Six Years And Counting and the SEC Is Still Dicken-ing Around

August 20, 2020

A former associated person got involved in a Ponzi scheme, was convicted by a jury on seven felony counts, and was sentenced to 140 months to 20 years in prison. Given that background, you'd sort of expect swift action by the Securities and Exchange Commission in its role as the protector of the investing public. You know, something like barring the felon from further activity in the securities industry. So . . . how long after the convictions do you think it took the SEC to get out of bed and do its job? A year? Two years? Five years? How about more than six years and still counting!

September 2018 OIP

Shawn K. Dicken was associated with broker-dealer W. R. Rice from November 2010 through June 2012, and with G-W Brokerage Group, Inc. from August 2012 through May 2013. During 2011 and 2012, Dicken managed to get herself into quite a bit of trouble. In the Matter of Shawn K. Dicken, Respondent (SEC Order Instituting Proceedings (the "OIP"); '34 Release No. 84272; Admin. Proc. File No. 3-18831 / September 24, 2018) :

2. On March 13, 2014, a jury found Dicken guilty of seven counts of making or using false pretenses to obtain money from a person with the intent to defraud or cheat, a felony, in violation of Michigan Compiled Laws ("MCL") 750.218(4)(a), one count of felony 2 embezzlement in violation of MCL 750.174a(6)(a), and one count of conducting a criminal enterprise by obtaining money by false pretenses, a felony, in violation of MCL 750.159i(1), in People v. Shawn Kristi Dicken, Case No. 2013-005531-FH (Cir. Ct., Midland County, Michigan). On July 31, 2014, a judgment in the criminal case was entered against Dicken. She was sentenced to 140 months to 20 years in prison.

3. The counts of the criminal Information as to which Dicken was convicted alleged, among other things, that between January 2011 and November 2012: 
a. Dicken was employed as a salesperson for an issuer of securities. 
b. She solicited investors, mostly senior citizens to invest in Diversified Group. 
c. She made material misrepresentations about the investment stating that the investment was without risk, was completely liquid, and featured a guaranteed rate of return of between 9.5% and 10.44%. She failed to disclose the risks that this was a highly leveraged real estate investment that could result in the loss of all of their money. 
d. Based on these representations Dicken obtained over $2 million of investor funds. Many investors risked their life savings. 
e. What they really invested in was a Ponzi Scheme operated by an associate of Dicken. 

The Public Interest

Given Dicken's criminal history, it makes sense -- compelling sense I would argue -- for the SEC to conduct public administrative proceedings to determine:

A. Whether the allegations set forth in Section II hereof are true and, in connection therewith, to afford Respondent an opportunity to establish any defenses to such allegations; 

B. What, if any, remedial action is appropriate in the public interest against Respondent pursuant to Section 15(b) of the Exchange Act; and 

C. Whether, pursuant to Section 15(b) of the Exchange Act, it is appropriate and in the public interest to suspend or bar Respondent from participating in any offering of penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock; or inducing or attempting to induce the purchase or sale of any penny stock.

In keeping with how these things are designed to work, the SEC has to gather the facts about Dicken's seemingly prodigious fraud and consider if it all adds up to requiring remedial action, which could include suspending or barring her in various roles. And so, in September 2018,  the SEC begins to go about its job as the keeper of the public interest flame. I gotta admit, what with a jury finding Dicken guilty of  multiple felony counts, and, taking into consideration that the judge sentenced her to 140 months to 20 years in prison, it seems to me that this is as much of a preordained outcome as there is. 

Before we lose track of time, let me note three and only three dates:
  1. March 13, 2014: Dicken found guilty by a jury;
  2. July 31, 2014: Dicken sentenced to over 10 but not more than 20 years in prison
  3. September 24, 2018: SEC files the OIP against Dicken
May 2019 Order to Show Cause

In May 2019, about eight months after the OIP was filed, the SEC published In the Matter of Shawn K. Dicken (SEC Order to Show Cause; '34 Release No. 85778; Admin. Proc. File No. 3-18831 / May 3, 2019), which states in pertinent part that:

On April 4, 2019, the Division of Enforcement filed a motion for entry of default and sanctions against Dicken. The motion states that service of the OIP was made on Dicken via United States Postal Service Certified Mail on September 27, 2018. The Division requests that the Commission find Dicken in default for not filing an answer and bar her from the securities industry and from participating in any penny stock offering based on the record and the allegations in the OIP

In response to the Division's default motion, the SEC ordered Dicken to show cause by May 17, 2019, as to why she should not be found in default, and, as such. the allegations against her to be deemed true. So . . . howsabout we set up another enumerated chronology:
  1. March 13, 2014: Dicken found guilty by a jury;
  2. July 31, 2014: Dicken sentenced to over 10 but not more than 20 years in prison
  3. September 24, 2018: SEC files the OIP against Dicken
  4. May 3, 2019: SEC Order to Show Cause
August 2020 Order Requesting Additional Briefing

2014 . . . 2018 . . . 2019 . . . and, here we are in August 2020, over six years after Dicken's conviction; over six years after her sentencing; nearly two years after the SEC filed the OIP; and over a year after the SEC filed an Order to Show Cause in light of Dicken's default. I mean, what the hell is going on here? Is the SEC dick(en)ing around? 

