Initial Decision Release No. 1357

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Administrative Proceeding

File No. 3-18288

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of

Initial Decision

February 22, 2019

Lawrence E. Penn, III

Appearances:

Howard A. Fischer, Thomas P. Smith, Karen E. Willenken,

and Katherine S. Bromberg for the Division of Enforcement,

Securities and Exchange Commission

Lawrence E. Penn III, pro se

Before:

James E. Grimes, Administrative Law Judge

Summary

I grant the Division of Enforcement’s motion for summary disposition.

Respondent Lawrence E. Penn III is barred from associating with an

investment adviser, broker, dealer, municipal securities dealer, municipal

advisor, transfer agent, or nationally recognized statistical rating

organization.

Procedural Background

The Securities and Exchange Commission initiated this proceeding in

November 2017, when it issued an order instituting proceedings (OIP) under

Section 203(f ) of the Investment Advisers Act of 1940.1 This is a follow-on

proceeding based on a permanent injunction entered against Penn by the

United States District Court for the Southern District of New York and

OIP ¶ I; see 15 U.S.C. § 80b-3(f ).

Penn’s 2015 New York convictions for grand larceny in the first degree and

falsifying business records in the first degree.2

Penn was served with the OIP in 2017 and filed an answer in January

2018.3 At the time Penn was served, this proceeding was assigned to a

different administrative law judge, who issued an initial decision in June

2018.4

The day after the initial decision was issued, the Commission stayed all

pending cases.5 In August 2018, the Commission allowed the stay to lapse,

vacated decisions in all pending cases, remanded all cases pending before it,

and ordered that all pending cases be reassigned to a different administrative

law judge from the one previously assigned.6 Following the Commission’s

August order, this proceeding was reassigned to me.7

Following reassignment, I held a prehearing conference, permitted Penn

to amend his answer, and set a motions schedule. 8 Penn later filed an

amended answer and the Division moved for summary disposition, which

Penn opposed. As the Commission has directed, in conducting this proceeding

and considering the parties’ motions, I have given no weight to the opinions,

orders, or rulings issued by the prior administrative law judge.9

See SEC v. Penn., No. 1:14-cv-0581 (S.D.N.Y.); People v. Penn, No.

00073/2014 (N.Y. Sup. Ct. filed Feb. 7, 2014); OIP ¶¶ II.B.2, II.B.4.

Lawrence E. Penn, III, Admin. Proc. Rulings Release No. 6260, 2018 SEC

LEXIS 2985, at *1 (ALJ Oct. 26, 2018).

Lawrence E. Penn, III, Initial Decision Release No. 1258, 2018 WL

3046490 (ALJ June 20, 2018).

Pending Admin. Proc., Securities Act of 1933 Release No. 10510, 2018

WL 3193858 (June 21, 2018).

Pending Admin. Proc., Securities Act Release No. 10536, 2018 WL

4003609, at *1 (Aug. 22, 2018).

Pending Admin. Proc., Admin. Proc. Rulings Release No. 5955, 2018 SEC

LEXIS 2264, at *2–3 (ALJ Sept. 12, 2018).

Penn, 2018 SEC LEXIS 2985, at *1.

See Pending Admin. Proc., 2018 WL 4003609, at *1.

Findings of Fact

The findings and conclusions in this initial decision are based on the

record and on facts officially noticed under Commission Rule of Practice 323,

17 C.F.R. § 201.323.10 In making the findings below, I have applied

preponderance of the evidence as the standard of proof.11

Following graduation from the United States Military Academy and five

years’ service in the Army, Penn worked for a variety of entities in the

financial industry.12 From 2007 through 2014, he was the general partner of

Camelot Acquisitions Secondary Opportunities, LP (the Fund).13 Camelot

Acquisitions Secondary Opportunities Management, LLC (Camelot

Management), was the Fund’s investment adviser and became registered

with the Commission in 2012.14 Penn controlled Camelot Management.15

By 2010, Penn and an accomplice had created an entity call Ssecurion,

LLC, which ostensibly was an investigations company.16 But Ssecurion was a

sham entity and its website was a fraud.17 Relying on 32 fictitious invoices

issued by Ssecurion, purportedly for “due diligence” services, Penn diverted

millions from the Fund.18 Between 2010 and 2013, Penn orchestrated 80

monetary transfers to Ssecurion, totaling nearly $9.3 million.19 Most of these

funds were then transferred to Camelot Management and Camelot Group

I take official notice of the district court’s docket in SEC v. Penn and the

orders the court has issued. See 17 C.F.R. § 201.323.

