Court Opinion

ID: 4704910
Source: CourtListenerOpinion
Date Created: 2021-07-20 18:03:36.793563+00
Date Added: 2024-06-11T08:05:55.514599
License: Public Domain

Filed 7/20/21 Stengell v. Cal. Dept. of Business Oversight CA2/4
              NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

         IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                                DIVISION FOUR

STEVE S. STENGELL,                                                     B304525

         Plaintiff and Appellant,                                      (Los Angeles County
                                                                        Super. Ct. No. BS174621)
         v.

CALIFORNIA DEPARTMENT
OF BUSINESS OVERSIGHT et al.,

         Defendants and Respondents.

         APPEAL from a judgment of the Superior Court of Los Angeles
County, Daniel S. Murphy and Mary H. Strobel, Judges. Affirmed.
         Baker Law Group and John H. Baker for Plaintiff and Appellant.
         California Department of Financial Protection and Innovation,
Manuel P. Alvarez, Mary Ann Smith and Jeremy F. Koo for Defendants
and Respondents.
        Steve S. Stengell appeals from a judgment denying his petition for
writ of administrative mandamus. His petition challenged the decision
of the Commissioner of Business Oversight (Commissioner)1 finding
that Stengell committed six violations of Corporations Code2 section
25401 and six violations of a prior order to desist and refrain from
violations of section 25401.3 The violations involved misrepresentations
and/or omissions in a confidential private placement memorandum
(PPM) for prospective investors in an oil and gas exploration
partnership called Grimes County #4. Stengell contends on appeal that
(1) the trial court erred by applying the substantial evidence standard
of review, rather than the independent judgment test, in its review of
Commissioner’s decision; (2) none of the alleged misrepresentations or
omissions in the PPM were material; (3) the trial court erred by denying
Stengell’s request that it take judicial notice of the date an investor
filed a complaint regarding Grimes County #4 with the Department;
and (4) laches bars Commissioner’s order. We conclude that we need

1      Commissioner is the head of the California Department of Business
Oversight, which, as of September 29, 2020, is referred to as the Department
of Financial Protection and Innovation. (Stats. 2020, ch. 264, §§ 6, 32.) We
refer to either as “the Department.”

2       Further undesignated statutory references are to the Corporations
Code.

3      The version of section 25401 that was in effect at the time the acts were
committed is virtually identical (with minor grammatical and punctuation
changes) to the current version, which was in effect at the time the
enforcement action was filed and heard. (Compare Stats. 1968, ch. 88, § 2 (in
effect from 1969 to 2013) with Stats. 2015, ch. 190, § 19.)

                                       2
not decide which standard of review applied, because the trial court
found it would reach the same result under either standard. We also
conclude that the court did not abuse its discretion in denying Stengell’s
request for judicial notice, and that substantial evidence supports the
court’s rulings as to all issues.

                              BACKGROUND
      In February 2011, Allied Energy, Inc. (Allied Energy) issued a
PPM offering for sale to accredited investors securities in the form of 75
units of partnership in Grimes County #4, a Kentucky general
partnership. Allied Energy was the managing general partner of
Grimes County #4. Stengell was the president and chairman of the
board of directors of Allied Energy at the time the PPM for Grimes
County #4 was issued.
      In March 2011, Allen J. Ebens, Jr. received an unsolicited call at
his office in California from Bill Moore, who introduced Ebens to Allied
Energy and told him about the Grimes County #4 investment
opportunity. Moore explained that Grimes County #4 was a gas drilling
operation,4 and told Ebens that if he wanted to purchase a unit, he
would have to move quickly. Moore sent Ebens the PPM by Federal
Express to his home in San Carlos, California. On March 26, 2011,
Ebens purchased one unit in Grimes County #4, for $128,428.

4     Specifically, Grimes County #4 was an investment in a working
interest in one horizontal well to be drilled in Grimes County, Texas.

                                      3
      On May 23, 2017, Commissioner issued a desist and refrain order
and a notice of intention to issue an order levying administrative
penalties against Stengell, other executives and/or directors of Allied
Energy, and Allied Energy and its related entities. The desist and
refrain order and statement in support of order levying administrative
penalties alleged that Stengell and the other respondents had willfully
violated section 25401, and had violated a desist and refrain order
Commission had issued in 2007, by misrepresenting or failing to
disclose certain material facts in connection with the offer and/or sale of
securities (i.e., units in Grimes County #4) to at least one investor in
California.5
      Stengell and three of the individual respondents requested a
hearing, which was held before an administrative law judge (ALJ).
After a two-day hearing, the ALJ issued a proposed decision, with
findings of fact and conclusions of law, affirming in part the desist and
refrain order (the ALJ found that one of the alleged omissions did not
constitute an omission of a material fact, but that the other alleged
omissions were material) and affirming the order levying
administrative penalties (although the ALJ reduced the amount of
penalties). The ALJ rejected Stengell’s argument that laches barred
Commissioner’s action, noting that “[t]he evidence presented did not
establish when the Department was notified of respondents’
misconduct” and that there was insufficient evidence to establish

5      We discuss the specific misrepresentations and omissions in section C.
of the Discussion, post.

                                      4
prejudice caused by the delay in bringing the enforcement action.
Commissioner subsequently issued an order of decision, adopting the
ALJ’s proposed decision in full.
     Stengell filed a petition for writ of administrative mandamus in
the superior court. In his petition, Stengell alleged that laches barred
the desist and refrain order and order levying administrative penalties,
and that none of the alleged misrepresentations or omissions were
actionable because there was no substantial likelihood that any of the
omitted facts would have been viewed by a reasonable investor as
important in deciding whether to invest. Stengell also asserted that
Commissioner’s order was subject to the trial court’s independent
judgment review, arguing that his fundamental vested right was at
stake because the order will affect his ability to raise money in future
oil and gas syndications.
     The trial court held a trial setting conference three months after
the petition was filed, during which counsel advised the court that the
administrative record would be ready shortly. Four days later, Stengell
filed a request for judicial notice, which attached a document that had
not been included in the administrative record—an unauthenticated
copy of a complaint filed by Ebens with the Department—and asked the
court to take judicial notice of the date stamp on the document. The
court did not immediately rule on Stengell’s request, deferring its ruling
until submission of the entire matter.
     In his opening brief on the petition, Stengell argued (1) the trial
court should exercise its independent review in reviewing
Commissioner’s orders because Stengell’s fundamental right is at stake;

