Petition of Everest Investment Adv. ( 2019 )

In the Matter of the Petition of Everest Investment
Advisors, Inc., et al.
Case No. 1474 September Term, 2017
Opinion by Meredith, J.
ADMINISTRATIVE AGENCIES – REGULATORY SANCTIONS – MARYLAND
SECURITIES ACT. The Maryland Securities Act empowers the Maryland Securities
Commissioner to impose sanctions against registered investment advisors for violations
of the Act, including fines of up to $5,000 per violation and a permanent bar from
engaging in the investment advisor business in Maryland. Upon judicial review, the court
considers whether the sanction imposed by the Commissioner was arbitrary or capricious,
and will defer to the Commissioner unless the sanction was imposed unreasonably or
without a rational basis.
Circuit Court for Baltimore City
Case No. 24-C-17-001711
REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 1474
September Term, 2017
IN THE MATTER OF THE PETITION OF
EVEREST INVESTMENT ADVISORS, INC.,
ET AL.
Meredith,
Berger,
Zarnoch, Robert A.
(Senior Judge, Specially Assigned),
JJ.*
Opinion by Meredith, J.
Filed: October 31, 2019
* Chief Judge Matthew Fader did not
participate in the Court’s decision to designate
this opinion for publication pursuant to Md.
Rule 8-605.1.
Pursuant to Maryland Uniform Electronic Legal
Materials Act
(§§ 10-1601 et seq. of the State Government Article) this document is authentic.
2019-10-31 14:47-04:00
Suzanne C. Johnson, Clerk
After the Maryland Securities Commissioner (the “Commissioner”), appellee,
imposed sanctions against Philip Rousseaux, appellant, and two companies he owned—
Everest Investment Advisors, Inc. (“EIA”), and Everest Wealth Management, Inc.
(“EWM”)—Mr. Rousseaux and his two companies filed a petition for judicial review in
the Circuit Court for Baltimore City. In that court, Mr. Rousseaux and his companies did
not contest any of the Commissioner’s findings that they had committed over a thousand
violations of Maryland securities law, but they argued that the disciplinary sanctions
imposed by the Commissioner were arbitrary and capricious because of their severity
despite being authorized by Maryland Code (1975, 2014 Repl. Vol.), Corporations and
Associations Article (“CA”), §11-701.11
1
The version of CA § 11-701.1(b) in effect at the time of the charges against Mr.
Rousseaux and his companies provided that the Commissioner is authorized to impose
the following disciplinary orders after finding violations of the Maryland Securities Act:
(b) Whenever the Commissioner determines after notice and a
hearing (unless the right to notice and a hearing is waived) that a
person has engaged in any act or practice constituting a violation of
any provision of this title or any rule or order under this title, the
Commissioner may in his discretion and in addition to taking any
other action authorized under this title:
(1) Issue a final cease and desist order against such person;
(2) Censure such person if such person is registered under this
title;
(3) Bar such person from engaging in the securities business
or investment advisory business in this State;
(4) Issue a penalty order against such person imposing a civil
penalty up to the maximum amount of $5,000 for any single
violation of this title; or
continued…
The circuit court upheld the Commissioner’s disciplinary rulings, and Mr.
Rousseaux alone filed a notice of appeal.
QUESTION PRESENTED
Mr. Rousseaux’s brief states that the single issue presented in this appeal is the
question posed at the end of this paragraph:
The sanctions ordered against Mr. Rousseaux—revocation of his
investment adviser representative registration, permanent bar from the
Maryland securities and investment advisory industry, and a $255,000
fine—are unprecedented and disproportionately harsh given the misconduct
at issue. Accordingly, Mr. Rousseaux lacked notice that his compliance
errors could result in the severe sanctions imposed. Does the
unprecedented and disproportionately harsh nature of the sanctions and
resulting lack of notice, and thus lack of due process, render the sanctions
imposed against Mr. Rousseaux arbitrary and capricious?
The answer to the question is that there was no lack of notice, no lack of due
process, and no imposition of arbitrary or capricious sanctions. Accordingly, we shall
affirm the judgment of the Circuit Court for Baltimore City.
FACTS AND PROCEDURAL BACKGROUND
The “Maryland Securities Act” (“the Act”) is Title 11 of the Corporations and
Associations Article. See CA § 11-805. It provides the statutory framework for the
regulation of the securities and investment advisory businesses in Maryland. Section 11-
201 establishes, within the Office of the Attorney General of Maryland, a Division of
_______________________
continued…
(5) Take any combination of the actions specified in this
subsection.
2
Securities (the “Division”), which administers the Maryland Securities Act. The Division
is headed by the Securities Commissioner.
CA § 11-701 vests enforcement authority, including subpoena power, in the
Commissioner. As noted above, CA § 11-701.1(b) authorizes the Commissioner to order
a broad range of disciplinary actions after determining that “a violation” of the Maryland
Securities Act has occurred, including barring the violator from engaging in the securities
business or investment advisory business in this State.
On June 17, 2015, the Division served an order to show cause upon counsel for
Mr. Rousseaux and his companies (EIA and EWM), alleging a long list of securities act
violations dating back to 2004, and ordering that
Respondents EIA and Rousseaux each show cause why each Respondent’s
registration as an investment adviser or investment adviser representative,
respectively, should not be revoked; why Respondents EIA, EWM, and
Rousseaux should not be barred permanently from engaging in the
securities and investment advisory business in Maryland; and why a
statutory penalty of up to $5,000 per violation should not be entered against
each Respondent[.]
The show cause order alleged a large number of violations of the Act by Mr.
Rousseaux and his companies. Because Mr. Rousseaux does not dispute in this appeal
any of the factual or legal findings made by the Commissioner other than the sanctions,
we will quote extensively from findings made by the Commissioner. 2
2
On November 1, 2016, the Maryland Securities Commissioner “delegate[d]” to a
Special Assistant Attorney General who had formerly served as Deputy Securities
Commissioner: “the powers and authority of the Securities Commissioner under the
Maryland Securities Act . . . to rule on exceptions, preside over any oral argument, make
any other necessary rulings and render a final decision in this matter [i.e., File No. 2014-
continued…
3
Violations
The main areas of focus were the following.
