Court Opinion

ID: 9906868
Source: CourtListenerOpinion
Date Created: 2023-12-05 16:02:10.875272+00
Date Added: 2024-06-11T09:54:33.655517
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                 AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE

                RONALD F. STEVENSON, et al., Appellants,

                                        v.

          ARIZONA CORPORATION COMMISSION, Appellee.

                             No. 1 CA-CV 23-0099
                               FILED 12-05-2023

           Appeal from the Superior Court in Maricopa County
                        No. LC2022-000130-001
             The Honorable Daniel J. Kiley, Judge (retired)

                                  AFFIRMED

                                   COUNSEL

Tiffany & Bosco, P.A., Phoenix
By Robert D. Mitchell & Christopher J. Waznik
Counsel for Appellants

Arizona Corporation Commission, Phoenix
By Elizabeth M. Schmitt
Counsel for Appellee
                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

                      MEMORANDUM DECISION

Judge Paul J. McMurdie delivered the Court’s decision, in which Presiding
Judge D. Steven Williams and Judge Samuel A. Thumma joined.

M c M U R D I E, Judge:

¶1            Ronald Stevenson, American Financial Security, LLC, and
American Financial Investments, LLC appeal the superior court’s
affirmation of the Arizona Corporation Commission’s (“Commission”)
order revoking investment adviser licenses,1 imposing administrative
penalties, and awarding around $19 million in restitution. We find no
reversible error and affirm.

             FACTS AND PROCEDURAL BACKGROUND

¶2           Stevenson and his late spouse2 owned and operated
American Financial Security, LLC and American Financial Investments,
LLC (“Companies”). Through the Companies, the Stevensons offered
insurance products, tax services, retirement planning, and investment
advisory services. The Companies had the same office address, shared the
same website, and jointly advertised their services.3

¶3            Stevenson was licensed as an Arizona insurance producer in
2002. In 2016, he was licensed as an investment adviser representative. But
Stevenson was not registered with the Commission as a securities
salesperson.

¶4           Between 2012 and 2019, Stevenson introduced his clients to
debentures issued by companies associated with EquiAlt, LLC. Stevenson

1     See A.R.S. § 44-3151 et seq.

2     Barbara Stevenson was a named party to this action until she passed
away in September 2020.

3      Because Stevenson and the Companies were found jointly and
severally liable before the Commission, for simplicity, we call Stevenson the
singular appellant and attribute his actions through the Companies to him.

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

explained that EquiAlt was flipping, leasing, and purchasing real estate. He
informed his clients that they would receive about an eight percent return
on EquiAlt investments and assured them it was a safe investment.
Stevenson also informed his clients that they could liquidate investments in
EquiAlt quickly and without penalties.

¶5           Stevenson’s clients had little or no investment experience and
low-risk tolerance. Many of his clients were 70 or older. Although
Stevenson gave his clients some EquiAlt documents, some testified they
could not read the paperwork before signing. Still, between 2012 and 2019,
Stevenson helped his clients buy at least 254 EquiAlt debentures for a total
investment of more than $19 million. Stevenson received over $2 million in
commissions on these investments.

¶6           In February 2020, the United States Securities and Exchange
Commission (“SEC”) filed a complaint against EquiAlt, alleging that it was
a Ponzi scheme. The federal court appointed a receiver who froze EquiAlt’s
assets pending the action’s disposition.

¶7             In June 2020, the Securities Division (“Division”) of the
Commission filed a notice of opportunity for hearing for the Stevensons
and the Companies for alleged violations of A.R.S. §§ 44-1801 et seq. and
44-3101 et seq. The Division alleged that the Stevensons sold unregistered
securities, illegally sold securities as unregistered salespeople, and
committed fraud by misrepresenting (1) the investments’ risk, (2) the
liquidity, and (3) that the Stevensons were not receiving commissions for
the sales of the EquiAlt debentures. The Division also argued that the
Stevensons engaged in dishonest or unethical conduct as investment
advisers by failing to disclose their commissions to their clients. The
Division proposed orders for restitution, administrative penalties,
revocation of licenses, and to cease and desist further violations.

¶8             The Commission held a six-day hearing in April 2021. After
the hearing, the Commission concluded that “the EquiAlt Debentures are
securities,” Stevenson had “offered and sold securities within the meaning
of A.R.S. § 44-1801[,]” he “violated A.R.S. § 44-1841 by offering and selling
securities that were neither registered nor exempt from registration[,]” and
he violated A.R.S. § 44-1842 by offering and selling securities while not
being registered as a dealer or salesperson.

