United States Court of Appeals, District of Columbia Circuit
Argued February 19, 2015
[Copyrighted Material Omitted]
On Petition for Review of an Order of the Securities & Exchange Commission.
Christopher B. Wells argued the cause for petitioner. With him on the briefs were David C. Spellman, Juan Marcel Marcelino, and Madeleine M. Blake.
Benjamin L. Schiffrin, Senior Litigation Counsel, Securities and Exchange Commission, argued the cause for respondent. With him on the brief were Michael A. Conley, Deputy General Counsel, John W. Avery, Deputy Solicitor, and Benjamin M. Vetter, Senior Counsel.
Before: MILLETT, Circuit Judge, EDWARDS, Senior Circuit Judge, and SENTELLE, Senior Circuit Judge.
EDWARDS, Senior Circuit Judge
This case emanates from two separate enforcement actions initiated by the Securities and Exchange Commission (" SEC" or " Commission" ) against Petitioner Gordon Brent Pierce. In each action, the SEC found that Pierce had violated, inter alia, Sections 5(a) and 5(c) of the Securities Act of 1933 (the " Act" ), 15 U.S.C. § 77e(a), (c), by selling unregistered securities. Pierce was ordered to cease and desist from violating the Act and to disgorge all ill-gotten gains. He now petitions for review of the SEC's order in the second enforcement action and the agency's subsequent order denying his motion for reconsideration, principally on the ground that the second action was barred by res judicata.
The record indicates that Pierce sold shares of stock in Lexington, Inc. through offshore bank accounts located in Liechtenstein for millions of dollars in profit. He failed to comply with the SEC's registration requirements for the sale of securities. He transferred the stock through an account in his own name (the " personal account" ), and in two separate accounts in the names of corporate entities (the " corporate accounts" ). Pierce was the owner of the beneficial assets in the corporate accounts. During the investigation by the SEC's Division of Enforcement (" Division" ), Pierce lied about and concealed his interest in the corporate accounts and the sales of stock through those accounts. As a result, when it initiated the first enforcement action, the Division only sought disgorgement of unlawful profits from the personal account.
After the close of the evidence in the hearing before the Administrative Law Judge (" ALJ" ) in the first enforcement action, the Division received documents from the financial regulator in Liechtenstein regarding Pierce's unlawful sales of stock through the corporate accounts. The Division filed a motion to include this evidence in the hearing before the ALJ and to seek disgorgement of profits on the basis of these additional violations. The ALJ, however, declined to expand the charges in the first enforcement action. The ALJ held that Pierce had violated the Act based on the unregistered sales of Lexington stock through the personal account and ordered disgorgement of illegal profits from those sales. Neither side sought review, so the ALJ's decision became a final action of the SEC.
The Division subsequently initiated a second enforcement action, charging Pierce with violations of the Act based on unregistered sales through the corporate accounts and seeking additional disgorgement of unlawful profits. Pierce did not contest the pertinent facts giving rise to the charges in the second enforcement action. Instead, he raised several affirmative defenses: res judicata, judicial estoppel, equitable estoppel, and waiver. The Commission rejected each of these defenses.
In his petition for review, Pierce has presented a number of arguments to the court. His principal claims are: first, the second enforcement action was barred by res judicata because the charges in the first and second enforcement actions both drew on the same series of connected transactions and on the same common core or nucleus of facts; and second, the SEC erred in applying the doctrine of fraudulent concealment. The SEC counters that, because each unregistered sale of stock is a separate violation of the Act, there was no identity between the causes of action in the first and second enforcement actions.
Therefore, the Division was not barred from pursuing the second enforcement action. The Commission also contends that the evidence plainly shows that Pierce fraudulently concealed the evidence of the sales in the corporate accounts. On the record before the court, we agree with the Commission that res judicata has no application in this case, in no small part because of Pierce's fraudulent concealment. We also agree with the Commission that there is no merit in Pierce's defenses of equitable estoppel, judicial estoppel, and waiver. Accordingly, we deny the petition for review.
A. Regulatory Overview
An enforcement action before the SEC is initiated by the issuance of an order instituting proceedings (" OIP" ). See 17 C.F.R. § 201.101(a)(4), (7). The OIP must include: (1) the nature of the proceedings, (2) the jurisdiction and legal authority supporting the action, (3) a short and plain statement of the matters of fact and law to be considered and determined, and (4) the nature of any relief or action sought or taken. Id. § 201.200(b).
An ALJ presides over a hearing regarding the charges in the OIP and issues an initial decision that includes the ALJ's " [f]indings and conclusions, and the reasons or basis therefor, as to all the material issues of fact, law, or discretion presented on the record and the appropriate order, sanction, relief, or denial thereof." Id. § 201.360(b). If no party seeks the Commission's review of the ALJ's initial decision within 21 days after it is issued, it becomes the final decision of the Commission. See id. § 201.360. The Commission's Rules of Procedure provide that only the Commission may amend an OIP to include new matters of fact or law beyond the scope of the original OIP. Id. § 201.200(d)(1). An ALJ may amend an OIP to include new matters of fact or law, but only if these matters are within the scope of the original OIP. Id. § 201.200(d)(2).
B. The Facts
It is unnecessary for us to offer an overly detailed statement of facts explaining the Lexington scheme and Pierce's conduct in violating the Act. As noted above, these facts are not in dispute and are fully set forth in the SEC's decisions in this case. In re Lexington Resources, Inc., S.E.C.
Release No. 379, 2009 WL 1684743 (June 5, 2009) (" First Proceeding" ), adopted by the SEC sub nom In re Gordon Brent Pierce, S.E.C.
Release No. 9050, 2009 WL 1953717 (July 8, 2009); In re Gordon Brent Pierce, S.E.C. Release No. 9555, 2014 WL 896757 (March 7, 2014) (" Second Proceeding" ). Because the procedural background of this case is central to Pierce's petition for review, however, we offer a complete picture of the proceedings before the SEC.
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The SEC began its investigation into trading in Lexington stock in 2006. With respect to Pierce's fraudulent concealment of evidence during the investigation, the Commission found that during sworn testimony before the Division, he admitted that he had " an interest" in one of the corporate accounts (the " Newport account" ), but denied having any interest in the second corporate account (the " Jenirob account" ). Second Proceeding, 2014 WL 896757, at *4. Pierce was also asked if he had traded Lexington securities in any accounts other than the Newport account. He answered no, " effectively denying that he had traded Lexington securities for Jenirob." Id. The ...