JOHN Z. LEE, District Judge.
Plaintiff Securities and Exchange Commission hereby requests that the Court order permanent injunctions, disgorgement, prejudgment interest, and civil penalties against defendants Steven Brewer and Adam Erickson.
The Commission filed its complaint in this matter on October 28, 2010. Docket No. 1. The Commission alleged that defendants Brewer and Erickson engaged in fraudulent offerings of unregistered securities resulting in violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 promulgated thereunder. The Commission also alleged that defendants Brewer and Erickson aided and abetted Brewer Financial Services, LLC's ("BFS") violations of Section15(c)(1) of the Exchange Act, and Brewer Investment Advisors, LLC's ("BIA") violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act").
Brewer and Erickson have signed consents in which they admit the Court's jurisdiction over them and the subject matter of this action and agree to entry of a permanent injunction against all violations alleged in the complaint. See Exhibit A, Brewer consent and Exhibit C, Erickson consent. Each of them has also consented to determination of the remaining issues by the Court by motion, without trial. Id.
Brewer has consented to the entry of a permanent injunction that prohibits him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and from aiding and abetting violations of Section15(c)(1) of the Exchange Act and Sections 206(1) and 206(2) of the Advisers Act. Exhibit A, Brewer Consent, at ¶ 2. Erickson has also consented to the entry of a permanent injunction that prohibits him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and from aiding and abetting violations of Section15(c)(1) of the Exchange Act and Sections 206(1) and 206(2) of the Advisers Act. Exhibit B, Erickson Consent, at ¶ 2.
In their consents, Brewer and Erickson have agreed to submit the issues of disgorgement and penalties to the Court by motion, without trial. Exhibit A, Brewer Consent at ¶ 3; Exhibit B, Erickson Consent at ¶ 3. In addition, Brewer and Erickson have agreed that, for purposes of the motion, the allegations of the Commission's complaint would be deemed to be true. Id.
1. In late 2000, Steven Brewer created Brewer Investment Group, LLC ("BIG"), a financial services holding company. Complaint ¶ 7, 18, 25. In 2005, BIG's wholly-owned subsidiary, Brewer Financial Services, LLC ("BFS"), a broker-dealer, registered with the Securities and Exchange Commission as a broker-dealer, and in 2008, BIG's wholly-owned subsidiary Brewer Investment Advisors, LLC ("BIA"), an investment adviser, registered as an investment adviser. Complaint ¶ 25. During the period at issue, BFS earned commissions on securities transactions for its customers, and BIA earned investment advisory fees from its clients, but neither BIG, BFS nor BIA were profitable. Complaint ¶¶ 25, 26.
2. By January 2009, BIG and its subsidiaries were struggling financially. Complaint ¶ 26. In addition to sustaining consolidated operating losses of approximately $3 million during 2008, BIG received a notice of default on a $2.5 million loan in January 2009. Complaint ¶ 26.
3. From June 2009 through at least the end of September 2010, Defendants Brewer, Erickson, BIG, BFS, and BIA, participated in fraudulent, unregistered offerings of promissory notes issued by FPA Limited ("FPA"), an Isle of Man company, in the aggregate amount of $5.6 million to at least 74 investors. Complaint ¶¶ 1, 7, 30, 31, 32. Through the fraudulent offerings, BIG and Brewer funneled cash to BIG and one of its subsidiaries when the entities were under significant financial distress. Complaint ¶¶ 1, 42. The offering materials that Defendants created and used for the offerings of FPA promissory notes ("FPA Notes") failed to disclose that over 90% of the proceeds would be disbursed at Brewer's direction to BIG and then to its wholly-owned subsidiaries. Complaint ¶¶ 1, 3, 39, 40, 45. In addition, the offering materials misrepresented the risk of the investment and failed to disclose the precarious financial condition of BIG and its subsidiaries. Complaint ¶¶ 1, 42, 46.
4. Defendants Brewer and Erickson were officers and owners of BIG. Complaint ¶ 7. Brewer owned over 25% of BIG and was its CEO and chairman. Complaint ¶ 18. Erickson was, at various times, the COO, executive vice president, a managing principal, and partial owner of BIG. Complaint ¶ 19.
5. Defendant Erickson was an officer and/or managing principal of Defendant BFS, a registered broker-dealer with 25 branch offices located in Colorado, Illinois, Minnesota, Wisconsin, North Carolina, Arizona, Florida, Massachusetts, and Missouri. Complaint ¶ 8. Through Erickson, BFS reviewed and approved the fraudulent offering documents used to sell the FPA Notes. Complaint ¶ 8. BFS, through Erickson, directed its associated persons to solicit investors, including customers, and prospective customers to purchase the notes. Complaint ¶ 8.
6. Defendant Erickson was an officer and managing principal of Defendant BIA, a registered investment adviser which also had branch offices located in several states. Complaint ¶ 9. Through Erickson, BIA reviewed and approved the fraudulent offering documents used to sell the FPA Notes. Complaint ¶ 9. BIA, through Erickson, directed its associated persons to recommend that advisory clients purchase the notes. Complaint ¶ 9.
