# INITIAL DECISION RELEASE NO. 1369

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ac383d60397505935

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

INITIAL DECISION RELEASE NO. 1369
ADMINISTRATIVE PROCEEDING
FILE NO. 3-17699
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

In the Matter of
SHERVIN NEMAN and
NEMAN FINANCIAL, INC.

APPEARANCE:

:
:
:
:

INITIAL DECISION MAKING FINDINGS
AND IMPOSING SANCTION BY DEFAULT
March 18, 2019

Amy Jane Longo for the Division of Enforcement,
Securities and Exchange Commission
Shervin Neman, pro se, and for Neman Financial, Inc.

BEFORE:

Carol Fox Foelak, Administrative Law Judge
SUMMARY

This Initial Decision bars Shervin Neman from the securities industry and dismisses the
proceeding, as moot, as to Neman Financial, Inc. They were previously enjoined against violations
of the federal securities laws.
I. INTRODUCTION
The Securities and Exchange Commission instituted this proceeding with an Order
Instituting Proceedings (OIP) on November 29, 2016, pursuant to Sections 203(e) and 203(f) of the
Investment Advisers Act of 1940. The proceeding is a follow-on proceeding based on SEC v. Neman,
No. 12-cv-3142 (C.D. Cal.), in which Respondents Shervin Neman and Neman Financial, Inc., were
enjoined from violating the antifraud, recordkeeping, and registration provisions of the federal
securities laws. Respondents filed their Answer to the OIP on April 3, 2017, and the Division of
Enforcement’s motion for summary disposition followed. On November 20, 2017, an Initial Decision
imposed associational bars on Shervin Neman and revoked the registration of Neman Financial as an
investment adviser. Shervin Neman, Initial Decision Release No. 1227, 2017 SEC LEXIS 3648
(A.L.J.).
On August 22, 2018, in light of Lucia v. SEC, 138 S. Ct. 2044 (2018), the Commission
ordered a new hearing in each pending proceeding, including this one, before an administrative law
judge (ALJ) who had not previously participated in the proceeding, unless the parties expressly
agreed to alternative procedures, including agreeing that the proceeding remain with the previous
presiding ALJ. Pending Admin. Proc., Securities Act of 1933 Release No. 10536, 2018 SEC
LEXIS 2058, at *2-3 (August 22 Order). Accordingly, the proceeding was reassigned to the

undersigned. Pending Admin. Proc., Admin. Proc. Rulings Release No. 5955, 2018 SEC LEXIS
2264 (C.A.L.J. Sept. 12, 2018).
As to each affected proceeding, including this one, in which the parties had not agreed to
alternative procedures, the Commission ordered that the newly assigned presiding ALJ “issue an
order directing the parties to submit proposals for the conduct of further proceedings.” August 22
Order, 2018 SEC LEXIS 2058, at *4. The Commission specified, “if a party fails to submit a
proposal, the ALJ may enter a default against that party.” Id. Accordingly, after the reassignment
of the proceeding, Respondents were afforded an opportunity to file an amended Answer, and the
parties were ordered to submit proposals for the conduct of further proceedings by December 14,
2018. Shervin Neman, Admin. Proc. Rulings Release No. 6120, 2018 SEC LEXIS 2692 (A.L.J.
Sept. 28, 2018) (September 28 Order). The September 28 Order was served on Respondents at
Neman’s current address by U.S. mail on October 1, 2018, in compliance with 17 C.F.R. §§
201.141(b), .150(c)(2), (d). Thereafter, Respondents’ only filing was a letter from Neman, dated
October 28, 2018, asking the undersigned to release him from prison, threatening to wreak divine
“wrath . . . on you, all of you in your country,” for noncompliance. Respondents failed to file a
proposal for the conduct of further proceedings1 and were ordered to show cause, by January 4,
2019, why Shervin Neman should not be barred from the securities industry and the investment
adviser registration of Neman Financial revoked. Shervin Neman, Admin. Proc. Rulings Release
No. 6410, 2018 SEC LEXIS 2692 (A.L.J. Dec. 18, 2018) (Order to Show Cause). The Order to
Show Cause was served on Respondents at Neman’s current address by U.S. mail on December 24,
2018, in compliance with 17 C.F.R. §§ 201.141(b), .150(c)(2), (d).2 Neither Respondent filed a
proposal for the conduct of further proceedings or responded to the Order to Show Cause by that date,
but the proceeding was stayed on January 16, 2019, as a result of the Commission’s “lapse in
appropriations.” Pending Admin. Proc., Securities Act Release No. 10602, 2019 SEC LEXIS 5, at
*1. The stay has now been lifted, and, absent a request for extension of time, any filing due
between December 27, 2018, and January 30, 2019, should have been filed by February 13, 2019.
Pending Admin. Proc., Securities Act Release No. 10603, 2019 SEC LEXIS 37, at *1 (Jan. 30,
2019). To date, neither Respondent has filed a proposal for the conduct of further proceedings, a
response to the Order to Show Cause, or a request for extension of time. Accordingly, in view of their
failures to make required filings, Respondents are in default, and the undersigned finds that the
allegations in the OIP are true as to them. See August 22 Order, 2018 SEC LEXIS 2058, at *4;
Pending Admin. Proc., 2019 SEC LEXIS 37, at *1; 17 C.F.R. § 201.155(a)(2).
On February 14, 2019, the undersigned proposed to dismiss the proceeding as to Neman
Financial on the basis that its investment adviser registration had already been cancelled and invited
the Division to comment or propose an alternative sanction. Shervin Neman, Admin. Proc. Rulings
Release No. 6456, 2019 SEC LEXIS 176 (A.L.J.). On February 27, 2019, the Division responded,
1