¶9            The Commission also concluded that Stevenson had
“committed fraud in the offer and sale of securities, in violation of A.R.S.
§ 44-1991,” finding fraud in Stevenson’s (1) “failure to disclose and to

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                      STEVENSON, et al. v. ARIZONA
                          Decision of the Court

misrepresent the commissions received for the sale of EquiAlt Debentures
to investors,” (2) “misleading statements or omissions to some investors
concerning their ability to liquidate the EquiAlt Debentures prior to term
and penalties related to early withdrawal[,]” and (3) “omitting to disclose
to investors the civil lawsuits and judgments against them and omitting to
disclose and misrepresenting those lawsuits on a Form ADV Disclosure to
investors[.]” The Commission rejected Stevenson’s equitable estoppel
defense, finding it “would cause serious injustice for EquiAlt investors and
the public interest.” Finally, the Commission imposed joint and several
liability on the Stevensons and the Companies under A.R.S. § 44-1999.

¶10          The Commission ordered that the Stevensons should cease
and desist further violations and ordered them to pay restitution “in the
principal amount of $19,459,875.” The Commission revoked Stevenson and
the Companies’ licenses under A.R.S. § 44-3201(13) and A.A.C.
R14-6-203(11) “based on their unethical and dishonest behavior in securities
dealings.” And under A.R.S. §§ 44-2036, 44-3296, and 44-3201, the
Commission imposed administrative penalties of $275,000, including
“multiple violations of A.R.S. §§ 44-1841, 44-1842, [and] 44-1991.”

¶11           Stevenson appealed the decision and order to the superior
court. Among other things, he argued: (1) equitable estoppel precluded a
finding that he had illegally sold unregistered securities; (2) the
Commission’s fraud findings lacked substantial evidence; (3) the restitution
amount ordered was unconstitutional and contrary to law; and (4) the
Commission abused its discretion by imposing the administrative
penalties. After briefing and oral argument, the superior court reduced the
restitution award total to exclude the amount reflecting the Stevensons’
investment in EquiAlt but otherwise affirmed the Commission’s decision.

¶12            Stevenson appealed to this court, and we have jurisdiction
under A.R.S. §§ 12-913, 12-120.21(A)(1), and 12-2101(A)(1). See Svendsen v.
Ariz. Dep’t of Transp., Motor Vehicle Div., 234 Ariz. 528, 533, ¶ 13 (App. 2014).

                                DISCUSSION

¶13             We will affirm an administrative decision unless it was
“illegal, arbitrary, capricious or involved an abuse of discretion.” See Hirsch
v. Ariz. Corp. Comm’n, 237 Ariz. 456, 461–62, ¶ 18 (App. 2015) (quoting Eaton
v. Ariz. Health Care Cost Containment Sys., 206 Ariz. 430, 432, ¶ 7 (App.
2003)). We view the facts in the light most favorably to upholding the
decision. Eaton, 206 Ariz. at 431, ¶ 2. We do not reweigh the evidence but

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

determine whether substantial evidence supports the decision. E. Vanguard
Forex, Ltd. v. Ariz. Corp. Comm’n, 206 Ariz. 399, 409, ¶ 35 (App. 2003).

A.     The Stevensons Were Salespeople According to A.R.S. § 44-1842.

¶14            The Commission found that the Stevensons violated A.R.S.
§§ 44-1841 and 44-1842. Whereas section 44-1841 makes it unlawful “to sell
or offer for sale” unregistered securities in Arizona, section 44-1842 makes
it unlawful for “any dealer to sell or purchase or offer to sell or buy any
securities, or for any salesman to sell or offer for sale any securities within
or from this state unless the dealer or salesman is registered.”

¶15          Stevenson argues that “[t]he Commission wrongfully found
[the Companies] and Mr. Stevenson are salesmen of EquiAlt.” He claims
that “the Commission actually made no findings of facts to support the
conclusion” and distinguishes between being a “salesman” of EquiAlt
within A.R.S. § 44-1842 and merely transacting in the EquiAlt debentures.

