MEMORANDUM OPINION AND ORDER
BRUCE S. JENKINS, District Judge.
This matter came before the court for bench trial, beginning on July 7, 2015 and continuing through July 10, 2015. Polly Atkinson and Mark Williams appeared on behalf of the Securities and Exchange Commission ("SEC" or "Commission"). J. Michael Coombs and Elliott N. Taylor appeared on behalf ofR. Gordon Jones ("Jones").
Having considered the parties' briefs, the evidence presented, the arguments of counsel, and the relevant law, the court finds the SEC has sufficiently demonstrated that (i) under a valid 102(e) Bar Order, Jones was not allowed to practice before the SEC, and (ii) Jones did practice before the SEC during the prohibited time period and thereby violated the Bar Order. As such, the court GRANTS the SEC's request under Section 21(e) of the Exchange Act of 1934 ("Exchange Act") for an order requiring Jones to comply with his 102(e) Bar Order.
While finding Jones violated his Bar Order, the court is in doubt as to the appropriate remedy for such a violation. The court would appreciate further briefing and argument on the authority, the method, and the amount of an appropriate remedy to be applied in this case. Therefore, at this time, the court RESERVES on the SEC's request for disgorgement.
BACKGROUND
Jones has been licensed as a Certified Public Accountant ("CPA") by the State of Utah since June 1980. In connection with Jones's work on the 1995 audit ofDynamic American Corporation, the SEC issued on May 4, 2011 an order against Jones pursuant to Rule 102(e) of the SEC's Rules of Practice.1 The order-the "Jones Bar Order"-precludes Jones from appearing or practicing before the Commission. It states, in relevant part, as follows:
Based on the foregoing, the Commission finds it appropriate and in the public interest to accept the Offer of Jones and impose the sanctions consented to therein. Accordingly, IT IS HEREBY ORDERED that, effective immediately,
1. Jones is denied the privilege of appearing or practicing before the Commission as an accountant.
2. After 3 years from the effective date of this order, Jones may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
a) preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Jones's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as bng as he practices before the Commission in this capacity; and/or
b) an independent accountant. Such an application must satisfy the Commission that: (i) Jones, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (ii) Jones, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (iii) As long as Jones appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
Ex. 136.
Since 2001, Jones has been an employee of J&J Consultants LLC ("J&J").2 J&J's business includes accounting and income tax services for clients.3 A major J&J business area is the preparation and generation of financial statements for public companies.4 Jones was the managing partner of J&J from 2001 through 2012.5 After Jones switched from managing member to employee on January 1, 2012, Jones's day-to-day duties remained basically the same.6 In addition to his salary, Jones also received distributions from J&J.7 Before 2013, no other employee received distributions from J&J.8 Prior to 2006, Jones owned at least 95 percent of J&J.9 In 2006, Keith Elison joined J&J and Jones's ownership decreased to 75 percent.10 Between 2006 and 2012, Jones's ownership decreased over time, though it is unclear by how much.11
Jones, since the date of the May 4, 2001 Jones Bar Order, has not been readmitted to practice before the SEC. Though Jones did apply to be re-admitted after initiation of this lawsuit, such application was denied on account of this lawsuit.12
DISCUSSION
This case centers on three issues: (i) whether the SEC has the power to regulate those who practice before it;. (ii) whether Jones impennissibly practiced before the SEC and thereby violated the Jones Bar Order; and (iii) the proper remedy for addressing any such Bar Order violation. The court will address each issue in tum.
I. Power to Regulate Practice Before the SEC
Under Section 23 of the Exchange Act, the SEC has the "power to make such rules and regulations as may be necessary or appropriate to implement the provisions of this chapter for which they are responsible or for the execution of the functions vested in them by this chapter."13 Pursuant to such authority, the SEC promulgated Rule 102(e) of the Commission's Rules of Practice. Rule 102(e) states that the SEC "may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way."14 Given this statutory and regulatory footing, the court finds the SEC has authority to prohibit individuals from practicing before it.15
II. Jones's Practice Before the SEC
Having determined that the SEC has power to regulate practice before it, the court finds that in 2001, consistent with that power, the SEC entered the Jones Bar Order prohibiting Jones from practicing before it.16 It is undisputed that Jones consented to entry of the Jones Bar Order.17 To analyze whether Jones practiced before the SEC and thereby violated the Bar Order, the court will first examine generally what qualifies as practicing before the SEC. Second, the court will look at Jones's specific actions-namely, his involvement in preparing public company filings-and assess whether they fit within the general framework of practicing before the SEC. Third, the court will examine Jones's consent to his preparation work being incorporated into public filings. And fourth, the court will assess Jones's advice of counsel defense and its availability.
