SEC Proceeding Is A Travesty of a Mockery Of a Sham of a Mockery of a Travesty of Two Mockeries of a Sham

August 31, 2016

This is an UPDATE of "SEC Can't Reach Federal Inmate For Telephonic Hearing" (BrokeAndBroker.com Blog, May 26, 2016).

Daniel Christian Stanley Powell founded and operated Christian Stanley, Inc. When you go by four different names, I guess it's pretty easy to harvest two of those for use in your own business. Moving on from that observation, the four-named Mr. Powell touted his business plan for the purchase of life insurance policies (with ongoing premium payment) from insured folks and making the beneficiary of those purchased policies Christian Stanley, Inc. Years later, when it all came crashing down, this inventive fellow would find himself in prison. That's bad enough. What's worse is that when it finally comes time for the Securities and Exchange Commission to decide what needs to be done to protect the public from this guy, well, you're not gonna believe this, but the federal regulator couldn't reach inmate Powell by telephone.

Reverse Life Insurance

How would investors make money on Powell's proposed deal? Cynically, few things in life are more certain than death and according to Powell, when the insured died, the company would reap the death benefit; or, in the alternative, during the life of the insured, the company could attempt to sell the policy at a profit. As with so many men of vision, Powell coined a phrase for his idea: Reverse Life Insurance.

The Pitch

In pitching potential investors, Powell asserted that the investments in the life insurance policies would be safe because Christian Stanley, Inc. had already purchased just shy of $2 billion of reverse life insurance policies in a mutual fund. For some unconvinced potential investors, Powell tossed in another twist: some of their funds would be invested in gold mines. Also, Powell spoke about his plans to take Christian Stanley, Inc. public.

The Reality

Now for the part of today's blog where we all come back down to Earth. The thing was, however, that Christian Stanley, Inc. didn't actually own any life insurance policies. On top of that, from day one, the company had only generated about $31,250 in revenue. Oh, and, while we're bursting bubbles, the company had no interest in any gold mines.

Once Powell's scam ran its course, he had apparently duped some 60 victims out of about $5.2 million. Federal prosecutors and regulators claimed that about $4.4 million of the invested funds were lost. As is too often the case with these financial frauds, the feds alleged that Powell's fancy schmanzy reverse life insurance biz was little more than another Ponzi scheme in which newer investors's funds were diverted, in part, to pay earlier investors - and funds were also used to pay referral fees to those who recruited fresh blood. The bucks that didn't get earmarked to earlier investors or finder's were purportedly spent on a Los Angeles luxury residence of Powell's, on his Ferrari and Porsche and, in a really bizarre twist, on a $35,000 charitable donation that resulted in his being photographed with former President Bill Clinton (and that photo became part of the arsenal of Christian Stanley, Inc.'s marketing materials).

The Charges

All of which leads us to Securities and Exchange Commission, Plaintiff, v. Christian Stanley, Inc. and Daniel C.S. Powell, Defendants, --AND - Christian Stanley, LLC, Daniel Christian Stanley Powell Realty Holdings, Inc., Relief Defendants (Complaint, 11-CV-7147, September 2, 2011). In addition to the SEC's civil Complaint, we have United States of America, Plaintiff, v. Daniel Christian Stanley Powell, Defendant (Indictment, 13-CR-00098, United States District Court for the Central District of California, February 8, 2013). I urge you to read both the SEC's civil Complaint and DOJ's Indictment because they present a fascinating fact pattern that I don't fully set forth in this article.

Guilty and Sentenced

After a three-week federal trial, on November 10, 2014, Powell was convicted on five counts of mail fraud, five counts of wire fraud, and three counts of obstruction of justice. Notably, Powell was found to have intentionally drafted false affidavits to use in his defense to the SEC's case and that he lied to the victims about his assets and promised to return their money if they signed the false affidavits. That criminal conduct led to the convictions on the obstruction of justice charges.

On June 8, 2015, Powell was sentenced to 121 months in federal prison and ordered to pay $4,447,290 in restitution to 59 victims.

