved. See Couldock & Bohan, Inc. v. Societe Generale Sec. Corp., 93 F. Supp. 2d 220, 223 n.1 (D. Conn. 2000) (citing David A. Lipton, A Primer on Broker-Dealer Registration, 36 Cath. U.L. Rev. 899, 909-10 (1987)). 1. 80. Glisson Was A Dealer Of Unregistered CMKM Shares
Section 3(a)(5)(A) of the Exchange Act defines the term “dealer”: “In
General.—The term ‘dealer’ means any person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise.” 15 U.S.C. § 78c(a)(5)(A). 81. Section 3(a)(5)(B) further provides: “Exception for Person Not
Engaged in the Business of Dealing.—The term ‘dealer’ does not include a person that buys or sells securities for such person’s own account, either individually or in a fiduciary capacity, but not as part of a regular business.” 82. Determining whether someone is “‘engaged in the business’ of a
dealer is the ‘regularity of [his] participation’ in the buying and selling of securities for his own account.” See, e.g., SEC v. Offill, 2012 WL 246061, at *7. See also SEC v. Ridenour, 913 F.2d 515 (8th Cir. 1990); Eastside Church of Christ v. National Plan, Inc., 391 F.2d 357 (5th Cir. 1968); Couldock & Bohan, Inc. v.
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Societe Generale Sec. Corp., 93 F. Supp. 2d 220 (D. Conn. 2000). 83. In Couldock & Bohan, 93 F. Supp. 2d 220, plaintiff was a Connecticut
corporation in the business of arranging purchases and sales of non-equity securities. Plaintiff contended that it was not required to register as a broker or dealer because it arranged matched purchases and sales by others. In these “matched” transactions, the seller knew the plaintiff as the purchaser and delivered the securities to the plaintiff’s account; and on the other side of the transaction, the buyer also knew the plaintiff as the seller and delivered funds to the plaintiff’s account. In other words, like Glisson, the plaintiff in Couldock & Bohan was in the middle of the transaction. The court explained why plaintiff’s actions under such circumstances qualified it as a “dealer” as defined in the Exchange Act: In Plaintiff’s transactions, however, the buyer and seller were never put in contact with each other, either directly or indirectly through their own clearing brokers. It is clear that Plaintiff was not merely matching buyers and sellers, but rather was placing itself squarely in the middle of each transaction in order to reap the profits from the spread, i.e., the price difference between the buy and sell sides of the transactions, for its own account. The Court thus has no difficulty in discerning from the undisputed facts that Plaintiff was a buyer and seller of securities for its own account as part of its regular business, and thus was a dealer of securities as defined in the Exchange Act. Id. at 229. 84. In SEC v. Ridenour, 913 F.2d 515 (8th Cir. 1990), over a two year
period between 1979 and 1981, defendant Ridenour effected on his own behalf over 100 “matched transactions” in which he would buy a security from a client,
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and then resell the same security within a short period of time at a profit. Id. at 516. The Eighth Circuit found Ridenour’s arguments that he was not required to register as a broker-dealer to be “unavailing,” because the level of activity – over 100 matched transactions in two years – “made him more than an active investor.” Id. at 517. 85. In SEC v. Offill, the defendant regularly bought and sold securities for
his own account in transactions involving a substantial number of shares and money – more than 3 million shares of two issuers for more than $250,000. The court found that such activity was not that of a person “buying and selling as an individual investor making isolated transactions,” but rather the only conclusion was that defendant was “'engag[ing] in the business’ of buying and selling securities,” and was therefore a “dealer” under Section 3(a)(5) of the Exchange Act. SEC v. Offill, 2012 WL 246061, at *9. 86. Glisson’s conduct meets the statutory definition of a dealer because he
did a regular business in CMKM securities. Glisson’s letters of instruction to 1st Global establish the regularity of Glisson’s business by showing how often Glisson was ordering transfers CMKM shares (several times a day on some days, and several times a week in some weeks), the volume of shares Glisson was buying and selling (over 30 billion), and the number of people with whom Glisson was transacting shares (over 1,000). 87. Glisson also developed a regular method for dealing with prospective
