Working The SEC System From Prison

May 1, 2015

You had your day in court. You lost. You didn't plead guilty to the criminal charges but chose to throw the dice at trial. Unfortunately, a jury convicted you. Now imagine that you were in the brokerage or investment advisory business and the underlying crimes involved frauds involving your advisory role and financial institutions. How difficult do you think it would be for the Securities and Exchange Commission to bar you from the biz? How long a process do you think would be involved?  Today's BrokeAndBroker.com Blog might surprise you.

Case in Point

From 1999 through August 2013, David R. Wulf was registered with Moloney Securities Company, Inc., which was both a broker-dealer and an SEC-only registered investment adviser. Starting in 1986 and running through August 2013, Wulf was also the Chief Executive Officer and an advisory representative for Wulf Bates & Murphy, Inc. In addition to the above affiliations, Wulf was registered in additional broker-dealer and/or investment adviser capacities with four other firms from 1978 through 1986. 

Order Instituting Proceedings

For starters, consider the presentation by the Securities and Exchange Commission ("SEC") of the following facts as set forth in In the Matter of David R. Wulf (Order Instituting Administrative Proceedings and Notice of Hearing, '34 Act Rel. No. 74207; Investment Adv. Act Release No. 4020; Admin. Proc. File No. File No. 3-16374 / February 4, 2015

B. RESPONDENT'S CRIMINAL CONVICTION 

1. On August 22, 2013, a federal jury found Wulf guilty of eighteen counts of mail fraud, wire fraud, conspiracy to commit mail fraud affecting a financial institution, and conspiracy to commit wire fraud affecting a financial institution in violation of 18 U.S.C. §§ 1343, 1344, and 1349 before the United States District Court for the Eastern District of Missouri in U.S. v. Sutton et al., Case No. 4:09-cr-00509-JCH-6. 

2. Wulf's conviction arose from his role as an investment adviser for National Prearranged Services, Inc. ("National Prearranged") through Wulf Bates. National Prearranged was in the business of selling contracts for prearranged funeral services. As National Prearranged's designated investment adviser, Wulf established trusts for these prearranged funeral services and maintained certain authority over the assets maintained in these trusts. The trustees were financial institutions and/or insurance companies. 

3. The indictment against Wulf alleged, inter alia, that from approximately some time before 1992 and continuing until on or about May 14, 2008, Wulf conspired with his codefendants and others regarding a scheme to defraud purchasers and trustees of National Prearranged's contracts and trusts. Moreover, Wulf was Chief Executive Officer of a registered investment adviser and associated with a dually registered broker-dealer and investment adviser  during the period of his misconduct. The underlying conduct that gave rise to Wulf's conviction includes, but is not limited to: (i) Wulf's failure to serve as an independent investment adviser for National Prearranged as mandated under state law and a binding consent decree; and (ii) Wulf enabling National Prearranged, and related entities and individuals, to assume the full power to administer, manage, control, remove, and/or use the assets in the preneed funeral trusts established by National Prearranged for their own benefit. Consequently, Wulf knowingly allowed nearly $600,000,000 of the money invested by purchasers to be misdirected for the use by National Prearranged, and related entities and individuals, for their own benefit. The indictment further alleged that Wulf and his co-defendants committed various federal offenses incidental to the misconduct described above including, but not limited to, conspiracy, mail fraud and wire fraud. 

4. On November 18, 2013, the Court entered the judgment against Wulf based on the jury verdict. The Court sentenced Wulf to a prison term of 120 months followed by five years of supervised release. The Court further ordered Wulf to make restitution in the amount of $435,515,234.

Scheduling the Hearing

All of which prompted the issuance of the OIP and set the stage for the SEC to determine whether it was "necessary and appropriate in the public interest" to ultimately bar Wulf, among other possible actions. Thereafter, on February 6, 2015, a hearing was scheduled for March 2, 2015. In the Matter of David R. Wulf (Order Scheduling Hearing, Admin Proc. Ruling Rel. No. 2289; Admin. Proc. File No. File No. 3-16374 / February 6, 2015).

Postponing the Hearing

Alas, on February 18, 2015, the wheels of justice grind to a halt and the Administrative Law Judge ("ALJ") handling the matter ordered the March 2nd hearing postponed and scheduled a prehearing conference for March 10, 2015.  In the Matter of David R. Wulf (Order Postponing Hearing and Scheduling Prehearing Conference, Admin Proc. Ruling Rel. No. 2325; Admin. Proc. File No. File No. 3-16374 / February 18, 2015).

Setting the Date for Briefs and Motions

On March 10, 2015, the ALJ confirmed the parties' briefing schedule for motions for summary disposition of the matter, with an end-date of May 19, 2015 for replies in opposition. In the Matter of David R. Wulf (Order Following Prehearing Conference, Admin Proc. Ruling Rel. No. 2396; Admin. Proc. File No. File No. 3-16374 / March 10, 2015). On April 6, 2015, the SEC's Division of Enforcement filed a Motion for Summary Disposition.