READ "San Diego Man Who Ran Investment Scam That Promised 'Reverse Life Insurance' Policies Sentenced To Over 10 Years In Federal Prison" (Press Release, Department of Justice, June 8, 2015).

SEC OIP

About a year after the criminal fireworks died down and the smoke dissipated, on April 19, 2016, the SEC instituted administrative proceedings against Powell . In the Matter of Daniel Christian Stanley Powell, Respondent (Order Instituting Administrative Proceedings, '34 Act Rel. No. 77653; Admin. Proc. File No. 3-17218 / April 19, 2016).  The Powell OIP states that on February 24, 2016, Powell was permanently enjoined from future violations of pertinent securities laws in response to the SEC's prior civil Complaint.

Hearings in the Public Interest

Deeming it necessary and appropriate in the public interest, the SEC had instituted proceedings to determine what, if any, remedial action was appropriate against Powell, who was incarcerated and permanently enjoined. Among the burning social and regulatory issues on the SEC's plate was, for example, should we bar this lowlife from further participation in the securities markets. In order to answer such burning questions, the SEC is required to schedule hearings in order to take evidence and develop the necessary record.

On the road to the SEC's hearing in the public's interest concerning Powell's future in the securities industry, we come across a development so idiotic, so comical, so absurd, so moronic, so asinine, that I have cited the circumstances verbatim from the SEC Order in which the nonsense is explained in all its tawdry glory

UNITED STATES OF AMERICA

Before the 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

ADMINISTRATIVE PROCEEDINGS RULINGS Release No. 3861/May 23, 2016

ADMINISTRATIVE PROCEEDING File No. 3-17218

In the Matter of DANIEL CHRISTIAN STANLEY POWELL

ORDER RESCHEDULING PREHEARING CONFERENCE

On April 19, 2016, the Securities and Exchange Commission issued an order instituting proceedings (OIP) against Respondent pursuant to Section 15(b) of the Securities Exchange Act of 1934. On May 18, the Division of Enforcement filed a declaration establishing that Respondent was personally served with the OIP on May 9 at the Taft Correctional Institution in Taft, California. Respondent's answer is therefore due May 31, 2016. OIP at 3; 17 C.F.R. §§ 201.160(a), .220(b).

Today, I held a telephonic prehearing conference at which the Division appeared but Respondent did not. Division counsel advised that Respondent was not at fault for his absence; rather, Taft Correctional's phone system does not permit inmates to dial in passcodes to join teleconferences. The Division suggested rescheduling the conference, and said it would make the necessary arrangements to allow Respondent to join.

The prehearing conference is RESCHEDULED to May 26, 2016, at 2:00 p.m. Eastern. The Division shall make the necessary arrangements to allow Respondent to telephonically participate.

James E. Grimes Administrative Law Judge

READ the SEC Order of May 23, 2016

Bill Singer's Comment

Powell's in prison and he's gonna be there for about a decade. He was indicted in 2011 and found guilty on the criminal charges in 2014 and sentenced in 2015. The SEC named him in their case in 2013. Here we are, 2016, and we have one arm of the federal government trying to accomplish little more than conducting a prehearing telephonic conference with a federal inmate. Not a plenary hearing, mind you, but just a dinky prehearing. Not live, in-person, with a cast of thousands but largely with a convict on the other end of a telephone call made to his prison.  I mean, seriously, what the hell could go wrong with those facts?

Apparently, we got a bunch of SEC lawyers and an Administrative Law Judge listening to dead-air on their end of the teleconference because Respondent/Inmate Powell did not appear for the call. Why didn't Powell appear? Oh, the federal prison has a telephone system that "does not permit inmates to dial in passcodes to join teleconferences."