7. Through the offering materials for the FPA Notes, Brewer and Erickson implicitly and explicitly represented to investors that the proceeds of the offerings would be used to procure collateral which would be used to secure the notes. Complaint ¶¶ 2, 39, 40, 58, 60. Instead, over 90% of the proceeds were disbursed at Brewer's direction to BIG and then spent, including making payments to one of BIG's subsidiaries, and the promised collateral was never obtained. Complaint ¶¶ 2, 39, 40, 45, 47, 60. As a result, representations in the offering materials concerning the use of proceeds and representations concerning the risk of the investment were materially false and misleading. Complaint ¶¶ 2, 39, 40, 46, 55, 57, 59.
8. Brewer and Erickson also did not disclose to investors the precarious financial condition of BIG in the offering materials or otherwise. Complaint ¶¶ 3, 51, 52, 53. In fact, BIG has sustained millions of dollars of operating losses, has insufficient funds to pay its current expenses and has failed to meet its obligations to creditors and noteholders. Complaint ¶¶ 3, 53. These material omissions rendered statements in the offering documents materially misleading Complaint ¶ 3, 51, 55, 56.
9. In the offering materials, Brewer and Erickson also did not disclose that BIG was failing to make the required interest payments on the FPA Notes being sold to investors. Complaint ¶ 4, 62, 63, 64. Nor did Defendants disclose that material information to prospective investors in other communications. Complaint ¶¶ 4, 62, 63, 64. These material omissions rendered statements in the offering documents materially misleading Complaint ¶¶ 4, 67.
10. Defendant Brewer originated the fraudulent offering of the FPA Notes and participated in creating the fraudulent offering documents used to sell the notes. Complaint ¶¶ 5, 28, 29. Brewer, acting as a director of FPA, signed the FPA Notes that were sent to investors. Complaint ¶ 33. Brewer directed that the notes be sold and directed that the notes be offered to specific investors. Complaint ¶¶ 5, 32. Brewer also controlled the bank account into which the proceeds of the offerings were deposited and then disbursed, primarily to BIG. Complaint ¶¶ 5, 12, 41. Brewer knew that the representations in the offering documents concerning the use of proceeds and risk were materially false and misleading. Complaint ¶¶ 5, 48, 49, 60. He also knew that material information about the precarious financial condition of BIG and BIG's failure to make required interest payments on the notes was not being disclosed to prospective investors. Complaint ¶ 5, 54, 65, 66. Nonetheless, Brewer continued to sell the notes and caused others to do so. Complaint ¶ 5, 54, 68.
11. Defendant Erickson reviewed and approved the fraudulent offering documents used to sell the FPA Notes. Complaint ¶¶ 6, 32. Erickson directed BFS and BIA to sell the notes and encouraged individuals associated with those entities to sell the notes. Complaint ¶¶ 6, 32. He knew that over 90% of the proceeds of the offerings were being funneled to BIG and were not being used to procure collateral for the notes. Complaint ¶¶ 6, 45. He knew that the representations in the offering documents concerning the use of proceeds and risk were materially false and misleading. Complaint ¶¶ 6, 50, 61. Erickson also knew that material information about the precarious financial condition of BIG and BIG's failure to make required interest payments on the notes was not being disclosed to prospective investors. Complaint ¶¶ 6, 54, 65, 66. Nonetheless, Erickson continued to cause BFS and BIA to sell the notes. Complaint ¶¶ 6, 54, 68.
12. As a result of the conduct alleged in the Complaint, Defendants engaged in and, unless enjoined, will continue to engage in transactions, acts, practices and courses of business which violate Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. Complaint ¶¶ 10, 75-85. Defendant BFS engaged in and, unless enjoined, will continue to engage in transactions, acts, practices and courses of business which violate Section15(c)(1) of the Exchange Act, and Defendants Brewer and Erickson aided and abetted those violations. Complaint ¶¶ 10, 86-90. Defendant BIA engaged in and, unless enjoined, will continue to engage in transactions, acts, practices and courses of business which violate Sections 206(1) and 206(2) of the Advisers Act, and Defendants Brewer and Erickson have aided and abetted those violations. Complaint 11 10, 91-96.
13. On October 29, 2010 this Court entered an Order, to which each Defendant consented, ordering Defendants to, among other things, provide an accounting to the Commission. Docket No. 14. The Order detailed the specific information required to be included. Id.
14. Defendants failed to provide the accounting as required and the Commission moved for contempt. Docket No. 32. Magistrate Judge Keys issued a Report and Recommendation finding that each Defendant was in contempt for failure to provide the accounting and obey other provisions of the Order. Docket No. 94. Defendants objected to the Report and Recommendation, but Judge Manning overruled the objections, found the Defendants to be in contempt, and, on August 15, 2011, ordered the Defendants to comply with her earlier Order. Docket No. 97, No. 106, and No. 107. She further ordered the Defendants to pay a sanction of $1,000 per day until they had complied with her Orders. Docket No. 106 and No. 107.
15. On November 28, 2011, Defendants filed a Motion seeking a finding that they had purged their contempt by filing with the motion accountings signed the same date as the Motion. Docket No. 145. In response the Commission agreed that the Defendants had, finally, complied with the Court's Order of October 29, 2010.