A. Work Generally Quali6;ing as Practicing Before the SEC
The SEC's Rules of Practice indicate that practicing before the SEC is a broad concept.18 Under Rule 102(e), the Commission has broad power to deny a person "the privilege of appearing or practicing before it in any way."19 This breadth is reinforced by Rule 102(f), which provides an expansive definition of practicing before the SEC:
(f) Practice defined. For the purposes of these Rules of Practice, practicing before the Commission shall include, but shall not be limited to:
(1) Transacting any business with the Commission; and
(2) The preparation of any statement, opmwn or other paper by any attorney, accountant, engineer or other professional or expert, filed with the Commission in any registration statement, notification, application, report or other document with the consent of such attorney, accountant, engineer or other professional or expert.
17 C.F.R. § 201.102 (emphasis added).
Two cases-In the Matter ofRobert W. Armstrong, III and S.E. C. v. Prince-provide additional insight into the behavior that generally qualifies as practice before the SEC. Given the importance of these two cases, the court will provide a more detailed analysis of their underlying facts.
In the 2005 SEC administrative proceeding In the Matter ofRobert W. Armstrong, III,20 Robert Armstrong was a vice president and controller ofNational Medical Care, Inc. ("NMC"), a subsidiary of the public company W.R. Grace & Co. ("Grace")?21 Previously, a SEC administrative law judge ("ALJ") had detennined that Annstrong improperly prepared NMC financial data, and that he submitted it to Grace in furtherance of a scheme to manipulate Grace's reported earnings?22 But the ALJ had dismissed the Rule 102(e) claims against Armstrong, finding that Armstrong did not appear or practice before the SEC "because he was not an officer of a public company and did not prepare any of the reports that Grace filed with the Commission because he did not actually draft them."23 On appeal, the Commission in Armstrong disagreed with the ALJ's dismissal of the Rule 102(e) claims, finding as follows:
The text of the Rule does not specify that a person must sign a document filed with the Commission. Moreover, the tenn "preparation" of a document is, we believe, sufficiently broad to encompass the preparation of data to be included in a document filed with the Commission, at least where, as here, the data was prepared for the express purpose of being included in such a document.
The law judge's holding would allow accountants to escape discipline under Rule 102(e) simply by instructing someone else to draft, sign, and file fraudulent documents. The Rule, however, recognizes that financial statements often incorporate information created, compiled, or edited by accountants who are not responsible for signing or filing the financial statements. Thus, practicing before the Commission includes computing the figures and supplying the data incorporated into Commission filings and consenting to their incorporation. As a result, Armstrong appeared and practiced before the Commission because he computed the amounts of income needed to be held in reserve to achieve Grace's targeted growth rates, prepared the materially false financial reports based on these figures, and submitted this information to Grace knowing that Grace would incorporate it into its Commission filings. Armstrong consented to the inclusion of these figures because he reviewed Grace's draft financial statements containing these figures, confirmed that the figures reconciled with the numbers that he had submitted, and suggested no changes to the numbers.
We conclude that Armstrong in fact appeared or practiced before the Commission (assuming that Rule 102(e) imposes such a requirement) because he computed the figures and provided the data included in Grace's financial statements filed with the Commission and consented to the inclusion of this infonnation. We further conclude that the Commission may discipline individuals pursuant to Rule 102(e) even if those individuals did not appear or practice before the Commission while committing willful violations of the securities laws.
Armstrong, 2005 WL 1498425, at *11-12. Thus, the Commission in Armstrong determined that practicing before the SEC included preparing data incorporated into SEC filings, regardless of whether the preparer physically signed the document filed with the SEC.24
While the Commission in Armstrong determined that the SEC had the authority to deny Armstrong the privilege of appearing or practicing before it pursuant to Rule 102(e),25 the Commission ultimately chose not to do so. Instead, it limited itself to ordering Annstrong to cease and desist from committing or causing any violations or future violations of the federal securities laws and rules?26 Though, the Commission noted, the same factors that provided a basis for issuing the cease-and-desist order could provide a basis for disciplining Annstrong under Rule 102(e), "in light of the unique circumstances" of the case, it decided not to suspend Armstrong under Rule 102(e) "as an exercise of [the Commission's] equitable discretion."27
The more recent case, S.E.C. v. Prince,28 out of the U.S. District Court for the District of Columbia, adopts the reasoning of Armstrong and provides additional insight into what generally qualifies as practicing before the SEC. In Prince, Gary Prince worked for Integral Systems, Inc. ("Integral")?29 In 1992, Prince became Vice President and Chief Financial Officer ("CFO") of Integral and acted with "final call" on accounting matters.30 In 1993, the SEC filed suit against Prince for securities laws violations related to Prince's work as CPO of a different company, and in 1994 a judgment was entered prohibiting Prince from violating the securities laws in the future.31 In 1995, Prince resigned as Director and CFO but continued to act as a consultant to Integral.32 In 1997, the SEC issued an order under Rule 102(e) permanently bamling Prince from appearing or practicing before the Commission as an accountant.33
In 1998, Integral hired Prince as a full-time employee with the title "Director of Mergers and Acquisitions." Over the next few years, Prince's work with Integral included the following: (i) assessing the financial health of newly-acquired subsidiaries by investigating the subsidiary's financial statements and making suggestions on how they should record certain transactions/34 (ii) writing a draft Management Discussion and Analysis ("MD&A") section oflntegral's Fonn 10-Q and 10-K filings-these drafts were edited and Integral's CEO approved the final, filed version;35 (iii) reviewing and commenting on drafts of public filings;36 (iv) drafting financial press releases, particularly pre-earnings press releases;37 and (v) occasionally interacting with the accounting department, including investigating how capital losses had been booked, creating a software development amortization plan, and assessing how the company should adopt new financial accounting standards.38 In this work, Prince's suggestions or comments were not always followed, and other Integral employees had the final say.39
Although lengthy, the court finds the following Prince analysis useful:
The Commission issued a Rule 102(e) Order against Prince in 1997. This Order permanently prohibits Prince from exercising "the privilege of appearing or practicing before the Commission as an accountant." For purposes of analysis, violation of this prohibition requires two elements. First, an individual must "appear[] or practice[] . . . as an accountant." Second, such action must have occurred "before the Commission."
