Securities and Exchange Commission v. Harold Bailey Gallison

Background

The Securities and Exchange Commission brought this action under Sections 5(a) and 5(c) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5(b), and Section 17(a)(2) of the Securities Act. The opinion addresses remedies against Robert S. Oppenheimer and Core Business One, Inc. (CBO). On March 1, 2022, the court granted the SEC summary judgment against Oppenheimer and CBO.

The SEC later moved for remedies and entry of final judgment. It requested injunctive relief, an officer-and-director bar against Oppenheimer, penny-stock bars against Oppenheimer and CBO, civil penalties, disgorgement, and prejudgment interest. Magistrate Judge Stewart D. Aaron recommended granting the SEC’s requested nonmonetary remedies and holding a hearing to determine the monetary remedies. The defendants did not timely object to the report; their filing was nine days late and was treated as a response to the SEC’s objections rather than as independent objections.

Court’s Analysis

The district court reviewed the portions of the report subject to proper objections de novo, meaning independently, and reviewed the remaining portions for clear error. It found no error in Magistrate Judge Aaron’s recommendations.

For the permanent injunction, the court applied the question whether the securities-law violations were reasonably likely to recur. It relied on its earlier finding that Oppenheimer and CBO knowingly played a substantial role in the scheme, that Oppenheimer acted with the required state of mind, and that Oppenheimer’s conduct was not isolated. The court also considered Oppenheimer’s continued position that his past conduct was blameless. It concluded that a permanent injunction was warranted.

The court also found a five-year officer-and-director bar appropriate for Oppenheimer. Although he was not a repeat offender, the court stated that his illegal conduct lasted more than two years and considered his substantial role and failure to acknowledge wrongdoing. Applying substantially similar considerations, the court found five-year penny-stock bars appropriate for both Oppenheimer and CBO.

The court approved an evidentiary hearing to determine civil penalties, disgorgement, and prejudgment interest. It did not determine the amounts of those remedies in this order. The opinion states in a footnote that the SEC’s limited objections concerning maximum civil penalties were denied without prejudice because those issues could be addressed at the later hearing; the conclusion states that the plaintiff’s objections were overruled.

Disposition

The court adopted Magistrate Judge Aaron’s report. Oppenheimer and CBO were permanently enjoined from violating Sections 5 and 17 of the Securities Act and Section 10(b) of the Exchange Act, including Rule 10b-5. Oppenheimer was barred for five years from acting as an officer or director of an issuer with a class of registered securities. Oppenheimer and CBO were barred for five years from participating in an offering of penny stock. The case was recommitted to Magistrate Judge Aaron for a hearing on civil penalties, disgorgement, and prejudgment interest.