United States District Court, D. Columbia.
SECURITIES AND EXCHANGE COMMISSION, Plaintiff: James A.
Kidney, SECURITIES & EXCHANGE COMMISSION, Washington, DC.
BRYNEE K. BAYLOR, Defendant: Alan I. Baron, Rhett E. Petcher,
LEAD ATTORNEYS, SEYFARTH SHAW, LLP, Washington, DC;
Christopher F. Robertson, PRO HAC VICE, SEYFARTH SHAW LLP,
& JACKSON, P.L.L.C., Defendant, Pro se.
C. BALDASSARI, Defendant: Christopher Allan Glaser, LEAD
ATTORNEY, Jackson & Campbell, Washington, DC; Christopher B.
Jones, PRO HAC VICE, LAW OFFICES OF CHRISTOPHER B. JONES,
COOPER, Defendant, Pro se, Philadelphia, PA.
GLOBAL FUNDING SYSTEMS LLC, Defendant: Gerard J Martillotti,
LEAD ATTORNEY, JERRY MARTILLOTTI & ASSOCIATES, Philadelphia,
PA; John A. Zohlman, III, PRO HAC VICE, HAGNER & ZOHLMAN,
LLC, Cherry Hill, NJ.
JACKSON, Defendant, Pro se.
T. LEWIS, Defendant, Pro se, Richmond, UT.
JULIAN ESTATE, ESTATE OF FRANK L. PAVLICO, III, Defendants:
Dominic G. Vorv, LEAD ATTORNEY, THE VORV FIRM, PLLC,
M. COLLYER, United States District Judge.
August 26, 2013, this Court granted summary judgment to the
Securities and Exchange Commission (SEC), in which the Court
found Defendant Brynee K. Baylor liable for securities fraud
under the Securities Act of 1933 (Securities Act), 48 Stat.
74,,,, codified at 15 U.S.C. § 77a et
seq., and the Securities Exchange Act of 1934 (Exchange
Act), Pub. L. 73-291, 48 Stat. 881,,,, codified at
15 U.S.C. § 78a et seq. The Court also held Ms.
Baylor liable as a seller of unregistered securities, in
violation of 15 U.S.C. § 77e(a), and as a seller of
securities without being registered as a broker-dealer, in
violation of 15 U.S.C. § 78 o (a). The Court
ordered, inter alia, that Ms. Baylor and her law
firm, Defendant Baylor & Jackson, P.L.L.C. (Baylor & Jackson)
be held jointly and severally liable for a third-tier civil
penalty of $746,266. Ms. Baylor appealed the Court's
Final Judgment. The D.C. Circuit affirmed this Court's
ruling in part and vacated and remanded the order for the
remand, SEC moves for third-tier civil monetary penalties
solely against Ms.
Baylor in the amount of $600,000 and the entry of an amended
Final Judgment against Ms. Baylor and Baylor & Jackson. For
the reasons below, the Court will grant SEC's motion.
SEC's Amended Complaint
February 27, 2012, the Commission filed an Amended Complaint
against Defendants Frank L. Pavlico, Brynee K. Baylor, The
Milan Group, Inc. (Milan) and through Ms. Baylor, her law
firm Baylor & Jackson, P.L.L.C. (Baylor & Jackson), alleging
that they defrauded investors in a " prime bank"
scheme. See Am. Compl. [Dkt. 53].
Amended Complaint alleged that Ms. Baylor and the other
Defendants violated the antifraud provisions of Section 17(a)
of the Securities Act and Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, and, alternatively, alleged that
Mr. Pavlico, Ms. Baylor, and Baylor & Jackson aided and
abetted Milan's violation of these statutes and the Rule.
See id. ¶ ¶ 62-65 (Count I, Section 10(b)
and Rule 10b-5), ¶ ¶ 66-67 (Count II, aiding and
abetting violations of Section 10(b) and Rule 10b-5), ¶
¶ 68-70 (Count III, Section 17(a)), ¶ ¶ 71-72
(Count IV, aiding and abetting violation of Section 17(a)).