16. All of the proceeds of the fraud were deposited into bank accounts in the name of FPA USA. See Declaration of Donna Walker [Docket No. 7-4] at p. 3, ¶ 6.
17. Steven Brewer was the sole signatory and decision maker for the FPA USA bank accounts into which the proceeds of the fraud were deposited. See Declaration of Donna Walker [Docket No. 7-4] at p. 2, ¶ 5.
18. FPA USA made payments to BIG, totaling $5,355,100.00. BIG Accounting [Docket No. 145-36] at ¶ 9; Declaration of Donna Walker [Docket No. 7-4] at p 4, ¶ 8..
19. Steven Brewer was the sole signatory and decision maker for the BIG bank accounts into which the payments from FPA USA to BIG were deposited. Supplemental Declaration of Donna Walker, Exhibit C hereto, at ¶ 4.
20. Steven Brewer received compensation of at least $218,052.26 while the fraud was being perpetrated. Brewer Accounting [Docket No. 145-2] at p. 4, ¶ 12.
21. Adam Erickson received compensation of at least $215,760.35 from BFS while the fraud was being perpetrated. Erickson Accounting [Docket No. 145-20] at p. 5, ¶ 13.
22. BFS received, through BIG, proceeds of the fraud of approximately $850,000. Declaration of Donna Walker [Docket No. 7-4] at p 4, ¶ 8.
23. From June, 2009 through September, 2009, BFS operated at a net loss of over $1Million. Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 6; see also Complaint ¶ 25.
Disgorgement plays a central role in the enforcement of the securities laws. The disgorgement remedy is necessary to prevent a defendant from profiting from his illicit conduct and to protect investors by maintaining the integrity of the securities markets. SEC v. Texas Gulf Sulphur Co., 466 F.2d 1301, 1308 (2d Cir. 1971), see also CFTC v. Hunt, 591 F.2d 1211, 1222 (7
In determining the amount of disgorgement, any uncertainty in the calculation should fall on the wrongdoer. Id., see also SEC v. Patel, 61 F.3d 137, 140 (2d Cir. 1995). The disgorgement order need only be a reasonable approximation of the profits causally connected to the violation. SEC v. First City Financial Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989). As a result, the district court is not required to trace every dollar retained. See SEC v. First Jersey Sec. Inc., 101 F.3d 1450, 1475 (2d Cir. 1996). Once the SEC has established that the disgorgement figure reasonably approximates the unlawful proceeds, the burden of proof shifts to the defendant, "who must demonstrate that the disgorgement figure is not a reasonable approximation." Id., SEC v. Hughes Capital Corp, 917 F.Supp. 1080, 1085 (D.N.J. 1996), aff'd 124 F.3d 449 (3d Cir. 1997).
Moreover, a "person who controls the distribution of illegally obtained funds is liable for the funds he dissipated as well as the funds he retained." SEC v. Platforms Wireless Intern. Corp., 617 F.3d 1072, 1098 (9th Cir. 2010). "[T]he amount of disgorgement should include all gains flowing from the illegal activities." SEC v. JT Wallenbrock & Assoc., 440 F.3d 1109, 1114 (9th Cir. 2006). Courts have consistently held that disgorgement liability should not be reduced for business or any other expenses. SEC v. Kenton Capital Ltd., 69 F.Supp.2d 1, 16 (D.D.C. 1998) ("overwhelming weight of authority hold[s] that securities law violators may not offset their disgorgement liability with business expenses") (citations omitted); SEC v. Great Lakes Equities Co., 775 F.Supp. 211, 214 (E.D. Mich. 1991), aff'd, 12 F.3d 214 (6th Cir. 1993) ("deductions for overhead, commissions and other expenses are not warranted. The manner in which defendants . . . chose to spend their misappropriation is irrelevant.."); SEC v. Dimensional Entm't. Corp., 493 F.Supp. 1270, 1283 (S.D.N.Y. 1980) (defendant's "expenses in carrying out his scheme and in defending himself are hardly appropriate or legitimate deductions from the amount he received for his own benefit").
In addition, where two or more individuals or entities collaborate or have a close relationship in engaging in the violations of the securities laws, they should be held jointly and severally liable for the disgorgement of illegally obtained proceeds. Platforms Wireless, 617 F.3d at 1098, see also SEC v. First Pacific Bancorp., 142 F.3d 1186, 1191 (9
Steven Brewer was the sole signatory and decision maker for the accounts into which the proceeds of the fraud were deposited. See Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 4. Thus, because he controlled the distribution of the illegally obtained funds he should be liable for the entirety of the funds received by BIG. See Platforms Wireless, 617 F.3d at 1098. The fact that the money was spent should not relieve him of liability. Id. Nor should the Court be persuaded by any argument that he, himself, did not receive the money. His businesses, carrying his name, took and spent the money through accounts he alone controlled. Clearly he is responsible and should be found liable. See Wallenbrock, 440 F.3d at 1117.
