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In re Kern

Supreme Court of South Carolina

June 27, 2018

In the Matter of John B. Kern, Respondent. Appellate Case No. 2017-002083

          Heard April 19, 2018

          John S. Nichols, Disciplinary Counsel, and Joseph P. Turner, Senior Assistant Disciplinary Counsel, both of Columbia, for Office of Disciplinary Counsel.

          John B. Kern, of Charleston, pro se.

          OPINION

          PER CURIAM.

         In this attorney disciplinary matter, a hearing panel of the Commission on Lawyer Conduct (the Panel) issued a report recommending Respondent John B. Kern be definitely suspended from the practice of law for three years, that he be ordered to pay the costs of disciplinary proceedings, and that he be required to complete the Legal Ethics and Practice Program Ethics School (LEAPPS) as a condition of reinstatement to the practice of law. Neither the Office of Disciplinary Counsel (ODC) nor Kern took exception to the Panel's report. For the reasons stated below, we find the appropriate sanction is an eighteen-month definite suspension and the payment of costs of the disciplinary proceedings.[1]

         FACTS AND PROCEDURAL HISTORY

         The charges against Kern arise from Securities and Exchange Commission (SEC) proceedings initiated against Kern and others following an SEC investigation of a fraudulent investment scheme perpetrated by Craig Berkman. Berkman fraudulently raised around $13.2 million from approximately 120 investors by selling membership interests in limited liability companies (LLCs) that he controlled. Unfortunately for these investors, Berkman was subject to a $28 million judgment in Oregon-in connection with another fraudulent investment scheme- and was also facing bankruptcy in Florida. Berkman began to use some of the funds from his new ventures to pay his bankruptcy obligations in Florida. Kern helped form and served as general counsel for Ventures Trust II LLC (Ventures II) and Face-Off Acquisitions, LLC, two of the LLCs Berkman used to carry out his crimes. Berkman pled guilty to criminal conduct in a criminal action parallel to the SEC's administrative proceeding.

         On February 4, 2014, Kern signed an offer of settlement in connection with SEC administrative proceedings pursuant to Rule 240(a) of the Rules of Practice of the SEC.[2] On March 7, 2014, Kern consented to the entry by the SEC of an order imposing sanctions against him pursuant to section 4C of the Securities and Exchange Act of 1934, [3] and Rule 102(e) of the Rules of Practice of the SEC.[4] The pertinent findings and conclusions in the order were: (1) Kern willfully aided and abetted the fraudulent conduct of Berkman in violation of federal securities law; (2) with Kern's consent, the SEC ordered Kern to disgorge his fees totaling $234, 577 and imposed a fine of $100, 000; (3) Kern is barred from associating with brokers, investment advisors, and others and from being employed in connection with investment companies or underwriters or others; and (4) Kern consented to being denied the privilege of practicing law before the SEC.

         ODC filed formal charges against Kern on February 16, 2016. Kern was largely dilatory during the pre-hearing stage of these proceedings. The Panel allowed Kern until May 1, 2016, to answer the charges. He answered the formal charges on May 9, 2016, but failed to timely comply with the initial disclosure requirements imposed by Rule 25(a) (Discovery-Initial Disclosure), RLDE, Rule 413, SCACR. On September 23, 2016, the Panel ordered Kern to comply with Rule 25(a) within 10 days of the order. On December 9, 2016, the Panel issued a second order directing Kern to comply with Rule 25(a). Kern finally provided ODC with the Rule 25(a) materials in December 2016, after the Panel's second order to comply with Rule 25(a) and approximately six months after the materials were due.

         A hearing was held before the Panel on July 6 and 7, 2017, and the Panel filed its Panel Report on October 4, 2017. The Panel concluded the SEC is "another jurisdiction" under Rule 29(e) (Conclusiveness of Adjudication in Other Jurisdictions), RLDE, Rule 413, SCACR. As a result, the Panel adopted the findings of fact and the findings of misconduct set forth in the above-referenced order issued by the SEC. ODC and Kern were served with a copy of the Panel Report and were advised to refer to Rule 27(a) (Briefs of Disciplinary Counsel and Respondent), RLDE, Rule 413, SCACR, for procedures concerning briefing and taking exception to the Panel Report. Neither ODC nor Kern filed briefs with this Court.

         DISCUSSION

         We "may accept, reject, or modify in whole or in part the findings, conclusions and recommendations of the Commission [on Lawyer Conduct]." Rule 27(e)(2), RLDE, Rule 413, SCACR. "This Court is not bound by [the Panel's] recommendation; rather, after a thorough review of the record, this Court may impose the sanction it deems appropriate." In re McFarland, 360 S.C. 101, 105, 600 S.E.2d 537, 539 (2004). Additionally, "[T]his Court may make its own findings of fact and conclusions of law." In re Marshall, 331 S.C. 514, 519, 498 S.E.2d 869, 871 (1998).

         As mentioned above, pursuant to Rule 29(e), RLDE, Rule 413, SCACR, the Panel adopted the findings of fact and findings of misconduct set forth in the SEC's order. Rule 29(e) provides in pertinent part, "[A] final adjudication in another jurisdiction that a lawyer has been guilty of misconduct . . . shall establish conclusively the misconduct . . . for purposes of a disciplinary . . . proceeding in this state." Rule 29(e), RLDE, Rule 413, SCACR. We have never addressed whether the SEC is "another jurisdiction" under Rule 29(e) for purposes of imposing reciprocal discipline. However, at least two of our sister states have addressed the issue and concluded that the SEC is not a "jurisdiction" for purposes of reciprocal discipline. See Florida Bar v. Tepps, 601 So.2d 1174, 1175 (Fla. 1992); see also Disciplinary Counsel v. Lapine, 942 N.E.2d 328, 332 (Ohio 2010). At oral argument, ODC conceded it no longer believed the SEC to be "another jurisdiction" under Rule 29(e), but ODC argued the record contained evidence of Kern's culpable conduct warranting discipline.

         We find the SEC is not a jurisdiction for purposes of reciprocal discipline. We also find that because Kern failed to take exception to the Panel Report, the Panel's findings that Kern committed misconduct are deemed admitted pursuant to Rule 27(a), RLDE, Rule 413, SCACR. Rule 27(a) provides in pertinent part, "The failure of a party to file a brief taking exceptions to the [Panel Report] constitutes acceptance of the findings of fact, conclusions of law, and recommendations." Rule 27(a), RLDE, Rule 413, SCACR. As noted above, Kern did not file a brief taking ...


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