buyers. Glisson sent prospective buyers his price list, informed them that he charged a fee for each certificate, required payment in advance, and provided the additional service of “registering” certificates with the CMKM Task Force. 88. Although profitability is not one of the criteria for being a dealer, as
the Couldock court observed, putting oneself in the middle of stock transactions
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and collecting the spread is another sign that a person is a dealer. Glisson was “buying low and selling high wherever possible.”2 Glisson set the price at which he would buy, and the price at which he would sell, and his profit was the spread or his mark-up. Glisson self-cleared his purchases and sales, handling the final exchange of securities for cash on delivery.3 89. Therefore, Glisson’s activity establishes that his trading in CMKM
was more than just a hobby, or conduct of an active investor.4 Glisson bought and sold billions of shares to thousands of people, self-cleared the transactions, and collected millions of dollars, all in a stock that could not be bought and sold in the open market. Thus, Glisson was a dealer for the purposes of the Exchange Act. 2. Glisson Was A Broker Effecting Transactions In Unregistered CMKM Shares 90. Section 3(a)(4)(A) of the Exchange Act defines the term broker: “In
General.—The term ‘broker’ means any person engaged in the business of effecting transactions in securities for the accounts of others.” 15 U.S.C. § 78c(a)(4)(A). 91. As with the definition of dealer, Section 3 of the Exchange Act does
not specifically define the phrase “engaged in the business” of a broker, and similarly, various courts have described “engaged in the business” of a broker as “effecting transactions in” or “buying and selling,” securities. Offill, 2012 WL 246061, at *7. One court has held that “regularity of participation is the primary
Answer at ¶¶ 11, 12. 3 “Clearing, in the context of securities, consists of the comparison of the details of a transaction between brokers prior to settlement, and the final exchange of securities for cash on delivery.” Couldock &Bohan, 93 F. Supp. 2d at 223 n.4 (citing Dictionary of Finance and Investment Terms, 88-89 (Downes & Goodman, eds. 4th ed. 1995). 4 It is unclear how Glisson’s transactions in deregistered shares of CMKM would ever qualify as activities of a normal investor, since CMKM stock was not “tradeable,” but for Glisson setting himself up as a broker-dealer in CMKM stock.
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indicia of being engaged in the business” of a broker. Id. (citing SEC v. Kenton Capital, Ltd., 69 F. Supp. 2d 1, 12 (D.D.C. 1998)). Regularity of participation can be shown by such factors as the dollar amount of securities sold, and the extent to which advertisement or investor solicitation wee used. Id. 92. The Exchange Act also does not define “effecting transactions” for the
purposes of being a broker. In determining whether a person “effected transactions,” courts consider several factors, such as whether the person (1) solicited investors to purchase securities, (2) was involved in negotiations between the issuer and the investors, and (3) received transaction-related compensation. Id. (citing SEC v. Earthly Mineral Solutions, Inc., Case No. 2:07-cv-1057-JCM, 2011 WL 1103349, at *3 (D. Nev. March 23, 2011)). See also SEC v. U.S. Pension Trust Corp., 2010 WL 3894082, at *21 (S.D. Fla. Sept. 30, 2010) (listing 11 factors courts may consider when determining whether someone is a broker). 93. Moreover, when assessing whether someone is considered a “broker,”
courts have concluded that many of the activities that signify that one is a “dealer” under the federal securities laws also establish that one is a “broker” under the federal securities laws. For example, in Eastside Church of Christ v. National Plan, Inc., 391 F.2d at 362, after finding that the evidence showed conclusively that defendant was a broker, the Fifth Circuit addressed whether it was also a dealer. The Fifth Circuit found that the evidence that defendant bought and sold church bonds for its own account, and sold some bonds to others, “demands a finding” that defendant was a broker and a dealer: “National purchased many church bonds prior to the ones in question for its own account as part of its regular business and sold some of them. Thus National was a broker and a dealer within the meaning of the [Exchange] Act.” Id. 94. In addition, courts have stated that “regularity of participation is the