. . .
The evidence was undisputed that Prince reviewed and commented on drafts of Integral's public filings, including Fonn 10-Ks and Form 10-Qs. Prince also wrote the first draft of the MD & A section included in those filings. In addition, Prince engaged in discussions with members of the Integral accounting staff and the accounting staff at Integral subsidiaries regarding the financial statements. These activities clearly meet the second prong, in that they involve work done on various types of statements and documents "filed with the Commission." Thus, the question is whether these activities constitute "practicing accounting" before the Commission.
Rule 102(±) defines "practicing before the Commission" to include "[t]he preparation of any statement, opinion, or other paper by any. . . accountant" if that document is filed with the Commission. The crux of this dispute turns on what the word "preparation" encompasses.
. . .
This Court has already observed that Armstrong "established that an individual may . . . be found to have practiced before the Commission if he or she participated in the preparation of financial statements filed with the Commission by, for example, creating, compiling or editing infonnation or data incorporated into [filings with the Commission] and consenting to their incorporation."
The language in Armstrong rejects the theory put forth by Prince's expert witness, Jonathan Macey, that only accounting department personnel and the executives who have final authority for financial disclosures are "practicing accounting."
. . .
This cramped definition ignores the language and spirit of Armstrong, with rejected the premise that only those who were "responsible for signing or filing the financial statements" were practicing accounting. Armstrong himself did not make the ultimate determination as to whether the information that he contributed would be included in the filings. In fact, he "voiced concerns" regarding the substance of the subsidiary's statements, but they were submitted despite his disagreement. Thus, the fact that Prince did not have final authority over what information was included in Integral's filings with the SEC . . . is not dispositive.
Macey's definition ignores the fact that accounting is not a mechanistic, quantitative endeavor, but instead requires many nonquantitative decisions on which people can reasonably disagree. Because these non-quantitative decisions may greatly affect what final numbers are included in the financial statements, those who participate in making those decisions are "creating" and "compiling" the relevant information, even if they do not have final authority over the exact numbers that are included.
The record contains evidence showing that Prince engaged in such decisionmaking. For example, Prince sent an email to Brown and Pat Carey, Integral's controller, regarding the accmal of bonuses given to employees at SAT, one of Integral's subsidiaries. He wrote, "I have instmcted Paul [SAT's controller] to accme the bonuses in FYOO and to reverse the FYOl entries. Please make sure the consolidated numbers reflect this change also." Clearly, Prince was making an accounting determination for SAT, and then directing the Integral accounting staff to make sure that this number was reflected in the consolidated financial statements. Those financial statements were then filed with the SEC.
. . .
Similarly, Prince wrote to the controller of another Integral subsidiary, RT Logic, and opined on how the subsidiary should book certain journal entries in its closing financial statements. He made specific recommendations as to how certain items should be recorded. For example, he stated that a particular credit should be booked to additional paid-in capital rather than retained earnings and noted that a debit should flow through a particular expense. The closing financial statements were then included in a Form 8-K. that Integral filed with the SEC.
. . .
In general, the implementation of Generally Accepted Accounting Principles ("GAAP") and the mles of the Financial Accounting Standards Board ("FASB") require complex decisions involving the exercise of accounting judgment. Thus, part of functioning as an accountant, and "creating, compiling, or editing" the infonnation or data incorporated in a financial statement, is making such decisions.
. . .
The emails demonstrate Prince "practicing accounting" by determining how particular data should be treated in the financial statements of Integral and its subsidiaries. Those statements were then incorporated in filings before the Conunission . . . Thus, since Prince was practicing accounting by preparing financial data that was filed with the Commission, he violated the tenns of his Accounting Bar.