Misrepresentations related to unauthorized use of MetLife Medallion Signature
Guarantee stamps
In order to appreciate the significance of Rousseaux’s misconduct with respect to
his use of misappropriated pre-stamped MetLife Medallion Signature Guarantee forms, it
is necessary to understand how the Medallion stamps are normally utilized in connection
with transferring securities. The following description is provided on the website of the
United States Securities and Exchange Commission (“SEC”) at https://www.sec.gov/fast-
answers/answers-sigguarhtm.html (last visited 10/29/2019):
Signature Guarantees: Preventing the Unauthorized
Transfer of Securities
If you hold securities in physical certificate form and want to transfer or
sell them, you will need to sign the certificates or securities powers. You
will probably need to get your signature “guaranteed” before a transfer
agent will accept the transaction. Although it’s an inconvenience to get
your signature guaranteed, the process protects you by making it harder for
people to take your money by forging your signature on your securities
certificates or related documents. Transfer agents insist on signature
guarantees because they limit their liability and losses if a signature turns
out to be forged. One way to avoid having to get your signature guaranteed
is to have your securities held in street name, meaning that your securities
are held in the name of your brokerage firm instead of your name.
An investor can obtain a signature guarantee from a financial institution –
such as a commercial bank, savings bank, credit union, or broker dealer –
_______________________
continued…
0119, pertaining to Philip Rousseaux, Everest Investment Advisors, Inc., and Everest
Wealth Management, Inc.].” For purposes of this appeal, we will refer to this delegate as
“the Commissioner.”
4
that participates in one of the Medallion signature guarantee programs. The
three Medallion signature guarantee programs are the:
› Securities Transfer Agents Medallion Program (STAMP) whose
participants include more than 7,000 U.S. and Canadian financial
institutions.
› Stock Exchanges Medallion Program (SEMP) whose participants
include the regional stock exchange member firms, and clearing and trust
companies.
› New York Stock Exchange Medallion Signature Program (MSP)
whose participants include NYSE member firms.
If a financial institution is not a member of a recognized Medallion
Signature Guarantee Program, it would not be able to provide
signature guarantees. Also, if you are not a customer of a participating
financial institution, it is likely the financial institution will not
guarantee your signature. Therefore, the best source of a Medallion
Guarantee would be a bank, savings and loan association, brokerage
firm, or credit union with which you do business.
A Medallion imprint or stamp indicates that the financial institution is a
member of a Medallion signature guarantee program and is an acceptable
signature guarantor. By participating in the program, financial institutions
can guarantee customer signatures with the assurance that their guarantees
will be immediately accepted for processing by transfer agents.
Transfer agents can refuse to accept a signature guarantee from an
institution that does not participate in the Medallion program or that is
not recognized by the transfer agent. While guarantor firms can charge a
fee for their services, they often don’t and offer them as part of their
customer services.
If you have general questions about Medallion signature guarantees or how
the Medallion program works, you can send an email to Kemark Financial
Services, Inc., the program administrator for STAMP and SEMP, at
contactkfs@kemark.com. The SEC provides Kemark’s email address for
information purposes only. We cannot endorse any commercial entity, and
we do not endorse or recommend any of its products or services. For
specific questions about a security, the Shareholder Services Department of
the company whose shares you own or its respective transfer agent may be
best suited to assist you.
5
(Emphasis added.)
The website for Kemark Financial Services, Inc., the program administrator of the
Securities Transfer Agents Medallion Program (STAMP), provides this additional
information about the use of Medallion signature guarantees at
http://kemarkfinancial.com/programs.html (last visited 10/29/2019):
For over one hundred years, Issuers of Securities and Transfer Agents have
relied upon the signature guarantee process for the transfer of securities.
This process, codified in the Uniform Commercial Code (UCC), makes the
Transfer Agent liable for improper securities registration. To register or
re-register a security, the Transfer Agent or Issuer relies upon the
warranties made by a Medallion Guarantor when placing a Medallion
Guarantee Stamp on a security, namely, that the signature is genuine,
the signer is an appropriate person to endorse, and the signer had the
legal capacity to sign.
(Emphasis added.)
A financial institution that provides a Medallion signature guarantee pursuant to
the STAMP program agrees to indemnify and hold harmless issuers of securities and
transfer agents against all claims and losses arising out of the transfer, exchange, or
delivery of securities in reliance upon the Medallion guarantee. See
http://kemarkfinancial.com/assets/stampindemnityagreement.pdf (last visited
10/29/2019).
Rousseaux worked for MetLife Securities, Inc. and Metropolitan Life Insurance
Company, Inc., from January 2003 to October 2004. When Rousseaux ended his
affiliation with MetLife, he took with him a large quantity of forms intended to authorize
the transfer of a customer’s assets. These forms had been pre-stamped with MetLife’s
6
Medallion Signature Guarantee stamp in blank. In other words, these fill-in-the-blank
forms to facilitate the transfer of financial assets bore a MetLife Medallion stamp
purporting to guarantee the signature of the transferring party even though the forms had
not been signed by anyone. The presence of the MetLife Medallion stamp on the forms
represented that MetLife had verified the identity of the signor and would indemnify a
transferee who detrimentally relied upon the signature.
After Rousseaux left MetLife, while affiliated with USAllianz Securities, Inc., he
used at least 58 client authorization pages of asset transfer forms that had been pre-
stamped with the MetLife Medallion Signature Guarantee stamp to facilitate the transfer
of financial assets. Rousseaux also used at least 33 of the pre-stamped forms containing a
MetLife Signature Guarantee Medallion stamp in connection with the transfer of client
assets to Conseco.
The Commissioner found that “Respondent Rousseaux violated sections 11-301(2)
and (3) of the Act by obtaining and using, without authorization, blank ATA [Asset
Transfer Authorization] forms pre-stamped with the MetLife Medallion Signature
Guarantee Stamp, signed by him or by persons whose identity is unknown, in connection
with the sale of clients’ securities to invest in non-MetLife insurance products, which
thereby misrepresented that MetLife had verified the clients’ identities.”
Section 11-301(2) and (3) of the Act provide:
It is unlawful for any person, in connection with the offer, sale, or
purchase of any security directly or indirectly to:
***
7
(2) Make any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading; or
(3) Engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit on any person.
As noted above, Mr. Rousseaux has not challenged on appeal the Commissioner’s
finding that he committed 91 violations of CA § 11-301(2) and (3) relative to his
unauthorized use of the pre-stamped MetLife Medallion Signature Guarantee forms.
Misrepresentations regarding EIA’s “Wrap Fee Program”
In 2013, EIA began promoting a new investment program for its clients.
Rousseaux and EIA wanted to describe the program as a “wrap fee program.” The SEC
requires specific disclosures for a “wrap fee program,” which is a relationship in which
“an investment advisory client pays a flat fee for investment advisory services, and is not
charged separate brokerage commissions or transaction charges.” EIA and Rousseaux
filed brochures with the Division that stated that EIA was offering a wrap fee program,
pursuant to which “clients pay a single annualized fee of 200 basis points (2.00%) on the
assets being managed under the Program, which covers both investment management
fees and securities transaction charges.” But, despite promoting the program as a wrap
fee program that provided EIA’s “clients with the ability to trade in certain investment
products without incurring separate brokerage commissions or transactions charges,”
EIA’s participating investors were still charged transaction fees on transactions
conducted in their Charles Schwab accounts. At least 85 clients invested in the program
that was improperly promoted as a wrap fee program.