                                    5
(2) none of the alleged misrepresentations or omissions were material;
and (3) laches barred Commissioner’s action. The Department and
Commissioner argued that the independent judgment standard of
review did not apply, that the ALJ’s decision was supported by
sufficient findings, and that those findings (including the findings
regarding materiality) were supported by substantial evidence.6 The
Department and Commissioner also argued that laches did not apply
against an administrative action to enforce a statutory scheme designed
to protect the public, and that even if it could apply, Stengell did not
cite to any admitted evidence sufficient to meet his burden of proof.
The Department and Commissioner noted that although Stengell filed a
request for judicial notice, he did not move to augment the
administrative record with the requested document. In his reply,
Stengell asserted that he was not required to move to augment the
record in light of his request for judicial notice.
      Following a hearing, the trial court (Judge Daniel S. Murphy,
presiding) issued a detailed ruling. The court first addressed Stengell’s
request for judicial notice of the complaint Ebens filed with the
Department and the date stamp on the complaint. The court found that
by filing a request for judicial notice, Stengell impliedly sought to
augment the administrative record without making a proper motion to
augment under Code of Civil Procedure section 1094.5, subdivision (e),

6      Although the relevant review is of Commissioner’s findings and
decision, since Commissioner adopted the ALJ’s proposed decision in full, we
will refer to the ALJ’s findings and decision.

                                      6
and that he failed the make the required showing under that statute
that the Ebens complaint could not have been produced or was
improperly excluded in the administrative proceedings. In any event,
the court found that Stengell failed to provide sufficient foundation for
his request for judicial notice because neither the complaint nor the
date stamp were authenticated. Therefore, the court denied Stengell’s
request.
     The court also rejected Stengell’s assertion that the independent
judgment test applied to its review of Commissioner’s decision, finding
that although the decision limits Stengell’s ability to offer and sell
securities in California, Stengell failed to show, with citations to the
record, that the decision would destroy any business in which he was
involved or prevent him from engaging in a profession. Therefore, the
court concluded that the substantial evidence test applied.
     Addressing Stengell’s laches argument, the court rejected
Stengell’s request that the court make an independent ruling on laches,
noting that the court’s inquiry on a petition under Code of Civil
Procedure section 1094.5 is whether Commissioner and/or the
Department prejudicially abused their discretion in finding that laches
did not bar the administrative action. The court observed that none of
the statements Stengell relied upon to try to establish when the
Department was first notified of the alleged misconduct was admitted
as evidence at the administrative hearing, and that Stengell also
presented no evidence to establish he was prejudiced by the delay in
bringing the charges. Therefore, the court found that substantial
evidence supported Commissioner’s conclusion that the administrative

                                     7
action was not barred by laches. The court also found that even if the
independent judgment test applied, the weight of the evidence
supported the conclusion that the action was not barred.
     The court then examined each of the misrepresentations or
omissions Commissioner/the ALJ found to be material and concluded
that Commissioner/the ALJ made sufficient findings in support of the
materiality determinations, and that substantial evidence supported
those findings. The court also observed that even if the independent
judgment test applied, it found that the weight of the evidence
supported the findings regarding the material misrepresentations or
omissions.
     The trial court (Judge Mary H. Strobel, presiding) subsequently
entered judgment denying the petition for writ of administrative
mandamus, from which judgment Stengell timely filed a notice of
appeal.

                             DISCUSSION
     As noted, Stengell raises four issues on appeal. We first address
his contention that the trial court applied the incorrect standard of
review in its review of Commissioner’s decision. Next, we address his
contentions that the trial court erred by denying his request for judicial
notice and by rejecting his assertion that laches bars Commissioner’s
action. Finally, we examine whether the trial court’s decision upholding
Commissioner’s findings that the misrepresentations and/or omissions
in the PPM were material is supported by substantial evidence.

                                    8
A.    Standards of Review
      1.    Standard of Review in Trial Court
      “‘Under Code of Civil Procedure section 1094.5, there are two
alternative standards of review that a trial court uses to review
[challenges to an agency’s factual findings raised by] a petition for writ
of administrative mandamus. [Citation.] “If the administrative
decision involved or substantially affected a ‘fundamental vested right,’
the superior court exercises its independent judgment upon the
evidence . . . . [Citations.]” [Citations.] “Where no fundamental vested
right is involved, the superior court’s review is limited to examining the
administrative record to determine whether the adjudicatory decision
and its findings are supported by substantial evidence in light of the
whole record.”’ [Citation.] ‘Courts determine on a case-by-case basis
whether a right is “vested” and “fundamental,” taking into account both
economic effects and effects “in human terms and the importance of [the
right] to the individual in the life situation.”’ [Citation.] . . . ‘“[T]he
ultimate question in each case is whether the affected right is deemed
to be of sufficient significance to preclude its extinction or abridgement
by a body lacking judicial power.”’ [Citations.]” (Alpha Nu Assn. of
Theta XI v. University of Southern California (2021) 62 Cal.App.5th
383, 408-409 (Alpha Nu), fn. omitted.)
      Stengell contends the trial court erred by finding that Stengell’s
fundamental vested rights were not involved and concluding that
Commissioner’s decision should be reviewed under the substantial
evidence standard of review. He argues (without citation to any
evidence in the record) that his “right to make a living raising money in

                                       9
the oil and gas business will be significantly abridged if not
extinguished” if Commissioner’s decision stands. Therefore, he argues
the trial court should have examined the decision under the
independent judgment standard of review.
     We need not determine which standard of review was the
appropriate standard—although we note that “‘[c]ourts have rarely
viewed purely economic interests, such as the right to profit under a
particular business venture, as a fundamental vested right.’” (Alpha
Nu, supra, 62 Cal.App.5th at p. 409; see also Benetatos v. City of Los
Angeles (2015) 235 Cal.App.4th 1270, 1282 [city’s imposition of
conditions on operation of restaurant did not substantially affect any
vested fundamental right held by restaurant’s owners, where owners
“suggested only an economic effect from the required operating
conditions” and failed to demonstrate that the cost of the operating
conditions would force them out of business].) That determination is
unnecessary in this case because the trial court affirmed
Commissioner’s decision under both standards. The court initially
found that the substantial evidence standard of review applied because
Stengell failed to show, with citations to the record, that
Commissioner’s decision impacted his fundamental vested rights. But
after conducting its substantial evidence analysis as to Commissioner’s
findings regarding laches and the material misrepresentations and/or
omissions in the PPM, the court also found that, under the independent
judgment standard of review, the weight of the evidence supported
Commissioner’s findings and conclusions as to each issue. Therefore,

                                    10
there is no basis for Stengell’s contention that the trial court applied an
incorrect standard of review.