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primary indicia of being engaged in the business” of being a broker, with courts looking to the same factors for brokers as they do for dealers. SEC v. Kenton Capital, Ltd., 69 F. Supp. 2d 1, 12 (D.D.C. 1998). There is no specific dollar amount of transactions that is necessary to qualify as a broker, or level of solicitation. See, e.g., SEC v. Kenton Capital, 69 F. Supp. 2d at 13 (defendants collected $1.745 million from 12 investors and actively solicited participation); SEC v. National Executive Planners, Ltd., 503 F. Supp. 1066, 1073 (M.D.N.C. 1980) ($4.3 million of securities sold and solicited clients actively); Joseph McCulley, SEC No-Action Letter, 1972-73 Transfer Binder Fed. Sec. L. Rep. (CCH) ¶ 78,982, at 82, 111 (Aug. 2, 1972) (advertising “on a single isolated basis” is not enough, but more than that would require registration); SEC v. Deyon, 977 F. Supp. 510, 518 (D. Me. 1997) (finding that defendants “actively sought to effect securities transactions” and therefore were brokers). Being engaged in the business of being a broker may also be shown by: “(1) solicitation of investors to purchase securities, (2) involvement in negotiations between the issuer and the investor, and (3) receipt of transactionrelated compensation.” SEC v. Earthly Mineral Solutions, Inc., Case No. 2:07-cv1057-JCM, 2011 WL 1103349, at *3 (D. Nev. March 23, 2011) (citing SEC v. Hansen, 1984 WL 2413 (S.D.N.Y. Apr. 6, 1984)). 95. Here, Glisson actively sought to effect securities transactions, and
solicited investors, by posting on the Internet that he was buying and selling CMKM stock. As discussed above, Glisson received transaction-based compensation in two ways: (1) the spread between his purchase price and his sale price, and (2) a $50 per certificate fee. Glisson also negotiated with buyers and with sellers. Moreover, as also discussed above, Glisson regularly participated in transactions in CMKM stock. Glisson’s regular activity over a 15-month period generated over $4.4 million in sales of CMKM stock, or average monthly revenues
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of over $293,000. 96. In addition, Glisson was effecting transactions for the account of third
parties, and not just for his own account. Glisson ordered the transfer of stock from third parties, to other third parties, without himself ever taking title to the stock, and Glisson collected money from buyers and paid sellers, and collected CMKM certificates from sellers and provided CMKM certificates to his buyers. For example, on December 15, 2005, Glisson ordered the transfer of 25 million shares held in the name of Thomas and Tracy Butcher, to four purchasers.5 Glisson collected payments from the purchasers, and paid the Butchers for their shares, and collected and reissued stock certificates. Similarly, on November 7, 2006, Glisson ordered the transfer of 5 billion shares held in the names of Life Line Entertainment, Sirinucha N. Mulasastra, and Rick Walker, with approximately 1.8 billion transferred to about 249 purchasers, and the remaining 3.1 billion transferred into Glisson’s name.6 Again, Glisson did all the work cancelling the shares of the sellers, arranging for new certificates to be issued in the names of the buyers and distributing the certificates to the buyers, as well as collecting payments from the buyers, and paying the sellers for their shares. 97. as a broker. 3. Glisson Violated Section 15(a) Of The Exchange Act By Failing To Register As A Broker Or Dealer 98. Glisson concedes that he never registered as a broker or dealer, or Thus, a preponderance of the evidence shows that Glisson was acting
associated with a broker or dealer. As a result, having proven that Glisson was either a broker, or a dealer, or both, the Commission established its prima facie
See Joint Exhibit 3045. See Joint Exhibit 3018.