See John Francis D’Acquisto, Advisers Act Release No. 1696, 1998 WL

34300389, at *2 (Jan. 21, 1998).

Div. Ex. 20 at 6.

Div. Ex. 13 at 2.

Div. Ex. 10 at 2, 4 (answer to complaint in SEC v. Penn); see Div. Ex. 9 at

6 (complaint).

Div. Ex. 10 at 2, 4–5.

Div. Ex. 13 at 2, 4.

Id. at 4; Div. Ex. 15 at 2.

Div. Ex. 12 at 2; Div. Ex. 13 at 2.

Div. Ex. 13 at 2; Div. Ex. 14 at 2.

International, LLC (Camelot Group), which was also a Penn-controlled

entity.20

Once the Fund’s auditors became involved, Penn created fake work

product to correspond to the fake Ssecurion invoices and lied to the

auditors.21 And when that failed to satisfy the auditors, Penn fired them.22

Based on Penn’s actions, he was indicted in New York state court in

February 2014.23 In March 2015, Penn pleaded guilty to grand larceny in the

first degree in violation of New York Penal Law § 155.42 and falsifying

business records in the first degree in violation of New York Penal Law

§ 175.10.24 He was sentenced the following month to an indeterminate term

of two to six years’ imprisonment and ordered to pay over $8.3 million in

restitution.25

Meanwhile, the Commission filed an injunctive complaint against Penn

in the United State District Court for the Southern District of New York. 26

The Commission’s complaint and Penn’s indictment shared the same factual

basis.27 In December 2016, the district court granted summary judgment on

allegations that Penn violated Section 10(b) of the Securities Exchange Act of

1934, Advisers Act Sections 204 and 206, Exchange Act Rule 10b-5, and

Advisers Act Rule 204-2.28 In August 2017, the court permanently enjoined

Penn from violating these provisions.29 In its later final judgment, the court

Div. Ex. 13 at 2; Div. Ex. 14 at 2.

Div. Ex. 12 at 4, 5 (deeming paragraph 5 of the complaint admitted); see

Div. Ex. 9 at 3.

Div. Ex. 13 at 4.

Div. Ex. 6.

Div. Ex. 4.

Div. Ex. 6.

Div. Ex. 9.

Div. Ex. 12 at 3.

Id. at 2, 16.

Div. Ex. 13 at 1–2.

found Penn liable for over $11 million in disgorgement and interest and

ordered him to pay a civil monetary penalty of nearly $9.3 million.30

Conclusions of Law

Under Rule 250(b), which governs summary disposition in 75-day cases,

an administrative law judge may grant a motion for summary disposition if

“there is no genuine issue with regard to any material fact and . . . the

movant is entitled to a summary disposition as a matter of law.”31 The

Commission has repeatedly upheld use of summary disposition in cases such

as this one, where the respondent has been enjoined or convicted and the sole

determination concerns the appropriate sanction.32

Although Penn denies every material allegation in the OIP in his

answer,33 Penn’s guilty plea and the district court orders in the civil case

based on Penn’s guilty plea and subsequent admissions establish facts that

cannot be challenged in this proceeding.34 There is thus sufficient evidence to

decide this matter in the Division’s favor, Penn’s denials notwithstanding.35

Div. Ex. 15 at 4–5.

17 C.F.R. § 201.250(b).

Gary M. Kornman, Exchange Act Release No. 59403, 2009 WL 367635,

at *10 (Feb. 13, 2009), pet. denied, 592 F.3d 173 (D.C. Cir. 2010); Jeffrey L.

