[ by Howard Haykin ] Two ex-RRs with Leeb Brokerage Services, and that firm's CCO (who also served as firm AML supervisor), had appealed the decisions and sanctions handed down by an SEC administrative law judge.  Recently. the SEC held that was attended by the respondents -  RR Ronald Bloomfield, RR John Martin, and CCO Robert Gorgiam, versus SEC Enforcement staffers. All three were barred from the industry and ordered to pay $100,000 penalties;  it was further ordered that the RR's should be disgorged of sale commissions. Law Judge's Findings. In the initial hearing, the administrative law judge found that, from early 2005 to mid-2007, RRs Bloomfield and Martin sold large amounts of penny stocks to the public - shares that were not registered and they were not subject to an exemption from registration. Such actions would be in violation of Sections 5(a) and 5(c) of the Securities Act of 1933. The law judge found that CCO Gorgia had violated Sections 15(b)(4) and 15(b)(6) of the Securities Exchange Act of 1934, by failing reasonably to supervise RR's Bloomfield, Martin, and a 3rd Leeb RR, in an effort to detect or prevent the RRs from committing the violations noted in the prior paragraph. All three were found to have willfully aided and abetted and caused Leeb's failure to file Suspicious Activity Reports ("SARs"), as required by Exchange Act Section 17(a) and Exchange Act Rule 17a-8.3 Sanctions Ordered by Law Judge. He issued cease-and-desist orders against Bloomfield, Martin, and Gorgia; barred them from association with a broker or dealer and from participation in a penny stock offering; were imposed 3rd-tier civil penalties of $100,000 each; and ordered Bloomfield and Martin to disgorge their ill-gotten gains, plus prejudgment interest. Appeals of Disgorgement. Bloomfield and Martin appealed the disgorgement order, contending that their alleged securities law violations "pertain solely to the Relevant Securities purchased and sold during the Relevant Period."  In their view, any disgorgement should not exceed the "gross commissions" earned on transactions in those securities.  Relying on figures introduced by Bloomfield, gross commissions were computed to total $150,000.  Both testified that Martin was allocated 55% of the gross commissions, or $82,500, while Bloomfield took home just 5%, or $7,500. The Division of Enforcement's Position. SEC staffers, on the other hand, contended that "[t]he pattern of conduct in the Uselton and Thimble accounts involved the sale to the public of dozens of securities, over an extended period of time, and Bloomfield's and Martin's failure to take steps to have Leeb file SARs with respect to this conduct helped enable the accounts to stay open and profitable."  In its view, disgorgement should include the commissions earned on all transactions in the 7 customer accounts at issue.  Relying on figures from evidence submitted by Enforcement, the more accurate take home earnings of the RRs were $272,000 and $965,000 for Bloomfield and Martin, respectively. Next Steps in Case. There's no apparent mention that the three were appealing the orders for their being barred or for the $100,000 penalties.  As far as the SEC is concerned, it called for another hearing to give both sides an opportunity of present breifs on the issue of disgorgement. The parties were directed to address the following questions:

• Do Bloomfield's and Martin's alleged Securities Act Section 5 violations relate solely to the securities specifically identified in the OIP?
• What are the amounts of commissions earned by Bloomfield and Martin that may be attributed to the Securities Act Section 5 violations alleged in the OIP as wrongfully obtained profits of such alleged violations?
• Did Bloomfield's and Martin's conduct underlying the alleged Exchange Act Section 17(a) and Exchange Act Rule 17a-8 violations relate solely to the securities specifically identified in the OIP?
• What are the amounts of commissions earned by Bloomfield and Martin that may be attributed to the Exchange Act Section 17(a) and Exchange Act Rule17a-8 violations alleged in the OIP as wrongfully obtained profits of such alleged violations?
• How did the conduct underlying the alleged Exchange Act Section 17(a) and Exchange Act Rule 17a-8 violations result in Bloomfield's and Martin's gaining those wrongfully obtained profits?
• How are those wrongfully obtained profits a reasonable approximation of the amounts of Bloomfield's and Martin's unjust enrichment resulting from the alleged Exchange Act Section 17(a) and Exchange Act Rule 17a-8 violations?

Hearing Closed. For further details, go to: [SEC Litigation Opinion 33-9334, 7/11/12].