942 F.Supp.2d 108, 145-51 (D.D.C. 2013) (footnotes and citations omitted).
Rules 102(e) and 102(f) and the Armstrong and Prince cases illustrate the breadth of what qualifies as practicing before the Commission, including creating, compiling, or editing infonnation or data incorporated into filings with the SEC; participating in non-quantitative accounting decisions; and implementing GAAP and FASB standards. And such work qualifies, regardless of whether an individual actually signs the documents filed with the SEC or has final decision making authority over them.
B. Jones's Specific Preparation Work
Having dealt with what generally qualifies as practicing before the Commission, the court now turns to Jones's specific behavior to analyze whether Jones violated the Bar Order. After considering the record, the court finds that Jones's involvement in preparing financial statements and related disclosures qualifies as practicing before the SEC and violates the Bar Order.40
The court will not undertake an exhaustive recital of every form of Jones's prohibited preparation work, every instance of such work, or every company for which Jones engaged in such work. Instead the court focuses on examples sufficient to demonstrate that Jones did in fact engage in conduct prohibited and thereby violative of the Jones Bar Order, including (i) creating, compiling, or editing information incorporated into filings with the Commissin, (ii) making accounting decisions, (iii) drafting responses to SEC comment letters, and (iv) managing others involved in the preparation of materials filed with the SEC.41
(i) Creating, Compiling, or Editing Information Incorporated into Filings
There is no dispute that Jones personally participated in the preparation of financial statements for public companies. Jones's counsel stated during trial that "we have admitted from day one, Mr. Jones has never, ever denied that he was preparing financial statements for public companies. So we do admit that."42 In addition, Jones specifically admitted to working on 10-K.'s for public companies.43 He admitted to working on 10-Q's for public companies.44 He admitted to working on 10-KSB's for public companies.45 He admitted to working on the pro fonna financials for an 8-K filing.46 He admitted to writing the MD&A47 for public companies on multiple occasions,48 and he specifically admitted to writing the MD&A for Anoteros, Inc. ("Anoteros") that was included in Anto eros's 10-K for the period ending December 31, 2007.49 Jones admitted to working on statements of cash flows, which are part of a company's financial statement.50 And Jones admitted to personally drafting footnotes for financial statements.51
Jones's personal participation in the preparation of public company financial statements and related disclosures filed with the SEC squarely qualifies as practicing before the Commission. The Armstrong and Prince cases are clear: an individual practices before the SEC if he or she participates in the preparation of financial statements filed with the SEC by creating, compiling, or editing information incorporated into filings with the Commission.52 Jones has admitted to such personal participation several times over, having admitted generally to preparing financial statements for public companies and having admitted specifically to preparing 10-K's, 10-Q's, 10-KSB's, an 8-K, MD&A's, statements of cash flows, and footnotes for public companies.53
Having practiced before the SEC, the court finds Jones violated the Jones Bar Order.
(ii) Non-Quantitative Accounting Decisions
The court finds Jones engaged in making non-quantitative accounting decisions and thereby practiced before the SEC. As previously noted, Prince stated that "accounting is not a mechanistic, quantitative endeavor, but instead requires many non-quantitative decisions on which people can reasonably disagree," and that "those who participate in making those decisions are `creating' and `compiling' the relevant information, even if they do not have final authority over the exact numbers that are included."54 The U.S. District Court for the District of Columbia found that Prince engaged in such decision-making by advising how certain journal entries and accounting items should be treated.55 Jones, in the present case, engaged in similar conduct. For example, in Exhibit 172, Jones provides Studio One Media, Inc. ("Studio One") advice about the appropriate time to amortize software. Jones acknowledged that Exhibit 172 is an example of him providing advice to a client about what kind of accounting to use.56 And Jones acknowledged that his advice is going to affect multiple filings and multiple time periods.57
Exhibit 182 provides a similar example of Jones making non-quantitative accounting decisions and advising public companies accordingly. In Exhibit 182, Studio One seeks Jones's advice on the appropriate accounting treatment for a recent transaction where the amount Studio One paid a manufacturer differed from the amount Studio One had been carrying on its books. Jones advised that "the difference needs to be recorded under other income as a gain on settlement of debt. It would not be appropriate to recognize it in a prior period. Is the result [sic] of actions taken in the current period."58 Jones testified at trial about Exhibit 182:
Q. (By Ms. Atkinson) And again, Mr. Jones, this is a company reaching out to you and asking for advice on how to account for specific transactions; isn't that right?
A. That's correct.
Q. This is one of those sophisticated issues that they're looking for your accounting expertise and your accounting guidance; isn't that right?
A. Yes.
Q. And you provide that accounting guidance; isn't that right?
A. I did.
Q. Right. So this was a decision about whether they needed to file a restatement or whether they didn't need to file a restatement, whether they could just record it in the current period?
