E Pur Si Mouve, Idioti! (Or So An SEC ALJ Should Mutter)

Harris was convicted of conspiracy to commit securities fraud and wire fraud, in violation of 18 U.S.C. § 1349, and wire fraud, in violation of 18 U.S.C. § 1343. Amended Criminal Judgment, United States v. Scholander (Jan. 25, 2019), ECF No. 398,² appeal dismissed sub nom. United States v. Harris, No. 19-3088 (6th Cir. Feb. 13, 2019), ECF No. 5 (granting Harris's motion to dismiss his appeal). He was sentenced to thirty-seven months of imprisonment followed by five years of supervised release and ordered to pay, jointly and severally with other defendants, restitution of $843,423.91. He was enjoined, by default, against violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933, and barred from participating in an offering of penny stock; he was also ordered to pay disgorgement of $775,104 plus prejudgment interest of $201,984.17 and a civil penalty of $1,000,000. Final Judgment as to Defendants Talman Harris and Victor Alfaya, SEC v. Cope (Feb. 7, 1017), ECF No. 294. 

In the criminal case, Harris was convicted after a jury found him guilty of one count of conspiracy, occurring between 2006 and 2014, to commit securities fraud, 18 U.S.C. § 1348, and wire fraud, 18 U.S.C. § 1343, in violation of 18 U.S.C. § 1349; and three counts of wire fraud, occurring in 2010, 2011, and 2012, in violation of 18 U.S.C. § 1343. Superseding Indictment, United States v. Scholander, ECF No. 155 at 12-28; Jury Verdict Forms, ECF No. 223 at 1-4. 

According to the Commission's official records and FINRA records, Harris was associated with several registered broker-dealers between 1999 and 2015 (some of which FINRA expelled on various dates between 2001 and 2018).³ FINRA barred him from association with a broker-dealer in any capacity; the sanction was upheld on appeal. William Scholander, Exchange Act Release No. 77492, 2016 SEC LEXIS 1209 (Mar. 31, 2016), pet. denied sub. nom. Harris v. SEC, 712 F. App'x 46 (2d Cir. 2017).

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Footnote 2: This followed his appeal to the Court of Appeals, which reversed a conviction for obstruction of justice and ordered resentencing. United States v. Harris, 881 F.3d 945 (6th Cir. 2018). 

Footnote 3: See Talman Anthony Harris BrokerCheck Report, available at http://brokercheck.finra.org (last visited June 25, 2019). 

SIDE BAR: READ:

The 6Cir Opinion
http://brokeandbroker.com/PDF/Harris6Cir180205.pdf 

FINRA's National Adjudicatory Opinion
https://www.finra.org/sites/default/files
/Scholander%20and%20%20Harris%202009019108901%
20Final%20NAC%20Decision%2012-29-14_0_0_0_0.pdf

As noted in part in the 6Cir Opinion:

SILER, Circuit Judge. Talman Harris appeals his criminal convictions and sentences, arguing that the district court erred by: (1) barring Harris from impeaching a government witness; (2) admitting government summary evidence; (3) giving an inaccurate jury instruction with regard to a stockbroker's fiduciary duties; and (4) failing to investigate potential extraneous influence on a juror. 

Because the district court abused its discretion by not allowing Harris to introduce a prior inconsistent statement for impeachment purposes, we reverse Harris's conviction for obstruction of justice and remand for a new trial on that count. The district court did not, however, err in admitting the summary exhibits and in rendering the fiduciary-duty jury instruction, so we affirm the district court's rulings on Harris's second and third assignments of error. Finally, because Harris presented a colorable claim of extraneous influence on a juror, we conclude that the district court abused its discretion by failing to hold an evidentiary hearing pursuant to Remmer v. United States, 347 U.S. 227 (1954), or by denying defense counsel's request to question the juror and his friend. Thus, we vacate the judgment of the district court and remand for a Remmer hearing. 

