Defendant, the president and CEO of a publicly traded wireless company, maintained an undisclosed ownership interest in an offshore company. Over a three-year period, the defendant directed the wireless company to transfer a total of $348,000 to his offshore corporation on 29 separate occasions without disclosing these transfers on the wireless company’s Form 10-KSB annual reports. After defendant pled guilty to securities fraud and tax evasion charges in a related criminal proceeding, the Securities and Exchange Commission sought a permanent injunction against defendant from committing future violations of the Securities Exchange Act.
The court granted the permanent injunction, ruling that the SEC had met its burden of showing that there was a reasonable likelihood of future violations if the injunction was not entered. In making this determination, the court considered the following factors: the degree of scienter involved, the isolated or recurrent nature of the infraction, the defendant’s recognition of the wrongful nature of his conduct, the likelihood that future violations might occur, and the sincerity of the defendant’s assurances against future violations.
The court determined that each factor favored the injunction. First, the court found that a high degree of scienter was present, because the defendant admitted he knowingly and willfully committed securities fraud in his criminal case plea agreement. Second, the court found that the recurrent nature of the infraction factor weighed in favor of granting an injunction. Although the defendant admitted to committing only one securities law violation, the 29 illegal wire transfers demonstrated a continuous pattern of deceit. Third, because the defendant was a corporate officer who had a duty to make truthful, accurate reports, the court found that his claims that his actions were committed in ignorance of his obligations rang hollow. Accordingly, the court ruled that both the recognition of the wrongful nature of defendant’s conduct and the sincerity of his assurances against future violations factors weighed in favor of the injunction. Finally, the court found that the likelihood of future violations factor weighed slightly in favor of the injunction because the defendant, who stated that he would not seek a position with reporting and accounting responsibilities, never stated that he would be unwilling to accept such a position. (SEC v. Hilsenrath, 2009 WL 1855283 (N.D. Cal. June 29, 2009))