A. Correct.
Q. And this decision affected the public companies financial statements?
A. It did.
Q. And it affected the public companies filings?
A. Yes.
Hr'g Tr., at 247:9-19, 248:13-22.
Jones's non-quantitative decision-making was not limited to issues raised by clients. In addition to clients, Jones acknowledged that the auditors of clients also reached out to him from time to time with accounting questions.59 For example, in Exhibit 186, auditor Chad Sadler asks Jones about Omnitek Engineering Corp.'s research and development carry forward and whether it mistakenly stayed the same from 2009. In response, Jones writes to Sadler as follows:
The tax accounting and the book accounting for R&D is the same. R&D is expensed when incurred. This is not really a reconciling item between book and taxes. I don't know why HJ broke the number out from the total but I don't want to upset the apple cart with them. We should just leave it as it was shown for 2009 so that they can see that we didn't change their numbers then when we do the 2011 audit we can fix the presentation.
Ex. 186.60
Exhibit 193, a similar example, involves the company client BLVD Holdings, Inc. ("BLVD") and the auditors of Sadler, Gibb & Associates. Jones testified about Exhibit 193 at trial:
Q. (By Ms. Atkinson) And the bottom e-mail from you, Mr. Jones, to Sadler Gibb, re: Proposed changes to financials, you tell the auditors we don't need to put this 6/30/12 balance sheet with the 9/30/12 balance sheet because that is not BLVD's year end. Do you see where I'm talking about?
A. I do.
Q. So this is you giving the auditors your opinion about the proper accounting here; isn't that right?
A. That's correct.
Q. Up above that, Mr. Neves from Sadler Gibbs says, has the company moved out of the development stage at this point? This is your slash management's call. And you say, at the very top of the page in your response to Mr. Neves, good question, let's leave it there for now. Do you see where I'm talking about?
A. Yes.
Q. That is you giving your opinion to the auditors; isn't that right?
A. It is.
Q. In fact, in that last e-mail where you're giving your opinion to the auditors, you don't copy that to the company; isn't that right?
A. I don't know. This looks like a whole e-mail chain all connected together but 1 have no way of knowing if that is the case or not.
Q. Well, let's look at it. So the e-mail is from Gordon Jones, sent Wednesday, December 5, 2012, to T. Neves at SadlerGibb.com, subject re: Proposed change to financials. This particular e-mail is not copied to the company; isn't that right?
A. I don't know. I'm not an expert on this.
Hr'g Tr., at 257:4-258:10.
These exhibits and testimony selections illustrate Jones's participation in non-quantitative accounting decisions.61 And as indicated in Prince, this is a fonn of creating and compiling relevant information that qualifies as preparation of financial statements and practicing before the Commission. As such, the court finds Jones practiced before the Commission and thereby violated the Jones Bar Order.
(iii) Response to SEC Comment Letters
As explained by the SEC expert witness Lynn Turner, the SEC is required by law to periodically review the public filings of all public companies.62 And if, after review, the SEC has questions or comments or changes that need to be made to correct those filings, then the SEC writes a letter to the company raising those issues.63 That letter from the SEC is referred to as a SEC comment letter.64
Jones admitted he was involved in the drafting of responses to SEC cmmnent letters,65 and the record shows as much. For example,66 in Exhibit 188, Ann Courtney ofBLVD writes to Jones about a SEC comment letter BLVD recently received. She writes, "Hi Gordon, thank you for the update regarding the auditors. I was also wondering if you had a chance to review the comments as I was hoping to get your feedback/response to the SEC."67 Jones responds, "I read the comment letter. I am working on the answers to 44, 45 and 46 with the auditors. When would you like to discuss the other comments left to you by your attorney? Is there a number I can reach you at?"68 Later, Jones writes to Courtney and her associate, "Attached are the responses to the SEC comments. Please provide the auditors a complete version of the amended S-1 prior to refiling."69 Also included in Exhibit 188 are responses to comment letter questions 27, 28, and 39.70 As indicated at trial, Jones testified during his investigative testimony that he believed he drafted those responses.71
Jones's involvement in preparing responses to SEC comment letters qualifies as practicing before the SEC. Preparing comment letter responses is analogous to responding to non-quantitative accounting quystions from public companies or their auditors-which the court has already determined to be practicing before the SEC-except that the recipient of the feedback is the SEC itself. SEC comment letters and responses can impact how public companies draft filings in the future.72 As noted in Armstrong, the SEC disciplines accountants under Rule 102(e) to "protect the integrity of its own processes."73 "The reliability of the disclosure process is impaired if incompetent or unethical accountants are permitted to certify financial statements. The reliability of the disclosure process is equally impaired if such accountants are permitted to participate in the preparation of financial statements certified and filed with the Commission."74 The same rationale applies to the preparation of comment letter responses-the reliability of the disclosure process is impaired if such accountants are permitted to respond to SEC corrections, comments, or questions about financial statements filed with the Commission.
