                           UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA

UNITED STATES SECURITIES AND                     :
EXCHANGE COMMISSION,                             :
                                                 :
       Plaintiff,                                :       Civil Action No.:     11-2054 (RC)
                                                 :
       v.                                        :       Re Documents No.:     32, 80
                                                 :
GARFIELD TAYLOR, INC., et al.                    :
                                                 :
       Defendant.                                :

                                 MEMORANDUM OPINION

   GRANTING PLAINTIFF’S REQUEST FOR CIVIL MONETARY PENALTIES AGAINST CERTAIN
    DEFENDANTS AND PLAINTIFF’S MOTION FOR ENTRY OF PROPOSED FINAL JUDGMENT

       Pending before the Court are Plaintiff United States Securities and Exchange

Commission’s (“the Commission”) request that the Court assess civil monetary penalties against

defaulted Defendants Garfield Taylor, Inc. (“GTI”), Gibraltar Asset Management Group, LLC

(“GAM”), and Jeffrey A. King (“King”) (ECF No. 32) and the Commission’s motion for entry of

a proposed final judgment as to Defendant Garfield M. Taylor (“Taylor”) (ECF No. 80). For the

reasons set forth below, the Court will grant the request and motion.

       This case involves a Ponzi scheme which the Commission alleged defendant Taylor

operated primarily through two entities he controlled: GTI and GAM. 1 Broadly speaking,

Taylor, through GTI and GAM, persuaded over 130 individuals and charitable organizations to

invest in promissory notes that Taylor claimed would earn above-market interest rates and carry



       1
         This case was stayed pending Defendant Garfield Taylor’s criminal proceedings.
Taylor pleaded guilty to securities fraud on March 6, 2014, and the stay was lifted on July 28,
2015 after final judgment was entered in his criminal case. See Order Grant’g Pl.’s Mot. to Lift
Stay, ECF No. 99.
little or no risk. The Commission further alleged that King assisted Taylor in the fraud and that

another entity, Relief Defendant The King Group, LLC (“TKG”), unlawfully received proceeds

from the scheme. The Court previously granted orally the unopposed default judgments against

GTI, GAM, TKG, and King. See Minute Entry of Sept. 17, 2012. The Commission’s proposed

default judgments did not specify a particular amount to be assessed as a civil penalty as to each

defendant, however, and at the September 17, 2012 Post-Discovery Status Conference the Court

took the matter under advisement. The Commission requested that the Court impose a

“substantial penalty” against GTI, GAM, and King, see Pl.’s Mem. Supp. Mot. Default J. at 15–

17, ECF No. 32–1, but did not recommend a specific amount either in the memorandum

supporting its motion or on the record at the September 17, 2012 status conference. 2 The

defendants have defaulted and the Commission’s motion is thus uncontested.

       The Commission requested that the Court impose civil monetary penalties under Section

20(d) of the Securities Act, which allows the court to “impose, upon a proper showing, a civil

penalty to be paid by the person who committed” a violation of the Securities Act. 15 U.S.C.

§ 77t(d)(1). The civil penalty is intended to punish the violator and to deter future violations of

the Act. SEC v. One or More Unknown Traders in the Common Stock of Certain Issuers, 825 F.

Supp. 2d 26, 33 (D.D.C. 2010). The statute establishes three tiers of penalties. The third, and

most severe, is available if the violation(s) “involved fraud, deceit, manipulation, or deliberate or

reckless disregard of a regulatory requirement” and “directly or indirectly resulted in substantial

losses or created a significant risk of substantial losses to other persons.” 15 U.S.C.

§ 77t(d)(2)(C).


       2
         Plaintiff does not seek civil monetary penalties against Relief Defendant TKG.
Therefore, in line with the Court’s previous order, Plaintiff’s Motion for Default Judgment is
granted and the proposed Final Judgment will issue.


                                                  2
       The Court will apply tier three penalties to each defendant. “The defendants, by virtue of

their default, have conceded the allegations against them.” One or More Unknown Traders, 825

F. Supp. 2d at 33. Those allegations establish that the defendants assisted in a scheme to defraud

over 130 investors, including middle-class individuals and charitable organizations, of over $27

million in investments through the use of promissory notes that included material

misrepresentations and omissions. Taking these allegations as true, the Commission has shown

that the scheme involved both the deliberate or reckless disregard of statutory requirements and

resulted in substantial losses. See, e,g., SEC v. Blackout Media Corp., No. 09 Civ. 5454, 2012

WL 4051951, at *2 (S.D.N.Y. Sept. 14, 2012) (repeated misrepresentations supported

application of tier-three penalties); One or More Unknown Traders, 825 F. Supp. 2d at 31, 33–34

(applying tier-three penalties where defendants realized ill-gotten profits of over $780,000).

       Under tier three, the court may impose a penalty for each violation that is not to exceed

the greater of: (i) $150,000 for a natural person or $725,000 for any other person, including a

corporate entity; or (ii) the gross amount of pecuniary gain to the defendant as a result of the

violation. 15 U.S.C. § 77t(d)(2)(C); see also 17 C.F.R. § 201.1004 (2009) (adjusting for

inflation the statutorily-fixed amounts). The amount of the penalty is to be determined “by the

court in light of the facts and circumstances” of the particular case. 15 U.S.C. § 77t(d)(2)(A).

