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.
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.
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).
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).
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
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
Phone CallsWe 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.RestrictionsLimitations and conditions may be imposed upon an inmate's telephone privileges to ensure they are consistent with our correctional management responsibilities.MonitoringA notice is posted next to each telephone advising inmates that calls are monitored. Unmonitored calls to attorneys are permitted in certain circumstances.
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549Before the SECURITIES AND EXCHANGE COMMISSIONADMINISTRATIVE PROCEEDINGS RULINGS Release No.4095 /August 26, 2016ADMINISTRATIVE PROCEEDING File No. 3-17218
In the Matter of DANIEL CHRISTIAN STANLEY POWELL
ORDER GRANTING MOTION TO AMEND THE ORDER INSTITUTING PROCEEDINGSThe Securities and Exchange Commission initiated this proceeding against RespondentDaniel 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):
May 2009March 2010 through September 20092010, which includes aportion of the time in which Respondent engaged in the conduct underlying thecomplaint 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 abroker-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 toamend 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