The Amended Complaint also alleged that Ms. Baylor and the
other Defendants offered and sold securities without a
registration statement or exemption from registering in
violation of Sections 5(a) and 5(c) of the Securities Act,
and, alternatively, alleged that Ms. Baylor and Baylor &
Jackson aided and abetted these violations. See id.
¶ ¶ 73-76 (Count V, Sections 5(a) and 5(c)), ¶
¶ 77-78 (Count VI, aiding and abetting violations of
Sections 5(a) and 5(c)). Finally, the Amended Complaint
alleged that Mr. Pavlico and Ms. Baylor induced or attempted
to induce the purchase or sale of a security without being
registered as a broker or dealer in violation of Section
15(a) of the Exchange Act. See id. ¶ ¶
79-81 (Count VII, Section 15(a)).
This Court's Summary Judgment Opinion and Order
August 26, 2013, this Court granted SEC's motion for
summary judgment with respect to the Estate of Frank
Pavlico, Milan, Baylor & Jackson, and Ms.
Baylor. See Op. [Dkt. 181] (SJ Opinion); Order [Dkt.
182]. The Court entered a Final Judgment
ordering the remedies requested by SEC against these
Defendants. See Final Judgment [Dkt. 183]. The Court
held that Ms. Baylor was jointly and severally liable with
Baylor & Jackson, Mr. Pavlico's estate, and Milan for
disgorgement of $2,665,000, together with prejudgment
interest for a total of $2,822.414.89. Id. at 8. The
Court ordered Ms. Baylor to satisfy her obligation by paying
a total of $2,752,758.64. Id. Because it determined
that Defendants' violations " involved fraud and
deceit which resulted in substantial losses to other
persons," the Court held Ms. Baylor jointly and
severally liable with Baylor & Jackson for third-tier civil
penalties in the amount of $746,266. Id. at 10-11.
This amount represented the total amount of money from the
scheme that was received by and subsequently spent
from Baylor & Jackson's accounts. See SJ Opinion
[Dkt. 181] at 5.
D.C. Circuit Ruling on Ms. Baylor's Appeal
Baylor appealed the Court's Final Judgment to the D.C.
Circuit. See Notice of Appeal [Dkt. 188]. The D.C.
Circuit affirmed the Court's findings of liability and
affirmed the disgorgement order, but vacated and remanded the
civil penalty against Ms. Baylor and Baylor & Jackson.
See Mandate [Dkt. 219] at 1-2. Although it did not
decide the question, the D.C. Circuit noted that " the
text of the relevant statutory provisions suggests that civil
penalties are not properly imposed on a joint-and-several
basis." Id. at 2. In support, the D.C. Circuit
cited SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d
279, 287-88 (2d. Cir. 2013), which held that civil penalties
cannot be awarded jointly and severally. The D.C. Circuit
remanded for this Court " to reconsider whether the
penalty should have been imposed on a joint-and-several
basis." Id. at 2.
remand and following a status conference at which Ms. Baylor
failed to appear, the Court ordered SEC to submit a motion
and brief in support of its proposal as to how the Court
should proceed. See Order [Dkt. 223]. SEC moves for
civil monetary penalties against Ms. Baylor alone and for the
entry of an amended Final Judgment against Ms. Baylor and
Baylor & Jackson. See SEC Mot. [Dkt. 225]; Reply
[Dkt. 227]. Ms. Baylor opposes the imposition of any penalty,
but asks that she and Baylor & Jackson be held jointly and
severally liable if the Court imposes civil penalties.
See Opp'n [Dkt. 226]. In view of this request
and SEC's contention that Baylor & Jackson no longer
exists, the Court ordered Ms. Baylor to show cause in writing
why the joint and several remedy she seeks would not be
futile and to identify what assets Baylor & Jackson holds
that are available to satisfy a judgment. See Order
to Show Cause [Dkt. 228]. Ms. Baylor failed to respond.
asks the Court to impose third-tier civil penalties against
Ms. Baylor. Section 20(d) of the Securities Act and Section
21(d)(3) of the Exchange Act set identical standards for
assessing civil monetary penalties and establish three tiers
of penalties. See 15 U.S.C. § 77t(d)(2); 15
U.S.C. § 78u(d)(3). Third-tier civil penalties may be
imposed when the securities law violation " involved
fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement [and] such violation
directly or indirectly resulted in substantial losses or
created a significant risk of substantial loss to other
persons." 15 U.S.C. § 77t(d)(2)(C); 15 U.S.C.
