Securities and Exchange Commission v. Gary S. Williky

In the
United States Court of Appeals
For the Seventh Circuit
No. 19-1243
SECURITIES AND EXCHANGE C OMMISSION,
Plaintiff-Appellee,
v.
G ARY S. WILLIKY ,
Defendant-Appellant.
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:15-cv-00357-WTL-MJD — William T. Lawrence, Judge.
SUBMITTED SEPTEMBER 16, 2019* —
D ECIDED NOVEMBER 8, 2019
* We have agreed to decide this case without oral argument because the
briefs and record adequately present the facts and legal arguments, and oral
argument would not significantly aid the court. Fed. R. App. P. 34(a)(2)(C).

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2 No. 19-1243
Before BAUER , BRENNAN , and ST. EVE , Circuit Judges.
BAUER , Circuit Judge. 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 bifur-

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No. 19-1243 3
cated 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.
I. BACKGROUND
In 2009, Gary Williky entered into confidential negotiations
with Imperial’s ex-CEO Jeffery Wilson and accepted a financial
public relations role with Imperial. In reality, Wilson hired
Williky to artificially inflate Imperial’s stock through illegal
market manipulation. This was not the first time Wilson and
Williky engaged in securities fraud. Williky’s long-standing
relationship with Wilson dated back to the 1990s. Williky
settled a lawsuit with the SEC for illegal “wash and match
trades” that he committed for another company led by Wilson.
SEC v. Williky, et al., 94-cv-2088 (N.D. Tex.). Although Williky’s
involvement in the Imperial scheme is not directly at issue in
this appeal, we recount some of his fraudulent activities as
context for Williky’s insider trading.

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4 No. 19-1243
Williky first sought to artificially raise Imperial’s stock price
by increasing its trading volume through “wash and match
trades.” Wash trades refer to trades that occur without a
change in beneficial ownership. Match trades, or “matched
orders,” are trades in which orders are entered with the
knowledge that substantially equivalent orders will be made
by the same or different person. These fraudulent tactics create
a false perception of market activity that does not reflect the
true supply and demand for the securities. Inflating the
volume of trades attracts additional market participants and
thereby artificially increases stock price. Williky used multiple
brokerage accounts in his and his wife’s names to conduct
a series of at least twenty “wash and match trades” from
March 4, 2010, to January 11, 2012. On many days within this
time period, Williky was responsible for between 50% to 100%
of Imperial’s trading volume.
Second, Williky personally sent out “scalping” emails
touting the potential value of Imperial’s stock without disclos-
ing his own relationship to Imperial or his intention to contem-
poraneously sell Imperial stock. Williky sent these emails out
to more than 200 recipients. In the days following the emails,
Williky sold Imperial stock and earned profits of over $60,000.
During this time, Williky acquired millions of shares and at
many points owned more than five percent of the company’s
stock without disclosing his ownership levels as required by
federal securities law.
By July 10, 2011, Williky learned that Imperial was lying to
investors about its biodiesel production. Specifically, a confi-
dential memo informed Williky that Imperial was using
partially processed oil or fat to make biodiesel. This informa-

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No. 19-1243 5
tion directly contradicted representations Williky had previ-
ously made that the fuel came from raw feedstock. Moreover,
a hedge fund informed Imperial that it would not invest since
the production of biodiesel from such materials failed to
qualify for the government incentives that Imperial claimed.
By November 18, 2011, Williky learned the complete extent of
Imperial’s fraud after the new Imperial CEO, John Ryer,
secretly recorded a conversation with the owner of Imperial’s
main suppler, Joe Furando. Ryer told Williky that Imperial was
purchasing finished fuel from Furando’s company and later
provided Williky with the tape. While in possession of all this
confidential information, Williky sold off the entirety of his
shares by February 27, 2012, avoiding a loss of $798,217.
As he sold his shares, Williky contacted federal authorities
with the hopes of becoming a whistleblower. However, though
Williky believes he provided the critical information that
toppled Imperial, the SEC presented evidence that it and other
federal agencies believed the Imperial scheme was already
unraveling. Williky anonymously called the Environmental
Protection Agency on December 27, 2011, to discuss suspected
wrongdoing without naming Imperial. Although Williky
claims this led to the investigation of Imperial, the SEC began
investigating Imperial as early as November 2011 and inter-
viewed its first witness on January 23, 2012, weeks before
Williky first reported Imperial’s violations on March 13, 2012.
Williky also contends that on this day he provided authorities
with the confidential tape recording between Ryer and
Furando, which he argues was the “smoking gun” that led to
the indictment and conviction of several co-conspirators in the
Imperial scheme. Furthermore, Williky says that as part of his