Gibson, Exchange Act Release No. 57266, 2008 WL 294717, at *5 & n.21

(Feb. 4, 2008) (collecting cases), pet. denied, 561 F.3d 548 (6th Cir. 2009).

Am. Answer at 2–3.

See Div. Exs. 4, 12, 13; Kornman, 2009 WL 367635, at *8; James E.

Franklin, Exchange Act Release No. 56649, 2007 WL 2974200, at *4 & nn.

13–14 (Oct. 12, 2007).

See James S. Tagliaferri, Exchange Act Release No. 80047, 2017 WL

632134, at *7 (Feb. 15, 2017) (“The party opposing summary disposition may

not rely on bare allegations or denials but instead must present specific facts

showing a genuine issue of material fact for resolution at a hearing.”

(internal quotation marks omitted)).

1. A collateral bar is warranted.

The Advisers Act gives the Commission authority to impose a collateral

bar36 against Penn if, as is relevant here, (1) he was associated with or

seeking to become associated with an investment adviser at the time of the

misconduct at issue; (2) he was enjoined “from engaging in or continuing any

conduct or practice … in connection with the purchase or sale of any

security”; and (3) imposing a bar is in the public interest.37

The first factor is met in this case. Camelot Management was an

investment adviser and Penn was associated with it.38 Indeed, he controlled

it.39 And Penn’s action while associated with Camelot Management formed

the basis for his conviction and injunction. Moreover, the district court found

that “[t]here is no dispute Penn was acting as an investment adviser.” 40 As a

result, there is no doubt that he was associated with an investment adviser at

the time of his misconduct.

Turning to the second factor, the district court permanently enjoined

Penn from committing fraud in connection with the purchase or sale of any

security.41 The terms of this injunction meet the requirement that a court has

enjoined Penn from “engaging in … any conduct … in connection with the …

sale of any security.”42

A collateral bar, also referred to as an industry bar, is a bar that

prevents an individual from participating in the securities industry in

capacities in addition to those in which the person was participating at the

time of his or her misconduct. See Toby G. Scammell, Advisers Act Release

No. 3961, 2014 WL 5493265, at *1 & n.1 (Oct. 29, 2014).

15 U.S.C. § 80b-3(e)(4), (f ).

Div. Ex. 10 at 2, 4–5; Div. Ex. 22.

Div. Ex. 10 at 2, 4–5.

Div. Ex. 12 at 14.

Div. Ex. 15 at 2.

15 U.S.C. § 80b-3(e)(4) (emphasis added). As the Division argues, the

second factor could potentially also be met based on evidence that Penn was

convicted within ten years before the issuance of the OIP of any offense that

“involves the larceny, theft, … fraudulent concealment, … or

misappropriation of funds.” Mot. at 13; see 15 U.S.C. § 80b-3(e)(2)(C), (f ).

Although it might seem self-evident that Penn’s first-degree grand larceny

(continued…)

To determine whether imposing a collateral bar would be in the public

interest, I must weigh the public-interest factors set forth in Steadman v.

SEC.43 These include:

the egregiousness of the respondent’s actions, the

isolated or recurrent nature of the infraction, the degree

of scienter involved, the sincerity of the respondent’s

assurances against future violations, the respondent’s

recognition of the wrongful nature of his conduct, and

the likelihood that the respondent’s occupation will

present opportunities for future violations.44

conviction involves larceny, the Supreme Court has held that when “Congress

predicate[s]” a penalty on a conviction, one must consider “the statutory

definition of the offense of conviction” to determine whether the predicate has

been established. Mellouli v. Lynch, 135 S. Ct. 1980, 1986 (2015); see

Moncrieffe v. Holder, 569 U.S. 184, 190–91 (2013) (explaining that

determining whether a generically defined offense includes a particular statelaw conviction requires comparison of the elements of the generic federal