§ 78u(d)(3)(B)(iii). At the time of Ms. Baylor's
conduct, third-tier civil penalties were " the greater
of" (1) $150,000 for each violation for a natural
persons or (2) the " gross amount of pecuniary
gain" to the defendant as a result of the securities law
The purpose of a civil penalty is to punish the individual
violator and deter
future violations." SEC v. One Or. More Unknown
Traders in the Common Stock of Certain Issuers, 825
F.Supp.2d 26, 33 (D.D.C. 2010). Courts have discretion to
determine the amount of a civil penalty " in light of
the facts and circumstances" of the particular case. 15
U.S.C. § § 77t(d)(2)(A), § 78u(d)(3)(B)(i);
SEC v. Daly, 572 F.Supp.2d 129, 134 (D.D.C. 2006).
In determining the amount of the penalty, courts frequently
consider such factors as: (1) the egregiousness of the
defendant's conduct; (2) the degree of scienter; (3)
whether the conduct created substantial losses or the risk of
substantial losses to other persons; (4) whether the conduct
was isolated or recurrent; and (5) whether the penalty should
be reduced due to demonstrated current and future financial
condition. See, e.g., SEC v. Shehyn, No.
04-2003, at *22 (S.D.N.Y. Aug. 6, 2010) (citation omitted);
SEC. v. Allen, No. 11-882, 2012 WL 5986443, at *2
(N.D. Tex. Nov. 28, 2012) (citation omitted).
requests that this Court impose third-tier civil penalties
against Ms. Baylor in the amount of $150,000 for each primary
violation she committed for a total penalty of
$600,000. SEC no longer seeks civil penalties
against Baylor & Jackson because the firm is defunct and SEC
has settled its claims against Dawn Jackson. See SEC
Mot. at 2. SEC argues that imposing third-tier
civil penalties against Ms. Baylor is appropriate because:
(1) Ms. Baylor's conduct was egregious, (2) she acted
with a high degree of scienter, (3) her misconduct created
substantial losses to others, and (4) her conduct was
recurrent and lasted over a year. Ms. Baylor raises four
arguments in opposition: (1) she is not a repeat violator and
her conduct was isolated; (2) her conduct was not
intentional; (3) she does not have the financial resources to
pay a penalty; and (4) the substantial disgorgement order
provides sufficient deterrence, making a penalty excessive
and unnecessary. The Court finds that imposing third-tier
civil penalties in the amount of $600,000 is appropriate.
Baylor's violations satisfy the two statutory
requirements for imposition of third-tier civil penalties.
Her conduct involved fraud and deceit in violation of Section
17(a) of the Securities Act and Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder. It also involved deliberate or
reckless disregard of the securities and broker-dealer
registration requirements of Sections 5(a) and 5(c) of the
Securities Act and Section 15(a) of the Exchange Act.
See SJ Opinion at 19-20, 27-28. In addition, her
conduct caused substantial losses to other persons.
See id. at 19-23.
factors weigh heavily in favor of imposing a substantial
third-tier civil penalty against Ms. Baylor. Ms. Baylor's
conduct was egregious, as the Court fully recounts in its
summary judgment Opinion. See SJ Opinion at 18-28.
Notwithstanding Ms. Baylor's protest that her conduct was
not intentional because she " had limited knowledge of
the transaction and relied heavily on Pavlico's purported
experience," Opp'n at 6, the Court previously
determined that Ms. Baylor " acted with extreme
recklessness concerning the fraudulent scheme." SJ
Opinion at 19-20; 26-27. The D.C. Circuit agreed with this
Court and concluded that the evidence of Ms. Baylor's
recklessness was " overwhelming." Mandate at 2.
Further, Ms. Baylor's conduct created substantial losses
to numerous investors and created a significant risk of
substantial losses to others. See SJ Opinion at
19-23. Although Ms. Baylor maintains that her conduct was
" more isolated than recurrent," see
Opp'n at 6, this characterization is without merit. The
record demonstrates that Ms. Baylor made " many