Moreover, defendant Brewer should be jointly and severally liable with BIG for the entire proceeds of the fraud. Brewer had a close relationship with BIG. It carried his name, he was the manager, Chief Executive Officer, and Chairman of BIG, and he was the sole signatory of BIG's bank accounts. See Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 4, Complaint ¶ 18. Brewer and BIG had a close relationship in engaging in the violations of the securities laws. See Complaint ¶¶ 1, 5, 17, 18, 28, 32, 33,39, 45, 49,52, 58, 60. And the purpose of the violative scheme was to operate and invest in BIG for the benefit or Brewer and BIG. As a result Brewer should be held jointly and severally liable with BIG for disgorgement of the entire proceeds of the fraud. See Platforms Wireless, 617 F.3d at 1098, First Pacific Bancorp., 142 F.3d at 1191, Wallenbrock, 440 F.3d at 1117.
Adam Erickson received $215,760.35 from the Brewer entities while the fraudulent scheme was ongoing. Erickson Accounting [Docket No. 145-20] at p. 5, ¶ 13. Erickson may argue that the money he received was not ill-gotten gains or was paid for legitimate services. It is clear, however, that without the investor's money, the Brewer entities would not have had the funds to pay Erickson. See Declaration of Donna Walker [Docket No. 7-4] at p 4, ¶ 8, Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 6; see also Complaint ¶ 25. He should not be allowed to argue that he received only untainted money while investor funds were spent on legitimate expenses. Instead, the untainted money should be held to have been spent first on legitimate expenses, and only money left over after paying legitimate expenses should be allocated to Erickson. There was, however, no untainted money remaining after all legitimate expenses were paid. See Declaration of Donna Walker [Docket No. 7-4] at p 4, ¶ 8, Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 6; see also Complaint ¶ 25. In fact, for most of the relevant period, the Brewer entities did not have enough untainted money to pay all of their expenses and used investor funds for that purpose. See Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 6; see also Complaint ¶ 25.
Disgorgement often includes prejudgment interest to insure that wrongdoers do not profit from their illegal conduct. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1105 (2d Cir. 1972); SEC v. Cross Fin. Services, 908 F.Supp. 718, 734 (C.D. Cal. 1995). In this case, the consents signed by Brewer and Erickson specifically provide that the Court shall order prejudgment interest on the disgorgement ordered. See Exhibits A and B at ¶ 3. In Commission actions the pre-judgment interest is often based on the rate of interest used by the Internal Revenue Service for the underpayment of federal income tax as set forth in 26 U.S.C. § 6621(a)(2)." Prejudgment interest on $5,355,100 from October 29, 2010, the date of the Court's first Order in this matter, to June 25, 2012 is $296,784.82. Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 8. As a result, Brewer should pay disgorgement pus prejudgment interest totaling $5,651,884.82. Prejudgment interest on $215,760.35 for the period of October 29, 2010 through June 25, 2012 is $11,957.65. Supplemental Declaration of Donna Walker, Exhibit C, at ¶ 9. Therefore Erickson should pay disgorgement plus prejudgment interest totaling $227,718.
Civil penalties under the federal securities laws are calculated using a three-tier penalty structure. See 15 U.S.C. §§ 77t(d)(2), 78u(d)(3)(B). Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act contain identical penalty provisions. The amount of the "civil penalty is to be determined by the Court `in light of the facts and circumstances' of the particular case." SEC v. Kenton Capital, Ltd., 69 F.Supp.2d 1, 17 (D.D.C. 1998). Third-tier civil penalties are appropriate when the violation "involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement;" and "such violation directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons." 15 U.S.C. §§ 77t(d)(2)(C), 78u(d)(3)(B)(iii). The maximum third-tier penalty for defendants' conduct is the greater of $150,000 per violation for individuals, or alternatively, "the gross amount of pecuniary gain" to such defendant as a result of the violation." 15 U.S.C. §§ 77t(d)(2)(C), 78u(d)(3)(B)(iii); 17 C.F.R. §§ 201.1004 (amending the statutory amounts).
The facts in this case easily meet the statutory requirements for a third-tier penalty. The illegal scheme involved fraud and deceit, resulting in charges of securities fraud against Brewer and Erickson, and caused substantial losses to investors. Brewer and Erickson's acts in furtherance of the scheme also involved fraud and deceit and caused, at least, a significant risk of investor loss. Investors have lost the majority of the $5.6 million invested.
In determining the amount of a civil penalty, courts have considered various factors including: (1) the egregiousness of the violations at issue; (2) the degree of the defendant's scienter; (3) whether the violations were isolated or recurrent; (4) a defendant's failure to admit wrongdoing; and (5) whether the defendant's conduct created substantial losses or the risk of substantial losses to investors. See e.g., Universal Express, 646 F.Supp.2d 552, 568 (S.D.N.Y. 2009).
Brewer's fraudulent conduct was egregious, recurrent, and, at least, highly reckless. He knowingly concocted and executed this scheme to defraud investors of millions of dollars. As a result, the Court should assess a third-tier penalty of his gross pecuniary gain against him. See, e.g., SEC v. Alliance Leasing Corp., 28 Fed. Appx. 648, 2002 WL10482, at *2 (Jan. 3, 2002 9th Cir.); SEC v Yuen, 272 Fed. Appx. 615, 2008 WL 886093, at *2 (Apr. 1, 2008 9th Cir.).