     2.    Standard of Review in This Court
     On appeal, the appellate court reviews the trial court’s ruling on a
petition for administrative mandamus under the substantial evidence
test, regardless of the standard of review the trial court was required to
apply in its review of the administrative decision. (Fukuda v. City of
Angels (1999) 20 Cal.4th 805, 824; Shenouda v. Veterinary Medical Bd.
(2018) 27 Cal.App.5th 500, 512 (Shenouda).) “Our focus is on the trial
court’s findings. [Citation.] ‘[O]ur function on appellate review is solely
to decide whether credible, competent evidence supports that court’s
judgment.’ [Citation.] . . . [¶] Because judgments of the trial court are
presumed to be correct, the appellant bears the burden to affirmatively
demonstrate error, and must show that the error was prejudicial.
[Citations.]” (Shenouda, supra, 27 Cal.App.5th at p. 512.)

B.   Denial of Request for Judicial Notice and Ruling on Laches
     In the administrative proceedings, the ALJ rejected Stengell’s
laches defense on two grounds. First, the ALJ found that the evidence
that was presented did not establish when the Department was notified
of Stengell’s misconduct, and there was no evidence that Commissioner
could have acted in 2011, when the security was offered and sold to
Ebens. The ALJ noted in this regard that the purported evidence
Stengell cited to (testimony by Commissioner’s counsel in the reporter’s

                                    11
transcript and counsel’s declaration in support of costs and attorney
fees) were not admitted as evidence; the testimony was stricken at the
hearing and the declaration was withdrawn. Second, the ALJ found
there was insufficient evidence that the delay in bringing the
enforcement action prejudiced Stengell.
     Stengell filed a request for judicial notice in the trial court in an
attempt to fill the evidentiary gap with regard to the ALJ’s first ground,
asking the court to take judicial notice of a document, and the date
stamp on the document, that he stated was the complaint Ebens filed
with the Department; he provided no information about how or when he
obtained the document. Stengell then relied upon that document, as
well as the unadmitted evidence he relied upon in the administrative
proceedings, to ask the trial court to independently rule that laches
barred Commissioner’s enforcement action. The court denied Stengell’s
request for judicial notice and found that both substantial evidence and
the weight of the evidence before the ALJ supported the conclusion that
Commissioner’s action was not barred by laches. Stengell challenges
both rulings on appeal.

     1.    Denial of Request for Judicial Notice
     In denying Stengell’s request for judicial notice, the trial court
cited three grounds. First, the court noted that through his request,
Stengell impliedly sought to augment the administrative record, but he
did not make a motion to augment as required by Code of Civil
Procedure section 1094.5, subdivision (e). Second, the court observed
that Stengell did not show that the document at issue could not have

                                    12
been produced in or was improperly excluded from the administrative
proceedings, as required by that statute. Third, the court found that
Stengell did not provide sufficient foundation to establish the
authenticity of the document or the file stamp.
     In his appellant’s opening brief, Stengell addresses only the first
and third grounds for the trial court’s denial of his request for judicial
notice; he fails to address the second ground and the requirements of
Code of Civil Procedure section 1094.5, subdivision (e). That provision
states: “Where the court finds that there is relevant evidence that, in
the exercise of reasonable diligence, could not have been produced or
that was improperly excluded at the hearing before [the administrative
body], it may enter judgment [commanding that body to set aside the
order or decision and] remanding the case to be reconsidered in the
light of that evidence; or, in cases in which the court is authorized by
law to exercise its independent judgment on the evidence, the court may
admit the evidence at the hearing on the writ without remanding the
case.”
     There is no question that Stengell did not (and does not) make any
attempt to show that the document in question could not have been
produced at the administrative hearing or was improperly excluded
from that hearing. Instead, Stengell simply argues that, under Harris
v. Alcoholic Bev. etc. Appeals Bd. (1965) 62 Cal.2d 589 (Harris), the trial
court may take judicial notice of the document even though it was not
made part of the administrative record through a motion to augment.
Harris does not assist Stengell.

                                     13
     In Harris, the issue before the Supreme Court was whether the
failure to make a document a part of the administrative record
precludes the reviewing court from taking judicial notice of the
document. (Harris, supra, 62 Cal.2d at pp. 595-596.) In analyzing the
issue, the court examined Government Code section 11515, which
provides in relevant part that “[i]n reaching a decision [in an
administrative adjudication] official notice may be taken, either before
or after submission of the case for decision, of any generally accepted
technical or scientific matter within the agency’s special field, and of
any fact which may be judicially noticed by the courts of this State.”
The Supreme Court found there was nothing in the language of that
statute “indicating that failure to take official notice of a matter
precludes a court from taking judicial notice of it.” (Harris, supra, 62
Cal.2d at p. 596.)
     This holding has no relevance to the present case because the trial
court did not find it was precluded from taking judicial notice of a
document that was not included in the administrative record. Instead,
it found that Stengell did not make the showing required under Code of
Civil Procedure section 1094.5, subdivision (e), for the court to consider
extra-record evidence, an issue the Supreme Court did not address in
Harris. The language of that provision does not distinguish between
evidence that is submitted to the court on a motion to augment the
administrative record or on a request for judicial notice: the statute
provides that the trial court many only consider extra-record evidence if
it finds that, in the exercise of reasonable diligence, the evidence could
not have produced at the administrative hearing or it was improperly

                                     14
excluded at the hearing. Because Stengell failed to establish that the
document at issue could not have been produced at or was improperly
excluded from the administrative hearing, we conclude the court did not
abuse its discretion by denying Stengell’s request for judicial notice.

     2.    Ruling on Laches
     When arguing in the trial court that laches barred the
enforcement action, Stengell entirely ignored the ALJ’s findings and
conclusions—and the record that was before the ALJ—and asked the
court to find independently that laches barred the action. The court
declined Stengell’s invitation, and reminded him that the inquiry under
Code of Civil Procedure section 1094.5 is whether Commissioner and
the Department prejudicially abused their discretion. In his appellant’s
opening brief, Stengell once again ignores both the findings of the ALJ,
as well as those of the trial court and the limits of our review. We
reiterate: on review of the judgment on a petition for administrative
mandamus, our focus is on the trial court’s findings, and we must
uphold those findings if they are supported by credible, competent
evidence. (Shenouda, supra, 27 Cal.App.5th at p. 512.)
     As the trial court observed, to prevail on a laches defense, the
defendant must prove that the plaintiff unreasonably delayed in
bringing the action and either that the plaintiff acquiesced in the act at
issue or that the defendant was prejudiced as a result of the delay.
(Mercury Ins. Co. v. Lara (2019) 35 Cal.App.5th 82, 110; Womack v. San
Francisco Community College Dist. (2007) 147 Cal.App.4th 854, 865.)
Where a defendant invokes a laches defense against a governmental

