John M. McIntyre and Silver Oak Land Management, LLC, Appellants,
Securities Commissioner of South Carolina, Respondent. Appellate Case No. 2015-001845
February 6, 2018
From Richland County Tanya A. Gee, Circuit Court Judge
V. Mathison, Jr., of Mathison & Mathison, of Hilton Head
Island; and Cory E. Manning, of Nelson Mullins Riley &
Scarborough, LLP, of Columbia, both for Appellants.
Attorney General Alan McCrory Wilson, Assistant Attorney
General Ian Parks Weschler, and Assistant Deputy Attorney
General Tracy A. Meyers, all of Columbia, for Respondent.
McIntyre and Silver Oak Land Management, LLC (collectively
Appellants) appeal the order of the circuit court affirming a
$540, 000 civil penalty imposed upon them by the Securities
Commissioner of South Carolina. Because the
Commissioner's administrative enforcement action deprived
Appellants procedural due process, we reverse and vacate.
Attorney General of South Carolina, acting as the
Commissioner pursuant to S.C. Code Ann. § 35-1-601
(Supp. 2017), began this administrative enforcement action by
serving Appellants with a Cease and Desist order on April 19,
2013, alleging thirty-nine acts of securities fraud related
to Appellants' offer, sale, and management of interests
in numerous limited liability companies (LLCs). Besides
ordering Appellants to cease and desist from violating the
S.C. Uniform Securities Act (the Act), the order reserved the
right to levy a $10, 000 civil penalty for each violation of
the Act, as well as the cost of "the investigation and
proceedings," unless Appellants chose to let the order
become effective "by operation of law," as provided
by S.C. Code Ann. § 35-1-604(b) (Supp. 2017), in which
case they would have to pay a $50, 000 civil penalty.
chose not to let the order stand and instead requested a
hearing. The Commissioner appointed an assistant attorney
general as the Hearing Officer. After four days of hearings,
the Hearing Officer issued a Report and Recommendation,
concluding the LLC investments were not securities and the
Cease and Desist order should be dismissed.
Commissioner disagreed, finding the LLC investments were
securities covered by the Act and ordering the Hearing
Officer to issue another Report and Recommendation as to
whether Appellants had violated the Act.
Hearing Officer's second Report and Recommendation found
Appellants had committed seventy-eight violations of the Act.
After reviewing this Report and Recommendation, the
Commissioner concurred in its findings but
"reiterated" his own findings from the previous
order and made new factual findings. The Commissioner reduced
the number of violations to fifty-four and imposed the
maximum civil penalty of $10, 000 for each violation, for a
total penalty of $540, 000. This order also required
Appellants to pay the costs of the investigation and
proceedings, and there was no provision allowing Appellants
to contest the amount of the costs or be heard in response.
petitioned the circuit court for review of the
Commissioner's decision, contending the administrative
proceeding violated their due process rights, the LLC
investments were not securities, and substantial evidence did
not support the Commissioner's findings. The circuit
court affirmed the Commissioner's decision.
claim the Commissioner denied them procedural due process by
not promulgating rules for the hearing procedure. As a
result, Appellants had no notice of the availability, order,
or scope of opening and closing arguments; the order or
burden of proof; the standard for admissibility of evidence;
the existence of subpoena rights; or any other fundamental
aspects of the hearing. Appellants point to S.C. Code Ann.
§ 35-1-605(a)(1) (Supp. 2017), which states, "The
Securities Commissioner may issue forms and orders and, after
notice and comment, may adopt and amend rules necessary or
appropriate to carry out [the Act] . . . ." Judicial
review of the Commissioner's factual findings by the
circuit court is discussed in § 35-1-609, but is silent
as to our scope of review. Appellants' claims require us
to interpret the legislative intent of the Act, and also
decide whether the Commissioner's actions violated due
process. We may decide these questions of law without
deference to the rulings of the Commissioner or the circuit
court. See Jeter v. S.C. Dep't of Transp., ...