The Division of Enforcement filed a proposal. Neman’s October 28 letter requesting the
undersigned to have him released from prison, “or else,” is not a proposal “for the conduct of
further proceedings” in this proceeding. Neither the undersigned nor the Commission is authorized
to release him from prison.
2

The U.S. Postal Service tracking numbers for the mailings to Neman and Neman Financial are
70172400000008383227 and 70172400000008383210, respectively.
2

stating that it did not oppose the proposal to dismiss the proceeding as to Newman Financial in light
of the cancellation of its registration.
II. PROCEDURAL ISSUES
A. Official Notice
Official notice pursuant to 17 C.F.R. § 201.323 is taken of the Commission’s public official
records and of the docket reports and courts’ orders in SEC v. Neman and United States v. Neman,
No. 2:13-cr-289 (C.D. Cal.), conviction aff’d, No. 15-50087 (9th Cir. Dec. 8, 2016) a criminal
prosecution of Shervin Neman based on the same misconduct, and from Financial Industry
Regulatory Authority, Inc. (FINRA), records as well. See Joseph S. Amundsen, Exchange Act
Release No. 69406, 2013 SEC LEXIS 1148, at *1 n.1 (Apr. 18, 2013), pet. denied, 575 F. App’x 1
(D.C. Cir. 2014).
B. Collateral Estoppel
In his 2017 Answer to the OIP, Neman refers to the civil case against him, on which this
proceeding is based, and challenges the criminal proceeding, on which the civil proceeding is partly
based, on the bases of prosecutorial misconduct and a woeful lack of due process. He refers to his
November 2014 motion to set aside the conviction and dismiss the case or order a new trial, which
explores these topics in detail, and to the court’s November 14, 2014, order denying his motion.
However, he is estopped from relitigating those proceedings in this proceeding. It is well
established that the Commission does not permit a respondent to relitigate issues that were
addressed in a previous civil proceeding against the respondent, whether resolved by consent, by
summary judgment, or after a trial. See Jeffrey L. Gibson, Exchange Act Release No. 57266, 2008
SEC LEXIS 236, at *10 (Feb. 4, 2008) (injunction entered by consent), pet. denied, 561 F.3d 548
(6th Cir. 2009); John Francis D’Acquisto, Advisers Act Release No. 1696, 1998 SEC LEXIS 91, at
*1-2 & n.1, *7 (Jan. 21, 1998) (injunction entered by summary judgment); James E. Franklin,
Exchange Act Release No. 56649, 2007 SEC LEXIS 2420, at *11 & nn.13-14 (Oct. 12, 2007)
(injunction entered after trial), pet. denied, 285 F. App’x 761 (D.C. Cir. 2008); Demitrios Julius
Shiva, Exchange Act Release No. 38389, 1997 SEC LEXIS 561, at *5-6 & nn.6-7 (Mar. 12, 1997).
See also Marshall E. Melton, Exchange Act Release No. 48228, 2003 SEC LEXIS 1767, at *2-10,
22-30 (July 25, 2003). Nor does the Commission permit criminal convictions to be collaterally
attacked in its administrative proceedings. See Ira William Scott, Advisers Act Release No. 1752,
1998 SEC LEXIS 1957, at *8-9 (Sept. 15, 1998); William F. Lincoln, Exchange Act Release No.
39629, 1998 SEC LEXIS 193, at *7-8 (Feb. 12, 1998).
III. FINDINGS OF FACT
The facts of Respondents’ misconduct are described in SEC v. Neman, ECF Nos. 108 at 4-5,
134 at 2-3: Both the criminal and civil cases were based on Neman’s solicitation of investors for three
categories of investments: reselling foreclosed homes, pooling investor funds to purchase shares of
issuers such as Facebook, and pooling investor funds to purchase and “flip” pre-IPO shares. In fact,
Neman operated a Ponzi scheme, in which he paid returns to earlier investors with funds received from
later investors. Two specific investors lost a total of $3,279,185.63.