To determine the amount of the penalty, courts often consider the following factors: “(1) the

egregiousness of the defendant’s conduct; (2) the degree of scienter; (3) whether the conduct

created substantial losses or the risk of substantial losses to other persons; (4) whether the

conduct was isolated or recurrent; and (5) whether the penalty should be reduced due to

demonstrated current and future financial condition.” SEC v. Milan Grp., Inc., No. 11-2132,

2015 WL 5076971, at *3 (D.D.C. Aug. 27, 2015). The Commission’s allegations establish that




                                                  3
the defendants’ conduct was both egregious and recurrent. 3 The allegations also establish that

the gross amount of pecuniary gain for the defendants include the following (including

prejudgment interest): $17,183,061.66 for GTI, $10,194,243.97 for GAM, and $152,121.21 for

King.

        The statute does not define the term “violations.” At the September 17, 2012 status

conference, the Commission asserted that courts have considered each victim of a scheme to

constitute a separate violation, but did not offer specific support for that proposition. While the

Court has found some support for the position, other courts have assessed only a single penalty

where the violations arose from a single scheme or plan. Compare, e.g., SEC v. Rabinovich &

Assocs., LP, No. 07 Civ 10547, 2008 WL 4937360, at *6 (S.D.N.Y. Nov. 18, 2008) (concluding,

following fraudulent scheme that raised $2,250,000 from more than 150 investors that,

“[a]lthough [the defendant] engaged in repeated violations of the securities laws, they all arose

from a single scheme or plan,” and assessing a penalty of $130,000), with SEC v. Kenton Capital

Ltd., 69 F. Supp. 2d 1, 17 n.15 (D.D.C. 1998) (counting each of the twelve investors who sent

money to the defendant as an individual violation, and assessing $100,000 per violation, for a

total penalty of $1.2 million); see generally SEC v. GTF Enters., Inc., No. 10-CV-4258, 2015

WL 728159, at *4 (S.D.N.Y. Feb. 19, 2015) (describing various methods of determining the

number of “violations”).




        3
         Because GAM, GTI, and King defaulted and never appeared before the Court to contest
the entry of final judgment, the court is unable to consider the defendants’ demonstrated current
and future financial condition. The consented-to final judgments entered against other
defendants assessed either no penalty, due to the defendant’s sworn statement of financial
condition, or a relatively minor penalty. See Final J. as to Benjamin C. Dalley, ECF No. 83
(assessing a penalty of $40,000); Final J. as to Randolph M. Taylor, ECF. No. 84 (assessing no
penalty); Final J. as to William B. Mitchell, ECF No. 85 (assessing no penalty).


                                                 4
       Because the violations here similarly arose out of a single scheme or plan, for purposes of

this case the Court will apply a single monetary penalty and will assess the maximum tier three

penalty in the following amounts: $725,000 for GTI, $725,000 for GAM, and $150,000 for King.

Considering the penalties assessed against the other defendants in this case and the

Commission’s representation that it does not even know what it might anticipate recovering from

these defendants, the Court finds these penalties appropriate, even though they fall below the

gross pecuniary gain each defendant obtained. Cf. Rabinovich, 2008 WL 4937360, at *6.

       As to the Commission’s motion for entry of proposed final judgment for Defendant

Garfield Taylor, the Court previously granted summary judgment to the Commission on all

claims against Taylor. See Dec. 13, 2012, Order Grant’g Pl. SEC’s Mot. for Summ. J. Against

Def. Garfield M. Taylor, ECF No. 78. The Commission moved for entry of final judgment, and

Taylor filed a Memorandum in Opposition before the stay was entered (and before Taylor

pleaded guilty to related criminal charges). See generally Def.’s Opp., ECF No. 88. Since the

stay was lifted, the Commission represents that it has attempted to reach Taylor, who is

represented pro se and is currently incarcerated at the Allenwood Low federal corrections

facility, on two occasions by certified overnight mail, but that the Commission has received no

response from Taylor. See Pl.’s Status Report, ECF No. 101. Taylor has not filed anything with

the Court. 4 Accordingly, the Court will decide the motion on the basis of Taylor’s previously-

filed opposition.

       In his opposition, Taylor does not oppose the issuance of a permanent injunction, but he

does contest the imposition of disgorgement, prejudgment interest, and civil penalties. See


       4
         Moreover, during a telephonic status conference held on August 21, 2015, the Court
was informed by personnel at FCI Allenwood Low that Taylor did not wish to participate in the
telephone call.