offense with the elements of the state-law offense of conviction); see also

Descamps v. United States, 570 U.S. 254, 257 (2013) (courts “compare the

elements of the statute forming the basis of the defendant’s conviction with

the elements of the ‘generic’ crime—i.e., the offense as commonly

understood”). Going through this elements-based comparison in this case

would serve little point, however, because (1) I’ve determined that Penn was

enjoined, and (2) even if Penn had not been enjoined and Penn’s conviction

did not involve larceny, Advisers Act Section 203(e)(3) contains a catch-all for

felonies—offenses “punishable by imprisonment for 1 or more years”—not

already described in Section 203(e)(2). See 15 U.S.C. § 80b-3(e)(3)(A). In other

words, it does not matter whether Penn’s offense involved larceny because

even it did not, he was enjoined and he was sentenced to an indeterminate

term of two to six years’ imprisonment, in excess of the one-year threshold in

Section 203(e)(3)(A).

603 F.2d 1126, 1140 (5th Cir. 1979), aff’d on other grounds, 450 U.S. 91

(1981); see Kornman, 2009 WL 367635, at *6.

David R. Wulf, Exchange Act Release No. 77411, 2016 WL 1085661, at

*4 (Mar. 21, 2016).

The Commission also considers the deterrent effect of administrative

sanctions.45 The public interest inquiry is “flexible” and “no one factor is

dispositive.”46

Before imposing a collateral bar, an administrative law judge must

determine, based on the evidence presented, whether a bar “is necessary or

appropriate to protect investors and markets.”47 I must therefore “‘review

[Penn’s] case on its own facts’ to make findings regarding [his] fitness to

participate in the industry in the barred capacities.”48 A decision to impose a

collateral bar “should be grounded in specific ‘findings regarding the

protective interests to be served’ by barring the respondent and the ‘risk of

future misconduct.’”49

Turning to the Steadman public-interest factors, Penn’s conduct was

egregious. The Commission has held that “[t]he securities industry presents

continual opportunities for dishonesty and abuse, and depends heavily on the

integrity of its participants and on investors’ confidence.” 50 This is especially

so for investment advisers, in whom clients must be able to put their trust.51

Given this fact and the fact that investment advisers are fiduciaries who owe

their clients “an affirmative duty of ‘utmost good faith and full and fair

Id. General deterrence is relevant but not determinative of whether the

public interest weighs in favor of imposing a collateral bar. See Peter Siris,

Advisers Act Release No. 3736, 2013 WL 6528874, at *11 n.72 (Dec. 12, 2013),

pet. denied, 773 F.3d 89 (D.C. Cir. 2014).

Conrad P. Seghers, Advisers Act Release No. 2656, 2007 WL 2790633, at

*4 (Sept. 26, 2007), pet. denied, 548 F.3d 129 (D.C. Cir. 2008).

Ross Mandell, Exchange Act Release No. 71668, 2014 WL 907416, at *2

(Mar. 7, 2014) (internal quotation marks omitted), vacated in part on other

grounds, Exchange Act Release No. 77935, 2016 WL 3030883 (May 26, 2016).

Id. (quoting McCarthy v. SEC, 406 F.3d 179, 188 (2d Cir. 2005)).

Id. (quoting McCarthy, 406 F.3d at 189–90); see also John W. Lawton,

Advisers Act Release No. 3513, 2012 WL 6208750, at *9 (Dec. 13, 2012)

(“[T]he Commission must consider not only past misconduct, but the broader

question of the future risk the respondent poses to investors.”), vacated in

part on other grounds, Advisers Act Release No. 4402, 2016 WL 3030847

(May 27, 2016).

Seghers, 2007 WL 2790633, at *7.

Schield Mgmt. Co., Advisers Act Release No. 2477, 2006 WL 231642, at

*10 n.56 (Jan. 31, 2006).

disclosure of all material facts,’” the Commission consistently views

investment advisers who defraud their clients with particular opprobrium.52

Rather than honor his fiduciary obligation, Penn abused his position of

trust by stealing over $9 million of his clients’ money. This level abuse of

trust by an investment adviser easily qualifies as egregious.53

Penn’s conduct was not isolated. He transferred funds 80 times over a

three-year period, eventually stealing over $9 million.

