A recent decision in an SEC enforcement action provided a textbook example of how not to litigate a matter before an SEC administrative law judge.
The SEC charged Edward M. Daspin, the owner of several defunct companies engaged in the promotion of mixed martial arts competitions, with fraud and registration violations. During the course of the litigation, Daspin missed multiple hearings, caused his wife to violate an order to appear, and inundated the judge’s office with multiple piecemeal and repetitive filings. ALJ James E. Grimes also stated that, contrary to the judge’s orders, Daspin “has sent my office hundreds of e-mails, many of which were unprofessional and abusive.”
Not surprisingly, Daspin failed to persuade ALJ Grimes of the righteousness of his cause. The judge imposed industry and penny stock bars, as well as a cease-and-desist order. ALJ Grimes also ordered disgorgement of approximately $1.95 million plus prejudgment interest, and imposed civil penalties of $915,000.
The SEC charged that the corporate structure of the companies established by Daspin was a sham designed to show investors that the companies were operating under independent management. In reality, Daspin controlled the business operations of the companies and his wife was the controlling stockholder. He raised over $2 million in unregistered offerings that did not qualify for any exemptions, and the ALJ found that the disclosure documents Daspin prepared were replete with material misstatements and omissions. According to ALJ Grimes, Daspin deceived investors “with numerous lies and omissions about core aspects of the companies, which later failed.” ALJ Grimes added that Daspin “also deceived them with schemes to hide his control and enable his fraud.”
At an earlier stage of the proceedings, Daspin missed repeated hearings, in part due to what ALJ Grimes described as bogus medical claims. The ALJ entered a default judgment in favor of the SEC, finding the Commission’s allegations to be true, and denied Daspin’s motion to set aside the default.
The sole issue remaining before the ALJ was the question of what sanctions should be imposed. ALJ Grimes explicitly instructed Daspin that he should make only one submission on one date, and should address only the sanctions question and not the liability findings. The ALJ also reminded Daspin to refrain from email contacts with his office. Despite these express warnings, Daspin made serial filings on multiple dates, and sent dozens of e-mails to the judge’s office during this time.
In the Matter of Edward M. Daspin, A/K/A “Edward (Ed) Michael”; Luigi Agostini; and Lawrence R. Lux, Admin. Proc. File No. 3-16509 (Aug. 23, 2016).
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