¶16           The Commission counters that this argument should be
“forfeited and waived,” as it was raised for the first time in the Stevensons’
reply brief before the superior court. See Univ. Med. Ctr. of S. Nev. v. Health
Choice Ariz., 253 Ariz. 524, 529, ¶ 22, n.2 (App. 2022). The superior court
agreed, finding the argument waived. Stevenson responds that “[t]he
Division has the burden of proof to show violations of securities laws” and
that the Stevensons “cannot ‘waive’ the argument that an essential element
was not proven[.]”

¶17           We agree with Stevenson that the issue has not been waived.
Though a party must generally preserve its arguments for appeal, we will
not affirm a finding of a statutory violation if the statutory elements have
not been alleged or supported by evidence. See Odom v. Farmers Ins. Co. of
Ariz., 216 Ariz. 530, 535, ¶ 18 (App. 2007) (“[W]e are not necessarily limited
to the arguments made by the parties if that would cause us to reach an
incorrect result.”) (cleaned up).

¶18           “Salesman” is defined in A.R.S. § 44-1801(23) as “an
individual, other than a dealer, employed, appointed or authorized by a
dealer to sell securities in this state.” And here, the parties agree that
EquiAlt is a dealer of securities. Thus, the relevant question is whether
substantial evidence establishes EquiAlt “appointed or authorized” the
Stevensons to sell securities in Arizona. See A.R.S. § 44-1801(23). We
conclude that it does.

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

¶19           Stevenson purports to distinguish between a “salesman” and
a “third-party intermediary.” Though Stevenson does not define his terms,
he claims that he “only referred individuals to EquiAlt and [was] not paid
directly by EquiAlt” and that he “certainly could not be considered an
employee or agent” of EquiAlt. Even if such a distinction exists, it is
irrelevant here because Stevenson need not be an “employee or agent” to
have been “appointed or authorized” by EquiAlt to sell the debentures. See
A.R.S. § 44-1801(23).

¶20          Stevenson asserts that whether he was “appointed or
authorized” should depend on “whether [he] had the ability to sell the
EquiAlt Debentures on EquiAlt’s behalf.” But Stevenson’s definition
undermines his claim because the Commission found that the Stevensons
“sold at least 254 EquiAlt Debentures to their clients[.]” And the
Commission concluded that the Stevensons violated A.R.S. § 44-1841 “by
offering and selling securities” (emphasis added), a determination that
Stevenson does not challenge on appeal. Furthermore, given the seven
years of debenture sales and the multiple email communications between
EquiAlt and Stevenson in the record, the Stevensons conducted these sales
with EquiAlt’s permission and cooperation.

¶21          We conclude that the Commission did not abuse its discretion
by finding that the Stevensons were unregistered salespeople under A.R.S.
§ 44-1842.

B.     Substantial Evidence Supports the Commission’s Fraud Findings.

¶22           Under A.R.S. § 44-1991, sellers of securities may not “[m]ake
any untrue statement of material fact, or omit to state any material fact
necessary in order to make the statements made . . . not misleading.” A.R.S.
§ 44-1991(A)(2). A fact is material if, under the circumstances, the fact
“would have assumed actual significance in the deliberations of the
reasonable shareholder.” Caruthers v. Underhill, 230 Ariz. 513, 524, ¶ 43
(App. 2012). Materiality is generally a fact question, but we review
materiality as a matter of law “where the information is so obviously
important or unimportant to an investor that reasonable minds could not
differ on the question of immateriality.” Id. (citing TSC Indus., Inc. v.
Northway, Inc., 426 U.S. 438, 450 (1976)).

¶23             The Commission found that the Stevensons materially misled
clients as to four facts: (1) whether the Stevensons received commissions for
sales of the EquiAlt debentures, (2) the risk of the investments, (3) the
liquidity of the investments, and (4) the existence of prior civil lawsuits and

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

judgments against the Stevensons. Stevenson challenges the validity of each
finding.

       1.    The Commission Did Not Err by Finding that the
       Stevensons Misrepresented that They Would Receive
       Commissions for the Debenture Sales.

¶24             Stevenson argues there was “simply no need” to disclose that
he received commissions because the Companies’ “business model was
receiving commissions and finder’s fees for referring clients.” He concludes
that all his clients would have already known that he received commissions
and that he could not have misled his clients by failing to disclose this fact.

¶25           The Commission responds by pointing to the debenture
subscription agreement, which states, “[t]he Units are being sold through
the Company without commissions.” It argues that even if investors
believed that the Stevensons generally received commissions in their line of
work, the plain text of the agreement would lead “a reasonable investor [to]
believe [the Stevensons] were not paid a commission” on these sales. The
Commission also identifies “eleven instances in the record where investors
testified Stevenson either failed to tell them he received a commission or
affirmatively stated he did not receive a commission.”