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case that Glisson violated Section 15(a) of the Exchange Act. 99. Glisson’s conduct demonstrates the importance of the broker-dealer
registration requirements. In his emails, Glisson trafficked in rumors about an impending dividend or payout to CMKM shareholders. Despite the fact that Glisson had hundreds of millions, and billions, of shares of CMKM, in his emails to prospective buyers Glisson suggested that shares were scarce and buyers had to act fast. Moreover, through his actions Glisson effectively nullified the Commission’s trading suspension, deregistration, and delisting of CMKM stock, which was done to protect investors from relying on unfounded rumors and inaccurate information. Instead, Glisson set himself up as a one man broker, dealer, and clearing agent for CMKM transactions. 100. Therefore, Glisson violated Section 15(a) of the Exchange Act. B. Glisson Violated Section 5 Of The Securities Act By Offering To Purchase And Sell, And By Selling, Deregistered CMKM Stock 101. Sections 5(a) and (c) of the Securities Act make it unlawful to offer or sell a security in interstate commerce if a registration statement has not been filed as to that security, unless the transactions qualifies as exempt from registration. 15 U.S.C. §§ 77c(a) & (c). The definition of a security includes a company’s stock. 15 U.S.C. § 77b(a)(1). 102. To state a prima facie case, the Commission must show: (1) no registration statement was in effect as to the securities; (2) the defendant, directly or indirectly, sold or offered to sell the securities; and (3) the sale or offer was made through interstate commerce or the mails. SEC v. Phan, 500 F.3d 895, 902 (9th Cir. 2007); SEC v. CMKM Diamonds, Inc., 2011 WL 3047476 (D. Nev. July 25, 2011). The Commission is not required to prove scienter to establish a violation. See Phan, 500 F.3d at 906; CMKM, 2011 WL 3047476, at * 2; SEC v.
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Softpoint, Inc., 958 F. Supp 846, 859 (S.D.N.Y. 1997), aff’d 159 F.3d 1348 (2d Cir. 1998). 1. The Undisputed Evidence Establishes A Prima Facie Violation Of Section 5 By Glisson 103. The Commission established its prima facie case that Glisson violated Section 5. Glisson admitted and stipulated that he bought and sold CMKM securities in interstate commerce. Glisson does not contest that a registration statement was not in effect. Glisson has admitted that he learned that CMKM stock had been deregistered and delisted in November 2005. 104. Thus, Glisson has essentially admitted to all the elements of a prima facie violation of Section 5. 2. Glisson Has The Burden Of Proving That He Is Entitled To Any Claimed Exemptions From Section 5 105. Once the Commission establishes a prima facie violation, the burden then shifts to Glisson to prove that the offer and sale transactions were exempt from the registration requirements. SEC v. Ralston Purina Co., 346 U.S. 119, 126 (1953); SEC v. Platforms Wireless International Corp., 617 F.3d 1072, 1086 (9th Cir. 2010). 106. Section 5, by its terms, is all embracing; it prohibits the offer or sale of unregistered securities. See Phan, 500 F.3d at 902. Exemptions from registration provisions are construed narrowly “in order to further the purpose of the Act, which is to provide full and fair disclosure of the character of the securities, and to prevent frauds in the sale thereof.” Platforms Wireless, 617 F.3d at 1086 (quoting SEC v. Murphy, 626 F.2d 633, 641 (9th Cir. 1980)). 107. Glisson asserts that his transactions are exempt from registration under Section 4(1) of the Securities Act, 15 U.S.C. § 77d(1), which exempts from
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the registration provisions “transactions by any person other than an issuer, underwriter, or dealer.” Specifically, Glisson asserts that he was not a dealer in CMKM stock, and thus is entitled to this exemption.7 108. However, Glisson cannot satisfy his burden of showing that this exemption applies here. As a threshold matter, this provision exempts transactions, not persons. Moreover, as discussed above with respect to the Commission’s Section 15 claim, the preponderance of the evidence establishes that Glisson was a dealer in CMKM stock. As a result, Glisson cannot to meet his burden of showing that his sales of CMKM were exempt under Section 4(1). C. Glisson Cannot Avail Himself Of A Reliance Of Counsel Defense
109. In the Joint Pretrial Order, Glisson asserts a reliance on counsel defense.8 110. The “reliance on counsel” defense may be asserted if it is established that the defendant (1) made a complete disclosure to counsel, (2) requested counsel’s advice as to the legality or appropriateness of the challenged conduct, (3) received advice that it was legal or appropriate, and (4) relied in good faith on that advice. SEC v. Goldfield Deep Mines Company of Nevada, 758 F.2d 459, 467 (9th Cir. 1985). The defendant has the burden of establishing each element of a reliance on counsel defense. Id. Moreover, if the defendant acted contrary to the advice or did not act in good faith, the defense is not available. United States v. Evangelista, 122 F.3d 112, 117 (2d Cir. 1997) . 111. This defense should be rejected here for a number of reasons. Glisson testified that he did not consult an attorney before he began selling CMKM in
See Joint Pretrial Order at Section I.B (Defendant’s Contentions), at p. 4. 8 See Joint Pretrial Order at Section VI.B (Defendant’s Statement of Issues of Law (including fact and law)), at ¶ 14.
