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UPDATE: Pro Se Respondent Battles SEC to Standstill
February 10, 2016
This is an UPDATE of "Pro Se Respondent Battles SEC to Standstill" (BrokeAndBroker.com Blog, January 20, 2016).
Today's BrokeAndBroker.com Blog considers a fascinating Securities and Exchange Commission regulatory case that began with a State of New Hampshire Consent Order, which barred an individual respondent. Frankly, that should have been the end of this legal saga because the normal, typical, garden-variety follow-up is for the SEC to tack on a federal Bar. The thing is, however, that the BrokeAndBroker.com Blog seeks out the oddball and the quirky. Welcome to another sampling from that menu.
Case In PointFrom 2001 and 2012, Nicholas Rowe was the owner, President, and Chief Executive Officer of the registered investment advisory ("RIA") firm Focus Capital Wealth Management, Inc., which was an SEC-RIA from 2005 to 2012 and then registered with the State of New Hampshire until the firm's withdrawal. Amid allegations that both Focus Capital and Rowe had engaged in an unsuitable strategy using leveraged/inverse Exchange Traded Funds, the State revoked the firm's RIA registration on March 8, 2013; and on March 12, 2013, Rowe was barred pursuant to the entry of a Consent Order with the New Hampshire Bureau of Securities. Additionally, Rowe and Focus Capital were ordered to cease and desist from violating New Hampshire securities rules, and to pay $20,000 (a $5,000 fine plus the costs of the investigation) and restitution. In the Matter of Nicholas Rowe and Focus Capital Wealth Management Inc. (Consent Order, New Hampshire Bureau of Securities Regulation, COM2011-0037 / March 8, 2013).Renoir, Degas, van Gogh, Cezanne and Wall Street Impressionism
Funny thing about that New Hampshire Consent Order, it has a quirky provision when it comes to what Respondent Rowe may and may not say or do about the settlement. Paragraph IV of the NH Consent Order states [Ed: yellow highlighting added]:
Ummm . . . what? Respondent Rowe may not deny the allegations in the Consent Order. Okay, that seems somewhat straightforward. Then there's this less clear thing about not creating an impression that the Consent Order is without factual basis. Let's think about that second aspect: You can't create an "impression." Oh boy, we lawyers love that type of prose. How many billable hours can I run up arguing whether a client either intended to create an impression or whether an actual impression was created? Moreover, enmeshed in that drama about creating an impression is the core and inextricable admonition that the created impression is limited to one involving the lack of a "factual basis" in the Consent Order. I mean, geez, what the hell? The Respondent can create an impression about the Consent Order provided that the created impression is NOT about whether or not the order has a factual basis?IV. In view of the foregoing, the Respondent agrees to the following undertakings and sanctions:. . .9. The Respondent may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation in this Consent Order or creating the impression that the Consent Order is without factual basis. However, noting in this provision affects the Respondent's testimonial obligations or right to take contrary legal or factual positions in litigation or other legal proceedings in which the State of New Hampshire is not a party, but not including the non-dischargeable penalties discussed in undertaking number 8 above.. . .
As if all of that impressionism weren't enough, the Consent Order permits Respondent Rowe the "right to take contrary legal or factual positions in litigation or other legal proceedings in which the State of New Hampshire is not a party . . ."
Rowe can't create an impression that the Consent Order lacks a factual basis but he can argue contrary legal or factual positions about the Consent Order?
Do me a favor, don't ask me to explain that because my job is simply to bill as much as I can for my incredible legal counsel and, what can I tell you, that provision is the gaping maw of some abyss that I would prefer not to enter.
SEC Summary Judgment
No Denyin' and No Deflectin'
Now enter those poor, misguided lawyers at the SEC's Division of Enforcement, who likely looked at Rowe's New Hampshire Consent Order and figured that there wasn't anything for Rowe to argue or dispute because he was barred by the State and he had agreed not to deny the allegations -- and he couldn't create the misimpression that the order was without a factual basis.
Given the undisputed existence of the Consent Order, the SEC's Division of Enforcement thought it had an air-tight premise upon which to purportedly protect the investing public and seek Rowe's bar premised on federal considerations. As such the Division made a Motion for Summary Judgment asserting that Rowe has been enjoined by the State and that the only matter properly before the ALJ was the appropriate sanction. In the Matter of Nicholas Rowe, Respondent (ALJ Initial Decision, Init. Dec. Rel. No. 746; Admin. Proc. File No. 3-16155 / February 27, 2015). In setting the parameters of the issue before him, the ALJ explained that:
6. By signing the Consent Order, Rowe agreed that he had "voluntarily consented tothe entry of this Consent Order and represent[ed] and aver[red] that no employee orrepresentative of the Bureau has made any promise, representation or threat to induce its execution." Consent Order at 9.7. Rowe agreed to "not take any action or make or permit to be made any publicstatement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation in this Consent Order or creating the impression that the Consent Order is without factual basis." Consent Order at 10.