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6 No. 19-1243
productions to the SEC, he provided 36 documents that were
ultimately used in Wilson’s trial.
On March 2, 2015, the SEC charged Williky with violating
federal securities laws through market manipulation and
insider trading. On August 10, 2015, the district court sua sponte
administratively closed the case pending the resolution of the
criminal actions related to the Imperial scheme. The case was
reopened on January 19, 2017, but Williky did not file his
answer to the complaint until February 21, 2017, only after the
SEC had moved for a clerk’s entry of default. Once discovery
commenced, Williky objected to the deposition of himself and
his wife because of scheduling issues that the district court
found had “absolutely no basis.” Finally, instead of facing his
deposition, Williky entered into a bifurcated settlement with
the SEC in which Williky would accept the SEC’s proposed
injunctions, and the district court would determine the
financial remedies to be assessed against Williky based on the
facts of the complaint.
The SEC thereafter filed its motion for financial remedies,
requesting the disgorgement of $2,101,334 in ill-gotten gains
plus $427,931 in prejudgment interest, along with a civil
penalty for insider trading of at least $2,394,651. Williky
objected to the request for a civil penalty at the statutory
maximum of three times his avoided losses on the basis that it
“completely ignore[d] his cooperation with multiple govern-
mental agencies as well as his whistleblowing activities.” The
SEC argued Williky’s claims of cooperation were exaggerated,
but even if true, would not warrant a substantial reduction in
the civil penalty. The district court found that the request for
the maximum penalty was “excessive” and instead decided

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No. 19-1243 7
that a “penalty of $1,596,434, equal to two times the amount of
disgorgement, is appropriate.” The district court explained this
was not the first time Williky had to settle a securities fraud
dispute and that Williky had not taken responsibility for his
actions by claiming he only committed insider trading because
he was stressed and not thinking clearly. Finally, the district
court found Williky’s cooperation was “of limited value.”
Williky then filed a motion for reconsideration arguing the
court did not accurately determine the extent of his coopera-
tion. The district court denied the motion, having found “no
misapplication of law” and characterizing Williky’s arguments
as a “disagreement with the conclusion and a bare assertion
that the conclusion must have been due to a mistaken reliance
on the evidence.”
II. DISCUSSION
Williky appeals the civil penalty of $1,596,434 for insider
trading and asks this court to order a penalty of no more than
$798,217. Williky argues that the trial court incorrectly assessed
the value of his cooperation with federal authorities and
ignored the fact he entered into a bifurcated settlement, which
further proved his cooperation.
Along with other circuits, we review the district court’s
decision to impose a civil penalty for abuse of discretion. SEC
v. Happ, 393 F.3d 12, 32 (1st Cir. 2004); SEC v. Rajaratnam, 918
F.3d 36, 41 (2d Cir. 2019); SEC v. Life Partners Holdings, Inc., 854
F.3d 765, 781 (5th Cir. 2017). A court abuses its discretion only
if “the record contains no evidence upon which the court could
have rationally based its decision; the decision is based on an
erroneous conclusion of law; the decision is based on clearly