                                                5
Def.’s Opp. at 4. The Commission’s proposed disgorgement amount “only needs to be a

‘reasonable approximation of profits causally connected to the violation.’” SEC v. Whittemore,

744 F. Supp. 2d 1, 8 (D.D.C. 2010), aff’d 659 F.3d 1 (D.C. Cir. 2011) (quoting SEC v. First City

Fin. Corp., Ltd., 890 F.2d 1215, 1231 (D.C. Cir. 1989)). Once the Commission offers “a prima

facie reasonable approximation of profits connected to the securities violation . . . the burden of

proof shifts to the defendants to rebut the presumption” that the figure represents a reasonable

approximation. Id. Disgorgement “rightly includes prejudgment interest to enable the

Commission to recover the full amount of the defendants’ unjust enrichment and to provide the

possibility of complete compensation to the defrauded investors.” SEC v. Levine, 517 F. Supp.

2d 121, 141 (D.D.C. 2007).

       The Commission has supported its motion with the Declaration of its enforcement

division accountant that provides a detailed calculation of the disgorgement and interest the

Commission seeks. See Decl. of Donato Furlano, ECF No. 80–7; see also Decl. of Donato

Furlano Exs. A–L, ECF Nos. 80–8 through 80–19. That declaration establishes a prima facie

reasonable approximation of the disgorgement and interest figures. Although Taylor generally

asserts that the Commission’s disgorgement calculations do not take account of “millions” he

paid back to lenders “by paying their mortgages and taxes,” Taylor offers neither specific

allegations nor any evidentiary support for that contention. Cf. United States v. Funds from

Prudential Sec., 362 F. Supp. 2d 75, 82 (D.D.C. 2005) (granting government’s motion for

summary judgment and decree of forfeiture in in rem proceeding where claimant’s opposition to

government’s showing that the funds were traceable to drug trafficking activities contained only

“a series of allegations and conclusory statements” and failed to “set forth any facts with




                                                 6
specificity to support her bald assertions,” or to “provide any factual evidence whatsoever”). 5

Therefore, Taylor has failed to carry his burden to show that the figure does not represent a

reasonable approximation.

       The Court expects, however, that any amount recovered by the SEC, beyond a de minimis

amount, will first be applied to cover the restitution ordered in Taylor’s criminal case. As part of

his sentence Taylor was ordered to pay $28,609,438.00 in restitution.

       Taylor also opposes the imposition of a civil penalty. The Court previously declined to

impose a civil penalty against Taylor’s co-defendant, Maurice Taylor, because the Commission’s

proposed judgment did not include a civil monetary penalty. The Court concluded that Maurice

Taylor lacked adequate notice that the government would be seeking such penalties. 6 The

Commission’s proposed judgment for Garfield Taylor similarly does not include an order for

civil penalties and the Commission has not sought to amend that proposed final judgment in the

over two years since the Court noted the discrepancy with respect to co-defendant Maurice




       5
          Since he filed his Memorandum in Opposition, Taylor has pleaded guilty to criminal
charges related to this case. As part of that plea, Taylor agreed that the government’s statement
of offense and the profit figures contained therein fairly and accurately described his
involvement in the fraudulent conduct at issue in this case. That statement of offense established
that Taylor engaged in the scheme from at least September 2006 through September 2010 and
defrauded investors of over $25,000,000.00. See Statement of Offense ¶¶ 2, 46, United States v.
Garfield M. Taylor, No. 13-cr-0067 (D.D.C. Mar. 6, 2014), ECF No. 27. As relevant to the
entities discussed above, the statement of offense states that Taylor’s misrepresentations and
false statements induced 145 investors to invest $16,450,415.00 of principal in GTI, 13 investors
to invest $2,683,577.00 of principal in GAM, and a non-profit children’s organization named
Hillcrest to invest several more million dollars in GAM. See id. ¶¶ 12, 21 23–25. Taylor was
sentenced to 156 months imprisonment, three years of supervised release, and ordered to pay
restitution in the amount of $28,609,438.00.
       6
         The Commission’s memorandum in support of the motion did request that the Court
impose civil monetary penalties, but, unlike the proposed final judgments the Commission had
previously filed against GTI, GAM, and King, the Commission did not include civil monetary
penalties in the proposed order for final judgment against Maurice Taylor.


                                                 7
Taylor. Therefore, the Court similarly declines to assess a civil monetary penalty against

Garfield Taylor.

       The Court is mindful that Taylor was central to the fraudulent conduct at issue in this

case and that civil monetary penalties provide a critical financial disincentive to engage in

securities fraud that is not similarly served by disgorgement, alone. See Kenton Capital, Ltd., 69

F. Supp. 2d at 17. But given the Commission’s omission, the previous award of restitution in

Taylor’s criminal case, and the amounts the Court anticipates Taylor will realistically be able to

repay, the imposition of a significant civil penalty under these circumstances is not necessary to

serve that deterrent purpose.

       For the foregoing reasons, the Court grants the Commission’s request that the Court

assess civil monetary penalties against GTI, GAM, and King. The Court also grants the

Commission’s motion for entry of the proposed final judgment as to defendant Garfield M.

Taylor. Orders of Final Judgment consistent with this Memorandum Opinion are separately and

contemporaneously issued.


Dated: September 28, 2015                                          RUDOLPH CONTRERAS
                                                                   United States District Judge




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