Bad enough that the SEC appears to be slogging through what seems a slam-dunk, default proceeding; however, we then come upon this puzzling and belated development In the Matter of Shawn K. Dicken (SEC Order Requesting Additional Briefing; '34 Release No. 89526; Admin. Proc. File No. 3-18831 / August 12, 2020) [Ed: footnotes omitted]:

Although Dicken's default would permit the Commission to deem as true the allegations that she was convicted of the nine counts identified (and to find that those counts all involved an enhanced level of intent), it would not appear, by itself, to permit a finding that the Information's underlying allegations are also true. The Judgment of Sentence summary, which is the only document the Division included that references Dicken's convictions, provides no details about the basis for those convictions. By implication, the convictions on these nine counts establishes that the Information's allegations supporting those counts were found by the jury to be true. But while the Information provides an overall summary of the alleged illegal conduct, including that Dicken made the material misrepresentations referenced in the OIP, it provides no factual details regarding the individual counts. Significantly, the count which would appear most relevant to the allegations made in the Information's summary, "Count 10: Securities - Fraudulent Sales," was, according to the Judgment of Sentence, "dismissed by court," and the summary fails to distinguish between the conduct underlying the counts as to which Dicken was convicted, and this dismissed final count. 

Under the circumstances, the Commission would benefit from further briefing regarding the factual predicate for Dicken's convictions and the reasons for dismissal of the final count against her, as well as the Division's arguments as to why these facts establish that industry and penny stock bars are warranted. The Commission would also benefit from any further documentation relevant to such matters or otherwise relevant to its public interest analysis. 

Accordingly, it is ORDERED that the Division shall file a brief by September 11, 2020, not to exceed 5000 words, limited to addressing facts underlying Dicken's convictions, the reasons for dismissal of the final count against her, and the appropriateness of the sanctions sought. To the extent the Division deems it necessary, any additional evidentiary materials shall be attached to the brief, which must contain specific citations to the evidence relied upon. 

It is further ORDERED that Dicken may file a brief by October 12, 2020, not to exceed 5000 words, addressing the same matters to be addressed by the Division. Dicken's brief should also address why she has failed to file an answer previously or to otherwise defend this proceeding until now, and why the Commission should not find her in default as a result. Dicken is reminded that when a party defaults, the allegations in the OIP will be deemed to be true and the Commission may determine the proceeding against that party upon consideration of the record without holding a public hearing. If Dicken files a response to this order, the Division may file a reply within 14 days after its service.

Bill Singer's Comment:

This all seems idiotic.  We have a convicted felon who defrauded mostly senior citizens to invest over $2 million into a Ponzi scheme. All of that was adjudicated in 2014. All of that is a matter of public record. As to the "all of that," well, in 2018, the SEC got around to taking note of the convictions and embarked upon its role as the protector of the public interest and ordered that hearings be held as to just what to do with Dicken in terms of remedial actions. 

And now we seem to be playing games. 

The SEC wants a brief, which it could have asked for some two years ago, or last year, or even a few months ago. The SEC is only now posing questions to Enforcement about what Dicken did or didn't do, and how all of that might warrant imposing some remedial sanctions -- again, why did it take two years to promulgate those questions? And the absurdity of all of this posturing is that Dicken has failed "to file an answer previously or to otherwise defend this proceeding until now . . ." Which sort of means that Dicken is in default. 

It's one thing to argue against a rush to justice. I have made such an argument over the years. When warranted, I intend to make such an argument in the future. On the other hand, you got your "rush" and you got your amblin' and ramblin' and plain-old moseying down the road for a spell. Six years after Dicken was convicted by a jury of her Ponzi-related felonies and in the face of her default in response to the SEC's administrative hearing, the SEC wants a 5,000 word brief addressing facts underlying Dicken's convictions, the reasons for dismissal of the final count against her, and the appropriateness of the sanctions sought. Now you're asking for that? 

Sadly, it's all too reminiscent of a lack of effective management at virtually all levels of government, and it is certainly all too typical of the ineptitude of most federal bureaucracies. There's no  sense of urgency. There's little in the way of triage. At the SEC, whistleblowers wait endlessly in the dark for information about the status of their claims and the payment of their awards. At the SEC, felons dilly dally while the SEC wastes Enforcement's limited time and staff on oh-so precious exercises of no consequence.