Erickson's fraudulent conduct was also egregious, recurrent, and, at least, highly reckless. Erickson, despite his review of the offering materials being used and his knowledge of facts that were not disclosed in the offering materials, caused BFS and BIA to sell the fraudulent notes to numerous investors. As a result, the Court should assess a third-tier penalty of his gross pecuniary gain against him. Id.
For the reasons stated above, the Commission respectfully requests that the Court enter the permanent injunctions to which Brewer and Erickson have consented, and order them to pay disgorgement, prejudgment interest and a civil penalty. A proposed final judgment is attached hereto as Exhibit D.
1. Defendant Steven Brewer ("Defendant") acknowledges having been served with the complaint in this action, enters a general appearance, and admits the Court's jurisdiction over Defendant and over the subject matter of this action.
2. Without admitting or denying the allegations of the complaint (except as to personal and subject matter jurisdiction, which Defendant admits). Defendant hereby consents to the entry of a Judgment in the form attached hereto ("Judgment") and incorporated by reference herein, which, among other things, permanently restrains and enjoins Defendant from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") (15 U.S.C. §§ 77e(a), e(c) and q(a)], Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder and from aiding and abetting violations of Section 15(c)(1) of the Exchange Act [15 U.S.C. § 78o(c)(1)] and Sections 206(1)and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. § 80b-6(1) and 80b-6(2)].
3. Defendant agrees that the Court shall order disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 209(e) of tie Advisers Act [15 U.S.C. § 80b-9(e)J. Defendant further agrees that the amount of the disgorgement and civil penalties shall he determined by the Court upon motion of the Commission, Defendant further agrees that in connection with the Commission's motion for disgorgement and civil penalties, and at any hearing held on such a motion: (a) Defendant will be precluded from arguing that he did not violate the federal securities laws as alleged in the Complaint: (b) Defendant may not challenge the validity of this Consent or the Judgment; (e) solely for the purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true by the Court; and (d) the Court may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment contained in Rule 56(c) of the federal Rules of Civil Procedure, In connection with the Commission's motion for disgorgement and civil penalties, the parties may take discovery, including discovery from appropriate non-parties,
4. Defendant agrees that he shall not seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made pursuant to any insurance policy, with regard to any civil penalty amounts that Defendant pays pursuant to the Final Judgment, regardless of whether such penalty amounts or any part thereof are added to a distribution fund or otherwise used for the benefit of investors. Defendant further agrees that he shall not claim, assert, or apply for a tax deduction or tax credit with regard to any federal, state, or local tax for any penalty amounts that Defendant pays pursuant to the Final Judgment, regardless of whether such penalty amounts or any part thereof are added to a distribution fund or otherwise used for the benefit of investors,
5. Defendant waives the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure.
6. Defendant waives the right, if any, to a jury trial and to appeal from the entry of the Judgment.
7. Defendant enters into this Consent voluntarily and represents that no threats, offers, promises, or inducements of any kind have been made by tic Commission or any member, officer, employee, agent, or representative of the Commission to induce Defendant to enter into this Consent.
8. Defendant agrees that this Consent shall be incorporated into the Judgment with the same force and effect as if fully set forth therein.
9. Defendant will not oppose the enforcement of the Judgment on the ground, if any exists, that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure, and hereby waives any objection based thereon.
10. Defendant waives service of the Judgment and agrees that entry of the Judgment by the Court and filing with the Clerk of the Court will constitute notice to Defendant of its terms and conditions. Defendant further agrees to provide counsel for the Commission, within thirty days after the Judgment is lied with the Clerk of the Court, with an affidavit or declaration stating that Defendant has received and read a copy of the Judgment.
11. Consistent with 17 C.F.R. 202.5(f), this Consent resolves only the claims asserted against Defendant in this civil proceeding. Defendant acknowledges that no promise or representation has been, made by the Commission or any member, officer, employee, agent, or representative of the Commission with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability. Defendant waives any claim of Double Jeopardy based upon the settlement of this proceeding, including the imposition of any remedy or civil penalty herein. Defendant further acknowledges that the Court's entry of a permanent injunction may have collateral consequences under federal or state law and the rules and regulations of self-regulatory organizations, licensing boards, and other regulatory organizations. Such collateral consequences include, but arc not limited to, a statutory disqualification with respect to membership or participation in. or association with a member of, a self-regulatory organization. This statutory disqualification has consequences that are separate from any sanction imposed in an administrative proceeding. In addition, in any disciplinary proceeding before the Commission based on the entry of the injunction in this action. Defendant understands that he shall not be permitted to contest the factual allegations of the complaint in this action,
12. Defendant understands and agrees to comply with the Commission's policy "not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings." 17 C.F.R. § 202.5. In compliance with this policy. Defendant agrees; (i) not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis: and (it) that upon the filing of this Consent, Defendant hereby withdraws any papers filed in this action to the extent that they deny any allegation in the complaint If Defendant breaches this agreement the Commission may petition the Court to vacate the Judgment and restore this action to its active docket. Nothing in this paragraph affects Defendant's: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party.