The conclusion that Jones's involvement in preparing responses to SEC comment letters qualifies as practicing before the Commission is supported by Jones's own testimony. Jones testified that he did not participate in telephone conversations with SEC staff about SEC comment letters because he felt that doing so would violate the Bar Order.75 It seems clear that if telephone conversations with the SEC regarding SEC comment letters would violate the Bar Order, then written responses directed to the SEC regarding SEC comment letters would similarly violate the Bar Order.
Thus, the court finds Jones practiced before the SEC by participating in the preparation of SEC comment letter responses, and he thereby violated the Jones Bar Order.76
(iv) Management of Others
In addition to Jones's direct participation in the preparation of public company filings, Jones also indirectly participated through his oversight of others. The record provides several instances of such indirect involvement.
For example, several exhibits illustrate Jones's involvement through his management and oversight ofKirk Gibb-a J&J employee. In Exhibit 215, Jones emails Kirk Gibb, "I have fixed the financial statements for Studio One Media as attached. Please complete the notes now." In his investigative testimony, Jones acknowledged that the email indicates that he reviewed Kirk Gibb's initial draft of Studio One's financial statements and made some changes to it.77 The email also shows Jones instmcting Kirk Gibb to complete the notes for Studio One Media. Likewise, in Exhibit 217, Kirk Gibb emails David Rector of Standard Drilling regarding the company's 10-Q filing. Kirk Gibb writes, "I'm just finishing up the final touches on the financial statements and then they'll go through Gordon's review."78 Further, in Exhibit 219, Jones writes to Kirk Gibb, "How are the work papers coming along? Will you be able to send them to me soon?" Kirk Gibb responds to Jones-"My final draft. Please review."-and attaches Ethos Enviromnental, Inc.'s audit work papers.79
Other examples of Jones indirectly preparing public company filings include his oversight of Bradley Gibb and Keith Elison-both employees of J&J. For instance, in Exhibit 59, Bradley Gibb writes, "Here are the most recent accounting pronouncements for the Q's and K's going forward. Gordon went over it and its what should be what is included in all notes."80 Similarly, in Exhibit 109, Jones directs Keith Elison,81 stating, "I expect that you will have (at a minimum) the Asia4sale and Curatech audits finished before you come back from Las Vegas. I would also like the ARDCO and Franklin Mining audits completed ifpossible."82 And later, in Exhibit 120, after Jones receives an email from the auditors about an accounting adjustment for the company Alpha Trade,83 he instructs Keith Elison to "use this adjustment in responding to the SEC."84
Having analyzed the record, the court finds that Jones indirectly prepared materials filed with the SEC by instmcting, reviewing, and/or overseeing the efforts of other individuals. By so doing, Jones practiced before the Commission and thereby violated the Jones Bar Order.
C. Jones's Consent
As previously noted, Rule 102(:1) provides that "[t]he preparation of any statement, opinion or other paper by any attorney, accountant, engineer or other professional or expert, filed with the Commission in any registration statement, notification, application, report or other document with the consent of such attorney, accountant, engineer or other professional or expert," qualifies as practicing before the SEC.85 Though Jones admits, and the court. so finds, that he prepared financial statements for public companies, Jones argues that he did not violate the Bar Order because he did not consent to those materials being filed with the Commission.86 The court disagrees.
Jones suggests consent under Rule 102(:1) must be written consent,87 where the preparer signs off on an item being filed with the SEC or being incorporated into items filed with the SEC. But such a constmction of Rule 102(:1) is directly contradicted by Armstrong. Armstrong states that Rule 102(:1) "does not specify that a person must sign a document filed with the Commission. Moreover, the term `preparation' of a document is, we believe, sufficiently broad to encompass the preparation of data to be included in a document filed with the Commission, at least where, as here, the data was prepared for the express purpose of being included in such a document."88
The court likewise finds that written consent is not required under Rule 102(f). The court finds persuasive the reasoning of Armstrong that a more restrictive interpretation of Rule 102(f) "would allow accountants to escape discipline under Rule 102(e) simply by instmcting someone else to draft, sign, and file fraudulent documents."89 Instead, Rule 102(f) "recognizes that financial statements often incorporate information created, compiled, or edited by accountants who are not responsible for signing or filing the financial statements."90