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8 No. 19-1243
erroneous factual findings; or the decision clearly appears
arbitrary.”United States v. Z Investment Properties, LLC, 921 F.3d
696, 698 (7th Cir. 2019) (numerical ordering omitted).
Both parties concur that in determining a civil penalty for
violations of federal securities law, the court should generally
consider factors such as: “the seriousness of the violation; the
defendant’s scienter; the repeated nature of the violations;
whether the defendant has admitted wrongdoing; the losses or
risk of losses caused by the conduct; any cooperation provided
to enforcement authorities; and ability to pay.” SEC v. Zenergy
Int’l, Inc., 2016 WL 5080423, at *16 (N.D. Ill. Sept. 20, 2016)
(numerical ordering omitted); see also SEC v. Custable, 1996 WL
745372, at *2–5 (N.D. Ill. Dec. 26, 1996), aff’d, 132 F.3d 36 (7th
Cir. 1997). These factors are certainly relevant, but we should
also point out that the civil penalty for insider trading comes
from its own independent statutory provision, the Insider
Trading Sanctions Act. 15 U.S.C. § 78u-1(a)(2). Whereas typical
civil penalties follow a three-tier system that are assessed per
violation or are otherwise limited to the gross amount of ill-
gotten gain, the Insider Trading Sanctions Act calculates the
penalty as a multiple of the losses avoided due to insider
trading. It is therefore clear that the overriding concern of the
civil penalty against insider trading is to “effect general
deterrence and to make insider trading a money-losing
proposition.” Rajaratnam, 918 F.3d at 41.
In this light, Williky’s focus on the nobility of his whistle-
blowing endeavors misses the mark since the civil penalty’s
main design is to deter insider trading, not to encourage
whistleblowing and cooperation after the fact. Thus, absent
any evidence of extraordinary cooperation, the most pertinent

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No. 19-1243 9
facts on record are that Williky is a recidivist federal securities
law offender who attempted to avoid responsibility in his
district court proceedings and, on appeal, still fails to admit
any wrongdoing related to insider trading. Given all of the
facts and circumstances, the district court properly determined
that a civil penalty was necessary to serve as an effective
deterrent. Even when considering the factors the parties
proposed, Williky has only addressed the cooperation he
provided to federal authorities and made assertions about his
innocence that are precluded by the terms of the bifurcated
settlement stating he would accept the complaint as true.
The district court also properly weighed the value of
Williky’s cooperation. Williky argues that the award of two
times the disgorgement amount “ignored Williky’s cooperation
with multiple governmental agencies as well as his whistle-
blowing activities.” Rather, the district court explicitly stated
that his cooperation was of limited value. Williky further
contends that the tape and evidence he provided were directly
used in the indictment, prosecution and conviction of the
criminal defendants in the Imperial fraud. The SEC argues that
Imperial was under investigation before Williky’s tip, that
Williky never admitted his wrongdoing in his interviews with
federal authorities, and that he was not an essential part of the
criminal prosecution since he was not called to testify in
Wilson’s criminal trial. The SEC adds that all the documents
that Williky provided were only given in response to compul-
sory subpoenas. Here, the district court assessed the value of
Williky’s cooperation and determined his overall conduct did
not warrant the maximum statutory penalty. We do not agree

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10 No. 19-1243
that the district court abused its discretion in deciding to
impose a civil penalty of two times Williky’s avoided losses.
Finally, Williky also argues that he is entitled to a reduced
penalty because he entered into a bifurcated settlement with
the SEC. Williky seems to view this as another example of his
cooperation and claims that the SEC consequentially spent
little to no funds to prosecute him. Williky then cites a string of
district court opinions to assert that courts assessing penalties
in bifurcated settlements either do not assert a penalty or
assert a penalty equaling the ill-gotten gain. Not only are all
of these cases about the general statute providing for civil
penalties as opposed to the Insider Trading Sanctions Act, but
not one of the cited cases discusses the bifurcated settlement as
a basis for determining the civil penalty. Regardless, even if
entering into a bifurcated settlement may be a means of
cooperation that merits consideration, Williky has been notably
uncooperative throughout the course of litigation, from failing
to answer the complaint in a timely manner to attempting to
object to his deposition on flimsy grounds. The litigation
has been pending for multiple years and the SEC has undoubt-
edly spent significant resources in litigating the matter against
Williky. Allowing Williky to flagrantly commit insider trading
and then settle to avoid civil penalties would create a perver-
sive incentive that undermines the purpose of the statute.
III. CONCLUSION
We conclude that the district court did not abuse its
discretion in deciding to impose a civil penalty of $1,596,434 on
Williky. The court adequately assessed the extent of Williky’s
cooperation and whistleblowing activities when it determined

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No. 19-1243 11
to set a civil penalty equal to two times the amount of the
losses he avoided. The judgment of the district court is
AFFIRMED.

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