                                    15
entity, a higher standard applies, and the defense is not available if it
would “‘defeat the effective operation of a policy adopted to protect the
public.’” (Kajima/Ray Wilson v. Los Angeles County Metropolitan
Transportation Authority (2000) 23 Cal.4th 305, 316.)
     Here, the trial court found there was no competent evidence
submitted in the administrative proceeding to establish when the
Department was notified of Stengell’s misconduct, and therefore
Stengell failed to prove unreasonable delay. In addition, the court
found that Stengell failed to cite to any evidence that would support a
finding of prejudice; the court rejected Stengell’s assertion that
prejudice could be presumed based upon the statutes of limitation in
Corporation Code sections 25535, 29553, and 25506 because he failed to
show those statutes were analogous to the statutes relied upon by
Commissioner in this case (and because there was no evidence to
establish when those limitations statutes expired). Finally, the court
rejected Stengell’s argument that the Department acquiesced in the
wrongful acts. The court noted that the acquiescence argument
required Stengell to establish with evidence the date the Department
discovered the wrongful acts, which Stengell had not done. And in any
event, the court concluded that even if a date of discovery were
assumed, that would not establish acquiescence in light of the
important public policy of investor protection underlying the Corporate
Securities Law. Therefore, the court found that substantial evidence
and the weight of the evidence supported Commissioner’s conclusion
that the enforcement action was not barred by laches.

                                    16
      We need to look no farther than the first element of the laches
defense to affirm the trial court’s ruling. To establish unreasonable
delay (or acquiescence), Stengell must establish—with evidence that
was admitted at the administrative hearing—the date the Department
was put on notice that there were misrepresentations and/or omissions
in the PPM. He cites to no such evidence, and we have found none.
Therefore, we conclude that substantial evidence supports the trial
court’s ruling regarding laches.

C.    Findings of Material Misrepresentations and/or Omissions
      1.     Background
      Section 25401 provides: “It is unlawful for any person to offer or
sell a security in this state, or to buy or offer to buy a security in this
state, by means of any written or oral communication that includes an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements made, in the light of the
circumstances under which the statements were made, not misleading.”
Commissioner alleged that Allied Energy, Stengell, and others violated
section 25401 by misrepresenting or omitting to disclose, in connection
with their offers or sales of units in Grimes County #4, material
information regarding prior seven prior administrative proceedings in
several states (including California). Those misrepresentations or
omissions related to the “LITIGATION” section in the PPM that was
sent to Ebens when he was considering purchasing a unit in Grimes
County #4.

                                      17
      At the beginning of the “LITIGATION” section, the PPM stated:
“There is no pending or threatened litigation against Allied’s net worth
that would affect its ability to function as the managing partner or its
ability to absorb any potential losses in the drilling or development of
the program well(s).” The PPM then provided what it stated were
“disclosures . . . relevant to the last five (5) years involving Allied
Energy.” Those disclosures described eight administrative proceedings
that had been brought against Allied Energy and/or its affiliates in
several states. The section ended with a statement indicating that
copies of the listed proceedings could be made available for inspection at
the company’s offices, and inviting prospective investors to ask
questions or request information from Allied Energy about the
proceedings.
      Commissioner alleged that the PPM failed to fully disclose
material information with regard to six of those described
administrative proceedings and failed to disclose at all an additional
proceeding. The ALJ found that the omitted information regarding one
of the proceedings was not material, but found the remaining
misrepresentations and/or omissions were material; the trial court
concluded that substantial evidence, and the weight of the evidence,
supported the ALJ’s findings. We set forth below, for each of the
proceedings alleged to have been insufficiently disclosed, the description
in the PPM (if any) and the ALJ’s findings.

                                      18
           a.    Texas Order
     The PPM stated, in relevant part: “The Texas Securities Board
(TSB), a state agency, issued a Cease and Desist Order (administrative
order) which was later amended to an Agreed Cease and Desist Order
against the Chaucer Fredricksburg Prospect (previous drilling program
sponsored by the Managing General Partner) defining the offering as a
‘security’ and challenging the program’s ‘exemption from registration’ as
set forth by State and Federal securities laws (Regulation D). Allied
vigorously responded to this order, claiming the right to an exemption
from registration under Federal Regulation D Rule 506. In April 2004,
the Managing General Partner, having a good and valid defense,
reached a settlement agreement with the TSB to resolve this matter.
As a result of this order and settlement agreement, the Texas Securities
Board required the Managing General Partner to pay an $8,000
administrative fine.” The PPM then discussed the success of the
drilling operations.
     The ALJ found that the order (the Texas Order), which contained
findings of fact and conclusions of law, involved an offering of securities,
issued by predecessors to Allied Energy, in a natural gas venture;
Stengell served on the advisory board to one of the predecessors. The
Texas Order found that the securities were offered and/or sold by
unregistered dealers or agents through materially misleading
statements likely to deceive the public. The ALJ found that the PPM
did not fully disclose the Texas Order because it failed to disclose that
(1) the Texas Order involved unregistered securities sold or offered by
materially misleading statements; and (2) there was a finding against

                                    19
predecessors to Allied Energy for offering securities by materially
misleading statements. In addition, the ALJ observed that Allied
Energy (and Stengell) should have fully disclosed the Texas Order
because Commissioner had determined in the 2007 California Order
discussed in section C.2.g., post, that they had not fully disclosed the
Texas Order.
     Finally, the ALJ found that “[t]he fact that a principal of Grimes
County #4, like respondent Stengell, was involved with a company that
was found to have violated similar business laws in Texas is an
important fact to an investor when deciding whether or not to invest.
This is especially true when the type of business enterprise, such as
speculation in oil and/or gas wells, is the same, and there are findings of
securities being sold or offered by materially misleading statements.”
Therefore, the ALJ found that the omissions were material.

           b.    Pennsylvania Order
     The second failure to disclose involved a regulatory order issued
by the Pennsylvania Securities Commission in November 2003 (the
Pennsylvania Order), which the PPM did not discuss at all. The ALJ
noted that the Pennsylvania Order found that securities issued by
Sunclear Energy, Inc. in oil and/or gas ventures were offered and/or sold
by that company and others through materially misleading statements,
and that Stengell was the vice president of investor relations for
Sunclear Energy, Inc. at that time. Stengell, who consented to the
issuance of the Pennsylvania Order’s findings of fact and conclusions of
law was (1) barred from offering or selling securities in Pennsylvania