Maybe I'm just an old-fashioned kind of guy -- and a cranky bastard at that but, geez, is this the first time that the SEC attempted to connect with a federal inmate? More to the point, since I've previously reported about similar snafus between the SEC and federal inmates (see end of this article), did any of those fine young men and women at the SEC who were involved in setting up this call bother to contact the Federal Bureau of Prisons or the Taft Correctional Institution and confirm the protocol for undertaking a teleconference with an inmate BEFORE attempting to make the connection on the scheduled date?  It would not have been all that difficult because the penal institution has a dedicated page on the Bureau of Prison's website, has its own online "Fact Sheet" page, its own email, and general telephone number.

Some of you may feel that my critique here borders on being snotty and unreasonable. Wouldn't be the first time that I've been accused of such anti-social behavior. In my defense, consider some of these points:
  1. On the Federal Bureau of Prison's Taft Correctional Institution website you find an "INMATES" tab atop the page;
  2. If you click on the INMATES tab, the second of five items on the pull-down menu is "Communications," so let's click on that;
  3. Atop the "Communications" page is this cheery message:

    Stay in Touch
    Studies show that when inmates maintain relationships with friends and family, it greatly reduces the risk they will recidivate."

  4. Assuming that the good folks at the SEC wanted to avoid having inmate Powell recidivate, they would have been able to choose from among five communication icons: Phone Calls, Email, Send Email, Send Package, and Send Money. I'm thinking that in order to find out how to set up a teleconference between the SEC and inmate Powell that we should click on the "Phone Calls" icon;
  5. Having pressed on the "Phone Calls" icon, we are directed to a portion of that page titled, of all things, "Phone Calls," which admonishes us of the following:

    Phone Calls
    We extend telephone privileges to inmates to help them maintain ties with their families and other community contacts. Third-party or other alternative call arrangements are not permitted ensuring inmates do not have the opportunity to use phones for criminal or other inappropriate purposes.

    Who Pays?
    Ordinarily, the inmate pays for the calls; but in some cases the receiving party pays.

    Restrictions
    Limitations and conditions may be imposed upon an inmate's telephone privileges to ensure they are consistent with our correctional management responsibilities.

    Monitoring
    A notice is posted next to each telephone advising inmates that calls are monitored. Unmonitored calls to attorneys are permitted in certain circumstances.
So what did we learn by following five simple online steps?

The Federal Bureau of Prisons and its Taft Correctional Institution clearly warn that third-party or other alternative call arrangements are not permitted ensuring inmates do not have the opportunity to use phones for criminal or other inappropriate purposes. Hmmm . . . that strongly suggests that if the SEC wants to make a third-party or teleconference call to an inmate that it will not be permitted. We also learn that "limitations and conditions may be imposed" upon a incoming telephone call to an inmate, so, perhaps, it's a good idea to determine whether a passcode-required teleconference will pass muster.

This is not all the SEC's fault. You'd sort of think that one arm of the federal government could have put in a friendly phone call to another arm of the federal government while there were a bunch of SEC folks listening in to a speakerphone emanating the hiss of no connection, and that someone at the federal Bureau of Prisons might have done the collegial thing and got a hold of some management type at Taft Correctional Institution and cut through the red tape and got the teleconference moving forward. But that would sort of require that the left hand of our federal government knew what the right hand was doing. Judging by the lines at the airports and the incompetency of the Transportation Security Administration and judging by the inability of veterans to make medical appointments at the Veteran's Administration Hospitals, we probably should not expect much more from bureaucrats at the Bureau of Prisons or the SEC.

Thankfully, inmate Powell is incarcerated and somewhat off the shelf. Except, you know, I have this nagging dread that despite all the restrictions against inmates getting passcode-required teleconference calls from federal regulators that those same inmates find ways around the restrictions on their communications with the outside world and obtain contraband and make cellphone calls on smuggled-in phones with far more ease than the SEC has in contacting one inmate in order to conduct a prehearing teleconference.