Initial Decision at Page 4
No Denyin' and No Deflectin'
In granting the Division's Motion for Summary Judgment and ordering a permanent Bar against Rowe from associating with an investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, the ALJ offered this rationale:
Initial Decision at Page 6Rowe attempts to deny and deflect the findings of the Bureau and the terms of the Consent Order. See generally Answer & Ex. 1; Rowe Opp. & Ex. A. Rowe asserts that: "All allegations in the consent order . . . are denied by Mr. Rowe." Answer at 2. Rowe continues that he "did not consent to the . . . Consent Order," and that he "could not have consented because in any contract apparent consent may be vitiated because of mistake, fraud, innocent misrepresentation, duress, or undue influence. Mr. Rowe plans to ask the courts to vacate the consent decree after the conclusion of his bankruptcy cases." Id. (emphasis omitted). The thrust of Rowe's defense is that he is the victim of a corrupt state government and clients who supposedly perjured themselves to inculpate him. See, e.g., Rowe Opp., Ex. A at 13.While Rowe attempts to revisit the circumstances that led to the Consent Order, at no time does he deny that he is subject to it. Nor does he deny that the Consent Order bars him from participation in the securities industry in New Hampshire. Accordingly, there is no genuine issue with regard to any material fact and summary disposition is appropriate. See 17 C.F.R. § 201.250(b). A sanction will be imposed if it is in the public interest.
Okay, so . . . the ALJ found that Rowe was attempting to deny the State's findings and the terms of the Consent Order by, in part, arguing that he was the purported victim of corruption and perjurers. The problem with the ALJ's rationale, however, is that he didn't acknowledge that portion of the Consent Order that specifically carves out a massive exception for Rowe; namely, that he has the right to take contrary legal or factual positions in litigation or other legal proceedings in which the State of New Hampshire is not a party.
Anyone want to place a wager as to how that little bit of nettlesome language is going to impact the ALJ's Initial Decision?
SEC Appeal
On appeal, the Commission (the sitting SEC commissioners and Chair) took the somewhat rare step of finding that the existing record contained insufficient evidence to establish the legal threshold necessary to support summary judgment and, accordingly, remanded the matter back to the ALJ for further proceedings. This victory for Rowe is all the more extraordinary given that he had been representing himself in a pro se capacity. In the Matter of Nicholas Rowe, Respondent (Order Denying Motion for Summary Affirmance and Remanding, '34 Act Rel. No. 75982; Admin. Proc. File No. 3-16155 / September 24 2015). As explained in the Order:
SEC Remand Order at Page 7When a respondent has consented to the entry of an injunction in an action brought by the Commission, and has agreed not to contest the allegations of the complaint in any later disciplinary proceeding brought by the Commission, we may rely on those allegations in making our public interest finding.28 Here, however, Rowe's consent agreement specifically reserved his right "to take contrary legal or factual positions in litigation or other legal proceedings in which the State of New Hampshire is not a party." We find that this administrative proceeding is a "legal proceeding" within the meaning of the Consent Order and that the State of New Hampshire is not a party to this proceeding. Thus, the Consent Order did not prevent Rowe from denying the allegations of the Consent Order in this proceeding. In his Answer to the OIP, Rowe denied all of the allegations in the Consent Order. We therefore cannot take the allegations in the Consent Order as true in determining an appropriate sanction in the public interest, and the record does not contain enough additional evidence to allow us to make such a determination.
Testimonial Subpoena
Counting as of March 2013, when New Hampshire and Rowe entered into the Consent Order, we are now nearly three years into the process of determining whether an investment advisor barred by the State of New Hampshire should also be barred by the SEC. Oh my how those wheels of justice grind!
Sticking to his guns and digging in his heels, pro se Respondent Rowe battles on.