8
The Commissioner found that Rousseaux’s “knowing or reckless disregard of the
discrepancy between the wrap fee disclosure language and the actual operation of the
[program at EIA] caused investors in the [program] to be misled[,] and led to false and
misleading filings with the Commissioner.” The misleading statements violated CA §
11-303, which states:
It is unlawful for any person to make or cause to be made, in any
document filed with the Commissioner or in any proceeding under this title,
any statement which is, at the time and in the light of the circumstances
under which it is made, false or misleading in any material respect.
Misrepresentations regarding past performance results
A proprietary investment program that EIA began promoting in 2013 was called
the Everest Dynamic Growth Model Portfolio (also sometimes referred to by the acronym
“EDGM”). Promotional material EIA provided to prospective investors included
representations that the “5 and 10 years long term performance/growth of the [EDGM] as
of 1/1/2014” would have been 8.92% and 8.64%, respectively. But the performance
figures were not based upon analyses of actual performance. The Commissioner found:
“These performance figures were false.” Rousseaux subsequently sent a letter to clients
admitting that the performance data “was incorrect.” And, although at least two clients
were told that the model portfolio would have outperformed the Standard & Poor’s 500
Index by 37%, EIA was unable to provide the Division documentation to support that
claim.
9
Misrepresentations as to minimum account balance for the EDGM program
For marketing purposes, Rousseaux wanted to pitch the EDGM program as an
exclusive investment opportunity, and, to that end, EIA stated in a brochure for
prospective clients that there was a minimum investment requirement of $100,000 to
participate in the EDGM program. But, despite the representations regarding a
“minimum investment,” EIA waived the minimum so frequently that “[a]pproximately
half of the clients who entered the EDGM program invested less than $100,000.”
According to some EIA employees, the account minimum was actually just $10,000.
Misrepresentation of the amount of assets under management by EIA
One of the criteria for being listed in trade magazines such as Barron’s and Worth
is the amount of a financial advisor’s “Assets Under Management” or “AUM.” In an
effort to appear to have a greater amount of Assets Under Management than Rousseaux’s
companies actually had, Rousseaux intentionally counted among his companies’ Assets
Under Management certain assets of clients that were, in reality, being managed by
others.
Use of a fictitious “Investment Committee” for marketing purposes
Another of Rousseaux’s marketing ploys was to tell prospective clients that they
would not be accepted as an Everest client unless they were approved by the “Investment
Committee.” It appears that there was actually no such committee weeding out potential
clients. The Commissioner found that, in a 2013 talk Rousseaux gave to a “group of
successful insurance professionals,” Rousseaux described the Investment Committee as
10
“a marketing strategy [that] took away the decision-making power from prospects by
engaging in ‘psychological warfare’ and ‘freaking mind games.’”
The Commissioner found: “The Investment Committee had no set membership
and the decision to take on a client could be made by an individual employee. There were
no committee minutes that would establish that the Investment Committee conducted any
activities, and no evidence was presented of a charter or other organizing document for
the Investment Committee.” “These circumstances fully support the conclusion that the
Investment Committee was indeed a ‘ploy’ or marketing device that the Respondents
used to induce prospective clients to invest money with EWM . . . .” The Commissioner
concluded that the misrepresentations about the Investment Committee violated CA § 11-
302(a)(2) and (c). The Commissioner found:
[A]ll Respondents violated section 11-302(a)(2) of the Act by engaging in
acts, practices, or courses of business which operate or would operate as a
fraud or deceit on another person, . . . and also violated section 11-302(c) of
the Act in the solicitation of or in dealings with advisory clients, by
knowingly making untrue statements of material fact or omitting to state
material facts necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading.[3]
3
The sections of the Act referenced by the Commissioner—i.e., CA § 11-
302(a)(2) and (c)—state:
(a) It is unlawful for any person who receives, directly or indirectly, any
consideration from another person for advising the other person as to the
value of securities or their purchase or sale, or for acting as an investment
adviser or representative under § 11-101(i) and (j) of this title, whether
through the issuance of analyses, reports, or otherwise, to:
***
continued…
11
Misuse of a “Financial Planning Agreement” form
Yet another marketing tool Mr. Rousseaux and his companies used was found to
violate the Act. In 2012, both EIA and EWM began requiring new clients to sign a
“Financial Planning Agreement” that included a penalty provision stating: “[I]f the
accounts we signed up for today are not opened and funded within 60 days, we are to pay
a fee of $500 per account.” But, soon after EIA began utilizing the agreements, EIA filed
a registration application with the Division stating that it did not offer or provide financial
planning services or charge a fee for such services. And, in a brochure sent to its clients,
EIA failed to disclose that it charged a $500 fee if an account was not funded within 60
days. The Commissioner found that the use of these agreements was a violation of CA §
11-302(a)(2) and (3) and § 11-302(c), and that Mr. Rousseaux and his companies had
required at least 165 clients to sign forms containing the threatened $500 penalty.
Use of unregistered Investment Advisor Representatives
Another marketing tactic that violated the Act involved compensating clients for
soliciting other potential clients. As compensation for referring a new client to Everest,
_______________________
continued…
(2) Engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit on the other person;
***
(c) In the solicitation of or in dealings with advisory clients, it is unlawful
for any person willfully to make any untrue statement of a material fact, or
omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not
misleading.
12
the referring clients received a variety of rewards, including trips, dinners, and other
benefits. Under this “VIP Program,” 72 clients solicited new clients for the companies.
The Commissioner found that the soliciting clients met the definition of “investment
adviser representative” pursuant to CA § 11-101(i), and that Mr. Rousseaux and his
companies failed to register the soliciting clients as investment adviser representatives, in
violation of CA § 11-402(b), which, at the pertinent time, stated:
(b)(1) An investment adviser required to be registered may not employ or
associate with an investment adviser representative unless the
representative is registered under this subtitle.
***
(4) When an investment adviser representative begins or terminates a
connection with a registered investment adviser or terminates those
activities that make the representative an investment adviser representative,
the investment adviser shall promptly notify the Commissioner.
EWM held itself out as an Investment Advisor despite not being registered with the
Division as required
The Commissioner found that there appeared to be a lack of separation between
EWM and EIA, and that, in 2012, EWM was holding itself out as a “small boutique local
investment advisory firm” in print advertising and on the radio, despite the fact that
EWM was not registered with the Division as an investment advisor. Even after the
Division notified Mr. Rousseaux and EWM of the apparent violation, EWM continued
for a period of time to hold itself out as an investment advisor in violation of CA § 11-
401(b).
