Court Opinion

ID: 9542889
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:39:55.896607+00
Date Added: 2024-06-11T15:09:10.813999
License: Public Domain

ERICKSON, Justice,
dissenting:
I respectfully dissent. In my view, the criminal conduct of the respondent, Arlan I. Preblud (Preblud) requires disbarment. A lesser disciplinary sanction depreciates the seriousness of the respondent’s willful participation in a manipulative scheme that resulted in fraudulent profits in excess of $1,000,000 and underplays Preblud’s actions in the fraudulent transactions.
The federal grand jury returned a seven-count indictment against respondent Pre-blud, Joseph A. Pignatiello, and Juan Carlos Schidlowski, as principals of a conspiracy. 18 U.S.C. § 2. Preblud was alleged to have been involved in the criminal acts set forth in five of the indictment’s seven counts. Count I of the indictment charged a conspiracy, 18 U.S.C. § 371, and detailed the nuances of the agreement between the principals as co-conspirators m perpetrating fraudulent sales of stock of Balboa Exploration Company and Piezo Electric Products, Inc. Count II alleged that Pre-blud ánd his co-defendants knowingly and willfully engaged in fraud in violation of 15 U.S.C. §§ 78j(b), 78ff(a), and 17 C.F.R. 240.-10b-5, by creating and operating a manipulative scheme to profit from the sale of Balboa Exploration Company stock. Count III charged similar criminal conduct in connection with the sale of Piezo Electric Products, Inc. stock. Count IV alleged violations of 18 U.S.C. § 1001 for filing a prospectus for Balboa Exploration Company containing false, fictitious, and fraudulent representations of material facts and concealed the material facts by trick, scheme, and device. Count V contained the same allegations in connection with the filing of a prospectus for Piezo Electric Products, Inc. Count VI alleged that Joseph V. Pig-natiello violated 18 U.S.C. § 1001 by fraudulently concealing his interest in an account with OTC Net, Inc. Count VII charged that Juan Carlos Schidlowski committed similar acts in violation of 18 U.S.C. § 1001.
As part of the plea agreement, Preblud agreed to plead guilty to Count II of the indictment and all other charges were dismissed. He was fined $10,000 and sentenced to two years imprisonment. His involvement in the illicit scheme to defraud was summarized by the United States Attorney and approved by the respondent and states as follows:
The government’s evidence would show that:
JOSEPH V. PIGNATIELLO was a principal of OTC Net, Inc., along with Juan Carlos Schidlowski, Kim D. Rust and Daniel Walters. OTC Net, Inc., was a Denver based brokerage firm primarily involved in underwriting over-the-counter public stock distributions. In early 1981, the principals of OTC NET, Inc., decided to expand their marketing capabilities to Europe by starting a Swiss affiliate brokerage firm. In February of 1981, AR-LAN I. PREBLUD, Schidlowski, Pigna-tiello, and Rust travelled to Switzerland *828to make the legal arrangements necessary to establish this Swiss affiliate which was named OTECENET, S.A. PREBLUD became the president of this company. Also, in early 1981, the principals of OTC Net, Inc., were approached by another brokerage firm and asked to be the primary underwriter of the public distribution of shares of stock of Balboa Exploration Company. Pignatiello, Schidlowski, Rust and Walters agreed to distribute the stock, but decided to increase the number of shares from 15 million to 20 million allocating 4,540,000 shares to OTECENET for distribution to Europe. Pignatiello, Schidlowski, Rust and Walters then decided to purchase the majority of the shares allocated to OTE-CENET through accounts to be opened for their benefit at Swiss financial institutes.
On March 16, 1981, Pignatiello, Schid-lowski, Rust and Walters borrowed $450,000 from Metro National Bank, Denver, Colorado for the stated purpose of purchasing “furniture, fixtures and telephone equipment.” $404,000 of the loan proceeds were converted to cashiers checks payable to Mannin Trust, Ltd., which were transported to Europe by PREBLUD, who used the money to fund Swiss bank accounts through which 4,040,000 shares of new issue Balboa Stock were purchased from OTECEN-ENT for the benefit of Pignatiello, Schid-lowski, Rust and Walters.
On April 6, 1981, Balboa Stock began trading in the aftermarket. In the first day of aftermarket trading the price of Balboa Stock went from $.10 to $.50. Between April 8,1981, and April 16,1981 the shares purchased through the Swiss bank accounts were sold back to OTC Net, Inc., at a profit of approximately $1,000,000. OTC Net, Inc., in turn distributed this stock to customers who paid more than $.10 a share and were not informed in any way that shares of the initial public distribution had been secretly purchased by principals of OTC Net, Inc., through Swiss accounts. PRE-BLUD caused a portion of these proceeds to be wire transferred from Colorado to New York.
The profits in the numbered Swiss bank accounts were eventually transferred back to the United States. To disguise the significance of these transfers, foreign corporations were created for the principals of OTC Net, Inc. PIGNA-TIELLO, Schidlowski, Rust and Walters were the beneficial owners of these corporations through a power of attorney. Initially, Preblud was given this power of attorney. Documents were drafted to reflect on their face that the foreign corporations were lending money to, or for the benefit of, the principals of OTC Net, Inc. The loan documents were dated to correspond with when the proceeds from the stock sales were coming back to the United States. To further add legitimacy to these “loans,” liens were recorded against Schidlowski’s and Pignatiello’s residences, evidencing security for an indebtedness to one of the foreign corporations.
The government’s evidence would further show that ARLAN I. PREBLUD was an attorney licensed to practice law in Colorado during the time these transactions occurred and was aware it was unlawful to employ manipulative deceptive devices in connection with the sale of securities.
After the respondent was sentenced to prison, he cooperated fully with the prosecution. The record reflects that Preblud has shown remorse and is a law abiding citizen who is actively involved in civic activities. He has suffered imprisonment and has paid substantial monetary penalties. However, all of the respondent’s activities that the majority describes as mitigating factors justifying suspension rather than disbarment occurred after the respondent’s fraudulent acts were discovered and after he was indicted.
During the entire time that the respondent and his co-conspirators were carrying out the steps necessary to effectuate the fraudulent scheme, Preblud was aware of the unethical, dishonest, and fraudulent nature of the plan. The transcript of the disciplinary proceeding reveals that Pre-*829blud understood the mechanics of the scheme and actively participated in furtherance of it. He acted as the courier for the conspiracy, was the president of a corporation created to carry out the fraudulent scheme, and caused funds to be transferred to a numbered Swiss bank account in an attempt to maintain anonymity. The respondent’s actions show a calculating, willing, and active participation in a pernicious scheme to profit from manipulating the market, a character completely irreconcilable with those ideals an attorney is sworn to uphold.
While I am cognizant of Preblud’s extraordinary effort to rehabilitate himself and the supportive testimonials submitted on his behalf, I feel that his conduct was so egregious as to warrant disbarment. This conclusion is fully supported by C.R.C.P. 241.6 and Standard 5.11 of the American Bar Association Standards for Imposing Lawyer Sanctions. I note that Preblud voluntarily surrendered his license to practice law. in January 1986 and was suspended in June 1986. In light of our decision in People v. Pacheco, 198 Colo. 455, 608 P.2d 333 (1979), I would commence the eight-year period for readmission after disbarment from the date he surrendered his license in January 1986. The respondent should be permitted to apply for readmission in accordance with the provisions of C.R.C.P. 241.22(a).
I am authorized to say that Justice VOL-LACK joins in this dissent.