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December 2005, or at any time, to determine if his actions were legal. Moreover because violations of Sections 5 and 15(a) are non-scienter based, an advice of counsel defense is not available. See SEC v. Holschuh, 694 F.2d 130, 137 n.10 (7th Cir. 1982) (“[G]ood faith is not relevant to whether there has been a primary violation of the registration requirements.”). 112. In addition, to assert a reliance on counsel defense, a defendant must waive privilege to establish that the elements of the defense. Glisson has not done so, and the Court should reject any arguments by Glisson that he relied on advice of counsel. D. The Court Should Impose Appropriate Remedies, Including Injunctive Relief, Disgorgement, Prejudgment Interest Thereon, A Third Tier Civil Penalty, And A Penny Stock Bar 1. Injunctive Relief Is Necessary And Appropriate
113. A permanent injunction against Glisson is necessary to enjoin him from future violations of the securities registration and the broker-dealer registration provisions of the federal securities laws. 114. Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d)(1), provide that a permanent injunction shall be granted upon a proper showing in actions brought by the Commission. To obtain a permanent injunction, the Commission must show “there [is] a reasonable likelihood of future violations of the securities laws.” Murphy, 626 F.2d at 655. “In predicting the likelihood of future violations, a court must assess the totality of the circumstances surrounding the defendant and his violations.” Id.; see also SEC v. Fehn, 97 F.3d 1276, 1295-96 (9th Cir. 1996). Foremost among these circumstances is the existence of past violations by the defendant, from which the Court may infer the likelihood of future violations.
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Murphy, 626 F.2d at 655. The factors that courts consider include “the degree of scienter involved; the isolated or recurrent nature of the infraction; the defendant’s recognition of the wrongful nature of his conduct; the likelihood, because of defendant’s professional occupation, that future violations might occur; and the sincerity of his assurances against future violations.” Murphy, 626 F.2d at 655; accord Fehn, 97 F.3d at 1295-96. 115. Here, the evidence establishes that Glisson has violated Section 15(a) of the Exchange Act and Section 5 of the Securities Act, which weighs in favor of an injunction. Moreover, Glisson has shown that the Court cannot credit any assurances he may provide against future violations. In his 2009 Declaration, Glisson swore that he would never sell CMKM stock again. While that declaration was on file and the Commission’s motion for summary judgment was pending, Glisson sold billions of shares of CMKM stock and realized additional profits of at least $1.6 million. Glisson has testified that he will buy and sell CMKM until a cease and desist order against him is put in place. Glisson’s conduct has extended over a period of almost five years, with stops and starts. 116. Thus, injunctive relief is necessary in this case. 2. Glisson Should Be Ordered To Disgorge His Ill-Gotten Gains And Pay Prejudgment Interest 117. Federal courts have broad equitable powers to order disgorgement of ill-gotten gains from securities law violators. SEC v. First Pacific Bancorp, 142 F.3d 1186, 1191 (9th Cir. 1998). Courts have “broad equity powers to order the disgorgement of ‘ill-gotten gains’ obtained through the violation of the securities laws.” Id. The purpose of disgorgement is to prevent unjust enrichment and to deter others from violating securities laws. Id. The amount of disgorgement should include all gains flowing from the illegal activities. SEC v. J.T.