ALSO READ:


The Ponzi, The Inmate, And The SEC's 43,000 Pages In The Mail (BrokeAndBroker.com Blog, April 16, 2015)

UPDATE August 31, 2016

So . . . what's been going on since May of 2016 when we last checked in on the SEC's effort to hold a public-interest hearing concerning inmate Powell?  Well, here's the status report on the past three months of the federal regulator's time:

UNITED STATES OF AMERICA

Before the 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Before the SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDINGS RULINGS Release No.4095 /August 26, 2016
ADMINISTRATIVE PROCEEDING File No. 3-17218

In the Matter of DANIEL CHRISTIAN STANLEY POWELL

ORDER GRANTING MOTION TO AMEND THE ORDER INSTITUTING PROCEEDINGS

The Securities and Exchange Commission initiated this proceeding against Respondent
Daniel Christian Stanley Powell in April 2016 by issuing an order instituting proceedings (OIP) under Section 15(b) of the Securities Exchange Act of 1934. OIP at 1; see 15 U.S.C. § 78o(b). In July, the Division of Enforcement filed a dispositive motion seeking imposition of the full range of associational bars listed in Exchange Act Section 15(b)(6)(A). Mot. at 1 & n.1, 9; see 15 U.S.C. § 78o(b)(6)(A). Thereafter, I noted in an order that the Division's motion did not fully explain, in light of the OIP's allegations concerning the period of Powell's association with a broker-dealer, why barring him from associating with municipal advisors and nationally recognized statistical rating organizations would not raise retroactivity concerns. Daniel Christian Stanley Powell, Admin. Proc. Rulings Release No. 4038, 2016 SEC LEXIS 2662 (ALJ Aug. 2, 2016). The Division subsequently filed a motion to amend the relevant portion of the OIP-paragraph 1 of Section II.A-in the following manner (deletions struck through, insertions underlined):

From May 2009 March 2010 through September 2009 2010, which includes a
portion of the time in which Respondent engaged in the conduct underlying the
complaint described below, Respondent was a registered representative associated with Tradespot Markets Inc., a broker-dealer registered with the Commission. See Div. Br. at 1; Van Havermaat Decl. Ex. 2 at 1. 

Powell has not responded to the Division's motion.

The proposed amendment is "within the scope of the original" OIP. 17 C.F.R. § 201.200(d)(2). Moreover, in revising the dates of Powell's alleged association with a
broker-dealer, the proposed amendment's "purpose is merely to correct an error in pleading, [and] to conform the pleadings to the proof," and thus "should be freely granted" if Powell "should not be surprised nor . . . [his] rights be prejudiced." Carl L. Shipley, Investment Advisers Act of 1940 Release No. 419, 1974 WL 161761, at *4 (June 21, 1974). During a May 26, 2016 prehearing conference, Powell was informed on the record of the apparent date range error and the dates that the Division asserts are correct. Tr. 18-20. The Division also represents that it communicated this information to Powell during telephone discussions with him on April 27 and 28, 2016. Div. Br. at 2.

Given the foregoing and lack of any response from Powell, the Division's motion to
amend the OIP is GRANTED. I ORDER that paragraph 1 of Section II.A of the OIP shall be AMENDED in the manner described above, and that the word "AMENDED" shall be added to the beginning of the OIP's title.

James E. Grimes, Administrative Law Judge

Bill Singer ("Bananas" inspired) Comment

What exactly has transpired since we last reported about the SEC's May 23, 2016, Order Rescheduling Prehearing ConferenceWhen last we left this travesty . . . oh, you know what, wait, let me allow Woody Allen's character Fielding Mellish from the film "Bananas" to express my view:


In the ensuing three months . . . three months . . . THREE MONTHS !!! . . . the SEC managed to:
  • strike-through "March 2009;" 
  • underline the replacement text "March 2010;" 
  • strike-through "2009;" 
  • underline the replacement text "2010;" and
  • add "AMENDED" to the prior April 19, 2016, title: "Order Instituting Administrative Proceedings."
Ain't progress a beautiful thing? Keep in mind that inmate Powell never responded to the Division's Motion to Amend, which prompted that three-month bit of strike-throughing, underlining, and a one-word amended title. Indeed, SEC v. Powell is a travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham. Thank you Mr. Mellish.