Yuk Yuk Yuk->Engel also committed a serious violation by circumventing the registration requirements of the Securities Act and, thus, denying the investing public necessary information. Engel's actions were recurrent and recent. In 2002, he sold unregistered shares of Energy & Engine on the open market in thirteen separate transactions. Engel fails to acknowledge any misconduct, instead contending that he "has acted within the guidelines provided by the Securities Act." (Engel Resp. at 10.) Engel fails to provide any assurances against future violations. Further, Engel is in the practice of entering into arrangements with issuers that are similar to the one he entered into with Energy & Engine. Engel states that from "time to time [he] is approached and asked to assist in building a corporate image by allowing the company to advertise on his website." (Engel Resp. at 3.) Engel's submissions also indicate that it is not atypical for him to receive payment in securities from these companies. Thus, I find a substantial likelihood that he will have the opportunity for future violations of the securities laws. Accordingly, I will order Engel to cease and desist from committing or causing violations of Section 5(a) and 5(c) of the Securities Act.
Disgorgement
Section 8A(e) of the Securities Act authorizes disgorgement of ill-gotten gains, including reasonable interest, in cease-and-desist proceedings. Disgorgement is an equitable remedy that requires a violator to give up wrongfully obtained profits causally related to the proven wrongdoing. SEC v. First City Fin. Corp., 890 F.2d 1215, 1230-32 (D.C. Cir. 1989). It returns the violator to where he would have been absent the violative activity.
The Commission has stated that disgorgement "may be ordered only against those who received such unjust enrichment." Kenneth L. Lucas, 51 S.E.C. 1041, 1046 (citing Hateley v. SEC, 8 F.3d 653, 656 (9th Cir. 1993)). In cases where an individual respondent's actions are inextricably interwoven with those of a business entity, joint and several liability is appropriate. SEC v. Great Lakes Equities Co. , 775 F. Supp. 211, 214 (E.D. Mich. 1991); SEC v. R.J. Allen & Assoc., Inc., 386 F. Supp. 866, 881 (S.D. Fla. 1974).
The Division seeks disgorgement of the payments received by Respondents from their sales of unregistered stock. Respondents agree with the monetary amounts submitted by the Division.10 Engel and the Lorsin Respondents contend that brokerage fees should not be included in the calculations. However, in calculating the disgorgement amount, there is no requirement to take into account the expenses incurred by the respondent in the course of perpetrating the scheme. SEC v. Hughes Capital Corp., 917 F. Supp. 1080, 1086-87 (D.N.J. 1996), aff'd, 124 F.3d 449 (3d Cir. 1997); Great Lakes Equities Co. , 775 F. Supp. at 214-15.
Based on the facts, Siembida and Russell Management are jointly and severally liable and will be required to disgorge $3,390.40, plus prejudgment interest. Nelson and MicroCap are jointly and severally liable and will be required to disgorge $3,382.50, plus prejudgment interest. The Lorsin Respondents are also jointly and severally liable and will be required to disgorge $1,920, plus prejudgment interest. Engel will be required to disgorge $8,167.50, plus prejudgment interest.
ORDER
Based on the findings and conclusions set forth above:
IT IS ORDERED that the Division of Enforcement's Motion for Summary Disposition is GRANTED.
IT IS FURTHER ORDERED that, pursuant to Section 8A of the Securities Act of 1933, Loretta M. Lockhart, Craig K. Hjalmarson, Lorsin, Inc., George R. Siembida, Russell Management, Inc., Harold Engel, Jr., Shane M. Nelson, and MicroCap Marketing, Inc., shall CEASE AND DESIST from committing or causing any violations or future violations of Section 5(a) and 5(c) of the Securities Act of 1933.
IT IS FURTHER ORDERED that, pursuant to Section 8A of the Securities Act of 1933, Loretta M. Lockhart, Craig K. Hjalmarson, and Lorsin, Inc., shall DISGORGE, jointly and severally, One Thousand Nine Hundred Twenty Dollars ($1,920.00), plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600. Prejudgment interest is due from June 1, 2002, through the last day of the month preceding which payment is made.
IT IS FURTHER ORDERED that, pursuant to Section 8A of the Securities Act of 1933, George R. Siembida and Russell Management, Inc., shall DISGORGE, jointly and severally, Three Thousand Three Hundred Ninety Dollars and Forty Cents ($3,390.40), plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600. Prejudgment interest is due from April 1, 2002, through the last day of the month preceding which payment is made.
IT IS FURTHER ORDERED that, pursuant to Section 8A of the Securities Act of 1933, Harold Engel, Jr., shall DISGORGE Eight Thousand One Hundred Sixty-Seven Dollars and Fifty Cents ($8,167.50), plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600. Prejudgment interest is due from December 1, 2002, through the last day of the month preceding which payment is made.
IT IS FURTHER ORDERED that, pursuant to Section 8A of the Securities Act of 1933, Shane M. Nelson and MicroCap Marketing, Inc., shall DISGORGE, jointly and severally, Three Thousand Three Hundred Eighty-Two Dollars and Fifty Cents ($3,382.50), plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600. Prejudgment interest is due from September 1, 2002, through the last day of the month preceding which payment is made.