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Wallenbrock & Assoc., 440 F.3d 1109, 1114 (9th Cir. 2006). 118. In calculating disgorgement, the Commission need only show “a reasonable approximation of profits”, or ill-gotten gains, “causally connected to the violation.” First Pacific Bancorp, 142 F.3d at 1192 n.6. A defendant may be ordered to disgorge the entire proceeds of an illegal offering whether or not he personally received the funds. Id. at 1191. 119. Once the Commission has established that the disgorgement figure reasonably approximates the unlawful proceeds, the burden of proof shifts to the defendant, who must demonstrate that the disgorgement figure is not a reasonable approximation. SEC v. Calvo, 378 F.3d 1211, 1217 (11th Cir. 2004); SEC v. Hughes Capital Corp., 917 F. Supp. 1080, 1085 (D.N.J. 1996), aff’d, 124 F.3d 449 (3d Cir. 1997). 120. A reasonable approximation of Glisson’s profits from acting as an unregistered broker and dealer, and buying and selling deregistered CMKM stock, is $2,765,650. This number is determined by adding CMKM-related deposits into various bank accounts Glisson used at different times between 2005 and 2007, which totaled $4,410,635.65. From this amount is deducted the costs Glisson incurred as a dealer in CMKM stock to buy stock, based upon available bank account information, which the Commission calculated as $1,644,985.00. This results in a reasonable estimate of profits of approximately $2,765,650.65.9 121. The Court should award prejudgment interest on the disgorgement amounts. Courts order prejudgment interest to ensure that the wrongdoer does not profit from the illegal activity. SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082,
Plaintiff’s Exhibits 508-5, 508-6, 527, and 528. Glisson has never produced a complete accounting of all his CMKM activities, or provided an estimate of his profit. Glisson has declared profits of around $1.2 million for tax purposes for 2006 and 2007, and Tungwongsathong declared profits of around $400,000 for 2007.
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1105 (2d Cir. 1972); SEC v. CMKM Diamonds, Inc., 635 F. Supp. 2d 1185, 1190 (D. Nev. 2009). The Commission has calculated prejudgment interest from July 1, 2007 – around the time Glisson stopped his CMKM business in 2007, through the first date of trial, which amounts to $670,574.79, and a total of disgorgement and prejudgment interest of $3,436,225.44.10 3. The Court Should Impose A Third Tier Civil Penalty In The Amount Of $1.4 Million 122. Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3), provide that the Commission may seek monetary civil penalties for violations of those Acts. The Securities Act and the Exchange Act provide that penalties be assessed according to a three tier system which corresponds to specified degrees of culpability. See 15 U.S.C. §§ 77t(d) & 78u(d)(3); CMKM, 635 F. Supp. 2d at 1191. Here the Commission seeks the imposition of a third tier penalty, which applies to violations of the Securities Act and Exchange Act that (1) involve “fraud, deceit, manipulation, or reckless disregard for a regulatory requirement”; and (2) “directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons.” 15 U.S.C. §§ 77t(d)(2)(C) & 78u(d)(3)(B)(iii). 123. In mid-2006, after being contacted by the SEC and the Wisconsin DFI, Glisson temporarily stopped his business of buying and selling CMKM securities. Glisson’s attorney sent letters to the DFI and SEC which stated that Glisson had ceased his activities in CMKM stock. However, Glisson stopped for only a short time, and resumed his activities in September 2006. /// ///
See Plaintiff’s Exhibits 508-5, 508-6, 527, and 528.