FACTUAL AND PROCEDURAL BACKGROUND

In September 2016, a jury convicted Harris of one count of conspiracy to commit securities fraud or wire fraud, in violation of 18 U.S.C. §§ 1343, 1348, 1349, one count of obstruction of justice, in violation of 18 U.S.C. § 1503, and three counts of wire fraud, in violation of 18 U.S.C. § 1343. The district court sentenced Harris to 63 months' imprisonment, a five-year term of supervised release, a $500 special assessment, and $843,423.91 in restitution. 

Harris was a registered stockbroker with various securities firms in New York from 2007 to 2014. He and his co-conspirators, including government witness Guy Durand, participated in a scheme whereby they agreed to recommend shares of Zirk de Maison's companies to clients in exchange for undisclosed commissions.¹ The Financial Industry Regulatory Authority ("FINRA") began an investigation of the conspirators' activities and questioned Harris and Durand on wire transfers from certain organizations controlled by de Maison. Harris and Durand decided to tell investigators that the deposits resulted from selling expensive watches, and they sent letters to FINRA summarizing this fictitious explanation. FINRA responded with a letter asking, "Did an individual by the name of Zirk Engelbrecht have any connection whatsoever with any of the above-noted wire transfers that you received?" Harris and Durand replied that they did not deal with Zirk Engelbrecht. After Harris was arrested, he purportedly called and texted Durand on multiple occasions, instructing him to stick with their story: "Remember, we sold watches." Durand later admitted to officers that the watch story was entirely false. 

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Footnote 1: Zirk de Maison, also known as Zirk Engelbrecht, was Harris's co-conspirator who testified for the government. 

As noted in part in the FINRA NAC Decision:

From February 2010 through November 2010, William Scholander ("Scholander") and Talman Harris ("Harris") (together, "respondents") sold $961,825 of Deer Consumer Products, Inc. ("DEER") securities to customers. When doing so, respondents did not disclose that they recently received from DEER a $350,000 fee for advisory services, which they spent in furtherance of a plan to acquire a broker-dealer. In addition, neither Scholander nor Harris disclosed to their firm the activities in which they engaged that led to the $350,000 fee or that they received the fee. We are asked to decide: (1) whether respondents' failure to disclose the $350,000 fee and their business relationship with DEER was a fraudulent omission of material fact, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010; (2) whether respondents engaged in outside business activities without giving prompt written notice to their employing firm, in violation of NASD Rule 3030 and FINRA Rule 2010; and (3) the appropriate sanctions for any such violations. 1 Because we find that respondents omitted material facts in connection with their sales of DEER, did so with scienter, and failed to give prompt written notice to their firm of their outside business activities for DEER, we affirm the Hearing Panel's findings that respondents committed fraud and engaged in outside business activities violations. We also affirm the bars imposed by the Hearing Panel for respondents' fraudulent omissions.

The Securities and Exchange Commission instituted proceedings against Respondents Talman Harris and Victor Alfaya with Orders Instituting Proceedings, pursuant to Section 15(b) of the Securities Exchange Act of 1934, on March 10, 2017, and the two proceedings were consolidated on March 13, 2017. The proceeding is a follow-on proceeding based on SEC v. Cope, No. 1:14-cv-7575 (S.D.N.Y.), in which Respondents were enjoined from violating the antifraud provisions of the federal securities laws and on United States v. Scholander, No. 1:15-cr-335 (N.D. Ohio), in which Respondents were convicted of conspiracy to commit securities fraud and wire fraud, and Harris was convicted of wire fraud. On October 30, 2017, an Initial Decision imposed associational bars on Respondents. Talman Harris, Initial Decision Release No. 1213, 2017 SEC LEXIS 3450 (A.L.J.). 

On August 22, 2018, in light of Lucia v. SEC, 138 S. Ct. 2044 (2018), the Commission ordered a new hearing in each pending proceeding, including this one, before an administrative law judge (ALJ) who had not previously participated in the proceeding, unless the parties expressly agreed to alternative procedures, including agreeing that the proceeding remain with the previous presiding ALJ. Pending Admin. Proc., Securities Act of 1933 Release No. 10536, 2018 SEC LEXIS 2058, at *2-3 (August 22 Order). Accordingly, the proceeding was reassigned to the undersigned. Pending Admin. Proc., Admin. Proc. Rulings Release No. 5955, 2018 SEC LEXIS 2264 (C.A.L.J. Sept. 12, 2018). 

