The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge
The Securities and Exchange Commission ("SEC") brought this action charging Defendant Timothy Daly ("Daly") with signing false audit statements as part of a scheme to overstate the income of U.S. Foodservice ("USF"), a subsidiary of Koninklijke Ahold N.V. ("Ahold"). Daly consented to a proposed Final Judgment (the "Consent Judgment") entered by the Court on August 31, 2006, permanently enjoining him from aiding and abetting violations of the Securities Exchange Act. The Consent Judgment expressly provided that the amount of monetary penalties to be assessed to Daly, if any, would be determined through a motion subsequently filed by the SEC. Currently before the Court is the motion for civil penalties contemplated by the Consent Judgment, styled as the SEC's Motion for Final Judgment of Monetary Relief. After a thorough examination of the parties' submissions, including the attachments thereto, applicable case law, statutory authority and the entire record herein, the Court shall GRANT the SEC's  Motion for Final Judgment of Monetary Relief and impose a civil penalty of $100,000, for the reasons that follow.
The facts alleged in the SEC's Complaint are deemed true for purposes of the present Motion pursuant to the terms of the Consent Judgment. See  Consent Judgment at 5 (Aug. 31, 2006) ("solely for the purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true by the Court . . . ."). Daly was the Director of Business Development for Michael Foods, a company that sold eggs and other products to USF. Compl. ¶ 9. In 2002 and 2003, USF employees convinced vendors such as Daly to sign false audit statements that overstated the amount of promotional allowance payments made to USF.*fn1 Id. ¶ 13. To conceal this fraudulent scheme, Daly falsely confirmed overstated promotional allowance amounts to the company's auditors in connection with year-end audits in 2001 and 2002. Compl. ¶¶ 14-18. Daly signed these confirmation letters knowing that they contained false information. Id. ¶¶ 14, 16, 19.
The overstated amounts in the letters that Daly signed were significant. Two of the letters (dated January 23, 2002 and January 29, 2003) overstated the promotional allowances Michael Foods paid USF by more than 100 percent. Id. ¶¶ 15, 18; Pl.'s Mot., Ex. C (1/23/02 Letter from Michael Foods to Auditors), Ex. D (1/29/03 Letter from Michael Foods to Auditors). Two of the other letters (dated January 29, 2003 and February 3, 2003) "facilitat[ed] double-counting of accounts receivable and income for USF for that period." Compl. ¶ 16; Pl.'s Mot., Ex. E (1/29/03 Letter from Kohler to Auditors), Ex. F (2/3/03 Letter from Northern Star to Auditors).
In 2003, USF's parent company, Ahold, reported to the SEC that it had overstated its net and operating income, in large measure because USF had overstated its promotional allowances by at least $700 million for 2001 and 2002. Compl. ¶¶ 2-4, 6. When Ahold disclosed that it had reported materially false net and operating income for those and other periods, its stock price fell from approximately $10.69 per share to $4.16 per share. See Pl.'s Mot., Ex. 1 ¶ 8 (Decl. of Matthew B. Greiner).*fn2 Id. ¶¶ 3-4.
The SEC brought suit against Daly on January 13, 2005, alleging that his conduct violated Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rules 10b-5, 12b-20 and 13b2-1. Daly consented to a judgment against him, which the Court entered on August 31, 2006. The Consent Judgment provided that the SEC's motion for penalties would be governed by the following conditions and procedures:
In connection with the [SEC's] motion for civil penalties, and at any hearing held on such a motion: (a) Defendant will be precluded from arguing that he did not violate the federal securities laws as alleged in the Complaint; (b) Defendant may not challenge the validity of the Consent or this Final Judgment; (c) solely for the purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true by the Court; and (d) the Court may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment contained in Rule 56(c) of the Federal Rules of Civil Procedure.
Consent Judgment at 5. As provided therein, the SEC filed the instant Motion for Final Judgment of Monetary Relief on October 17, 2007, asking the Court to impose a maximum (so-called "third-tier") penalty on Daly. On November 19, 2007, Daly filed a pro se Opposition to the SEC's Motion, arguing that the Court should not impose a penalty or should impose one that is less than the statutory maximum. See Def.'s Opp'n at 1-4. The SEC did not file a Reply.
After reviewing the parties' briefs in connection with the instant Motion, it was apparent that one of Daly's arguments for receiving a reduced penalty--that he was impecunious--was not substantiated with any supporting materials. Given Daly's pro se status, the Court issued an Order allowing him the opportunity to supplement his Opposition with an affidavit and supporting records setting forth his income, debts, assets, and any other pertinent information he deemed appropriate, no later than July 3, 2008. See Min. Order dated June 19, 2008. Daly failed to file any additional information. The Court subsequently learned that the Clerk of the Court may not have issued the Order to Daly because his address was not reflected on the docket. Accordingly, out of an abundance of caution, the Court reissued its Order on July 10, 2008 after the Clerk's office corrected the docket, allowing Daly the opportunity to provide the Court with this information by July 24, 2008. See Min. Order dated July 10, 2008. Daly failed to respond to that Order, as well. Accordingly, the SEC's Motion is fully ripe for decision.
The SEC asks the Court to impose civil penalties under Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3). According to that provision, "the court shall have jurisdiction to impose, upon a proper showing, a civil penalty, to be paid by the person who committed such violation." Id. § 78u(d)(3)(A). Such penalties are divided into tiers, with the third tier reserved for those cases in which the violation (1) "involved fraud deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement" and (2) "directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons." Id. § 78u(d)(3)(B)(iii). Each third tier penalty may not exceed the greater of $100,000 or the gross pecuniary gain to the defendant as a result of the violation.*fn3 Id. The amount of any penalty imposed is subject to the broad discretion of the court "in light of the facts and circumstances" of the case. Id. § 78u(d)(3)(B)(i).
The SEC argues that imposition of a third-tier civil penalty is appropriate in this case because the facts deemed true for purposes of the instant Motion establish the two elements necessary to assess a third-tier penalty: (1) conduct involving "fraud, deceit, manipulation" that (2) "directly or indirectly resulted in substantial losses or created the risk of substantial losses" to Ahold's shareholders. Pl.'s Mot. at 5 (quoting 15 U.S.C. § 78u(d)(3)(B)(iii)). Although Daly ...