Payment of disgorgement shall be made by certified check, U.S. postal money order, bank cashier's check, bank money order, or wire transfer payable to the Securities and Exchange Commission on the first day following the day this Initial Decision becomes final. The payment shall be mailed or delivered to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop-3, Alexandria, Virginia 22312. The payment shall be accompanied by a letter that identifies the name and number of this proceeding and the name of the respondent making payment. A copy of the letter and the instrument of payment shall be sent to counsel for the Division of Enforcement, Susan F. LaMarca, Securities and Exchange Commission, 44 Montgomery Street, Suite 1100, San Francisco, CA 94104-4691.
This order shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice, 17 C.F.R. § 201.360. Pursuant to that Rule, a party may file a petition for review of this Initial Decision within twenty-one days after service of the Initial Decision. A party may also file a motion to correct a manifest error of fact within ten days of the Initial Decision, pursuant to Rule 111 of the Commission's Rules of Practice, 17 C.F.R. § 201.111. If a motion to correct a manifest error of fact is filed by a party, then that party shall have twenty-one days to file a petition for review from the date of the undersigned's order resolving such motion to correct a manifest error of fact. The Initial Decision will not become final until the Commission enters an order of finality. The Commission will enter an order of finality unless a party files a petition for review or a motion to correct a manifest error of fact or the Commission determines on its own initiative to review the Initial Decision as to a party. If any of these events occur, the Initial Decision shall not become final as to that party.
__________________
Robert G. Mahony
Administrative Law Judge
Endnotes
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1 On December 2, 2003, Siembida filed a letter, which I construe as an answer for him and Russell Management.
2 The Division's motion for summary disposition contains a declaration of Division attorney Robert J. Durham, with twenty exhibits attached thereto. The Division's motion for summary disposition will be cited as "(Motion at ___.)," and the exhibits attached to the declaration will be cited as "(Div. Ex. ___.)." The March 16 supplement will be cited as "(Motion Supp.)," and the exhibit pages will be cited as "(Div. Supp. Ex. at ____.)." The Lorsin Respondents' answer will be cited as "(Lorsin Ans. ___.)," and their response will be cited as "(Lorsin Resp. at ___.)." Engel's answer will be cited as "(Engel Ans. at ___.)." Engel's response contained an affidavit and attached exhibits. Engel's response will be cited as "(Engel Resp. at ___.)," the affidavit will be cited at "(Engel Aff. ___.)," and the attached exhibits will be cited as "(Engel Ex. ___.)." Nelson's and MicroCap's answer will be cited as "(MicroCap Ans. ___.)," their response will be cited as "(MicroCap Resp. at ___.)," and their reply will be cited as "(MicroCap Reply at ___.)." The March 17 prehearing conference transcript will be cited as "(Tr. ___.)."
3 Pursuant to Rule 323 of the Commission's Rules of Practice and based on the Commission's public official records, I have taken official notice that the Lorsin Respondents, Russell Management, Siembida, Engel, MicroCap Marketing, and Nelson did not have a registration statement filed or in effect for their respective offers and sales of stock.
4 ProActive consented to a cease-and-desist order, pursuant to Section 8A of the Securities Act. Energy & Engine Tech. Corp. , 81 SEC Docket 1301 (Oct. 23, 2003).
5 Wilding and the company he was operating, Research Investment Group, Inc., were ordered to cease and desist from violating Section 5(a) and 5(c) and to pay disgorgement in the amount of $121,715, pursuant to a default order. Research Inv. Group, Inc. , Securities Act Rel. No. 8387, __ SEC Docket __ (Feb. 17, 2004).
6 MicroCap and Nelson admitted that they received 300,000 ProActive shares from Wilding and 200,000 ProActive shares from HY Systems. (MicroCap Resp. at 4.) The 300,000 shares from Wilding are the only ProActive shares at issue in this proceeding. (Motion at 14-16.)
7 Energy & Engine consented to a cease-and-desist order, pursuant to Section 8A of the Securities Act. Energy & Engine Tech. Corp., 81 SEC Docket 1301 (Oct. 23, 2003).
8 The Division contends that the Lorsin Respondents received $998 from their public sales of Energy & Engine stock. (Motion Supp.) However, its calculation is inaccurate and was adjusted to correspond to the Lorsin Respondents' brokerage records. (Div. Supp. Ex. at SAL238.)
9 Engel's contention that the SEC should have issued a stop order, pursuant to Sections 8(d) and 8(e) of the Securities Act, is without merit. (Engel Answer at 3.) "The SEC cannot be estopped from seeking to enjoin issuers who are selling to the public unregistered shares of stock through the use of the mails, since the SEC may not waive the requirements of an act of Congress." SEC v. Liberty Petroleum Corp. , Fed. Sec. L. Rep. (CCH) [1971-1972 Transfer Binder] ¶ 93,209, at 91,348 (N.D. Ohio Sept. 2, 1971). The Division's motion to strike is granted.
10 In the Motion Supp., the Division requested $1,844 in disgorgement from the Lorsin Respondents, but based on the brokerage records that were attached to the Motion Supp., the Lorsin Respondents received $1,920 from their unregistered sales of Tridon and Energy & Engine stock. The disgorgement amount for the Lorsin Respondents has been adjusted accordingly.
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