All Along The Wall Street Watchtower

July 14, 2016

Bob Dylan wrote the lyrics. Jimi Hendrix turned it into an anthem for a generation. And as each successive generation has interpreted the song, we still wonder whether there is, in fact, some kind of way outta here. Bill Singer walks the Wall Street ramparts and climbs up the steps to the watchtower, where he sits at his desk and pens yet another edition of the Blog, but all the while, he hears, in the cold distance, the wind howling. Consider a recent contest of sorts between an incarcerated felon and the Securities and Exchange Commission.  Bill has been following this mess and brings it to your attention. Sadly, Bill is too old to get excited and much of what he is watching strikes him as a joke. At the end of the article, however, enjoy some wonderful music videos.

There must be some kind of way out of here

For starters, let me introduce you the background of Respondent Paul Leon White II as set forth in a Securities and Exchange Commission ("SEC") Order Instituting Administrative Proceedings and Notice of Hearing (the "OIP"): 

1. From June 8, 2005 through September 9, 2009, including the period during which he engaged in the conduct alleged in the criminal action described below, White was a registered representative associated with a broker-dealer that was registered with the Commission. During this same period, White also held himself out as an investment adviser in connection with his 100% ownership and control of Professional Investment Advisors, Inc., a corporation acting as an unregistered investment adviser, through which White solicited clients, provided investment advice, and obtained compensation. White, age 58, was a resident of Huntington, NY, during the period when he committed the crimes described below. He is currently incarcerated at the Clinton Correctional Facility in Dannemora, New York.


2. On November 2, 2012, the Suffolk County District Attorney's Office (the "District Attorney") indicted White in New York Supreme Court in People v. Paul White, Case No. 2710-2012. The indictment alleged that White committed eight counts of grand larceny in the second degree, in violation of New York Penal Law §155.40(1), and one count of scheme to defraud in the first degree, in violation of New York Penal Law §190.65(1). Specifically, the District Attorney accused White of soliciting clients to invest approximately $3 million in a pooled real estate investment as well as a separate real estate investment trust by falsely telling them that these investments were safe and liquid, and that White would not be paid a commission from his clients' investments. The District Attorney further accused White of: (1) transferring at least a large portion of this money into an entity that he controlled; (2) using client funds for his own benefit, including to acquire real estate, to make payments to certain of his clients, and to pay himself commissions; and (3) creating false and misleading documents to
cover up his fraud.

3. On December 5, 2014, after a two-month trial, White was convicted of seven counts of grand larceny in the second degree and one count of scheme to defraud in the first degree.

4. On January 29, 2015, White was sentenced to serve seven consecutive three-to-nine year prison terms and a concurrent one-and-one-third-to-four year prison term, resulting in a total sentence of 21 to 63 years of incarceration. In addition, the Court ordered White pay $2,975,000 in restitution to his victims. . . .

In the Matter of Paul Leon White II, Respondent (OIP, '34 Act Rel. 77630; Invest. Adv. Act Rel. 4369; Admin. Proc. File 3-17210 / April 15, 2016)

Said the joker to the thief

So, waddawe got here? We got Paul Leon White as a stockbroker and investment advisor. We got White holding himself out as the sole owner of unregistered investment advisor Professional Investment Advisors, Inc. In 2012, some four years ago, White is indicted on charges of fraudulently soliciting $3 million in real estate investments. Up to that dramatic point in time when a jury comes back from its deliberation and gives its verdict, Defendant White was presumed innocent and entitled to every single shred of doubt. Unfortunately for Defendant White, after a two-month trial, his jury convicted him on 7 counts of Grand Larceny and 1 count of Scheming to Defraud. Even worse for Defendant White, the Court sentenced him to 7 consecutive prison terms of 3 to 9 years plus a concurrent 1 1/3 to 4 year prison term for a stunning total of 21 to 63 years in prison. On top of the prison terms, the Court ordered Defendant White to pay just under $3 million in restitution. Given that Defendant White is just shy of 60 years of age, that's a potential life sentence, which sort of implies that the presiding judge was outraged by the nature of the crime and its impact upon the victims.

In 2015, we stop referring to Defendant White and begin calling him Inmate White. All of which prompts the SEC to conduct a hearing in the public interest to determine what "remedial action" should be taken against Inmate White. You'd sort of think that, at a minimum, the SEC would bounce this guy from the biz and strip him of his right to continue acting as a stockbroker and/or investment advisor, right? You'd also sort of think that such a next step would be automatic but, you know, we got this yellowing piece of paper called the Constitution and it requires something called Due Process and, well, even inmates got rights and are entitled to argue as to why the SEC shouldn't end their right to work on Wall Street. And so it goes. The wheels of justice and regulation grind forward -- or is that noise just grinding?

There's too much confusion

We now arrive at July 7, 2016, which we will just figure is about 19 moths, give or take, since a jury pronounced White. As a result of the filing of the OIP in April 2016, White, now a Respondent in an SEC proceeding, was required to file an Answer on May 11, 2016.  In the Matter of Paul Leon White II, Respondent (Order Finding Respondent in Default, Admin. Proc. Rulings Rel 3967; Admin. Proc. File 3-17210 / July 7, 2016).