13. Defendant hereby waives any rights under the Equal Access to Justice Act the Small Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek from the United States, or any agency, or any official of the United States acting in his or her official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses, or costs expended by Defendant to defend against this action. For these purposes. Defendant agrees that Defendant is not the prevailing party in this action since the parties have reached a good faith settlement.
14. In connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party. Defendant (i) agrees to appear and be interviewed by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission for documents or testimony at depositions, hearings, or trials, or in connection with any related investigation by Commission staff; (iii) appoints Defendant's undersigned attorney as agent to receive service of such notices and subpoenas: (iv) with respect to such notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the testimony reimburses Defendant's travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; and (v) consents to personal jurisdiction over Defendant in any United States District Court for purposes of enforcing any such subpoena,
15. Defendant agrees that the Commission may present the Judgment to the Court for signature and entry without further notice,
16. Defendant agrees that this Court shall retain jurisdiction over this matter for the purpose of enforcing the terms of the Judgment.
On
1. Defendant Adam Erickson ("Defendant") acknowledges having been served with the complaint in this action, enters a general appearance, and admits the Court's jurisdiction over Defendant and over the subject matter of this action.
2. Without admitting or denying the allegations of the complaint (except as to personal and subject matter jurisdiction, which Defendant admits), Defendant hereby consents to the entry of a Judgment in the form attached hereto ("Judgment") and incorporated by reference herein, which, among other things, permanently restrains and enjoins Defendant from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), e(c) and q(a)], Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder and from aiding and abetting violations of Section15(c)(1) of the Exchange Act [15 U.S.C. § 78o(c)(1)] and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].
3. Defendant agrees that the Court shall order disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)]. Defendant further agrees that the amount of the disgorgement and civil penalties shall be determined by the Court upon motion of the Commission. Defendant further agrees that in connection with the Commission's motion for disgorgement and civil penalties, and at any hearing held on such a motion: (a) Defendant will be precluded from arguing that he did not violate the federal securities laws as alleged in the Complaint; (b) Defendant may not challenge the validity of this Consent or the Judgment; (c) solely for the purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true by the Court; and (d) the Court may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment contained in Rule 56(c) of the Federal Rules of Civil Procedure. In connection with the Commission's motion for disgorgement and civil penalties, the parties may take discovery, including discovery from appropriate non-parties.
4. Defendant agrees that he shall not seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made pursuant to any insurance policy, with regard to any civil penalty amounts that Defendant pays pursuant to the Final Judgment, regardless of whether such penalty amounts or any part thereof are added to a distribution fund or otherwise used for the benefit of investors. Defendant further agrees that he shall not claim, assert, or apply for a tax deduction or tax credit with regard to any federal, state, or local tax for any penalty amounts that Defendant pays pursuant to the Final Judgment, regardless of whether such penalty amounts or any part thereof are added to a distribution fund or otherwise used for the benefit of investors.
5. Defendant waives the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure.
6. Defendant waives the right, if any, to a jury trial and to appeal from the entry of the Judgment.
7. Defendant enters into this Consent voluntarily and represents that no threats, offers, promises, or inducements of any kind have been made by the Commission or any member, officer, employee, agent, or representative of the Commission to induce Defendant to enter into this Consent.
8. Defendant agrees that this Consent shall be incorporated into the Judgment with the same force and effect as if fully set forth therein.
9. Defendant will not oppose the enforcement of the Judgment on the ground, if any exists, that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure, and hereby waives any objection based thereon.
10. Defendant waives service of the Judgment and agrees that entry of the Judgment by the Court and filing with the Clerk of the Court will constitute notice to Defendant of its terms and conditions. Defendant further agrees to provide counsel for the Commission, within thirty days after the Judgment is filed with the Clerk of the Court, with an affidavit or declaration stating that Defendant has received and read a copy of the Judgment.
11. Consistent with 17 C.F.R. 202.5(f), this Consent resolves only the claims asserted against Defendant in this civil proceeding. Defendant acknowledges that no promise or representation has been made by the Commission or any member, officer, employee, agent, or representative of the Commission with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability. Defendant waives any claim of Double Jeopardy based upon the settlement of this proceeding, including the imposition of any remedy or civil penalty herein. Defendant further acknowledges that the Court's entry of a permanent injunction may have collateral consequences under federal or state law and the rules and regulations of self-regulatory organizations, licensing boards, and other regulatory organizations. Such collateral consequences include, but are not limited to, a statutory disqualification with respect to membership or participation in, or association with a member of, a self-regulatory organization. This statutory disqualification has consequences that are separate from any sanction imposed in an administrative proceeding. In addition, in any disciplinary proceeding before the Commission based on the entry of the injunction in this action, Defendant understands that he shall not be permitted to contest the factual allegations of the complaint in this action.