¶26            Substantial evidence to affirm an agency decision exists “if
either of two inconsistent factual conclusions are supported by the record.”
E. Vanguard Forex, Ltd., 206 Ariz. at 409, ¶ 35 (citing DeGroot v. Ariz. Racing
Comm’n, 141 Ariz. 331, 336 (App. 1984)). We agree with the superior court
that the record substantially supports the Commission’s determination that
Stevenson misrepresented the commission received for the debenture sales.
As a result, to prevail on appeal, Stevenson cannot merely present contrary
evidence showing that he did not make misrepresentations; he must also
refute the Commission’s evidence. See E. Vanguard Forex, Ltd., 206 Ariz. at
409, ¶ 35.

¶27            Stevenson tries to downplay the relevance of the debenture
subscription agreement, claiming that the agreement is “provided by
EquiAlt to investors and is not a disclosure document of [the Stevensons].”
But this argument fails. EquiAlt may have authored the agreement, but
Stevenson delivered the agreement to his clients. And because the
agreement reflected that the debentures “are being sold through [EquiAlt]
without commissions,” Stevenson had a duty to clarify the situation to his
clients to avoid misleading them. See A.R.S. § 44-1991(A)(2) (Fraud can arise
by omission.); cf. U.S. Sec. and Exch. Comm’n v. Levine, 671 F. Supp. 2d 14,

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                    STEVENSON, et al. v. ARIZONA
                        Decision of the Court

29–30 (D.D.C. 2009) (The failure to disclose a commission in an unregistered
security offering is a misrepresentation.).

¶28           Stevenson also purports to distinguish between a “finder’s
fee” and a commission. But the superior court directly asked Stevenson
whether there was a distinction between these two terms. He replied, “I
don’t know that there’s a distinction for purposes of the amount or the fact
that they were compensated.” It is waived here because Stevenson failed to
develop this argument below. See Ramos v. Nichols, 252 Ariz. 519, 523, ¶ 11
(App. 2022).

¶29           We conclude that the Commission’s fraud finding about the
commissions was supported by substantial evidence and was not illegal,
arbitrary, capricious, or an abuse of discretion.

      2.    The Commission Did Not Err by Finding that the
      Stevensons Misrepresented the Risk of the Debenture Investment.

¶30            Stevenson argues that he did not mislead investors about the
risk of investing in the debentures. He claims that “none of [the witnesses]
testified that [Stevenson] misled them in any way about the nature of the
EquiAlt Debentures,” and there is “no evidence” that he misled them
“about what they were getting into, including the risk involved.” He also
argues that any misrepresentations or omissions in his oral statements were
cured by EquiAlt’s documents disclosing the risk involved.

¶31           The Commission counters that “[t]he fact that the EquiAlt
Subscription Agreement correctly stated that the Debentures were risky
does not absolve Appellant Stevenson from lying to investors.” It argues
that Stevenson’s many oral claims that the investment was “100% safe,”
“not risky,” and “risk free,” established a violation of A.R.S. § 44-1991,
noting that “the Securities Act does not make any allowance for whether a
more sophisticated investor might have realized the oral statement was
untrue by comparing it to a contrary written statement.”

¶32             We agree with the Commission. Nothing in A.R.S. § 44-1991
requires an investor to investigate or weigh contrary evidence to determine
that the information provided by the securities seller is true. Instead, the
statute protects the investor by placing a “heavy burden upon the offeror
not to mislead potential investors in any way.” See Trimble v. Am. Sav. Life
Ins. Co., 152 Ariz. 548, 553 (App. 1986). Even if the EquiAlt paperwork
disclosed the investment risk, substantial evidence supports the
Commission’s finding that Stevenson made contrary misleading statements
to his clients.

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

¶33           Stevenson also argues that the Commission unjustifiably
based its fraud finding not on any misrepresentation of risk in the
investment but on failing to foresee harm caused by “secret management
issues” and “covert misconduct” within EquiAlt. He asserts this was error
because “[r]equiring Appellants to assess risk based on covert misconduct
of a third party, and holding Appellants liable for their failure to do so,
would be hugely unfair.”