                                    20
without retaining knowledgeable counsel for six months; (2) ordered to
pay costs of $1,000; and (3) ordered to permanently cease and desist
from violating the Pennsylvania Securities Act of 1972. The ALJ also
observed that Stengell should have made a full disclosure of the
Pennsylvania Order in the PPM because Commissioner previously had
determined in the 2007 California Order that he had not completely
disclosed the Pennsylvania Order.
     Addressing the materiality of the omission, the ALJ found that
“[t]he details in the Pennsylvania Order are the type of information that
would assist a reasonable investor in deciding whether to invest in
Grimes County #4 and whether the management (like the managing
general partners of Grimes County #4) is following the law in marketing
the securities. The fact that a principal, respondent Stengell, was
barred from offering or selling securities in a particular state for a
period of time, and ordered to pay costs, is an important fact to an
investor when deciding whether or not to invest.” Therefore, the ALJ
concluded the omission was material.

           c.    Kentucky Complaint
     The PPM stated: “The Division of Securities of the
Commonwealth of Kentucky brought an administrative complaint
against Allied Energy, County Line Prospect, and others alleging that
the offering memorandum involving County Line Prospect had various
items which, in the opinion of the Division, should have been disclosed,
some areas of correction and areas which in the opinion of the Division,
should be expanded. The offering memorandum and other third party

                                     21
materials (geology and independent audit reports) included in the
offering memorandum not only set forth the risks of the prospect but
also accurately and correctly stated risks. In March 2007, the
respondents and the Division reached an agreed settlement to resolve
this matter in which the Managing General Partner paid a civil fine of
$50,000.”
     The ALJ noted that this complaint (the Kentucky Complaint)
alleged that the predecessor to Allied Energy, Stengell, and others were
offering and selling partnership interests in oil and/or gas well ventures
through multiple materially misleading statements or omissions. In the
settlement agreement and final order, Stengell and the others were
ordered to offer rescission to all non-accredited investors to rectify the
inadequate disclosures, and were collectively assessed a civil fine of
$25,000 (of which $15,000 was suspended on condition that they
complied with the settlement and did not commit future violations of
federal or state securities laws). The settlement agreement also
indicated that Stengell’s culpability for the material errors or omissions
in the offering was based on his position as the senior vice president of
operations of the offering company.
     The ALJ found that the PPM did not fully disclose the Kentucky
Complaint because it failed to disclose that (1) the complaint involved
securities sold or offered through materially misleading statements;
(2) the complaint was brought against Stengell as well as a predecessor
to Allied Energy; and (3) Stengell was found to be culpable. The ALJ
concluded that these omission were material because “[t]he fact that a
principal, like Stengell, was sanctioned or found to have violated similar

                                     22
business laws in Kentucky is an important fact to an investor when
deciding whether or not to invest in Grimes County #4.”

           d.    April 2006 Alabama Order
     The PPM stated that the Alabama Securities Commission issued
an amended cease and desist order against Andrew A. Flowers (one of
Allied Energy’s currently registered agents) and Heartland Resources,
Inc., ordering them to cease and desist from further offers or sales of
securities into, within, or from the State of Alabama. The order was
issued before Flowers was employed by Allied Energy, and was
disclosed to the Commonwealth of Kentucky, Department of Financial
Institutions, which approved Flowers as a registered agent in the
Commonwealth of Kentucky for 2011.
     The ALJ found that although the PPM did not disclose that the
April 2006 Alabama Order had found that Flowers had engaged in a
“general solicitation” in violation of federal securities laws, which
voided any exemption from registration claimed by Heartland
Resources, Inc. for the securities offering in Alabama, the omission was
not material. The ALJ noted that no predecessors of Allied Energy
were involved in the matter, and that the PPM provided the type of
information a reasonable investor would consider in reaching an
investment decision.

           e.    May 2007 Alabama Order
     The PPM stated: “The Alabama Securities Commission issued an
administrative complaint against Allied Energy challenging their

                                     23
offering exemption. Having a good and valid defense, the company will
defend this action vigorously and anticipates a favorable conclusion.
The company maintains that the state of Alabama has no rightful
claim. Any conclusion against Allied Energy would not affect the
financial condition of the company or operations of the partnership.
The Managing General Partner has rejected the settlement offer
proposed by the Commission.”
     The ALJ found that the PPM failed to disclose any details of this
administrative complaint, or that the Alabama Securities Commission
issued a cease and desist order (the May 2007 Alabama Order). The
ALJ noted that the May 2007 Alabama Order involved a securities
offering issued by predecessors to Allied Energy in oil and/or gas
ventures, and that it found those securities, which were offered and/or
sold by Stengell (who was the executive vice president of the
predecessors) and others, were neither registered nor exempt from
registration. The May 2007 Alabama Order also found that Stengell
and others (1) offered or sold securities by materially misleading
statements; (2) acted illegally as a dealer, agent, investment advisor, or
investment advisor representative; and (3) failed to inform investors of
the Texas Order discussed in section C.2.a., ante. It ordered Stengell
and others to cease and desist from further offers or sales of securities
in the state of Alabama.
     The ALJ concluded that the failure to disclose the names of the
issuers of the offering, the investment, the names of the individuals
involved in the action, or the allegations, findings, or outcome of the
proceedings were material omissions, because “[t]he fact that a

                                    24
principal, like respondent Stengell, has been sanctioned or found to
have violated similar business laws in Alabama is an important fact to
an investor when deciding whether or not to invest in Grimes County
#4.” In addition, the ALJ found the PPM was misleading in stating
that the company anticipated a favorable conclusion to the Alabama
complaint, because there was no evidence that the respondents did
prevail.

           f.    February 2007 Alabama Order
     The PPM stated: “The Alabama Securities Commission issued a
Cease and Desist Order (Administrative Order No. CD-2007-0006)
against one of Allied Energy’s currently registered agents, John R.
Bernier (‘Bernier’), in which Bernier, certain other individuals and
Ascension Financial Solutions were ordered to immediately cease and
desist from further offers or sales of any securities into, within or from
the State of Alabama. The above-referenced Cease and Desist Order
was issued before Bernier became employed by or had any association
with Allied Energy. Bernier contends that he was never employed by
Ascension Financial Solutions, that he never made any offers of sales of
securities on behalf of Ascension Financial Solutions, and that the
foregoing Cease and Desist Order arose from a single sale of an oil and
gas interest that he made to a Florida resident while he was employed
by Heartland Resources, Inc. and that such individual later moved to
Alabama some time after the sale was made. Allied Energy and
Bernier have disclosed the above-referenced Cease and Desist Order
issued by the Alabama Securities Commission to the Commonwealth of