Denying Summary Disposition

All of which brings us to April 27, 2015, and yet another rung on the procedural ladder.  The ALJ's response to Enforcement's Motion for Summary Disposition was a denial without prejudice.  In the Matter of David R. Wulf (Order Denying Without Prejudice The Division's Motion For Summary Disposition, Admin Proc. Ruling Rel. No. 2590; Admin. Proc. File No. File No. 3-16374 / April 27, 2015). I call your attention to this explanation as set forth in the Order Denying:
 
[A]lthough a guilty plea constitutes an admission of the facts alleged in an indictment, see United States v. Broce, 488 U.S. 563, 569-70 (1989), United States v. Vong, 171 F.3d 648, 654 (8th Cir. 1999), a general jury verdict of guilt establishes only those "issues which were essential to the verdict," Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558, 569 (1951). Consistent with the foregoing, the Commission has held that a jury verdict does not establish the facts alleged in an indictment. Gary L. McDuff, Exchange Act Release No. 74803, 2015 WL 1873119, at *3 (Apr. 23, 2015). 

Given the degree to which to Division relies on Mr. Wulf's second superseding indictment, the Division's motion for summary disposition is DENIED without prejudice to renewal by May 11, 2015. If the Division renews its motion, it may supplement its motion with additional evidence, including the transcript of Mr. Wulf's sentencing hearing and the district court's explanation for the sentence it imposed. The deadline for Mr. Wulf to file an opposition to the Division's motion is extended to May 26, 2015. If Mr. Wulf files an opposition, the Division may file a reply by June 8, 2015. 

In the event the Division foregoes the opportunity to renew its motion, a hearing will be held in this matter on June 8, 2015, in Washington, D.C. . . .

Bill Singer's Comment

Nearly two years ago, a federal jury found Wulf guilty of eighteen counts of mail fraud, wire fraud, conspiracy to commit mail fraud affecting a financial institution, and conspiracy to commit wire fraud affecting a financial institution. As a result, he was sentenced to 120 months plus supervised release and further ordered to make over $435,000 in restitution. t. On February 4, 2014, Wulf was committed to the custody of the US Bureau of Prisons in Terre Haute, Indiana.

Starting in February 2015, a year after Wulf's incarceration, the SEC attempts to discharge its duty to protect the public and Enforcement seeks to bar Wulf from the industry, or so it would appear. It's difficult to make an argument that Wulf poses no risk to the public given his conviction. Moreover, since he's going to be cooling his heals for a ten-year-sentence in federal prison, I doubt that most rational folks would expect him to remain registered or to get registered -- but, perhaps, there is a chance that some firm would hire him or that he could set up such an operation from prison. Be that as it may, what the hell is taking the SEC so long to bang this guy out of the biz?

I'm not actually wagging a finger at any of the players mentioned in this article. I fully understand that Wulf wants to pursue and/or exploit every legal remedy available to him, and as a lawyer, I fully respect that the law gives him many such opportunities. Similarly, the ALJ is blameless here because he is simply interpreting and applying the law and the SEC's rules as he is required to do -- and his rulings conform to many years of similar, prior decisions. Finally, Enforcement would be remiss if it did not pursue a Summary Disposition and seek to preserve the already limited and taxed Staff resources.

Still . . .  Wulf had his day in court. He did't plead out. He was convicted after trial by a federal jury. He was sentenced to a hefty 120 months in prison. Given that resume, I can't fathom why there isn't a quicker way for the SEC to bang him out of the business. If he were convicted of felonies not involving frauds and not related to the very nature of his services in the brokerage and advisory business, that's one thing; however, that's not his case. We need a more efficient way to handle these administrative matters when a convicted felon is sitting in prison because the present system is wasting the SEC's limited resources and time and not timely protecting the public.

READ:
  • In the Matter of David R. Wulf (Order Instituting Administrative Proceedings and Notice of Hearing, '34 Act Rel. No. 74207; Investment Adv. Act Release No. 4020; Admin. Proc. File No. File No. 3-16374 / February 4, 2015
  • In the Matter of David R. Wulf (Order Scheduling Hearing, Admin Proc. Ruling Rel. No. 2289; Admin. Proc. File No. File No. 3-16374 / February 6, 2015)
  • In the Matter of David R. Wulf (Order Postponing Hearing and Scheduling Prehearing Conference, Admin Proc. Ruling Rel. No. 2325; Admin. Proc. File No. File No. 3-16374 / February 18, 2015)
  • In the Matter of David R. Wulf (Order Following Prehearing Conference, Admin Proc. Ruling Rel. No. 2396; Admin. Proc. File No. File No. 3-16374 / March 10, 2015).
  • In the Matter of David R. Wulf (Order Denying Without Prejudice The Division's Motion For Summary Disposition, Admin Proc. Ruling Rel. No. 2590; Admin. Proc. File No. File No. 3-16374 / April 27, 2015)