¶34           But this argument mischaracterizes the Commission’s
finding. Stevenson raised his concerns in his post-hearing brief. Still, the
Commission found that Stevenson’s assurances to his clients were
“contrary to language in EquiAlt’s Subscription Agreement, which
described the EquiAlt Debentures as a ‘highly speculative’ investment[.]”
The Commission thus determined that “[t]he evidence establishes that
Respondent Stevenson misrepresented or omitted to disclose the risk
involved in the EquiAlt Debentures at the time the investment was being offered
or sold.” (Emphasis added.) Thus, the Commission’s finding was not
directed toward the unforeseeable risk that EquiAlt’s principals would
commit misconduct. It was directed toward the risk inherent to the
economic instability of a “highly speculative” investment. Because the
Commission found that the Stevensons had misrepresented the investment
risk at the point of sale, Stevenson’s suggestion that the unforeseeable bad
acts of EquiAlt formed the basis for the Commission’s decision is
unfounded.

       3.    The Commission Did Not Err by Finding that the
       Stevensons Misrepresented the Liquidity of the Investments.

¶35           Stevenson claims there is no evidence that he misled any
investors about their ability to withdraw funds from the EquiAlt
investment. He acknowledges that he told clients they could liquidate their
investments after a short period. Still, he argues that these statements were
not untrue or misleading because they were true when they were made. He
alleges that EquiAlt changed its liquidation policy afterward, in 2019, and
that the Stevensons introduced no one new to EquiAlt after the policy
change.

¶36            But Stevenson’s argument is belied by the record. EquiAlt’s
private placement memorandum, dated May 2013, states that EquiAlt “has
the legal right, but not the obligation, to repurchase the Debentures prior to
their maturity date.” And the subscription agreement, signed by one
investor in 2012, shows that “the Subscriber may not be able to liquidate
his, her or its investment[.]” Thus, even if EquiAlt’s policies changed in

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

2019, substantial evidence from before that change supports the
Commission’s findings that the Stevensons failed in their “affirmative duty
not to mislead investors by making statements that were inconsistent with”
EquiAlt’s documents.

       4.     The Commission Did Not Err by Finding the Stevensons’
       Failure to Disclose Civil Judgments Against Them Was a Material
       Misrepresentation.

¶37           Stevenson admits that the Stevensons failed to disclose past
civil lawsuits to their clients. But he maintains that this does not violate
A.R.S. § 44-1991 because (1) the lawsuits were not material, and (2) the
Stevensons had no duty to disclose the lawsuits because they do not fall
within the SEC’s examples of presumptively material civil actions.

¶38          Stevenson highlights that no witness offered meaningful
testimony about the civil suits. As he notes, “[t]here is nothing in the record
to suggest that . . . [his] clients would not have entered into the EquiAlt
Debentures, had they known about the civil actions.”

¶39           But Stevenson’s clients’ subjective testimony is not
dispositive, as the Commission assesses materiality under an objective
standard. See Caruthers, 230 Ariz. at 524, ¶ 43. The Commission found that
the lawsuits “would have been significant to a reasonable buyer in their
deliberation process to invest and would have been material to the
decision-making process.” We affirm materiality determinations unless
“the information is so obviously important or unimportant to an investor
that reasonable minds could not differ on the question of immateriality.”
See id. And Stevenson does not offer or develop a convincing argument that
no reasonable mind could conclude that a civil garnishment judgment
against him would matter to a potential investor.

¶40           Stevenson also cites SEC guidelines outlining which civil
actions are considered “presumptively material” for disclosure. For
instance, the SEC directs that where investment advisers have been
involved in investment-related misconduct, those advisers must disclose
those civil actions in their brochures. See SEC, Form ADV, Uniform
Application for Investment Advisor Registration and Report by Exempt
Reporting Advisors, Part 2A of Form ADV: Firm Brochure, item 9 (updated
Aug. 2022). See generally 15 U.S.C. § 80b-3(c); 17 C.F.R. § 275.203-1(a)
(establishing Form ADV as required for investment adviser registration
application). Because the Stevensons’ past civil actions do not fall into the
“presumptively material” category, Stevenson argues that he had “no

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                      STEVENSON, et al. v. ARIZONA
                          Decision of the Court

duty” to disclose them, and the Commission erred by finding his past civil
judgments were material.

¶41            Contrary to that argument, the SEC’s guidelines make clear
that they “do not contain an exclusive list of material disciplinary events.”
Form ADV at Part 2A, item 9. Moreover, the fact that the judgments do not
fall into the presumptive category does not preclude the Commission from
finding that they are material. On appeal, we defer to such a finding.