Jones consented under Rule 102(f) because he prepared materials for public companies with the understanding and expectation that such information would be included in SEC filings. In Prince, the court found that "[t]he subject lines and substance of the emails show that Prince was fully aware that these calculations were going to be used in SEC filings."91 The record amply demonstrates that the same can be said in the present case, as illustrated by the following four examples. First, in Exhibit 118, Jones receives an email from Keith Elison with the subject line "Standard Drilling SEC Comment Letter Response." The email attaches a proposed SEC comment letter response and asks for comments. Jones replies to the email, "Looks good to me too. Let's get this filed."92
Second, in Exhibit 193, auditor Tyler Neves sends an email to Jones with the subject line "RE: Proposed Changes to Financials." Neves asks Jones, "Has the Company has [sic] moved out of the development stage at this point, given the initial revenues earned (planned principle [sic] operations, etc). This is yours/managements call, but we thought it maybe on the border of moving out of the development stage."93 Jones responds, "Good question. Let's leave it there for now in case they don't have any more sales before the end of the year."94
Third, in Exhibit 171, auditor April McEniry of Moore & Associates sends an email to Kenneth Pinckard of Studio One with the subject line "RE: Studio One QE 12-31-07." The emails states, "I sent all these to Gordon and we are just waiting to make sure he concurs before we give permission to file."95 In his investigative testimony, Jones testified that this email is an example of auditors giving him and J&J the final review of SEC filings prior to filing.96 He also testified that he believed this was the usual practice of Moore & Associates.97
Fourth, in Exhibit 178, Jones sends David Rector of Standard Drilling and auditor Mike Moore an email with the subject "Re: FW: Standard Drilling 10Q." Jones states, "Hi David, I removed the editorial comments made by the attorneys. I am forwarding this to Mike Moore. It looks good to go."98
The record, as exemplified by these four examples, demonstrates that Jones prepared materials with the understanding and expectation that such materials would be used in filings with the SEC. This understanding and expectation is consistent with the consent described in Rule 102(£)(2). As such, the court finds that Jones consented to his preparation work being used in public company filings with the Commission. By so doing, Jones practiced before the SEC and violated the Jones Bar Order.
D. Advice a (Counsel Defense
Having established that Jones practiced before the SEC in violation of the Jones Bar Order, the court addresses Jones's asserted defense that his actions were taken in good faith reliance upon the advice of counse1.99 Specifically, Jones argues that he relied on the advice of three attorneys-Jacob Stein, Paul Moxley, and Wallace Boyack-that his work preparing financial statements did not violate the Bar Order.100
The court finds this advice of counsel defense fails for two reasons. First, Jones's reliance on counsel, reasonable or otherwise, is irrelevant to the matter at hand. Advice of counsel is simply not a defense to violations of Rule 102(e) Bar Orders. The court finds nothing in Rule 102(e) that indicates scienter is relevant in establishing violations, and Jones has not identified any case law indicating otherwise.101 Indeed, instead of relying on case law, Jones argues that to not require the SEC to demonstrate scienter "only makes sense if the Commission had bothered to be fair and define the words `prepare' or `preparer' in Rule 102(f)."102 This argument, however, is misplaced for an important reason: Jones consented to the Bar Order.103 His own signature allowed the Bar Order to be entered against him.104 If Jones felt the terms "prepare" or "preparer" in the Bar Order were unclear or overly broad, he could have walked away-he was not obligated to consent. But having so chosen, Jones is so bound.
Second, even if an advice of counsel defense were available to Jones, the court finds the defense fails because Jones has not carried his burden on the defense's elements. As the parties note,105 Jones must demonstrate four elements to establish an advice of counsel defense: "(1) a request for advice of counsel on the legality of a proposed action, (2) full disclosure of the relevant facts to counsel, (3) receipt of advice from counsel that the action to be taken will be legal, and (4) reliance in good faith on counsel's advice."106
Jones's failure to demonstrate an advice of counsel defense is most readily seen with Wallace Boyack. Not only did Jones never call Boyack as a witness, Jones himself never identified at trial the advice Boyack purportedly gave him.107 Exhibit 310, the only exhibit proffered and admitted into evidence that was actually drafted by Boyack, is a letter to the SEC-not to Jones. And, as noted as trial,108 a letter directed to the SEC is not advice to Jones. Thus, without sufficient evidence of Boyack advising Jones that his preparation work was legal, and without sufficient evidence that Jones relied in good faith on such advice, the court finds Jones has not met the burden of an advice of counsel defense.