3

According to the Commission’s official records and FINRA records: Neman has never been
registered as, or associated with a registered broker-dealer or other registrant aside from Neman
Financial;3 and Neman Financial, of which Neman was sole owner, CEO, and Chief Compliance
Officer from June 2010, was registered as an investment adviser from that date until February 6,
2013, when its registration was cancelled.4 Neman was the sole owner of, and alone controlled,
Neman Financial and did not have any employees. SEC v. Neman, ECF No. 108 at 17. Respondents
were enjoined in SEC v. Neman on November 16, 2016, from committing violations of the
antifraud, recordkeeping, and registration provisions of the federal securities laws: Section 17(a) of
the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder; and Sections 203A, 204(a), 206(1), 206(2), and 206(4) of the Advisers Act and Rules
204-2 and 206-4-8(a)(1) thereunder. SEC v. Neman, ECF Nos. 108, 136. The court’s conclusions as
to Respondents’ violations of Securities Act Section 17(a) and Advisers Act Sections 203A, 206(1),
and 206(2) were based on Neman’s conviction in United States v. Neman. SEC v. Neman, ECF No.
108. The judgment against Neman Financial was entered by default. SEC v. Neman, ECF No. 123;
ECF No. 134 at 4.
Neman’s conviction was based on conduct arising from same facts on three dates in 2011
and 2012; he was convicted, after a four-day jury trial, of wire fraud in violation of 18 U.S.C. §
1343 and mail fraud in violation of 18 U.S.C. § 1341; he was sentenced to 135 months of
imprisonment, followed by three years of supervised release, and ordered to pay restitution of
$3,279,185.63. United States v. Neman, ECF Nos. 1, 96, 100, 102, 104, 113, 219, 220. Neman
filed numerous motions, including after October 14, 2014, when he commenced representing
himself. The court’s November 14, 2014, order denying his motion to set aside the conviction
noted that it was a reiteration of previous claims that he was ready, willing, and able to make full
restitution to the victims, based on a forged account statement purporting to establish that he had
nearly $4 million on account at Goldman Sachs. The court cautioned him against continuing to file
3

See BrokerCheck Report, available at http://brokercheck.finra.org (last visited February 4, 2019)
(indicating that Shervin Neman is not in FINRA records).
4

See Order Cancelling Registrations of Certain Investment Advisers Pursuant to Section 203(h) of
the Investment Advisers Act of 1940, Advisers Act Release No. 3547, 2013 SEC LEXIS 431, at *2
(Feb. 6, 2013) (cancelling the registrations of several investment advisers, including Neman
Financial); Notice of Intention to Cancel Registrations of Certain Investment Advisers Pursuant to
Section 203(h) of the Investment Advisers Act of 1940, Advisers Act Release No. 3490, 2012 SEC
LEXIS 3288, at *6 (Oct. 19, 2012) (giving notice that the Commission intends to cancel the
registrations of several
investment advisers, including Neman Financial).
See also
https://www.adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=159019 (last visited
Feb. 6, 2019) (showing Neman Financial’s registration status as “Cancelled,” effective February 6,
2013, and stating that it “is NOT currently registered and is NOT filing reports with the SEC or any
state.” It was registered as a California corporation, No. C3247034, on June 1, 2010, and its current
status is “FTB Suspended.” See https://businesssearch.sos.ca.gov/CBS/Detail (last visited Feb. 6,
2019). “FTB Suspended” indicates that it was suspended by the Franchise Tax Board for
infractions such as failure to file a return or pay taxes. See https://www.sos.ca.gov/businessprograms/business-entities/cbs-field-status-definitions/ (last visited Feb. 6, 2019).