¶42           We conclude that the Commission’s findings of fraud were
supported by substantial evidence and were not illegal, arbitrary,
capricious, or an abuse of discretion.

C.    The Commission Did Not Err by Declining to Apply Equitable
Estoppel.

¶43            “Equitable estoppel is a rule of justice which, when all its
elements are met, prevails over all other rules.” Carlson v. Ariz. Dep’t of Econ.
Sec., 184 Ariz. 4, 5 (App. 1995) (citing Freightways, Inc. v. Ariz. Corp. Comm’n,
129 Ariz. 245, 247 (1981)).4 “The essence of estoppel is conduct inconsistent
with a later-adopted position.” Thomas and King, Inc. v. City of Phoenix, 208
Ariz. 203, 210, ¶ 27 (App. 2004). Equitable estoppel generally applies when
there is “(1) conduct by which one induces another to believe in certain
material facts; and (2) the inducement results in acts in justifiable reliance
thereon; and (3) the resulting acts cause injury.” Carlson, 184 Ariz. at 5
(citing Heltzel v. Mecham Pontiac, 152 Ariz. 58, 61 (1986)).

¶44          Equitable estoppel ordinarily may not be invoked against the
government. Freightways, 129 Ariz. at 247. Equitable estoppel may only
apply against the state “if the government’s wrongful conduct threatens to
work a serious injustice and if the public interest would not be unduly
damaged by the imposition of estoppel.” Carlson, 184 Ariz. at 6 (citing

4      We note that Carlson’s four-element standard for equitable estoppel
has been questioned by our supreme court. See Valencia Energy Co. v. Ariz.
Dep’t of Revenue, 191 Ariz. 565, 577, ¶ 36, n.16 (1998). Valencia applied a
three-element approach and noted “[t]he affirmative misconduct standard
adopted in Carlson may conflict with Freightways.” Id. The supreme court
did not explicitly overrule Carlson, but because Stevenson would not
prevail under either standard, we need not decide whether the Carlson
approach remains good law.

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

Tucson Elec. Power Co. v. Ariz. Dep’t of Revenue, 174 Ariz. 507, 516 (App.
1992)).

¶45            At his hearing, Stevenson testified that when the Division
investigated the Companies, Stevenson asked “if everything was okay with
EquiAlt,” whether he needed additional licensing, and whether he should
cease working with EquiAlt. He claims that, in 2013, Division
representatives “affirmatively told [him] that if there was a problem, the
Division would contact him.” And because the Division did not follow up
with Stevenson or address this issue again after its second investigation in
2016, Stevenson argues that he justifiably relied on the Division’s silence as
a condonation of his actions. Thus, he states the Commission should be
estopped from penalizing him. He argues, “[i]t was entirely unjust for the
Division, eight full years later . . . to reverse its prior position on these
registration issues and claim that Mr. Stevenson and [the Companies] were
in violation of the registration statutes.”

¶46            Still, the Commission found that Stevenson did not
sufficiently prove the estoppel elements. The first element, inducement,
requires “affirmative acts” with “some considerable degree of formalism”
beyond a mere “off-the-cuff opinion,” where answering “requires a
measure of research or deliberation.” Valencia Energy Co. v. Ariz. Dep’t of
Revenue, 191 Ariz. 565, 577, ¶ 36 (1998). Verbal communication is typically
insufficient, see id., and equitable estoppel will not apply against the
government based on mere negligence of government employees, see
Carlson, 184 Ariz. at 6. “Thus, the government generally can enforce a law
even if its employees have not always correctly applied it in the past.”
Thomas and King, 208 Ariz. at 210, ¶ 27.

¶47           Here, Stevenson argues that he relied on conversations with
Division employees from 2013 and 2016. Even if true, such statements
would not support an equitable estoppel defense. See Valencia, 191 Ariz. at
577, ¶ 36. And though Stevenson testified he was “confused” after his
phone call with the Division, the Commission noted that—rather than
asking the Division itself for clarification—he decided to ask EquiAlt
officers or their attorneys and “relied on them for guidance.” Thus,
Stevenson’s testimony shows reliance not upon the Division but on
EquiAlt’s representations. The Commission correctly found that Stevenson
“failed to show the Division’s conduct induced [him] to continue to sell
EquiAlt Debentures.”