13
Number of violations
In the Commissioner’s final order, the Commissioner summarized as follows the
number of violations being taken into consideration in determining the appropriate
sanctions:
I have considered the following violations found in the Proposed Ruling
and the Proposed Decision:
(A) Respondent Rousseaux obtained and used, without authorization,
blank Authorization to Transfer Assets forms pre-stamped with the MetLife
Medallion Signature Guarantee Stamp, signed by him or by persons whose
identity is unknown, in connection with the sale of clients’ securities to
invest in non-MetLife insurance products, thereby representing that
MetLife had verified the clients’ identities. This occurred in 58 instances in
connection with investments in Allianz annuities and in 33 instances in
connection with investments in Conseco annuities after Rousseaux had left
MetLife. Proposed Ruling, Findings of Fact 25, 30.
(B) Respondents EIA and Rousseaux misrepresented the nature of the
EDGM program as a wrap fee program to EDGM’s 85 investors. Proposed
Ruling, Findings of Fact 40, 43.
(C) Respondents EIA and Rousseaux issued false and misleading
performance figures in the IPS for the EDGM program to EDGM’s 85
investors. Proposed Ruling, Findings of Fact 43, 44, 45.
(D) EDGM’s performance was misrepresented by an agent of EIA to 2
prospective investors. Proposed Ruling, Finding of Fact 46.
(E) Respondents EIA and Rousseaux failed to disclose to EIA’s clients that
EIA offered financial planning services and that it charged a $500 fee per
account not funded, in EIA’s Form ADV Part 2A brochure delivered by
email to 173 EIA clients in February 2013 and to 234 EIA clients in
February 2014. Proposed Decision, pages 10-11, Findings of Fact 3, 4;
Proposed Ruling, Finding of Fact 57.
(F) Respondents EWM and Rousseaux required at least 67 clients and
Respondents EIA and Rousseaux required at least 98 clients to sign a
Financial Planning Agreement with EWM or EIA, respectively, containing
a contingent $500 fee, the sole purpose of which was to penalize clients
14
who chose not to fund their accounts with EWM or EIA within 60 days, or
who chose not to continue their advisory relationship with EWM or EIA.
Proposed Ruling, Findings of Fact 50, 56.
(G) All Respondents used an “Investment Committee” and an “exclusive
club” as ploys to manipulate advisory clients or to convince them to open
advisory accounts. There is evidence regarding communications to 2
clients or prospective clients in which the Investment Committee was
specifically mentioned. Proposed Decision, page 8, Findings of Fact 3, 4.
(H) Respondents EIA and Rousseaux caused the amendment of EIA’s
Form ADV Part 2A brochure to inflate the stated minimum investment
amount needed to open an account, and caused this amended brochure to be
sent to 234 email accounts in February 2014. Proposed Ruling, Findings of
Fact 74, 75. Approximately half of the clients who entered the EDGM
Program invested less than the $100,000 stated minimum. Proposed
Decision at p. 15, Findings of Fact 1, 2, 3.
(I) Respondent EWM failed to include required provisions in the Financial
Planning Agreement in 67 instances and Respondent EIA failed to include
required provisions in the Financial Planning Agreement in 98 instances.
Proposed Ruling, Findings of Fact 50, 58.
(J) Respondents EIA and Rousseaux filed with the Division in March
2014, a Part 2A Disclosure Brochure and a Wrap Fee Program Brochure,
both of which falsely represented to the Division that EIA was offering a
wrap fee program under which clients would pay a single fee that covered
both investment management fees and securities transaction charges.
Proposed Decision, Facts Relevant to Sanctions, The Wrap Fee Brochure,
Finding of Fact IA, at paragraph 31 herein.
(K) Respondent EIA filed with the Division on 4 separate occasions EIA’s
Form ADV that falsely represented to the Division the amount of EIA’s
regulatory assets under management. Show Cause Order, paragraph 64;
Answers, paragraph 64; Proposed Ruling, Finding of Fact 68.
(L) Respondents EWM and Rousseaux held EWM out as an investment
adviser by requiring 67 of EWM’s clients to sign a Financial Planning
Agreement. Proposed Ruling, Findings of Fact 50, 84.
(M) Respondents Rousseaux and EIA implemented the VIP Program,
offering benefits accepted by 72 clients for soliciting clients for
15
Respondents. These soliciting clients were not registered as investment
adviser representatives. Proposed Ruling, Findings of Fact 85, 88, 89.
(N) Respondents EIA and Rousseaux failed to file new and updated or
different versions of contracts previously filed with the Division in 3
specified instances. Proposed Ruling, Finding of Fact 85; Proposed
Decision, page 11, Findings of Fact 1, 2, 3.
(O) Respondents EIA and Rousseaux failed to maintain and/or produce
required books and records in 3 specified instances. Proposed Ruling,
Findings of Fact 92, 93, 94.
(P) Respondent Rousseaux failed to amend his Form U4 as required in 1
specified instance. Proposed Ruling, Finding of Fact 104.
(Q) Respondents EIA and Rousseaux failed to amend EIA’s Form ADV in
1 specified instance. Proposed Ruling, Finding of Fact 106.
(R) Respondent EIA failed to enforce its Written Supervisory Guidelines
in 7 specified areas. Proposed Ruling, Findings of Fact 95, 96, 97, 98, 99,
100, 101, 102.
The Commissioner’s Final Order noted that the above list of violations “provide[s]
only a partial picture of the potential number” of violations of the Maryland Securities
Act committed by Mr. Rousseaux and his companies because the tallies
do not capture violations for which specific incidents are not enumerated.
Among other examples, the evidence does not allow a determination of
how many prospective EDGM investors, who ultimately did not invest in
EDGM, received false and misleading performance information for EDGM
and/or received false representations that EDGM was a wrap fee program in
which an investor would pay a single annualized fee of 2% on the assets
under management that covered both investment management fees and
securities transaction charges when, in fact, the investors were charged
transaction fees. Similarly, the evidence does not allow the identification
of every prospective client of EIA and/or EWM who was told that the
Investment Committee would decide whether that person would be
accepted as a client.
16
With that qualification, the Commissioner summarized the number of violations
attributable to the respondents in ¶ 61 of the Final Order:
61. Taking into account only the violations described in paragraph 58 of
this Final Order, the following summarizes the violations for each
Respondent:
• Rousseaux’s violations total 1,218, of which 92 are individual
violations, 990 are violations in which EIA was also a
participant, 134 are violations in which EWM was also a
participant, and 2 are violations in which all three Respondents
were participants.