                                    25
Kentucky, Department of Financial Institutions (‘DFI’), and DFI has
approved Bernier as a registered agent in the Commonwealth of
Kentucky for 2011.”
      The ALJ noted that the February 2007 Alabama Order found that
Bernier was an agent of Ascension and was engaged in the offer and/or
sale of certificates of interest or participation in oil and/or gas titles or
leases, and that he sold unregistered certificates of interest to an
Alabama resident. The February 2007 Alabama Order also found that
the responding parties failed to disclose to their investors the April
2006 Alabama Order (discussed in section C.2.d., ante), which was a
violation of Alabama’s securities law.
      The ALJ found that the PPM was misleading because it stated
that Bernier contended he was never employed by Ascension and had
not made any offers or sales of securities to an Alabama resident,
despite the contrary findings in the February 2007 Alabama Order.
The ALJ concluded the statement in the PPM was a material
misrepresentation or omission because “[t]he fact that a currently
registered agent of Allied Energy, like Bernier, was found to have
violated similar business laws in Alabama is an important fact to an
investor when deciding whether or not to invest in Grimes County #4.”

            g.    2007 California Order
      The PPM stated: “The California Department of Corporations
issued a Desist and Refrain Order against Allied Energy Group and T3
CBM Development, along with various officers and other named
individuals. The complaint alleges that the offering of T3 CBM

                                      26
Development did not have available exemptions from registration or if
such exemptions were available, they were not properly employed and
alleged that the offering materials did not adequately disclose the
information in the litigation section. Allied is of the opinion that such
disclosure was accurately disclosed. Allied and the individuals are
certain that these statements are not true and are vigorously defending
the action. Allied is of the opinion that it will be successful in these
proceedings, and even if this is not accomplished, these proceedings
would have no material effect on the financial status of Allied or
business operations for the company. [¶] Currently registered Allied
Energy agent Frank Morones (‘Morones’) were [sic] the subject of the
above-referenced Desist and Refrain Order issued by the California
Department of Corporations. The above-referenced Desist and Refrain
Order has been disclosed by Allied Energy and Morones to the
Commonwealth of Kentucky Department of Financial Institutions
(‘DFI’), and the DFI has approved Morones as registered agents for
2011.”
     The ALJ noted that the disclosed order (the 2007 California
Order) involved an offering of securities issued by Allied Energy’s
predecessors, Stengell, and others, to drill and test gas wells. The 2007
California Order found that (1) the securities were offered and/or sold
through materially misleading misrepresentations or omissions; and
(2) Stengell and the other responding parties made material omissions
by failing to disclose numerous regulatory or civil actions against them,
including the Texas Order (discussed in section C.2.a., ante) and the
Pennsylvania Order (discussed in section C.2.b., ante). The ALJ also

                                     27
noted that the 2007 California Order was affirmed by an administrative
law judge and adopted by Commissioner in 2008, that the respondents’
petition for writ of administrative mandamus was denied by the Los
Angeles Superior Court in 2009, that the superior court’s ruling was
affirmed by this court in September 2010, and that the Supreme Court
denied review.7
     The ALJ found that the failure to disclose that the 2007 California
Order included a finding against Allied Energy predecessors, Stengell,
and another executive and director of Allied Energy for offering
securities by materially misleading statements constituted a material
omission, as it is an important fact to an investor when deciding
whether to invest. The ALJ also found that the statement in the PPM
suggesting that Allied Energy would be successful in its challenge to the
2007 California Order was a material misrepresentation because it “is
the type of information a reasonable investor would consider in
reaching an investment decision.”

     2.    Stengell’s Arguments
     On appeal, Stengell does not challenge the ALJ’s (or the trial
court’s) findings as to what was omitted from or misrepresented in the
disclosures, but simply disputes the ALJ’s findings that the omissions
and/or misrepresentations were material. He contends the ALJ

7     We note that the ALJ’s proposed decision states that the Supreme
Court denied review on December 15, 2015. However, our review of the
court’s records show that review was denied on December 15, 2010, before the
PPM for Grimes County #4 was issued.

                                    28
improperly determined materiality as a matter of law, and that none of
the omissions or misrepresentations were material. We hold that
substantial evidence supports the trial court’s conclusions that (1) the
ALJ made appropriate factual findings regarding materiality, and (2)
substantial evidence, and the weight of the evidence, supports those
findings.

     a.     Materiality Test
     The test for materiality is the same under federal and California
law: “‘A fact is material if there is a substantial likelihood that, under
all the circumstances, a reasonable investor would consider it important
in reaching an investment decision. [Citation.]’” (Insurance
Underwriters Clearing House, Inc. v. Natomas Co. (1986) 184
Cal.App.3d 1520, 1526 (Insurance Underwriters); see also TSC
Industries, Inc. v. Northway, Inc. (1976) 426 U.S. 438, 449 (TSC
Industries).) In TSC Industries, the Supreme Court discussed the
materiality test in the context of a challenge by a stockholder to a proxy
statement. The Court stated: “An omitted fact is material if there is a
substantial likelihood that a reasonable shareholder would consider it
important in deciding how to vote. . . . It does not require proof of a
substantial likelihood that disclosure of the omitted fact would have
caused the reasonable investor to change his vote. What the standard
does contemplate is a showing of a substantial likelihood that, under all
the circumstances, the omitted fact would have assumed actual
significance in the deliberations of the reasonable shareholder. Put
another way, there must be a substantial likelihood that the disclosure

                                    29
of the omitted fact would have been viewed by the reasonable investor
as having significantly altered the ‘total mix’ of information made
available.” (Id. at p. 449.)
      “The issue of materiality may be characterized as a mixed
question of law and fact, involving as it does the application of a legal
standard to a particular set of facts. . . . [W]e must bear in mind that
the underlying objective facts, which will often be free from dispute, are
merely the starting point for the ultimate determination of materiality.
The determination requires delicate assessments of the inferences a
‘reasonable shareholder’ would draw from a given set of facts and the
significance of those inferences to him, and these assessments are
peculiarly ones for the trier of fact. Only if the established omissions
are ‘so obviously important to an investor, that reasonable minds
cannot differ on the question of materiality’ is the ultimate issue of
materiality appropriately resolved ‘as a matter of law.’” (TSC
Industries, supra, 426 U.S. at p. 450, fns. omitted; see also Insurance
Underwriters, supra, 184 Cal.App.3d at pp. 1526-1527.)

            b.    The ALJ Did Not Decide Materiality as a Matter of Law
      Stengell asserts that the ALJ must have found as matter of law
that the misrepresentations and/or omissions at issue were material
because there was no competent evidence in the record to establish that
the omissions and/or misrepresentations were material. Not so.
      “The question of materiality . . . is an objective one, involving the
significance of an omitted or misrepresented fact to a reasonable