¶48          The second estoppel element “demands both that the party
claiming estoppel actually relied on the state’s act and that such reliance

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

was reasonable under the circumstances.” Valencia, 191 Ariz. at 577, ¶ 37.
Such reliance must be prospective. Id. Because “by [Stevenson’s] own
admission, [he] began marketing EquiAlt Debentures before his alleged
conversations with Division representatives about EquiAlt in 2013 and
[2016],” he cannot claim that he only began marketing the debentures
relying on the Division’s comments.

¶49           The Commission also found that Stevenson’s purported
reliance on the Division’s silence was unreasonable. “[R]eliance should be
considered reasonable if a person sincerely desirous of obeying the law
would have accepted the information as true, and would not have been put
on notice to make further inquiries.” Freightways, 129 Ariz. at 247. Stevenson
cannot claim to “not have been put on notice to make further inquiries,” see
id. (cleaned up), because his conversation with the Division ended with him
being “confused,” expecting more contact by the Division.

¶50          Finally, the Commission declined to apply estoppel because
“the imposition of estoppel would cause a serious injustice for EquiAlt
investors and the public interest in protecting such investors.” “[E]stoppel
may apply against the state only when the public interest will not be unduly
damaged.” Valencia, 191 Ariz. at 578, ¶ 40 (citing Freightways, 129 Ariz. at
248).

¶51           We conclude that the Commission correctly declined to apply
the equitable estoppel doctrine.

D.    The Commission’s Restitution Award Was Not Illegal, Arbitrary,
Capricious, or an Abuse of Discretion.

¶52           Stevenson challenges the $19 million restitution order. He
argues that (1) the Commission improperly defined “restitution” as it is
used in A.R.S. § 44-2032(1), leading to an incorrect calculation of the award,
(2) the amount imposed violates constitutional protections against
excessive fines, and (3) the applicable statutes and administrative code are
unconstitutionally vague.

¶53             When presented with an apparent violation of the Securities
Act, the Commission is authorized “to take appropriate affirmative
action . . . to correct the conditions resulting from the act, practice or
transaction including, without limitation, a requirement to provide
restitution as prescribed by rules of the commission.” A.R.S. § 44-2032(1).
Stevenson and the Commission disagree on the meaning of the term
“restitution.” We review de novo issues of statutory construction. Hirsch, 237
Ariz. at 466, ¶ 38.

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                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

¶54           Stevenson argues that restitution should be “allowable only
when it would be inequitable or unjust for a defendant to retain the actual
benefit received without compensating the alleged victim.” Because the
Stevensons only received $2 million in commissions for the debenture
transactions (and not the $19 million in principal paid to EquiAlt), he
concludes that the Commission erred by imposing a $19 million restitution
order against him.

¶55            The Commission responds that Stevenson conflates the
concepts of restitution and disgorgement. See Hirsch, 237 Ariz. at 466, ¶ 41
(“[D]isgorgement is not precisely restitution. Disgorgement wrests
ill-gotten gains from the hands of a wrongdoer . . . Disgorgement does not
aim to compensate the victims of the wrongful acts, as restitution does.”).
It adds that restitution is “clearly defined” by the administrative code,
which provides, in relevant part:

       If restitution is ordered by the Commission,

       1.      The amount payable as damages to each purchaser
       shall include:

              a.    Cash equal to the fair market value of the
              consideration paid, determined as of the date such
              payment was originally paid by the buyer; together
              with

              b.     Interest at a rate pursuant to A.R.S. § 44-1201 for
              the period from the date of the purchase payment to
              the date of repayment; less

              c.     The amount of any principal, interest, or other
              distributions received on the security for the period
              from the date of purchase payment to the date of
              repayment.

A.A.C. R14-4-308(C). Thus, the Commission concluded that the $19 million
restitution award was appropriate because it was based on the “fair market
value of the consideration paid,” see id., not the unjust enrichment received
by the Stevensons.

¶56           Stevenson acknowledges that Hirsch’s definitions of
restitution and disgorgement contradict his position. Still, he argues that it
“should not be the controlling authority in this case” or that this court
should “[a]t the very least . . . narrow the decision.” He made a similar

                                      14
                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

argument before the superior court. See Ariz. Corp. Comm’n v. Stevenson,
Maricopa County Cause No. LC2022-000130-001 (“With commendable
candor, Appellants acknowledge that their position is contrary to the
holding of Hirsch, supra. They assert that they ‘have a good faith challenge
[to] the Hirsch opinion on this issue,’ and that they raise it herein ‘so that
[they] may later bring such challenge before the Court of Appeals, and
potentially the Supreme Court of Arizona, for further review so as to
modify or overrule Hirsch.’”).