12. Defendant understands and agrees to comply with the Commission's policy "not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings." 17 C.F.R. § 202.5. In compliance with this policy, Defendant agrees: (i) not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis; and (ii) that upon the filing of this Consent, Defendant hereby withdraws any papers filed in this action to the extent that they deny any allegation in the complaint. If Defendant breaches this agreement, the Commission may petition the Court to vacate the Judgment and restore this action to its active docket. Nothing in this paragraph affects Defendant's: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party.
13. Defendant hereby waives any rights under the Equal Access to Justice Act, the Small Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek from the United States, or any agency, or any official of the United States acting in his or her official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses, or costs expended by Defendant to defend against this action. For these purposes, Defendant agrees that Defendant is not the prevailing party in this action since the parties have reached a good faith settlement.
14. In connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party, Defendant (i) agrees to appear and be interviewed by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission for documents or testimony at depositions, hearings, or trials, or in connection with any related investigation by Commission staff; (iii) appoints Defendant's undersigned attorney as agent to receive service of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the testimony reimburses Defendant's travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; and (v) consents to personal jurisdiction over Defendant in any United States District Court for purposes of enforcing any such subpoena.
15. Defendant agrees that the Commission may present the Judgment to the Court for signature and entry without further notice.
16. Defendant agrees that this Court shall retain jurisdiction over this matter for the purpose of enforcing the terms of the Judgment.
On
I, DONNA B. WALKER, do hereby declare under penalty of perjury, in accordance with 28 U.S.C. § 1746, that the following is true and correct, that I am over 18 years of age and that I am competent to testify to the matters stated herein:
1. I am a Certified Public Accountant. I have been employed by the United States Securities and Exchange Commission ("Commission") in the Division of Enforcement as a staff accountant since 2001. In that capacity, in numerous investigations, I have examined documents and traced the flow of money through financial institutions.
2. As part of my duties, I was assigned to the Commission's investigation captioned in the Matter of Brewer Financial Services, LLC ("BFS"). In connection with this assignment, I have reviewed various documents provided to the Commission staff ("Staff") during the course of the investigation, including bank records, offering documents, investor schedules, and financial statements.
3. I previously prepared a declaration in this case. Declaration of Donna Walker [Docket No. 7-4]. No errors in that declaration have come to my attention.
4. I have reviewed "Company Banking Information," bates stamped 001811, and produced to the Commission by counsel for defendants on March 11, 2011. This document indicates that Steven J. Brewer is the sole signatory for the Brewer Investment Group, LLC ("BIG") bank accounts and therefore controls those bank accounts.
5. I reviewed Balance Sheets for BFS. The Balance Sheets are bates stamped BIG00018 produced to the Staff by BIG on December 10, 2009 in response to a subpoena dated November 12, 2009, BIG0001850 produced to the Staff by BIG on May 14, 2010 in response to a subpoena dated April 30, 2010, and Item 27 produced to the Commission by counsel for defendants in this matter on July 5, 2011.
6. Review of the Balance Sheets show that between June, 2009 and September, 2010, BFS's cumulative net loss was over $1 million.
7. The Commission uses the IRS rate of interest on tax underpayments and refunds found in 26 U.S.C. § 6621(a)(2) to calculate prejudgment interest owed by defendants in enforcement actions. The Commission makes available to its staff a computer program which calculates prejudgment interest using this IRS rate. The calculator calculates prejudgment interest slightly more conservatively than the IRS because it compounds interest quarterly rather than daily, and ignores partial months at the beginning and end of the period for which interest is being calculated.
8. I accessed the Commission's prejudgment interest calculator to calculate the prejudgment interest on $5,355,100 from October 29. 2010 to June 25, 2012. Using the Commissions prejudgment interest calculator, I calculated that prejudgment interest to be $296,784.82. A copy of the Prejudgment Interest Report is attached hereto as Exhibit 1.
9. I was also asked to calculate prejudgment interest on $215,760.35. Prejudgment interest on that amount for the period of October 29, 2010 through June 25, 2012 is $11,957.65. A copy of this Prejudgment Interest Report is attached hereto as Exhibit 2.
10. I declare under penalty of perjury that the foregoing statements arc true and correct.
The Securities and Exchange Commission having filed a Complaint and Defendants Steven Brewer and Adam Erickson having entered general appearances; consented to the Court's jurisdiction over them and the subject matter of this action; consented to entry of permanent injunctions without admitting or denying the allegations of the Complaint (except as to jurisdiction); consented to have the issues of disgorgement, prejudgment interest and penalties determined by the Court without trial, with the facts of the complaint admitted solely for that purpose; and waived findings of fact and conclusions of law:
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendants Brewer and Erickson and their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Judgment by personal service or otherwise are permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security:
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendants Brewer and Erickson and their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Judgment by personal service or otherwise are permanently restrained and enjoined from violating Section 17(a) of the Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77q(a)] in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly:
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendants Brewer and Erickson and their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Judgment by personal service or otherwise are permanently restrained and enjoined from violating Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and e(c)] by, directly or indirectly, in the absence of any applicable exemption:
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendants Brewer and Erickson and their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Judgment by personal service or otherwise are permanently restrained and enjoined from violations of Section 15(c)(1) of the Exchange Act [15 U.S.C. § 78o(c)(1)] by knowingly or recklessly providing substantial assistance to anyone acting as a broker-dealer who, using any means or instrumentality of interstate commerce, or the mails, effects transactions in, induces purchases of, or attempts to induce the purchase of any security by means of a manipulative, deceptive or other fraudulent device or contrivance.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendants Brewer and Erickson and their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of this Judgment by personal service or otherwise are permanently restrained and enjoined from violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] by knowingly or recklessly providing substantial assistance to anyone acting as investment advisers who, using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange:
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant Steven Brewer is liable for disgorgement of $5,455,100, together with prejudgment interest thereon in the amount of $296,784.82 for a total of $5,651,884.82. Defendant shall satisfy this obligation by paying that amount to the Securities and Exchange Commission within 14 days after entry of this Final Judgment.