• EIA’s violations total 1,103, of which 111 are best characterized
as individual violations, 990 are violations in which Rousseaux
was also a participant, and 2 are violations in which all three
Respondents were participants.
• EWM’s violations total 203, of which 67 are best characterized
as individual violations, 134 are violations in which Rousseaux
was also a participant, and 2 are violations in which all three
Respondents were participants.
(Emphasis in original.) In other words, the Commissioner found that Mr. Rousseaux
himself had committed or participated in 1,218 violations of the Act, and the two
companies he owned and oversaw committed an additional 178 violations.
The Sanctions
The Commissioner then explained the rationale for imposing the specific sanctions
the Commissioner had decided to impose:
62. For purposes of determining appropriate civil monetary sanctions, I
have considered the 2 violations in which all three Respondents were
participants in connection with assessing fines against each
Respondent individually.
63. If the maximum statutory penalty of $5,000 per violation were
assessed, the violations described in paragraph 58 of this Final Order
17
would yield a monetary penalty of $6,090,000 for Respondent
Rousseaux, $5,515,000 for Respondent EIA, and $1,015,000 for
Respondent EWM, or a total of $12,620,000 for all Respondents,
without giving effect to the multiplier created when the same set of
facts forms a basis for more than one Count.
64. I adopt some and modify and add to the other penalties proposed by
[the ALJ]. In doing so, I have acted pursuant to the discretion
granted in assessing penalties under section 11-701.1(b) of the Act,
and after careful consideration of the hearing record, the proposed
rulings and proposed decision of [the ALJ], the exceptions and
memoranda filed by the parties, the arguments presented in oral
argument by the parties, and the additional information submitted to
me at my request by counsel for Respondents regarding the Answer
filed by Respondent Rousseaux. In particular, I have taken into
consideration the steps that Respondents have taken to improve their
compliance with the Act and its related rules, especially since the
engagement of Oyster Consulting, LLC (“Oyster”).
65. I adopt [the ALJ]’s analysis that sanctions may be imposed for past
conduct. Specifically, section 11-701.1(b) of the Act provides in
pertinent part:
Whenever the Commissioner determines . . . that a person has
engaged in any act or practice constituting a violation of any
provision of this title or any rule or order under this title, the
Commissioner may in his discretion and in addition to taking
any other action authorized under this title: . . .
(3) Bar such person from engaging in the securities
business or investment advisory business in this State;
(4) Issue a penalty order against such person
imposing a civil penalty up to the maximum amount of
$5,000 for any single violation of this title; or
(5) Take any combination of the actions specified
in this subsection. (Emphasis added [by
Commissioner].)
66. Regarding the proposed monetary sanctions, although the violations
in this case are both pervasive and significant, I conclude that it
would be punitive to assess the maximum $5,000 penalty per
violation. [The ALJ] proposed assessing a total monetary fine of
18
$265,000, of which $15,000 would be assessed against Respondent
EWM and $250,000 would be assessed against Respondents EIA
and Rousseaux, jointly and severally. I conclude that this total
proposed monetary penalty, although based on a larger number of
violations, is in the appropriate range. I also conclude, however, that
the monetary penalties should be assessed in a way that is more
proportionate to the violations attributable to each Respondent.
67. As to the non-monetary sanction, I adopt [the ALJ]’s proposed
sanction suspending Respondent EIA’s registration as an investment
adviser for one year, rather than revoking that registration and/or
permanently barring Respondent EIA from the securities and
investment advisory businesses. [The ALJ] based this suspension
“on the amount of time Oyster . . . required . . . to review and redraft
the documents necessary to bring EIA into full compliance with the
Securities Act and applicable regulations.” Proposed Decision at p.
35. Although I conclude that Respondent EIA has not achieved full
compliance with the Act and its related rules, I also conclude that
this sanction properly balances the large number and serious nature
of Respondent EIA’s violations with its efforts to improve its
compliance program.
68. I also adopt [the ALJ]’s proposed sanction to bar permanently
Respondent EWM from engaging in the securities and investment
advisory businesses in this State. Respondent EWM is not now and
has never been registered as an investment adviser with the Division.
Despite the concerns that the Division expressed as early as January
2012 about the lack of separation between Respondent EIA and
Respondent EWM and that Respondent EWM appeared to be acting
as an unregistered investment adviser (Proposed Ruling, Findings of
Fact 79, 81), Respondent EWM persisted in acting as an investment
adviser. For example, although not registered as an investment
adviser with the Division, Respondent EWM required 67 of its
clients to sign a Financial Planning Agreement, even though the
activities connected with financial planning fall within the definition
of investment adviser, see section 11-101(h)(1)(ii) of the Act, and
the clients were required to sign the Financial Planning Agreement
contrary to the advice of EWM’s compliance consultant. Proposed
Ruling, Finding of Fact 84. I conclude that respondent EWM’s
activities of this type, which are described in the Proposed Ruling,
19
Finding of Fact 84, fully support the imposition of the permanent
bar.[4]
69. Although I adopt [the ALJ]’s proposed revocation of
Respondent Rousseaux’s investment adviser representative
registration, I conclude that it is also appropriate to impose the
permanent bar on Respondent Rousseaux requested by the
Division.
70. Respondent Rousseaux is the key person at both Respondent
EIA and Respondent EWM and set the tone from the top at both
of these entities. In addition to his individual violations,
Respondent Rousseaux participated in a very significant portion
of Respondent EIA’s and Respondent EWM’s violations, as well.
4
The ALJ’s proposed Finding of Fact 84, which was adopted by the
Commissioner in the Final Order in this case, provided:
84. Notwithstanding the Division’s concerns and the representations of
counsel, EWM has continued to act as [a]n investment advisor by,
among other things:
• executing at least 67 Financial Planning Agreements (FPAs) with
clients, contrary to the advice of EWM’s compliance consultant,
Rousseaux Tr., Ex. 31 at 5, Disney Aff., ¶75A and Ex. 15;
• using EWM letterhead in discussing securities related matters
with advisory clients, Disney Aff., ¶75B and Ex. 32;
• holding out EWM’s logo in comprehensive financial plans and
on client intake forms and other documents asking about
brokerage accounts, Rousseaux Tr., Exs. 1 and 7, Disney Aff.
¶75C and Ex. 33;
• offering financial planning services and security portfolio
management on its Facebook page, Rousseaux Tr., Ex. 4; and
• holding out as an investment advisory or financial advisory firm
on different social media websites, such as LinkedIn, Angie’s
List, Yelp, and the Better Business Bureau, Disney Aff., ¶75D
and Ex. 34.