Penn also acted with a high degree of scienter. In New York, larceny is a

specific intent crime,54 and when he pleaded guilty, Penn admitted that he

stole the Fund’s money.55 In other words, he intended to take the Fund’s

money.56 Penn’s high degree of scienter is also shown by the 80 fund transfers

he made and his efforts to hide his misconduct by providing auditors with

fake work-product, lying to the auditors, and eventually firing the auditors.

Penn has neither made assurances against future misconduct nor

demonstrated that he understands or recognizes the wrongfulness of his

criminal acts. To the contrary, soon after pleading guilty he began a wideranging effort to attack his guilty plea, first in New York appellate courts,

which rejected his efforts, and then before the district court in response to the

Commission’s injunctive complaint.57 As is discussed below, Penn has

continued that effort during the course of this proceeding.

James C. Dawson, Advisers Act Release No. 3057, 2010 WL 2886183, at

*3 (July 23, 2010); see id. at *4 (“[W]e have consistently viewed misconduct

involving a breach of fiduciary duty or dishonest conduct on the part of a

fiduciary, such as the fraud committed by Dawson on his clients, as

egregious.”).

See Alfred Clay Ludlum, III, Advisers Act Release No. 3628, 2013 WL

3479060, at *4 (July 11, 2013) (involving $852,000 taken from investment

advisory clients).

People v. Guzman, 416 N.Y.S.2d 23, 25 (N.Y. App. Div. 1979); People v.

Coates, 407 N.Y.S.2d 866, 871 (N.Y. App. Div. 1978).

Div. Ex. 4 at 6–7.

See N.Y. Penal Law § 155.05(1).

See Div. Exs. 7–8; Div. Ex. 10 at 19–20.

Allowing Penn to remain in the securities industry would present him

with future opportunities for further misconduct and would put the investing

public at risk. Indeed, the fact of Penn’s past misconduct raises an inference

that if given the chance, he will cause additional harm to the investing

public.58 This determination is supported by my finding that Penn’s conduct

was egregious.59

Finally, imposing a collateral bar will serve the Commission’s interest in

deterring others from engaging in similar misconduct.

2. Penn’s arguments have no merit.

Penn presents a number of meritless arguments which only serve to

show that he has not accepted responsibility for his actions.

Penn argues that I cannot rely on his conviction because it has “not been

heard on the merits and … is in conflict with the law.”60 But Penn pleaded

guilty, thereby putting the merits inquiry to rest.61 And the Advisers Act,

which allows the entry of a bar based on a conviction, defines the term

See Tzemach David Netzer Korem, Exchange Act Release No. 70044,

2013 WL 3864511, at *6 n.50 (July 26, 2013).

Geiger v. SEC, 363 F.3d 481, 489 (D.C. Cir. 2004) (holding that a finding

of egregiousness “justifies the inference” that misconduct will recur);

Warwick Capital Mgmt., Inc., Advisers Act Release No. 2694, 2008 WL

149127, at *11 (Jan. 16, 2008) (“The existence of a violation raises an

inference that the violation will be repeated, and where the misconduct

resulting in the violation is egregious, the inference is justified.”).

Opp’n at 7.

See Kornman, 2009 WL 367635, at *8; Don Warner Reinhard, Exchange

Act Release No. 63720, 2011 SEC LEXIS 158, at *26 & nn.32-33 (Jan. 14,

2011) (a respondent cannot challenge a plea agreement in a Commission

proceeding); see also United States v. Andreadis, 366 F.2d 423, 433 (2d Cir.

1966) (“Under New York law the guilty pleas entered by appellants in the

state proceeding were formal judicial admissions of the allegations contained

in the information.”); cf. United States v. Podell, 572 F.2d 31, 35 (2d Cir.

