Securities and Exchange Commission v. Simeo

Background

The Securities and Exchange Commission (SEC) sued Tom Simeo, who was representing himself, over securities-related statements made while he held leadership positions at Viking Energy Group, Inc. The SEC alleged that Simeo represented in Viking’s public filings and letters to outside auditors that Guangfang “Cecile” Yang was Viking’s chief financial officer and performed the work of a chief financial officer, even though she did not actually perform that role.

The court found that the record showed Yang did not prepare Viking’s financial statements or public filings, make financial or strategic decisions, or review Viking’s internal controls. Simeo was her sole point of contact at Viking. Simeo had also created a standing resignation letter and a power of attorney purportedly signed by Yang. The resignation letter allowed him to remove her as chief financial officer, and the power of attorney allowed him to review and sign documents for her, including SEC filings. Simeo forged Yang’s signature on at least one auditor letter and did not disclose these arrangements in Viking’s filings.

Viking’s filings and certifications under the Sarbanes-Oxley Act listed Yang as chief financial officer and stated that she had performed responsibilities involving internal controls. Some filings also included information about Yang’s education that the court described as false. During the relevant period, Viking sold approximately $2 million in securities.

Procedural history and summary-judgment standard

The SEC moved for summary judgment, which asks whether the evidence shows that no important factual dispute requires a trial and that the moving party is entitled to judgment under the law. Simeo did not file an opposition, despite receiving several extensions and a warning that the motion would be treated as submitted if he did not respond.

The court explained that an unopposed motion is not automatically granted. The SEC still had to show that the evidence supported its facts and that it was entitled to judgment as a matter of law. Because Simeo did not respond to the SEC’s factual statement, the court treated those facts as admitted where the record supported them. Simeo also failed to answer the SEC’s requests for admission, so the matters in those requests were deemed admitted. In addition, the court drew negative inferences from Simeo’s repeated reliance on the constitutional protection against compelled self-incrimination during his civil deposition. The court stated that it did not rely on the admissions or negative inference alone, but considered them with the other evidence.

Exchange Act claims

The court granted summary judgment to the SEC on its claim under section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5. Those provisions prohibit material lies or omissions, or fraudulent devices, made with an intent to deceive or at least knowing or reckless misconduct and connected to buying or selling securities.

The court found no genuine factual dispute that Simeo made material misrepresentations and omissions. Viking’s filings identified Yang as chief financial officer and described her as performing responsibilities that she did not perform. The filings also omitted Simeo’s power of attorney and his ability to remove Yang unilaterally. The court found those omissions material because the information could have significantly changed the overall information available to investors, including information about the independence of Viking’s chief financial officer.

The court also found scienter, meaning the required intent to deceive, manipulate, defraud, or engage in knowing misconduct. Simeo’s deemed admissions showed that he knew Yang was not functioning as Viking’s chief financial officer and knew the filings did not disclose that fact. The court further relied on the surrounding evidence and the negative inference from Simeo’s refusal to answer relevant questions.

Finally, the court found that the misrepresentations and omissions were connected to the purchase or sale of securities. Viking filed the documents during the period when it sold approximately $2 million in securities, and the court concluded that the statements could have influenced investors.

Securities Act claims

The court also granted summary judgment to the SEC on its claims under sections 17(a)(1) and 17(a)(3) of the Securities Act. Section 17(a)(1) prohibits using a device, scheme, or artifice to defraud in offering or selling securities. The court applied its conclusions about Simeo’s material misrepresentations, omissions, and intent to that claim and found the required connection to Viking’s offers or sales of securities.

Section 17(a)(3) prohibits engaging in a transaction, practice, or course of business that operates or would operate as fraud or deceit on a purchaser. Unlike the Exchange Act claim and the section 17(a)(1) claim, section 17(a)(3) does not require proof of intent to deceive; negligence is enough. The court found that Simeo acted negligently because a reasonably careful person who knew Yang was not serving as chief financial officer would not have identified her that way in filings relied on by investors or omitted information showing that she lacked independence.

Disposition and remedies

The court granted the SEC’s unopposed motion for summary judgment. The order terminated the pending motion but did not resolve the SEC’s request for an injunction or civil monetary penalty. Because the SEC’s summary-judgment motion did not address those remedies, the court ordered the SEC to file a memorandum describing the requested relief, including the proposed penalty tier, what would count as a violation, and the total amount requested. Simeo was permitted to respond by October 1, 2021, and the court stated that it could decide the remedies without considering opposition if he did not respond.