20
The record amply documents that Respondent Rousseaux has
engaged in a pattern and practice over many years of both
violating the Act and its related rules and demonstrating a
striking lack of concern about compliance. The evidence begins
with his purposeful, unauthorized use of blank ATA forms pre-
stamped with the MetLife Stamp in over 90 separate instances
and continues through the many violations that occurred over
the time period covered by the Show Cause Order in connection
with his operation of Respondents EIA and EWM. In some
instances, Respondent Rousseaux and the entities he controlled
took actions, despite information, cautions, and advice received
from their own compliance consultants, that violated the Act and
its related rules. See Proposed Ruling, Findings of Fact 63, 64,
66, 72, 73, 74, 84; Proposed Decision at p. 10, Finding of Fact 2,
and at p. 13, Finding of Fact 2.
71. I have also considered that, as [the ALJ] noted in the Proposed
Decision at page 34, “[r]espondents have consistently taken the
position that they have not committed violations of law, or if
they have, the violations were ‘de minimis.’”[5]
72. In addition to characterizing violations, to the extent they are
acknowledged at all, as minimal, some violations are simply
described with words such as “oversight,” “error,” or “mistake.”
For example, the discussion of the wrap fee issue in
Respondents’ Opposition to Summary Decision Motion begins at
page 12 with a definition of wrap fee program from a publicly
available SEC website. Yet, the argument continues, EDGM
was “mistakenly marketed . . . as a wrap program because [EIA]
and Rousseaux did not understand that wrap was a specific term
used to describe how the fees would be deducted from investor
accounts.” Id. at p. 14.
73. Respondent Rousseaux worked for many years in the financial
industry as a registered representative and has been registered
as an investment adviser representative since 2011, yet he
contends that he did not know what a wrap fee program was.
Respondent Rousseaux nevertheless caused to be filed with the
5
The ALJ had noted in the May 5, 2016 Proposed Decision that the respondents
believed they should be subject to “no sanctions or minimal sanctions together with
retention of a compliance monitor.”
21
Division, and provided to EDGM investors, both a Disclosure
Brochure and a Wrap Fee Program Brochure that contained
unambiguous and accurate definitions of a wrap fee program.
These definitions flatly contradicted how transaction fees in the
EDGM Program were actually charged, which had also been
clearly explained to him by a Charles Schwab representative in
an email exchange when the program was being set up.
Respondent Rousseaux knew or should have known how this
critical aspect of the EDGM Program functioned. He was aware
of how the Program was being marketed to EDGM investors
and how it was being represented in regulatory filings. His
knowing or reckless disregard of the discrepancy between the
wrap fee disclosure language and the actual operation of the
EDGM Program caused investors in the EDGM Program to be
misled[,] and led to false and misleading filings with the
Commissioner. His actions in this instance are emblematic of his
ongoing disregard for both his compliance responsibilities and
his obligation to provide full and accurate disclosure to his
clients.
74. I therefore conclude that the imposition of a permanent bar on
Respondent Rousseaux, in addition to the revocation of his
investment adviser representative registration, is warranted.[6]
(Emphasis added.)
Judicial Review
Mr. Rousseaux, EIA, and EWM all joined in filing a petition for judicial review in
the Circuit Court for Baltimore City. The sole question raised by them in the circuit court
was similar to the question presented in this Court, challenging only the sanction imposed
by the Commissioner. The circuit court concluded that “the Commissioner’s sanction was
‘lawful and authorized,’ based on findings of fact and law in a ‘reasonable and rational’
Final Order, and was not so ‘extreme and egregious to be considered arbitrary and
6
The Commission is authorized by CA § 11-412 to revoke a registrant’s
registration.
22
capricious.’ [Citing Harvey v. Marshall, 389 Md. 243, 300 (2005).]” The court affirmed
the final order of the Commissioner.
This appeal by Mr. Rousseaux followed. Neither EIA nor EWM filed a notice of
appeal.
STANDARD OF REVIEW
Mr. Rousseaux contends the sanctions imposed by the Commissioner were
arbitrary and capricious. In Harvey v. Marshall, 389 Md. 243, 295-304 (2015), Judge
Glenn T. Harrell, Jr., surveyed Maryland cases that have applied the “arbitrary or
capricious” standard to review discretionary rulings of administrative agencies. In
Harvey, Judge Harrell observed that arbitrary or capricious decision-making “occurs
when decisions are made impulsively, at random, or according to individual preference
rather than motivated by a relevant or applicable set of norms.” Id. at 299. He further
noted that “[m]ost cases . . . recognize as a threshold matter the extremely deferential
nature of the ‘arbitrary or capricious’ standard.” Id.
More recently, the Court of Appeals has reiterated:
With respect to matters committed to agency discretion, a reviewing
court applies the “arbitrary and capricious” standard of review, which is
“extremely deferential” to the agency. Harvey v. Marshall, 389 Md. 243,
296-99 (2005); Spencer v. Md. State Bd. of Pharmacy, 380 Md. 515, 529
(2004). This standard is highly contextual, but generally the question is
whether the agency exercised its discretion “unreasonably or without a
rational basis.” Harvey, 389 Md. at 297; Arnold Rochvarg, Maryland
Administrative Law, § 20.1 at 255 (2011).
Maryland Dept. of the Environment v. County Comm’rs of Carroll County, 465 Md. 169,
202 (2019) (emphasis added). The Court added:
23
For guidance, a reviewing court may look to case law applying the
similar standard in federal administrative law. See Anacostia Riverkeeper,
447 Md. at 120-21; Office of People’s Counsel v. Public Service
Commission, 461 Md. 380, 399 (2018). Under this standard, a reviewing
court is not to substitute its own judgment for that of the agency and
should affirm decisions of “less than ideal clarity” so long as the court
can reasonably discern the agency’s reasoning. Bowman Transp., Inc. v.
Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86 (1974).
Id. (emphasis added; footnote omitted). Cf. ARNOLD ROCHVARG, PRINCIPLES AND
PRACTICE OF MARYLAND ADMINISTRATIVE LAW, §§ 23.8-23.9 (2011) (citing Maryland
State Board of Social Work Examiners v. Chertkov, 121 Md. App. 574 (1998), as setting
forth “the proper analysis for judicial review of an administrative sanction,” § 23.9 at
288).
DISCUSSION
Mr. Rousseaux avers that the “sanctions imposed against [him] are arbitrary and
capricious because their unprecedented severity denied Mr. Rousseaux notice of the
degree of sanctions that could be imposed, resulting in the denial of due process.” He
quotes a comment from Harvey, supra, 389 Md. at 303, where the Court of Appeals
observed that “any agency action may be ‘arbitrary and capricious’ if it is irrationally
inconsistent with previous agency decisions.” He also cites Christopher v. Montgomery
Cty. Dep’t of Health & Human Servs., 389 Md. 188, 215 (2004), and Montgomery Cty. v.