Defendant may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from a bank account via Pay.gov through the SEC website at
and shall be accompanied by a letter identifying the case title, civil action number, and name of this Court; Steven Brewer as a defendant in this action; and specifying that payment is made pursuant to this Final Judgment.
Defendant shall simultaneously transmit photocopies of evidence of payment and case identifying information to the Commission's counsel in this action. By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part of the funds shall be returned to Defendant.
The Commission shall hold the funds (collectively, the "Fund") and may propose a plan to distribute the Fund subject to the Court's approval. The Court shall retain jurisdiction over the administration of any distribution of the Fund. If the Commission staff determines that the Fund will not be distributed, the Commission shall send the funds paid pursuant to this Final Judgment to the United States Treasury.
The Commission may enforce the Court's judgment for disgorgement and prejudgment interest by moving for civil contempt (and/or through other collection procedures authorized by law) at any time after 14 days following entry of this Final Judgment. Defendant shall pay post judgment interest on any delinquent amounts pursuant to 28 U.S.C. § 1961.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant Steven Brewer shall pay a civil penalty in the amount of $_______ to the Securities and Exchange Commission pursuant to 15 U.S.C. §§ 77t(d)(2), 78u(d)(3)(B).. Defendant shall make this payment within 14 days after entry of this Final Judgment.
Defendant may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from a bank account via Pay.gov through the SEC website at
and shall be accompanied by a letter identifying the case title, civil action number, and name of this Court; Steven Brewer as a defendant in this action; and specifying that payment is made pursuant to this Final Judgment.
Defendant shall simultaneously transmit photocopies of evidence of payment and case identifying information to the Commission's counsel in this action. By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part of the funds shall be returned to Defendant. The Commission shall send the funds paid pursuant to this Final Judgment to the United States Treasury. Defendant shall pay post-judgment interest on any delinquent amounts pursuant to 28 USC § 1961.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant Adam Erickson is liable for disgorgement of $215,760.35, together with prejudgment interest thereon in the amount of $11,957.65 for a total of $227,718. Defendant shall satisfy this obligation by paying that amount to the Securities and Exchange Commission within 14 days after entry of this Final Judgment.
Defendant may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from a bank account via Pay.gov through the SEC website at
and shall be accompanied by a letter identifying the case title, civil action number, and name of this Court; Adam Erickson as a defendant in this action; and specifying that payment is made pursuant to this Final Judgment.
Defendant shall simultaneously transmit photocopies of evidence of payment and case identifying information to the Commission's counsel in this action. By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part of the funds shall be returned to Defendant.
The Commission shall hold the funds (collectively, the "Fund") and may propose a plan to distribute the Fund subject to the Court's approval. The Court shall retain jurisdiction over the administration of any distribution of the Fund. If the Commission staff determines that the Fund will not be distributed, the Commission shall send the funds paid pursuant to this Final Judgment to the United States Treasury.
The Commission may enforce the Court's judgment for disgorgement and prejudgment interest by moving for civil contempt (and/or through other collection procedures authorized by law) at any time after 14 days following entry of this Final Judgment. Defendant shall pay post judgment interest on any delinquent amounts pursuant to 28 U.S.C. § 1961.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant Adam Erickson shall pay a civil penalty in the amount of $_______ to the Securities and Exchange Commission pursuant to 15 U.S.C. §§ 77t(d)(2), 78u(d)(3)(B).. Defendant shall make this payment within 14 days after entry of this Final Judgment.
Defendant may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from a bank account via Pay.gov through the SEC website at
and shall be accompanied by a letter identifying the case title, civil action number, and name of this Court; Adam Erickson as a defendant in this action; and specifying that payment is made pursuant to this Final Judgment.
Defendant shall simultaneously transmit photocopies of evidence of payment and case identifying information to the Commission's counsel in this action. By making this payment, Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part of the funds shall be returned to Defendant. The Commission shall send the funds paid pursuant to this Final Judgment to the United States Treasury. Defendant shall pay post-judgment interest on any delinquent amounts pursuant to 28 USC § 1961.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendants Consents are incorporated herein with the same force and effect as if fully set forth herein, and that Defendants shall comply with all of the undertakings and agreements set forth therein.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain jurisdiction of this matter for the purposes of enforcing the terms of this Judgment.
There being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, the Clerk is ordered to enter this Judgment forthwith and without further notice.
