The District Court for the Eastern District of Michigan granted summary judgment in favor of the Securities and Exchange Commission. The SEC brought claims against the defendant officer of a public company for violations of the Securities Act of 1933 and the Securities and Exchange Act of 1934. Prior to the adjudication of the SEC’s claims, the defendant pled guilty in both federal and state criminal courts for false statements and conspiracy. The court in the instant case found that the defendant had a full opportunity to litigate the issue in his criminal proceedings and that the litigation resulted in a final judgment that the defendant was guilty. The court also found that although the defendant never pled guilty to securities law violations, the facts were common between the causes of action to which he did plead guilty and those advanced by the SEC. Therefore, the court held that the defendant was collaterally estopped from relitigating his fraudulent conduct or his knowledge of such conduct. The fact that the defendant sought to withdraw his guilty plea and also filed a habeas corpus petition did not thwart the collateral estoppel effect of the plea.
Since the defendant could not relitigate the issues, the court turned to the relief that the SEC sought in connection with the defendant’s fraudulent conduct. The SEC requested a permanent injunction enjoining the defendant from violating the federal securities laws again, as well as a bar preventing the defendant from serving as an officer or director of a public company. Applying a six-factor test to determine if the defendant was substantially unfit to serve as an officer or director, the court held that (i) the defendant had knowingly, deliberately and egregiously engaged in fraudulent conduct; (ii) he did not recognize the wrongful nature of his conduct; and (iii) there was a substantial likelihood that he would engage in future violations of the federal securities laws. Based on this reasoning, the court held that a permanent injunction and officer and director bar were appropriate remedies. (SEC v. Quinlan, 2008 WL 4852904 (E.D.Mich. Nov. 7, 2008))