Anastasi, 77 Md. App. 126, 137 (1988) (“In rendering opposite decisions based on
indistinguishable facts, without adequately explaining the basis for doing so, the Board
has exercised this authority in an arbitrary manner in violation of Maryland State
Government Article § 10–215(g)(3)(vi).”).
24
Mr. Rousseaux contends that he had inadequate notice of the potential sanctions
for his violations of the Act because, he claims, the sanctions the Commissioner imposed
against him were not consistent with prior decisions of the Division. He asserts: “Publicly
available, full adjudications of contested cases by the Securities Division do not reveal
that the Securities Division has ever permanently barred an individual from the Maryland
securities and investment advisory industry where, as the [Commissioner] found here, an
individual had compliance failings but did not misappropriate client funds, cause material
financial injury to clients, act as an unregistered representative, or sell unregistered
securities.” He adds: “Moreover, the Securities Commissioner has imposed revocations
and bars from the securities and investment advisory industry only where respondents’
misdeeds included a failure to register themselves or their securities.” Consequently, he
asserts, he “had no notice that his misconduct could lead to a permanent revocation and
bar and a $255,000 fine.”
The Commissioner responds that Mr. Rousseaux did not cast his lack-of-notice
argument in due process terms during the hearings at the agency level. But, aside from
the preservation deficiency, the Commissioner asserts that Mr. Rousseaux’s argument
that he had no notice that his 1,218 violations of the Act could result in a permanent bar
is specious. The Act plainly authorizes the Commissioner to impose that sanction for any
violation of the Act, and the Division’s show cause order directed the respondents—
including Mr. Rousseaux—to show cause why they should not be permanently barred
from engaging in the securities and investment advisory business in Maryland. We agree
with the Commissioner that the lack of notice argument is without merit.
25
With respect to Mr. Rousseaux’s argument that the sanctions imposed upon him
by the Commissioner were unreasonably harsh when compared to prior cases, the
Commissioner responds that Mr. Rousseaux has not identified any prior case in which a
respondent’s violations were the same as Rousseaux’s, but, even if there were such a
case, the Commissioner would not be obligated to imposed an identical sanction if there
was ample justification, explained by the Commissioner, to impose the sanction that Mr.
Rousseaux received. And, here, the Commissioner asserts, the final order “provided
detailed reasoning explaining the basis for the sanctions imposed against Mr. Rousseaux
in light of the number and nature of the violations he had committed.” The
Commissioner argues that the prior Division cases cited by Mr. Rousseaux do not prove
that the sanctions imposed in his case were arbitrary and capricious because (a) they are
factually distinguishable, and (b) they demonstrate that the sanction barring a registrant
from engaging in business in Maryland for violations of the Act has been imposed many
times since it was authorized by the General Assembly in 1989.
The Commissioner points out that Mr. Rousseaux—and the companies he
controlled—committed “an unprecedented number of violations of the Securities Act.”
Also, his violations occurred over a long period of time, which was a point emphasized
by the Commissioner in the final order: “Respondent Rousseaux has engaged in a pattern
and practice over many years of both violating the Act and its related rules and
demonstrating a striking lack of concern about compliance.”
Further, the Commissioner notes in the brief filed in this Court:
26
[M]any of Mr. Rousseaux’s violations were intentional and committed in
contravention of advice [he] received from compliance consultants or from
warnings issued by the Division. Very few of the [prior Division] decisions
identified in [Mr. Rousseaux’s] brief contain findings of intent or
recklessness. Mr. Rousseaux, however, was found to have engaged in
fraudulent, dishonest, and unethical behavior.
In our view, no rational person who is registered to act as an investment advisor in
Maryland could review the results of the contested cases cited by Mr. Rousseaux and,
based upon that review, reasonably conclude that there was no likelihood of being barred
from providing investment advisory services if that person committed the violations of
the Act that the Commissioner found Mr. Rousseaux had committed.
Indeed, we fail to see how a rational person in the investment advisory business in
Maryland could claim a lack of notice that the Commissioner has been empowered since
1989 to impose a bar, plus a fine, for any violation of the Act. The statute is absolutely
clear on this point. Here, the Commissioner found—and Rousseaux has not challenged
the Commissioner’s finding that—Rousseaux violated CA §§ 11-301(2), 11-301(3), 11-
302(a), 11-302(a)(2), 11-302(a)(3), 11-302(c), 11-303, 11-401(b), 11-402(b), 11-411, 11-
411(a), 11-411(d), 11-412(a)(2), and 11-412(a)(7), as well as COMAR 02.02.05.11,
02.02.05.12, and 02.02.05.16. And many of the violations were repeated multiple times.
We perceive no lack of notice to Mr. Rousseaux that he was subject to being barred as a
sanction for his violation.
In addition to claiming he had no notice of the potential sanctions for his
violations of the Act, Mr. Rousseaux argues, in the alternative: “Sanctions that are
extremely or egregiously disproportionate to the underlying misconduct render a decision
27
arbitrary and capricious. [Citing] Md. Aviation Admin. v. Noland, 386 Md. 556, 581
(2005).” He further asserts that the factors enumerated in a federal case—Steadman v.
S.E.C., 603 F.2d 1126, 1140 (5th Cir. 1979)—“provide useful guidance for assessing
whether Mr. Rousseaux’s sanctions were arbitrary or capricious in light of the
misconduct at issue.” In his brief, he states:
In a decision followed by other federal courts of appeals, the Court of
Appeals for the Fifth Circuit set forth factors relevant to an agency’s
imposition of sanctions for securities law violations:
[i.] the egregiousness of the defendant’s actions, [ii.] the
isolated or recurrent nature of the infraction, [iii.] the degree
of scienter involved, [iv.] the sincerity of the defendant’s
assurances against further violation, [v.] the defendant’s
recognition of the wrongful nature of his conduct, and [vi.]
the likelihood that the defendant’s occupation will present
opportunities for future violations.
Steadman v. S.E.C., 603 F.2d 1126, 1140 (5th Cir. 1979). The factors
provide useful guidance for assessing whether Mr. Rousseaux’s sanctions
were arbitrary or capricious in light of the misconduct at issue.
(Footnote omitted.)
As a preliminary matter, we point out that the Steadman case was not binding
upon the Commissioner (or us), and is arguably in conflict with Maryland cases that
prohibit courts from imposing the courts’ own standards upon Maryland’s administrative
agencies. See Noland, supra, 386 Md. at 574-79. But, in any event, we reject Mr.
Rousseaux’s contention that application of the Steadman factors supports his assertion
that “a permanent revocation and bar and a $255,000 fine is egregiously disproportionate
and unnecessarily severe in light of Mr. Rousseaux’s misconduct.”