Recently, both Respondent Rowe and the SEC's Division of Enforcement had advised ALJ Patil that they had not been able to serve Edward Duby, Jr. and Suzanne Duby with testimonial subpoenas. In the Matter of Nicholas Rowe (Order Regarding Testimonial Subpoenas, SEC, Admin. Pro. Ruling Rel. No. 3505; Admin. Proc. 3-16155 / January 14, 2016). Although public records disclosed that the Dubys were apparently residents of Rotonda West, Florida and represented by legal counsel, that lawyer had not been authorized to receive the testimonial subpoenas by the clients on their behalf; moreover, the lawyer asserted that the clients had not disclosed their Florida residential address to him. Respondent Rowe requested guidance from the ALJ as to whether he may serve the Dubys at the publicly disclosed Florida address. As noted in the ALJ's January 14th Order:
It is ORDERED that Rowe serve the testimonial subpoenas and this order on the Dubys at the Florida address and email electronic versions of the subpoenas to counsel for the Dubys, who is directed to forward the subpoenas and this order to the Dubys via email. I will deem such service sufficient. See 17 C.F.R. §§ 201.103(a), .111(b), .150(b)-(d), .232(c).From the above circumstances, it appears that the Dubys are aware of Rowe's testimonial subpoenas and are avoiding service. It is FURTHERED ORDERED that if the Dubys continue to avoid service or fail to comply with the subpoenas, they may be referred for subpoena enforcement proceedings in federal district court.
According to the SEC Rules of Practice:
§ 201.150 Service of papers by parties.(a) When required. In every proceeding as defined in §201.101(a), each paper, including each notice of appearance, written motion, brief, or other written communication, shall be served upon each party in the proceeding in accordance with the provisions of this section; provided, however, that absent an order to the contrary, no service shall be required for motions which may be heard ex parte.(b) Upon a person represented by counsel. Whenever service is required to be made upon a person represented by counsel who has filed a notice of appearance pursuant to §201.102, service shall be made pursuant to paragraph (c) of this section upon counsel, unless service upon the person represented is ordered by the Commission or the hearing officer.(c) How made. Service shall be made by delivering a copy of the filing. Delivery means:
(1) Personal service-handing a copy to the person required to be served; or leaving a copy at the person's office with a clerk or other person in charge thereof, or, if there is no one in charge, leaving it in a conspicuous place therein; or, if the office is closed or the person to be served has no office, leaving it at the person's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein;(2) Mailing the papers through the U.S. Postal Service by first class, registered, or certified mail or Express Mail delivery addressed to the person;(3) Sending the papers through a commercial courier service or express delivery service; or(4) Transmitting the papers by facsimile transmission where the following conditions are met:
(i) The persons so serving each other have provided the Commission and the parties with notice of the facsimile machine telephone number to be used and the hours of facsimile machine operation;(ii) The transmission is made at such a time that it is received during the Commission's business hours as defined in §201.104; and(iii) The sender of the transmission previously has not been served in accordance with §201.150 with a written notice from the recipient of the transmission declining service by facsimile transmission.
(d) When service is complete. Personal service, service by U.S. Postal Service Express Mail or service by a commercial courier or express delivery service is complete upon delivery. Service by mail is complete upon mailing. Service by facsimile is complete upon confirmation of transmission by delivery of a manually signed receipt.
Bill Singer's Comment
What should have been a slam-dunk of an SEC Bar has yet to go through the hoop. The pro se respondent is standing his ground and blocking the lane.
- In the Matter of Nicholas Rowe and Focus Capital Wealth Management Inc. (Consent Order, New Hampshire Bureau of Securities Regulation, COM2011-0037 / March 8, 2013)
- In the Matter of Nicholas Rowe, Respondent (Order Instituting Administrative Proceedings, '40 Inv. Adv. Act Rel. No. 3930; Admin. Proc. File No. 3-16155 / September 23, 2014)
- In the Matter of Nicholas Rowe, Respondent (ALJ Initial Decision, Init. Dec. Rel. No. 746; Admin. Proc. File No. 3-16155 / February 27, 2015)
- In the Matter of Nicholas Rowe, Respondent (Order Denying Motion for Summary Affirmance and Remanding, '34 Act Rel. No. 75982; Admin. Proc. File No. 3-16155 / September 24 2015)
- In the Matter of Nicholas Rowe (Order Regarding Testimonial Subpoenas, SEC, Admin. Pro. Ruling Rel. No. 3505; Admin. Proc. 3-16155 / January 14, 2016)
February 2016 UPDATE
On February 9, 2016, the SEC announced that without Rowe admitting or denying the findings, the federal regulator had accepted his Offer of Settlement, which resulted in the imposition of the following sanctions;
Accordingly, it is hereby ORDERED pursuant to Section 203(f) of the Advisers Act, thatRespondent Rowe be, and hereby is barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following which have not been discharged in Respondent Rowe's bankruptcy in cases numbered 12-13684-JMD and 12-13683-JMD: (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.