4

motions asserting that he is able to make immediate restitution based on the fraudulent account
statement and stated, “He sought to perpetrate a fraud upon this court once. He would be wise to
make this the last time.” United States v. Neman, ECF No. 179 at 2-3.
The mail fraud offense occurred on June 20, 2012, after the SEC v. Neman court issued a
preliminary injunction against Respondents on April 18, 2012. See SEC v. Neman, ECF No. 17;
United States v. Neman, ECF No. 104.
IV. CONCLUSIONS OF LAW
Respondents have been permanently enjoined “from engaging in or continuing any conduct
or practice in connection with [acting as an investment adviser]” or “in connection with the
purchase or sale of any security” within the meaning of Sections 203(e)(4) and 203(f) of the
Advisers Act. Further, their misconduct underlying the injunctive action occurred while Neman
Financial was an investment adviser and Neman was associated with Neman Financial.
Neman, as owner, sole principal, Chief Compliance Officer, and CEO of Neman Financial,
was an associated person of an investment adviser. See Advisers Act Sections 202(a)(17), 203(f).
Investment advisers and their associated persons are fiduciaries. Fundamental Portfolio Advisors,
Inc., Securities Act Release No. 8251, 2003 SEC LEXIS 1654, at *29 (July 15, 2003), recons.
denied, Securities Act Release No. 8574, 2005 SEC LEXIS 1192 (May 23, 2005); see also
Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 17 (1979). As such, investment
advisers and their associated persons are held to a higher standard than broker-dealers and their
associated persons.
Neman Financial is accountable for the actions of its responsible officer, Neman. See C.E.
Carlson, Inc. v. SEC, 859 F.2d 1429, 1435 (10th Cir. 1988) (citing A.J. White & Co. v. SEC, 556
F.2d 619, 624 (1st Cir. 1977)). A company’s scienter is imputed from that of the individuals
controlling it. See SEC v. Blinder, Robinson & Co., 542 F. Supp. 468, 476 n.3 (D. Colo. 1982)
(citing SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1096-97 nn.16-18 (2d Cir. 1972)). As an
associated person of Neman Financial, Neman’s conduct and scienter are also attributed to the firm.
See Section 203(e) of the Advisers Act.
V. PUBLIC INTEREST ANALYSIS AND SANCTION
A collateral bar will be ordered as to Neman. 5 The proceeding as to Neman Financial will be
dismissed as moot since its investment adviser registration has already been cancelled.
A. Sanction Considerations
The Commission determines sanctions pursuant to a public interest standard. See 15 U.S.C.
§ 80(b)-3(f). The Commission considers factors including:
5

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which became
effective on July 22, 2010, provided collateral bars in each of the several statutes regulating
different aspects of the securities industry. The conduct that led to Respondents’ injunction and
Neman’s conviction occurred after July 22, 2010.
5