¶57           He urges us to define “restitution” as it is used in
Murdock-Bryant Construction, Inc. v. Pearson, 146 Ariz. 48, 53 (1985)
(Restitution is “a flexible, equitable remedy available whenever the court
finds that the defendant, upon the circumstances of the case, is obliged by
the ties of natural justice and equity to make compensation for benefits
received.”) (cleaned up). But his reliance on Murdock is unavailing. As the
Commission points out, Murdock addressed restitution under equitable
principles; it was not a case involving securities or the Commission’s
administrative code, and its restitution definition does not apply. See
Murdock, 146 Ariz. 48; see also A.R.S. § 44-2032(1) (authorizing the
Commission to impose “restitution as prescribed by rules of the commission”
(emphasis added)). Because restitution “focuses on restoring the victim to
a prior position,” Hirsch, 237 Ariz. at 466, ¶ 40, we reject Stevenson’s
argument that the award violates constitutional protections against
excessive fines.

¶58           The United States and Arizona Constitutions identically
provide that “[e]xcessive bail shall not be required, nor excessive fines
imposed, nor cruel and unusual punishments inflicted.” U.S. Const. amend.
VIII; Ariz. Const. art. 2, § 15. A “fine” is “a payment to a sovereign as
punishment for some offense.” United States v. Bajakajian, 524 U.S. 321, 327
(1998) (superseded by statute on other grounds). But a restitution order is
not punitive as it aims to restore the victims to their prior positions. See
Hirsch, 237 Ariz. at 466, ¶ 40. Thus, the restitution order cannot be an
“excessive fine” because it is not a “fine.”

¶59            Finally, Stevenson challenges the restitution order by arguing
that A.R.S. § 44-2032(1) and A.A.C. R14-4-308(C)(1) are unconstitutionally
vague. He contends that “[a] reasonable reader . . . would be completely
unaware that restitution for the intermediary referral source could mean
the entire amount paid to the third party, and not simply the amount that
the referral source had received in connection with the referral.”

                                     15
                     STEVENSON, et al. v. ARIZONA
                         Decision of the Court

¶60           This argument is meritless. The code provides that “[t]he
amount payable as damages to each purchaser shall include . . . [c]ash equal
to the fair market value of the consideration paid.” A.A.C.
R14-4-308(C)(1)(a). Contrary to Stevenson’s position, a reasonable reader
would not “be completely unaware” of what an “intermediary referral
source” would be liable to pay in restitution because, under the rule, the
defendant’s identity is irrelevant. The rule states that the restitution amount
is the “consideration paid” by the victim. Id. Stevenson cannot claim that
the rule is vague because it generally applies to defendants. Moreover,
A.R.S. § 44-2032(1) authorizes the Commission to order “any person” that
commits a securities violation within that chapter to pay restitution.
(Emphasis added.)

¶61           Stevenson has shown no error in the Commission’s restitution
order.

E.     The Commission’s Imposition of Administrative Penalties Was
Not Illegal, Arbitrary, Capricious, or an Abuse of Discretion.

¶62            Stevenson challenges imposing administrative penalties
under A.R.S. §§ 44-3296, 44-3201, and 44-2036. From the total penalty
amount and the statutory maximum for each violation, he calculates that
“[t]he Commission must therefore have found at least fifty violations.” Still,
he objects that the Commission “did not delineate” the actual number of
violations or the penalty amount for each.

¶63           But the Commission found that the Stevensons had sold at
least 254 EquiAlt debentures, each violating A.R.S. § 44-1841. As the
superior court noted, “therefore, the Commission could have imposed
administrative penalties of up to $1,270,000.00 . . . . Appellants can hardly
claim to be aggrieved by . . . the Commission’s decision to impose penalties
in an amount far lower than the amount authorized by statute[.]” We agree
with the superior court’s reasoning.

                            ATTORNEY’S FEES

¶64           Stevenson requests his costs and fees on appeal under A.R.S.
§§ 12-341, 12-348(A)(2), and 41-1007. We decline the request because he did
not prevail on the appeal.

                                      16
            STEVENSON, et al. v. ARIZONA
                Decision of the Court

                      CONCLUSION

¶65   We affirm.

               AMY M. WOOD • Clerk of the Court
               FILED: TM

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