794 F. Supp. 2d 355
D.R.I.2011Background
- Jenkins is founder and sole owner of Locke Capital Management, an Newport, RI investment advisory firm.
- SEC alleges Jenkins fabricated a Swiss client, AM AG, to inflate assets under management and attract business.
- Locke allegedly reported AM AG as a client in marketing materials and in Form ADV filings.
- During examinations, Jenkins provided manipulated documents and data to support the AM AG story.
- Court resolved cross-motions for summary judgment: SEC's motion granted, Jenkins's motion denied.
- Remedies include permanent injunction, disgorgement jointly with Locke, and a civil penalty against Jenkins; Locke’s prior disgorgement is amended accordingly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was there a genuine issue of material fact about the existence of AM AG? | SEC argues AM AG did not exist; evident fabrication shown by records. | Jenkins contends AM AG existed; asserts exculpatory data were suppressed. | No genuine issue; AM AG did not exist based on record evidence. |
| Did Jenkins commit securities law violations based on the AM AG fabrication? | SEC proved misrepresentations and falsified records; scienter shown. | Jenkins disputes existence of Swiss client and credibility of evidence. | Yes; Jenkins liable under multiple securities statutes. |
| Are the proposed remedies (injunction, disgorgement, penalties) appropriate? | Disgorgement of gains and civil penalties warranted; ongoing risk justifies injunction. | Not explicitly stated as to penalties; argues records were incomplete. | Permanent injunction and disgorgement of $1,892,476 with penalties of $1,781,520 appropriate. |
| Should Locke also bear liability or penalties altered by the court's prior order? | Joint and several liability for disgorgement with Locke supported. | Not necessary to alter Locke’s penalties beyond prior order. | Court amended Locke’s civil penalty to $1,781,520; Jenkins jointly and severally liable for disgorgement. |
Key Cases Cited
- Ficken v. SEC, 546 F.3d 45 (1st Cir. 2008) (summary judgment permissible where misrepresentations are material and scienter shown)
- First Jersey Sec., Inc. v. City of New York, 101 F.3d 1450 (2d Cir. 1996) (disgorgement and penalties under securities laws)
- Happ v. SEC, 392 F.3d 12 (1st Cir. 2004) (disgorgement framework and deterrence considerations)
- Zandford v. U.S., 535 U.S. 813 (Supreme Court 2002) (broadened interpretation of ‘in connection with the sale of securities’)
- Pinter v. Dahl, 486 U.S. 622 (Supreme Court 1988) (broad construction of liability under securities statutes)