Abuse of Discretion – Judgment

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7^th Circuit Court of Appeals

Case Name: Securities and Exchange Commission v. Gary S. Williky

Case No.: 19-1243

Officials: BAUER, BRENNAN, and ST. EVE, Circuit Judges.

Focus: Abuse of Discretion – Judgment

Gary Williky appeals a judgment in favor of the Securities and Exchange Commission (“SEC”) that followed a bifurcated settlement agreement regarding Williky’s fraudulent conduct while working for the Indiana based company Imperial Petroleum, Inc. (“Imperial”). This court addressed the details of Imperial’s fraudulent scheme in United States v. Wilson, 879 F.3d 795 (7th Cir. 2018). Imperial fraudulently purchased finished biodiesel and resold it while claiming government incentives and tax-credits available to companies producing biodiesel from raw feedstock. Jeffery Wilson, Imperial’s ex-CEO, hired Williky to artificially inflate Imperial’s stock through a series of “wash and match trades” and “scalping” emails. In the 1990s, Williky similarly engaged in a pattern of “wash and match trades” for another company led by Wilson. As part of Imperial, Williky acquired millions of shares of its stock but failed to lawfully report his ownership levels when his shares surpassed five percent. At issue in this appeal is Williky’s conduct once the Imperial fraud unraveled. By July 2011, Williky knew Imperial misrepresented the source of its biodiesel to investors and, by November, knew the complete extent of Imperial’s fraud. Williky sold off the entirety of his Imperial shares by February 27, 2012, and avoided a loss of $798,217.

The SEC sued to permanently enjoin Williky from violating federal securities law, to enjoin Williky from acting as an officer or director of a public company, and to disgorge his financial gains. The SEC further sought to impose financial penalties, including a civil penalty for Williky’s insider trading. Before Williky faced his deposition, he entered into a bifurcated settlement with the SEC, conceding his involvement in the fraudulent scheme and agreeing that the district court would determine the financial remedies to be assessed. The SEC requested the statutory maximum civil penalty of $2,394,651 for insider trading, calculated as three times Williky’s avoided losses. Williky objected, arguing that the SEC’s proposed judgment ignored his cooperation with various governmental agencies investigating Imperial’s fraud. The district court denied the request for the maximum civil penalty as excessive and entered a judgment of $1,596,434, equal to two times the avoided losses. On appeal, Williky argues that the judgment still ignores his cooperation as a whistleblower and is thus an abuse of discretion. We find that the district court adequately assessed the value of Williky’s cooperation and affirm.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.