the egregiousness of the defendant’s actions, the isolated or recurrent nature of the
infraction, the degree of scienter involved, the sincerity of the defendant’s assurances
against future violations, the defendant’s recognition of the wrongful nature of his
conduct, and the likelihood that the defendant’s occupation will present opportunities
for future violations.
Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979) (quoting SEC v. Blatt, 583 F.2d 1325, 1334
n.29 (5th Cir. 1978)), aff’d on other grounds, 450 U.S. 91 (1981). The Commission also considers
the age of the violation and the degree of harm to investors and the marketplace resulting from the
violation. Marshall E. Melton, Exchange Act Release No. 48228, 2003 SEC LEXIS 1767, at *5
(July 25, 2008). Additionally, the Commission considers the extent to which the sanction will have
a deterrent effect. Schield Mgmt. Co., Exchange Act Release No. 53201, 2006 SEC LEXIS 195, at
*35 & n.46 (Jan. 31, 2006). The public interest requires a severe sanction when a respondent’s past
misconduct involves fraud because opportunities for dishonesty recur constantly in the securities
business. See Vladimir Boris Bugarski, Exchange Act Release No. 66842, 2012 SEC LEXIS 1267,
at *18 n.26 (Apr. 20, 2012); Richard C. Spangler, Inc., Exchange Act Release No. 12104, 1976
SEC LEXIS 2418, at *34 (Feb. 12, 1976).
B. Sanction
As described in the Findings of Fact, Respondents’ conduct was egregious and recurrent,
over a period of at least two years, and involved a high degree of scienter as indicated by the fact
that their misconduct included operating a Ponzi scheme, and the crimes of which Neman was
convicted required an intent to defraud. Neman even continued the conduct after Respondents had
been preliminarily enjoined from doing so. Their occupation, if they were allowed to continue it in
the future, would present opportunities for future violations. Absent a bar, they could engage in
fraud in the securities industry. The violations are recent. Neman has not recognized the wrongful
nature of his conduct or made assurances against future violations. To the contrary he has
continued to maintain that he was wrongly sanctioned, even using false documentation to show this
after his conviction. The over $3 million that he was ordered to pay in restitution is a measure of
the direct harm to the marketplace. Further, as the Commission has often emphasized, the public
interest determination extends beyond consideration of the particular investors affected by a
respondent’s conduct to the public-at-large, the welfare of investors as a class, and standards of
conduct in the securities business generally. See Christopher A. Lowry, Investment Company Act of
1940 Release No. 2052, 2002 SEC LEXIS 2346, at *20 (Aug. 30, 2002), aff’d, 340 F.3d 501 (8th Cir.
2003); Arthur Lipper Corp., Exchange Act Release No. 11773, 1975 SEC LEXIS 527, at *52 (Oct. 24,
1975). An injunction involving dishonesty requires a bar, and because of the Commission’s
obligation to maintain honest securities markets, an industry-wide bar as to Neman is appropriate.
As to Neman Financial, the OIP instituted the proceed to determine “[w]hat, if any remedial
action is appropriate in the public interest against Respondent Neman Financial pursuant to Section
203(e) of the Advisers Act.” OIP at III.C. While revoking its registration, the most stringent
sanction authorized by Advisers Act Section 203(e), is clearly appropriate, the Commission has
already cancelled its registration, and a lesser sanction, such as censure, would inappropriately
diminish the degree of Neman Financial’s wrongdoing. Neman Financial is, for all intents and
purposes, defunct. Its status as a California corporation is suspended, and it is the alter ego of
6

Neman, its sole owner, officer, employee, and control person, who will be under court supervision
for many years to come and will also be subject to a bar from the securities industry.
VI. ORDER
IT IS ORDERED that, pursuant to Section 203(f) of the Investment Advisers Act of 1940,
Shervin Neman IS BARRED from associating with any investment adviser, broker, dealer,
municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical
rating organization.
IT IS FURTHER ORDERED that the proceeding against Neman Financial, Inc., IS
DISMISSED.
This Initial Decision shall become effective in accordance with and subject to the provisions
of Rule 360 of the Commission’s Rules of Practice, 17 C.F.R. § 201.360. Pursuant to 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 of the Commission’s Rules of Practice, 17 C.F.R.
§ 201.111. 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 a motion to correct a manifest error of fact or the Commission
determines on its own initiative to review the Initial Decision as to a party. If any of these events
occur, the Initial Decision shall not become final as to that party.6
/S/ Carol Fox Foelak
Carol Fox Foelak
Administrative Law Judge

6

A respondent may also file a motion to set aside a default pursuant to 17 C.F.R. § 201.155(b). See
Alchemy Ventures, Inc., Exchange Act Release No. 70708, 2013 SEC LEXIS 3459, at *13 & n.28
(Oct. 17, 2013); see also David Mura, Exchange Act Release No. 72080, 2014 SEC LEXIS 1530
(May 2, 2014).
7

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ac383d60397505935. Public record. Not legal advice.