As to each affected proceeding, including this one, in which the parties had not agreed to alternative procedures, the Commission ordered that the newly assigned presiding ALJ "issue an order directing the parties to submit proposals for the conduct of further proceedings." August 22 Order, 2018 SEC LEXIS 2058, at *4. The Commission specified, "if a party fails to submit a proposal, the ALJ may enter a default against that party." Id. Accordingly, after the reassignment of the proceeding, Harris was afforded the opportunity to file an Answer to the OIP, and the parties were ordered to submit proposals for the conduct of further proceedings by December 14, 2018; Harris was warned that an associational bar would be imposed on him by default if he failed to answer or to submit a proposal. Talman Harris, Admin. Proc. Rulings Release No. 6121, 2018 SEC LEXIS 2696 (A.L.J. Sept. 28, 2018). In response, Harris submitted a letter dated October 9, 2018, in which he "den[ied] all of the charges in this civil matter" and proposed dismissal by summary disposition in accordance with 17 C.F.R. § 201.250.1 In light of that response, the undersigned ordered that the Division of Enforcement might file an opposition to his motion for summary disposition and/or a motion for summary disposition of its own by April 24, 2019, and that any responsive opposition or reply might be filed by May 24, 2019. Talman Harris, Admin. Proc. Rulings Release No. 6531, 2019 SEC LEXIS 694 (A.L.J. Apr. 1, 2019). The Division timely filed a motion for summary disposition; Harris did not respond. 

[H]arris's conduct was egregious and recurrent, over a period of several years, and involved a high degree of scienter as indicated by the fact that his misconduct included wire fraud and conspiracy to commit securities fraud and wire fraud. His occupation, which included fifteen years as a registered representative associated with broker-dealers, if he were allowed to continue it in the future, would present opportunities for future violations. Absent a bar, he could engage in fraud in the securities industry. The violations are relatively recent. Consistent with a vigorous defense of the charges against him, Harris has not otherwise recognized the wrongful nature of his conduct or made assurances against future violations. . . .

[T]he ALJ found that the Division had established the first two predicates for imposing sanctions under Exchange Act Section 15(b)(6), and then applied the following factors to determine whether sanctions were in the public interest: the egregiousness of the respondent's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the respondent's assurances against future violations, the respondent's recognition of the wrongful nature of his conduct, and the likelihood that the respondent's occupation will present opportunities for future violations. In addressing the first three factors, the ALJ stated simply: "As described in the Findings of Fact, Harris's conduct was egregious and recurrent, over a period of several years, and involved a high degree of scienter as indicated by the fact that his misconduct included wire fraud and conspiracy to commit securities fraud and wire fraud." But the Findings of Fact stated only that Harris had been enjoined and convicted; it did not describe Harris's underlying conduct, nor did the rest of the initial decision.⁵

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Footnote 5: See McCarthy v. SEC, 406 F.3d 179, 190 (2d Cir. 2005) (stating that "each case must be considered on its own facts" in assessing sanctions); Blinder, Robinson & Co., Inc. v. SEC, 837 F.2d 1099, 1113 (D.C. Cir. 1988) ("[T]he Commission must do more than say, in effect, petitioners are bad and must be punished."); Steadman v. SEC, 603 F.2d 1126, 1137 (5th Cir. 1979) ("[W]hen the Commission chooses to order the most drastic remedies at its disposal, it has a greater burden to show with particularity the facts and policies that support those sanctions and why less severe action would not serve to protect investors."), aff'd on other grounds, 450 U.S. 91 (1981).

sentenced to thirty-seven months of imprisonment followed by five years of supervised release and ordered to pay, jointly and severally with other defendants, restitution of $843,423.91. He was enjoined, by default, against violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933, and barred from participating in an offering of penny stock; he was also ordered to pay disgorgement of $775,104 plus prejudgment interest of $201,984.17 and a civil penalty of $1,000,000. 

• Talman Harris
• FINRA
• 6Cir
• ALJ
• ALJ Foelak
• Initial Decision
• Lucia
• BrokeAndBroker
• Bill Singer