                                     30
investor.” (TSC Industries, supra, 426 U.S. at p. 445.) It does not
require expert testimony; all that is required in a case such as this one
is evidence of what was disclosed about the various administrative
proceedings and what actually happened in those proceedings. It is
then up to the trier of fact—which in this case was the ALJ—to make
the assessment whether the omitted or misrepresented fact was
material, i.e., whether a reasonable investor would consider it
important in deciding whether to invest. (Id. at p. 450; Insurance
Underwriters, supra, 184 Cal.App.3d at p. 1526.) As the trial court
found, that is what the ALJ did here. Sitting as the trier of fact, the
ALJ found, as to the Texas Order, the Pennsylvania Order, the
Kentucky Complaint, the February 2007 Alabama Order, the May 2007
Alabama Order, and the 2007 California Order that the omitted and/or
misrepresented information was the type of information a reasonable
investor would consider important in deciding whether to invest in
Grimes County #4. In other words, the trial court correctly concluded
that the ALJ made the determinations of materiality as matters of fact
rather than as matters of law.

           c.    The ALJ’s Materiality Findings Were Adequate and
                 Supported by the Evidence

     Stengell raises two additional challenges to the ALJ’s materiality
findings. First, he argues that the findings were inadequate under
Topanga Assn. for a Scenic Community v. County of Los Angeles (1974)
11 Cal.3d 506 (Topanga). Second, he argues that, as to each order or
complaint at issue, the misrepresentations or omissions were not

                                    31
material because none of the facts at issue would significantly alter the
total mix of information made available to the investor. We conclude
substantial evidence supports the trial court’s rulings that the ALJ’s
findings were adequate and supported by both substantial evidence and
the weight of the evidence. (Shenouda, supra, 27 Cal.App.5th at p.
512.)

                   i.   Adequacy Under Topanga
        In Topanga, the California Supreme Court explained that Code of
Civil Procedure section 1094.5 requires “that the agency which renders
the challenged decision must set forth findings to bridge the analytic
gap between the raw evidence and ultimate decision or order. . . . By
focusing . . . upon the relationships between evidence and findings and
between findings and ultimate action, the Legislature sought to direct
the reviewing court’s attention to the analytic route the administrative
agency traveled from evidence to action. In so doing, we believe that
the Legislature must have contemplated that the agency would reveal
this route.” (Topanga, supra, 11 Cal.3d at p. 515.) In other words, an
administrative agency must make findings sufficient to show how the
evidence led to its decision to impose the challenged order. However,
“[a]dministrative findings are generally permitted considerable latitude
with regard to their precision, formality, and matters reasonably
implied therein.” (Southern Pacific Transportation Co. v. State Bd. of
Equalization (1987) 191 Cal.App.3d 938, 954.)
        In this case, the trial court found that “the ALJ and Department
made sufficient factual findings in support of the materiality

                                     32
determination to satisfy Topanga. . . . Both Petitioner and the court can
understand the Decision’s mode of analysis and the evidence upon
which the Decision is based.” Substantial evidence supports the trial
court’s finding. The record shows that for each materiality finding, the
ALJ set forth the evidence and the reason why the ALJ found the
misrepresentations or omissions at issue were material. That is all that
is necessary to “bridge the analytic gap between the raw evidence and
ultimate decision or order.” (Topanga, supra, 11 Cal.3d at p. 515.)

                 ii.   Texas Order
     Stengell argues here (and argued in the trial court) that “it is not
material that the PPM disclosure [regarding the Texas Order] did not
say Stengell [was] on an advisory board, and this would not adversely
affect the reliability of other statements or add to the total mix of facts.”
The trial court disagreed. It noted that Stengell “misinterprets the
Decision as finding that the material omission was [Stengell’s] service
on the advisory board. . . . Instead, the material fact was that a
principal of Grimes County #4, i.e. [Stengell], was involved with a
company, also in the oil and gas business, that was found to have
violated Texas securities law by making material misleading
statements.” The court found that substantial evidence (and the weight
of the evidence) supported the ALJ’s finding that a reasonable investor
would consider this information important in deciding whether to invest
in Grimes County #4.
     Substantial evidence supports the trial court’s conclusion.
Stengell grossly mischaracterizes the stated basis for the ALJ’s finding

                                     33
of material omissions, which not only included the PPM’s failure to
disclose that there was a finding against predecessors to Allied Energy
for offering securities by materially misleading statements, but also that
Stengell was involved with one of those predecessors at the time those
securities were offered for sale.

                 iii.   Pennsylvania Order
     Stengell contends that disclosure of the Pennsylvania Order was
not required because that order had been rescinded as to him. Once
again, Stengell misrepresents the facts and the ALJ’s findings.
     As the trial court found, and as is supported by substantial
evidence, although a prior order from the Pennsylvania Securities
Commission was rescinded, a new order was issued, and it is that new
order that was the subject of the ALJ’s finding that the failure to
disclose constituted a material omission. That order barred Stengell
from offering or selling securities in Pennsylvania without retaining
knowledgeable counsel, ordered him to permanently cease and desist
from violating the Pennsylvania Securities Act of 1972, and ordered him
to pay $1,000 in investigative and legal costs.
     While Stengell attempts to minimize the seriousness of these
directives, the fact remains that those directives were imposed because
the Pennsylvania Order found that Stengell was the vice president of
investor relations for a company that sold unregistered and nonexempt
securities in violation of Pennsylvania securities laws. The trier of fact
found that a reasonable investor would find this information was
important in deciding whether to invest in a project managed by a

                                    34
company in which Stengell is a top executive, and the trial court
concluded that the finding is supported by substantial evidence and the
weight of the evidence. Stengell gives us no reason to find otherwise.

                 iv.   Kentucky Complaint
     Stengell similarly attempts to minimize the seriousness of the
information that was omitted or misrepresented in the PPM’s
description of the Kentucky Complaint. The trial court found that the
PPM failed to disclose that the Kentucky Complaint alleged violations
of securities laws, that Stengell was found to be culpable, and that
Stengell (and the other respondents) were ordered to offer rescission to
investors. Stengell does not dispute these facts. He simply disputes
that these omitted facts “would have ‘significantly altered the “total
mix” of information made available’ if they had been in the PPM.”
However, in light of the facts (as also found by the trial court) that the
business venture at issue in the Kentucky Complaint was similar to the
business venture in this case, that Stengell was involved in both
ventures, and that the Kentucky Complaint involved violations of
securities laws, we conclude that substantial evidence supports the
trial court’s determination that substantial evidence and the weight of
the evidence supported the ALJ’s materiality finding.

                 v.    May 2007 Alabama Order
     In challenging the materiality finding regarding the omissions
and/or misrepresentations related to the May 2007 Alabama Order,
Stengell ignores many of the facts that formed the basis for the ALJ’s