28
As the Court of Appeals observed in Maryland Dep’t of the Environment, supra,
465 Md. at 202, “generally the question is whether the agency exercised its discretion
unreasonably or without a rational basis.” (Internal quotation marks and citations
omitted.) Here, the Commissioner provided a clear and rational explanation for the
conclusion that the numerous violations committed by Mr. Rousseaux warranted a
substantial fine, plus revocation of his registration as an investment adviser representative
and imposition of a permanent bar from engaging in the securities and investment
advisory business in Maryland. As noted above, the Commissioner’s final order
explained:
70. . . . The record amply documents that Respondent Rousseaux
has engaged in a pattern and practice over many years of both violating the
Act and its related rules and demonstrating a striking lack of concern about
compliance. The evidence begins with his purposeful, unauthorized use of
blank ATA forms pre-stamped with the MetLife Stamp in over 90 separate
instances and continues through the many violations that occurred over the
time period covered by the Show Cause Order in connection with his
operation of Respondents EIA and EWM. In some instances, Respondent
Rousseaux and the entities he controlled took actions, despite information,
cautions, and advice received from their own compliance consultants, that
violated the Act and its related rules. . . .
71. I have also considered that, as [the ALJ] noted in the Proposed
Decision at page 34, “[r]espondents have consistently taken the position
that they have no committed violations of law, or if they have, the
violations were ‘de minimis.’”
72. In addition to characterizing violations, to the extent they are
acknowledged at all, as minimal, some violations are simply described [by
respondents] with words such as “oversight,” “error,” or “mistake.” [For
example, respondents argued in their opposition to the Division’s motion
for summary decision that the EDGM wrap fee program] was “mistakenly
marketed . . . as a wrap program because [EIA] and Rousseaux did not
understand that wrap was a specific term used to describe how the fees
would be deducted from investor accounts.” . . .
29
73. . . . [Mr. Rousseaux’s] actions [regarding the wrap fee program]
are emblematic of his ongoing disregard for both his compliance
responsibilities and his obligation to provide full and accurate disclosure to
his clients.
The Commissioner’s explanation of the $255,000 financial sanction was also quite
reasonable. Although the maximum fine of $5,000 for each of the 1,218 violations would
have totaled $6,090,000, the financial sanction imposed by the Commissioner was 4.2%
of that amount, and represented an average fine of $209.36 for each violation of the Act.
The Commissioner’s opinion persuades us that the factors relative to fines set forth in
COMAR 02.02.01.04 were considered.
Despite the Commissioner’s findings and explanation for the sanctions imposed,
Mr. Rousseaux asserts in his brief: “Here, every [Steadman] factor demonstrates that a
permanent revocation and bar and a $255,000 fine is egregiously disproportionate and
unnecessarily severe in light of Mr. Rousseaux’s misconduct.” In our view, however,
there was evidence relative to each of the Steadman factors that supported the sanctions
imposed. The Commissioner found that Mr. Rousseaux’s conduct was egregious; the
violations of the Act were numerous and continued over many years; there was scienter
that use of the pre-stamped MetLife forms was unauthorized, intentional, and deceitful;
there was a knowing or reckless misrepresentation of the wrap fee program; Mr.
Rousseaux had consistently “taken the position that [he had] committed no violations of
law”; he had displayed an “ongoing disregard for both his compliance responsibilities and
his obligations to provide full and accurate disclosure to his clients”; he had committed
violations despite being advised by his own compliance consultants of problems with the
30
conduct; and, in the absence of a bar, permitting him to retain his registration as an
investment advisor would provide fertile opportunities for him to commit future
violations. To the extent that the Steadman factors “provide useful guidance for assessing
whether Mr. Rousseaux’s sanctions were arbitrary or capricious,” the factors
overwhelmingly support our conclusion that the sanctions were neither arbitrary nor
capricious.
Although the Commissioner points out that Mr. Rousseaux engaged in a
fraudulent course of dealing by using the pre-stamped forms bearing the MetLife
Medallion Signature Guarantees after he was no longer employed by MetLife, and not
just once or twice, but intentionally, 91 times, Mr. Rousseaux minimizes these flagrant
acts of dishonesty by asserting that they occurred years ago. In his exceptions to the
ALJ’s proposed findings regarding the fraudulent use of the pre-stamped forms, he
stated: “Mr. Rousseaux does not contest that he took forms from MetLife and used them
through 2007. However, it is undisputed that Mr. Rousseaux has not used these forms for
the past nine years, that each client who requested the transfer had properly signed the
transfer form and wanted his or her assets transferred, and that certain of these clients
remain clients of the Respondents.” He suggests that the Commissioner should not be
able to consider these acts of dishonesty in deciding whether he should be permitted to
continue to provide investment advisory services in Maryland because, he proposes, there
should be a statute of limitations on sanctions for dishonest conduct. (Mr. Rousseaux
suggests five or ten years would be an appropriate time limit.)
31
The Act contains no such statute of limitations, and it would make little sense to
charge the Commissioner with protecting the public against dishonest registrants but then
prohibit the Commissioner from considering flagrant acts of deception that occurred
more than a certain number of years in the past. The Commissioner did not find the
argument about a statute of limitations persuasive, and we discern no abuse of discretion
in the Commissioner’s rejection of that argument.
As his final reason for arguing that the permanent bar should be overturned, Mr.
Rousseaux contends that the bar “is arbitrary and capricious because the [Commissioner]
decreased the number of violations yet increased the sanctions’ severity.” This argument
seems to suggest that the Commissioner should have been bound by the ALJ’s
recommendation of the appropriate sanction for violations. That turns on its head the fact
that the Commissioner is the final decision maker, and the ALJ is merely making a
recommendation with respect to the appropriate sanction. Until the Commissioner issued
the final decision in this case, there was no agency ruling with respect to the sanctions.
Mr. Rousseaux’s assertion that the Commissioner’s choice of sanctions was somehow
prohibited by our ruling in Md. Real Estate Comm’n v. Garceau, 234 Md. App. 324, 365-
66 (2017), disregards the substantially different procedural posture of that case and the
penalty we found troubling there. In Garceau, upon remand of a case after the circuit
court had reversed part of the agency’s ruling, the agency had not only declined to
modify the sanctions it had previously imposed, but also had provided no explanation for
rendering the same sanction. Here, the Commissioner was the final decision maker, and,
32
in compliance with COMAR 02.02.06.24B, the Commissioner’s final order provided a
rational explanation for the choice of sanctions.
JUDGMENT OF THE CIRCUIT COURT
FOR BALTIMORE CITY AFFIRMED.
COSTS TO BE PAID BY APPELLANT.
33