On the way to filing his Answer, Respondent White appeared at a May 13, 2016, prehearing teleconference conducted by SEC Administrative Law Judge ("ALJ") James E. Grimes. The ALJ considered Respondent White's six-page motion to waive some procedural requirements and also to dismiss the proceedings. Respondent White purportedly argued that the proposed public-interest hearing had failed to follow the requirements set forth in the SEC's Rules of Practice.  Although ALJ Grimes denied White's Motion to Dismiss, , apparently being a fine fellow and wanting to come off as being fair and impartial, partially granted the Motion to Waive and after taking into acccount that White was representing himself behind bars, granted the inmate an extension to file his Answer. The new due date for the Answer was May 27, 2016.

So, just how did Inmate Grimes make use of his time from the May 13th hearing until the day before his Answer was due?  Let's look at how ALJ Grimes put it:

Between the date of the conference and May 26, 2016, my office received the following from White:
  • A two-page motion for an order granting him in forma pauperis status;
  • A one-page motion to allow him to be represented by a non-attorney;
  • A two-page motion for a more definite statement;
  • A one-page letter expressing outrage that the Division of Enforcement had served him via UPS rather than the postal service; and 
  • A one-page letter to Division counsel regarding White's access to certain files.
I denied White's motions on May 26, 2016. Paul Leon White, II, Admin. Proc. Rulings Release No. 3872, 2016 SEC LEXIS 1871.

Between May 26, 2016 and May 31, 2016, my office received the following from White:
  • A one-page letter dated May 18, 2016, in which White asserted that because of his "extremely limited access to [his] prison['s] law library," "there [was] a great likelihood that" he would not be able to timely answer the OIP; 
  • A three-page second motion for a more definite statement; and 
  • A series of nine subpoenas duces tecum directed to a number of individuals, together with a three-page "affirmation in support."
I denied without prejudice White's request for subpoenas on June 6, 2016. Paul Leon White, II, Admin. Proc. Rulings Release No. 3894, 2016 SEC LEXIS 1990, at *3-8.

On June 6, 2016, my office received the following from White:
  • A one-page letter again seeking in forma pauperis status;
  • A five-page second motion to extend time to answer the OIP;
  • A four-page motion seeking to dismiss the proceeding, asking for an extension of time until June 15, 2016, to answer the OIP, and arguing that he was not trying to relitigate his conviction; 
  • A two-page "motion for pre-hearing submission pursuant to Rule 222"; and 
  • A five-page motion seeking various documents and lists of witnesses.
In his second extension motion, "White assert[ed] that due to conditions in his prison's library and his lack of access to a word processor, he requires additional time to answer the OIP." Paul Leon White, II, Admin. Proc. Rulings Release No. 3902, 2016 SEC LEXIS 2031, at *3 (ALJ June 8, 2016). 

Two days later, I ordered White to show cause why he should not be found in default for failing to answer the OIP.1  Paul Leon White, II, 2016 SEC LEXIS 2031, at *4-5. I noted that White's claim that his circumstance limited his ability to timely respond was belied by the flood of filings he had submitted. Id. at *4. I gave White until June 22, 2016, to respond to the order to show cause. Id. at *4-5. I also deferred ruling on White's pending motions until he answers the OIP. Id. at *5.

In June, after I ordered White to show cause, my office received the following from White:

  • A five-page letter raising multiple complaints, together with a one-page request for additional time to reply to the Division's opposition to his second motion for a more definite statement (received June 15, 2016);
  • A one-page motion asking for additional time to reply to the Division's opposition to his first set of motions (received June 21, 2016);
  • A one-page letter to Division counsel (received June 21, 2016); 
  • A two-page cover letter and three-page motion to extend time to respond to the Division's motion for summary disposition (received June 24, 2016); 
  • A one-page motion to extend time to reply to the Division's opposition to White's third motion to extend time to answer the OIP (received June 27, 2016); and 
  • A one-page motion to extend time to answer the order to show cause (received June 27, 2016).
Finally, on July 5, 2016, my office received a thirteen-page filing styled as a response to the order to show cause. In this filing, White asks for more time to answer the OIP, argues that the order to show cause violates the Commission's Rules of Practice, and argues that the Division's motion for summary disposition also violates the Rules of Practice.

I can't get no relief

So, how do you think the ALJ will rule?  Will he grant Respondent White more time to submit an Answer? Will the ALJ deem Respondent White in default? Will the ALJ appeal to a higher power or simply pack up and go on his summer vacation?  Before you guess, ask yourself one thing: How well did I call the Brexit thing?  

Okay, hands off the table. The dice are coming out.

Here's how ALJ Grimes called it [Ed: Footnote omitted]:

Despite being incarcerated, White has submitted more filings than any previous respondent in any follow-on proceeding I have adjudicated. Through his actions, White has demonstrated an understanding of the Commission's Rules of Practice and an ability to draft and submit filings. Given (1) the amount of time he has been afforded to answer the OIP and to show cause, (2) the number of other filings he has submitted, and (3) what little would be required to answer the OIP, it is plain that White could have, but has not, answered the OIP. Indeed, White's thirteen-page purported response to the order to show cause, which is filled with irrelevant and mistaken arguments, seems designed to show that he could easily answer the OIP but that for reasons unknown, he refuses to do so. I therefore conclude that White's failure to answer the OIP is the result of an intentional decision on his part. As a result, White is in DEFAULT. Given that White is in default, his pending motions are denied as moot. An order adjudicating the Division's pending motion for summary disposition, construed as a motion for sanctions, will follow.

White may move to set aside the determination that he is default by complying with Rule
155(b), 17 C.F.R. § 201.155(b). . .