Securities and Exchange Commission v. Harold Bailey Gallison

Background

The Securities and Exchange Commission sued Robert S. Oppenheimer and Core Business One, Inc. over federal securities-law violations connected to pump-and-dump schemes. The court had previously granted the SEC summary judgment, finding that the defendants violated Sections 5(a) and 5(c) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a)(2) of the Securities Act.

The SEC later asked the court to impose remedies and enter final judgments. Magistrate Judge Stewart D. Aaron recommended civil penalties, disgorgement, and prejudgment interest after holding a hearing. The defendants objected to those recommendations.

Civil penalties

The magistrate judge recommended civil penalties of $150,000 for Oppenheimer and $725,000 for Core Business One, Inc. The defendants argued that the earlier summary-judgment decision improperly made factual findings. The court rejected that argument, explaining that the earlier decision found that the relevant facts were not genuinely disputed and relied on extensive record evidence. The court therefore imposed the recommended penalties.

Disgorgement

Disgorgement requires a defendant to give up unlawfully obtained gains. The SEC calculated the defendants’ gains by adding transfers received in Core Business One, Inc.’s bank accounts from other defendants. The court held that this was a reasonable approximation of the defendants’ unjust gains.

The defendants argued that the SEC’s calculation should have accounted for legitimate business expenses. The court explained that, after the SEC made a reasonable approximation, the defendants had the burden of proving that the calculation was inaccurate or that expenses should be deducted. The court found that they failed to provide reliable evidence of such expenses.

The defendants also argued that Oppenheimer should not be jointly and severally liable for the disgorgement because the SEC had not shown that he personally received the funds. The court rejected that objection. It relied on its earlier findings and hearing evidence showing that Oppenheimer was intimately involved in the fraud, controlled Core Business One, Inc., served as its chief executive officer and sole employee, and ran the company from his home. The court imposed $480,000 in disgorgement against Oppenheimer and Core Business One, Inc., jointly and severally, meaning the SEC may seek the full amount from either defendant, subject to collection of only one full recovery.

Prejudgment interest and disposition

Prejudgment interest compensates for the period during which a defendant had the use of unlawfully obtained profits. Because Oppenheimer and Core Business One, Inc. had access to the amount to be disgorged for several years, the court upheld $300,858.59 in prejudgment interest against them jointly and severally.

Judge George B. Daniels overruled the defendants’ objections and adopted Magistrate Judge Aaron’s report and recommendation in its entirety. The court directed that final judgment be entered imposing the two civil penalties, the joint-and-several disgorgement award, and the joint-and-several prejudgment-interest award. It also directed the Clerk of Court to close the open motion and the action.