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124. In 2009, in connection with his effort to avoid summary judgment, Glisson swore to this Court that he would never sell CMKM again. Less than 6 months after making that sworn statement to the Court, and while the motion for summary judgment was pending, Glisson resumed his CMKM sales, deriving profits of $1.6 million. 125. Glisson’s conduct, in stopping, assuring regulators and/or the Court that he will not do it again, and then reneging on such promises and oaths, is evidence of a reckless disregard of a regulatory requirement. Glisson’s conduct also directly or indirectly resulted in a substantial loss or risk of loss to investors. Glisson admitted that when CMKM stock was deregistered, it was deemed worthless and was not tradeable. Glisson’s brokerage account statements from that period show the stock as worthless. In 2009, Glisson asserted in a sworn statement that his holdings of CMKM stock were “worthless.” Yet Glisson peddled his admittedly worthless holdings of CMKM to thousands of gullible purchasers, raking in millions of dollars in profits, in early 2010. 126. A third tier penalty can be in an amount equal to the defendant’s pecuniary gain. Glisson’s pecuniary gain, as measured by the disgorgement figure, is about $2.7 million. Glisson’s 2010 sales of deregistered CMKM generated another $1.6 million of pure profit. In view of Glisson’s reckless disregard for regulatory requirements and the substantial losses likely caused by Glisson’s conduct, a third tier civil penalty in the amount of $1.4 million should be imposed against Glisson. /// /// /// ///
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Glisson Should Be Barred From Participating In Any Offering Of Penny Stock
127. Section 21(d)(6) of the Exchange Act, 15 U.S.C. § 78u(d)(6), allows a federal court to impose a penny stock bar in Commission actions “against any person participating in, or, at the time of the alleged misconduct, who was participating in, an offering of penny stock.” Section 21(d)(6)(B) of the Exchange Act defines a “person participating in a penny stock offering” as “any person engaging in activities with a broker, dealer, or issuer for the purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of, any penny stock.” 128. At all times, CMKM was a penny stock because it was an equity security priced at less than five dollars a share – indeed, it was priced at fractions of a cent a share. See Section 3(a)(51) of the Exchange Act, 15 U.S.C. § 78c(a)(51), and Rule 3a51-1(d), 17 C.F.R. § 240.3A51-1(d) (“For the purposes of Section 3(a)(51) of the Act, the term ‘penny stock’ shall mean any equity security other than a security: (d) ….that has a price of five dollars or more.”) 129. When deciding whether to impose a penny stock bar, courts consider a variety of factors, including: (1) the egregiousness of the underlying securities law violation; (2) the defendant’s repeat offender status; (3) the defendant’s role or position when he engaged in the fraud; (4) the defendant’s degree of scienter; (5) the defendant’s economic stake in the violation; and (6) the likelihood that the misconduct will recur. SEC v. Abellan, 2009 U.S. Dist. Lexis 113450 (W.D. Wash. Dec. 7, 2009). 130. Here, Glisson was central to the violations of the federal securities laws involving a penny stock. Glisson’s conduct resulted in a Commission deregistration order being circumvented for the personal financial benefit of Glisson. Glisson repeated the actions at different periods, and made false promises
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to this Court and regulatory authorities that he had ceased his activity, or would never do it again. In view of his past conduct, it is highly likely that Glisson’s misconduct will recur. A penny stock bar is therefore appropriate.
/s/ John B. Bulgozdy John B. Bulgozdy David J. VanHavermaat Attorneys for Plaintiff Securities and Exchange Commission
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On April 2, 2012, I caused to be served the document entitled PLAINTIFF SECURITIES AND EXCHANGE COMMISSION’S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW on all the parties to this action addressed as stated on the attached service list: [ ] OFFICE MAIL: By placing in sealed envelope(s), which I placed for collection and mailing today following ordinary business practices. I am readily familiar with this agency’s practice for collection and processing of correspondence for mailing; such correspondence would be deposited with the U.S. Postal Service on the same day in the ordinary course of business. [ ] PERSONAL DEPOSIT IN MAIL: By placing in sealed envelope(s), which I personally deposited with the U.S. Postal Service. Each such envelope was deposited with the U.S. Postal Service at Los Angeles, California, with first class postage thereon fully prepaid. EXPRESS U.S. MAIL: Each such envelope was deposited in a facility regularly maintained at the U.S. Postal Service for receipt of Express Mail at Los Angeles, California, with Express Mail postage paid.
HAND DELIVERY: I caused to be hand delivered each such envelope to the office of the addressee as stated on the attached service list. UNITED PARCEL SERVICE: By placing in sealed envelope(s) designated by United Parcel Service (“UPS”) with delivery fees paid or provided for, which I deposited in a facility regularly maintained by UPS or delivered to a UPS courier, at Los Angeles, California. ELECTRONIC MAIL: By transmitting the document by electronic mail to the electronic mail address as stated on the attached service list. E-FILING: By causing the document to be electronically filed via the Court’s CM/ECF system, which effects electronic service on counsel who are registered with the CM/ECF system. FAX: By transmitting the document by facsimile transmission. The transmission was reported as complete and without error. I declare under penalty of perjury that the foregoing is true and correct.
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