1978) (“[A] criminal conviction, whether by jury verdict or guilty plea,

constitutes estoppel in favor of the United States in a subsequent civil

proceeding as to those matters determined by the judgment in the criminal

case.”).

convicted to include a plea of guilty.62 The fact of an appeal makes no

difference.63

And Penn’s subjective belief that his conviction—which resulted from his

guilty plea—is invalid is irrelevant. As I have already noted, he cannot

collaterally attack his conviction in this proceeding.64

Penn also claims that members of the Division “worked in concert with

the” Manhattan district attorney and “constructed a [c]omplaint” that “was

used to construct an unlawful [i]ndictment.”65 Penn, however, provides no

evidence that members of the Division “worked in concert with the”

Manhattan district attorney. Moreover, he does not attempt to explain what

would be improper about Division personnel alerting prosecutorial

authorities that Penn likely committed a crime. Further, if Penn thought

something untoward had occurred in relation to this indictment, the proper

forum to raise the issue would have been the trial court.

Penn next takes aim at his injunction, but he also cannot attack in this

proceeding the injunction the district court entered, orders the district court

issued, or the Division’s conduct before or during the litigation before the

district court.66

To the extent Penn has requested a stay based on his argument that his

conviction is invalid,67 his argument is meritless, and a stay is not warranted.

15 U.S.C. § 80b-2(a)(6); Div. Exs. 4, 6.

See United States v. 303 W. 116th St., 901 F.2d 288, 292 (2d Cir. 1990)

(“Generally, the pendency of an appeal from a conviction does not deprive a

judgment of its preclusive effect.”). Even if the pendency of an appeal did

matter, Penn has already lost his appeal. Div. Ex. 8.

See Elliott v. SEC, 36 F.3d 86, 87 (11th Cir. 1994); Kornman, 2009 WL

367635, at *8; see also Prehearing Tr. 31–32 (explaining Penn’s inability in

this forum to collaterally attack the state and district court judgments

against him).

Opp’n at 10.

Franklin, 2007 WL 2974200, at *4 & nn. 13-14.

See Opp’n at 23–24.

This would be the case even if an appeal were pending.68 Penn’s stay motion

is denied.

Penn’s arguments are thus meritless. In light of the foregoing, I find that

it is in the public interest to impose a collateral bar against Penn.69

Order

The Division of Enforcement’s motion for summary disposition is

GRANTED.

Under Section 203(f ) of the Investment Advisers Act of 1940, Lawrence

E. Penn III is BARRED from associating with an investment adviser, broker,

dealer, investment adviser, municipal securities dealer, municipal advisor,

transfer agent, or nationally recognized statistical rating organization.

This initial decision will become effective in accordance with and subject

to the provisions of Rule 360.70 Under that rule, a party may file a petition for

review of this initial decision within twenty-one days after service of the

initial decision. A party may also file a motion to correct a manifest error of

fact within ten days of the initial decision, pursuant to Rule 111.71 If a motion

to correct a manifest error of fact is filed by a party, then a party shall have

twenty-one days to file a petition for review from the date of the

undersigned’s order resolving such motion to correct a manifest error of fact.

The initial decision will not become final until the Commission enters an

order of finality. The Commission will enter an order of finality unless a

party files a petition for review or motion to correct a manifest error of fact or

Jon Edelman, File No. 3-8950, 1996 SEC LEXIS 3560, at *2 (May 6,

1996) (“The pendency of an appeal of a criminal conviction generally is an

insufficient basis upon which to grant a motion to stay proceedings.”).

In his amended answer, Penn referred to a “motion for more definitive

statement,” Am. Answer at 1–2, but did not elaborate or separately file such

a motion. To the extent Penn has moved for a more definite statement, his

motion is denied.

See 17 C.F.R. § 201.360.

See 17 C.F.R. § 201.111.

the Commission determines on its own initiative to review the initial decision

as to a party. If any of these events occurs, the initial decision shall not

become final as to that party.

_______________________________

James E. Grimes

Administrative Law Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.