                                    35
finding that there were material omissions and misrepresentations in
the PPM’s disclosure. But even as to the few facts he does address, his
arguments have no merit.
     For example, he challenges the assertion that the PPM did not
disclose that the Alabama Securities Commission (ASC) issued a cease
a desist order, arguing that the PPM disclosed that the ASC issued an
administrative complaint, and “[t]he difference between disclosing a
cease and desist order and an administrative complaint is a difference
without a distinction to an investor not steeped in administrative law.”
We doubt that an investor, particularly one “not steeped in
administrative law,” would view the issuance of an administrative
complaint and the issuance of a cease and desist order as equally
serious. Stengell certainly points to no evidence in the record to support
his assertion.
     Similarly, Stengell argues that the PPM’s disclosure that the ASC
challenged Allied Energy’s exemption for the securities at issue was
equivalent to disclosing that the ASC found that the exemption was
voided. He points to no evidence in the record to suggest that a
reasonable investor would understand that a challenge to an exemption
is the same as a finding that the exemption is void.
     Stengell misses the point when he argues that “[i]t is immaterial
that the PPM did not disclose the finding in the 2007 Alabama
regulatory action that the 2004 Texas regulatory action had not been
disclosed” because “[s]uch a disclosure would have been redundant.”
What makes that failure to disclose a material omission in the present
case is the fact that the May 2007 Alabama Order put Allied Energy on

                                   36
notice that information about the Texas Order was information that an
investor would find important when deciding whether to invest in a
similar project managed by Stengell and Allied Energy’s predecessors.
Yet Allied Energy and Stengell once again chose not to disclose it in the
PPM for Grimes County #4.
     Finally, Stengell argues the ALJ was incorrect in stating that “the
PPM was misleading in alluding that respondents would prevail in
defending the action.” Instead, he notes that the PPM only stated that
Allied Energy “‘anticipated a favorable outcome.’” He misses the point.
The PPM stated: “Having a good and valid defense, the company will
defend this action vigorously and anticipates a favorable conclusion.”
The ALJ found that the statement in the PPM was misleading because
there was no evidence that there was a favorable outcome.
     In short, Stengell’s challenge to the materiality finding with
respect to the May 2007 Alabama Order fails.

                 vi.   February 2007 Alabama Order
     Stengell challenges the materiality finding as to the February
2007 Alabama Order by mischaracterizing the order and attempting to
minimize the significance of the information the ALJ found the PPM
misrepresented or failed to disclose. As noted, the February 2007
Alabama Order involved an action by the ASC against an entity not
affiliated with Allied Energy and two agents of that entity, one of whom
(John R. Bernier) was then employed by Allied Energy at the time the
PPM in this case was issued. Stengell asserts that “Bernier’s
employer’s president and broker/dealer director were the ones who were

                                   37
blamed for not adequately supervising Bernier,” which resulted in the
securities violation. Therefore, he argues that the violations found by
the ASC “are not material to the way Allied Energy conducted its
business.” (Italics omitted.)
     He is incorrect in his description of the proceedings. Bernier was
a named respondent in the February 2007 Alabama Order. He (not just
his supervisors) was found to have violated Alabama securities law by
engaging in the offer of and/or sale in Alabama of securities that were
neither registered nor exempt from registration in the state of Alabama.
And as one of the named respondents, he was ordered to “immediately
CEASE AND DESIST from further offers or sales of any securities into,
within or from the state of Alabama.”
     Moreover, although (as the trial court found) Stengell is correct
that the PPM did not “deny” that Bernier was employed by the entity
that issued the securities in question, the PPM’s statement that
“Bernier contends that he was never employed by [the issuer and] that
he never made any offers or sales of securities on behalf of [the issuer]”
gives the misimpression that Bernier was not found to have violated the
Alabama securities laws. Thus, the trial court properly found that
substantial evidence and the weight of the evidence supported the ALJ’s
finding that “[t]he fact that a currently registered agent of Allied
Energy, like Bernier, was found to have violated similar business laws
in Alabama is an important fact to an investor when deciding whether
or not to invest in Grimes County #4.”

                                    38
                 vii.   2007 California Order
     Stengell’s challenge to the materiality finding with regard to the
2007 California Order mostly ignores the ALJ’s actual findings and the
actual language of the PPM. The ALJ found a material omission in the
PPM’s failure to disclose that the 2007 California Order found that
Stengell and Allied Energy’s predecessors offered securities by
materially misleading statements. The ALJ also found a material
misrepresentation in the PPM’s statements that Allied Energy is
“vigorously defending the action” and “is of the opinion that it will be
successful in these proceedings.”
     Stengell contends there was no material omission because the
PPM’s statement that the order was issued “against Allied Energy
Group and T3 CBM Development, along with various officers and other
named individuals” was sufficient, and that “[a]dding the actual names
is simply an unnecessary elaboration on the disclosed facts.” He also
contends the PPM’s statement that the complaint brought by the
Department of Corporations “alleged that the offering materials did not
adequately disclose the information in the litigation section” was
sufficient because “[s]ophisticated investors like those who invested in
Grimes County #4 can easily interpret the disclosure in the PPM to
mean that the California Corporations Commissioner found that the
litigation disclosures were not adequate.”
     We disagree with both contentions. First, the PPM’s reference to
“various officers and other named individuals” does not give potential
investors notice that the president and chairman of the board of Allied
Energy at the time the PPM was issued was one of the people found to

                                    39
have violated California’s securities laws. Nor does the statement that
“the offering materials did not adequately disclose the information in
the litigation section” adequately convey the fact that Stengell and the
other respondents were found to have misrepresented information
regarding several of the litigation proceedings and failed to disclose
several relevant proceedings.
     Finally, Stengell argues that the misrepresentation that Allied
was vigorously defending the 2007 California regulatory action and
believed it would be successful was not material because the regulatory
action was disclosed and “[n]o sophisticated, accredited investor would
believe that an administrative matter was dragging along for more than
three years.” We disagree. There is nothing in the record to indicate
that an accredited investor (such as Ebens) necessarily has sufficient
knowledge that a regulatory action that was begun in November 2007
would have been resolved by February 2011, when the PPM was
issued. Instead, the PPM falsely gave potential investors the
impression that although the Department of Corporations filed a
complaint against Allied Energy and Stengell, Allied Energy and
Stengell were likely to prevail on it.

     3.    Conclusion
     None of Stengell’s challenges to the materiality findings with
regard to any of the orders or complaints at issue has merit.
Substantial evidence supports the trial court’s conclusion that the ALJ
made those findings as the trier of fact, and not as a matter of law.
Similarly, substantial evidence supports the trial court’s findings that

                                     40
each of the ALJ’s materiality findings was supported by substantial
evidence and by the weight of the evidence.

                             DISPOSITION
     The judgment is affirmed. The Department and Commissioner
shall recover their costs on appeal.
     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                            WILLHITE, Acting P. J.
     We concur:

     COLLINS, J.

     CURREY, J.

                                       41