Jones's purported reliance on Jacob Stein's advice is also problematic. According to Jones, he told Stein he intended to prepare financial statements that were signed offby a CPA,109 and Stein advised him that those services were not in violation of the Bar Order.110 Importantly, Stein did not testify at trial, and there is no documentation in the record of any advice from him to Jones.111 But assuming such advice occurred, there are still two major problems. First, there is inadequate evidence that Jones fully disclosed to Stein all relevant facts regarding Jones's significant role in the preparation of public company filings. In fact, Exhibit 304-Jones's exhibit-suggests otherwise. Jones had directed Stein to contact Amy Norwood of the SEC about Jones's work for Environment Oil Processing Technology, Inc. ("EOPT"),112 and Exhibit 304 contains Stein's October 19, 2001 letter to Norwood. This letter does not indicate that Stein understood the scope of preparation work Jones intended to participate in following the Jones Bar Order. The letter refers to work Jones "performed" for EOPT-past tense. It does not indicate that Jones's work for EOPT is ongoing. The letter indicates that Jones's consulting responsibilities with EOPT "included"-again, past tense-gathering EOPT's accounting data to have its financial statements audited or reviewed by other CPA's. The letter only mentions EOPT and does not indicate Jones intended to work for any other company.113 This letter does not seem to anticipate Jones's extensive involvement in the preparation of financial statements for public companies, both in quantity and quality of work done.114
The second problem is that there is inadequate evidence of Jones's good faith reliance on Steins's purported advice. Jones admits he read the Bar Order,115 and the Bar Order states that after three years Jones could apply to resume practicing before the Commission as a "preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission."116 But despite the inconsistency between this Bar Order language and Stein's alleged advice that Jones could prepare financial statements if they were signed offby a CPA, Jones never received-nor even sought-Stein's advice in a written legal opinion.117 Under such circumstances, it is difficult to see how Jones could rely on Stein's advice in good faith.118
Similar issues make Paul Moxley's advice a problematic footing for an advice of counsel defense. Moxley is the only counsel that testified at trial.119 He testified that in 2001, while negotiating the Bar Order, Jones told him that he wanted to continue functioning as a paraprofessional doing accounting work120 Moxley stated that he communicated Jones's desires to the SEC attorneys, and they said they would not express any opinions on it, but they did not see any problems with it.121 Moxley also testified about discussions he had with Jones in 2004 about Jones reapplying to practice before the SEC.122 Moxley believed that he acquiesced at that time that Jones could still practice as a paraprofessional.123
The evidence does not sufficiently demonstrate that Jones fully disclosed all relevant facts to Moxley or that Jones relied on Moxley's advice in good faith. As an initial matter, even assuming the SEC attorneys did tell Moxley that Jones's preparation work would not violate the Bar Order,124 Jones could not rely in good faith on any advice that the SEC itself would see his preparation work the same way. Jones knew those SEC attorneys were not issuing an opinion on behalf of the SEC, and he knew their statements would not be put in writing.125 And even more important, Jones also knew that, in his Offer of Settlement, he represented that his Offer was made voluntarily and that "no offers, promises, threats or inducements of any kind have been made by the Commission, or any member, officer, employee, agent or representative of the Commission in consideration of this Offer or otherwise to induce him to submit this Offer."126 Additionally, Jones could not rely in good faith on advice from Moxley that Jones's preparation work did not violate the Bar Order, because Jones never retained Moxley to give him a written opinion that he could do such.127 In fact, Moxley testified that in the cases he gets, there is not usually a lot of mystery that his clients violated the securities laws, but that if there were close questions he would bring in a transactionallawyer.128 When asked, "Is your habit and practice, then, if an individual comes and seeks a specific legal opinion on rules and regulations that you would then bring in a transactional attorney?" Moxley responded, "Well, it would depend on what it was. But I'd be very reluctant to write any opinions."129 Thus, when the SEC responded to the 2004 reapplication inquiry by reiterating that Jones could not currently practice before the SEC as a preparer of public company financial statements,130 Jones did not have and did not seek a written opinion from Moxley to the contrary. Indeed, Moxley testified that he did not remember discussing with Jones what it meant to be a preparer or a person responsible for the preparation of a public company's financial statements.131
Moreover, although it appears Moxley had a general sense that Jones would be preparing financial statements for public companies,132 it does not seem Moxley understood the extent of Jones's involvement. After testifying that he did not recall Jones telling him that he would direct auditors to present financial statements in development stage formats, that he would draft unaudited MD&A's, or that he would draft unaudited pro forma financial statements, Moxley testified "Frankly, if he would have, it wouldn't have meant anything to me."133
Thus, the court concludes that reliance on counsel is not a defense to violations of Rule 102(e) Bar Orders, but, even if it were, the defense is similarly unavailable to Jones because he failed to show that the elements of the defense were met.
III. Proper Remedy for Jones's Bar Order Violation
The court now turns to the SEC's request that Jones's profits from his Bar Order violation be disgorged. Though the court finds Jones practiced before the SEC and thereby violated his Bar Order, the court is in doubt as to the appropriate remedy for such a violation. The court would appreciate further briefing and argument on the authority, the method, and the amount of an appropriate remedy to be applied in this case. At this time, the court will continue to reserve on the disgorgement or remedy issue.
CONCLUSION
The court finds that (i) under a valid 102(e) Bar Order, Jones was not allowed to practice before the SEC, and (ii) Jones did practice before the SEC during the prohibited time period and thereby violated such Bar Order.
Having so found, the court hereby ORDERS, pursuant to Section 21(e) of the Exchange Act, Jones to comply with the May 25, 2001 Jones Bar Order.
The court RESERVES on the question of disgorgement or remedy and directs the parties to file the requested briefing on the authority, the method, and the amount of an appropriate remedy to be applied in this case. The SEC shall file within twenty days from the date of this opinion, and Defendant within twenty days thereafter.
