Civil penalties imposed on Imperial Petroleum fraudster upheld

A man hired to artificially inflate an Indiana oil company’s stock has lost his appeal at the 7th Circuit Court of Appeals after the federal court concluded the extent of his cooperation and whistleblower activities was adequately assessed when he was issued more than $1.5 million in civil penalties.

Gary Williky was hired by Jeffery Wilson, the former CEO of Imperial Petroleum Inc., to artificially inflate Imperial’s stock by creating a series of “wash and match trades” and “scalping” emails. Williky had similarly engaged in a pattern of “wash and match trades” for another company led by Wilson in the 1990s.

Wilson’s Indiana-based company was discovered to have fraudulently purchased and resold finished biodiesel while claiming government incentives and tax credits available to companies producing biodiesel from raw feedstock. Wilson was indicted on 21 counts of securities fraud and false statements offenses and was later denied a motion for renewed judgment of acquittal in 2018.

While working for Imperial, Williky acquired millions of shares of its stock but failed to lawfully report his ownership levels when his shares surpassed 5%. By July 2011, Williky knew that Imperial misrepresented the source of its biodiesel to investors and knew by the end of the year the complete extent of Imperial’s fraud. Williky then sold off the entirety of his Imperial shares in February 2012 and avoided a loss of $798,217.

The Securities and Exchange Commission sued to permanently enjoin Williky, but before he could face his deposition, the parties settled. Williky conceded his involvement in the fraudulent scheme and agreed  the Southern Indiana District Court would determine the financial remedies to be assessed. Although the SEC requested the statutory maximum civil penalty of $2,394,651 for insider trading, the district court entered a judgment of $1,596,434, equal to two times the avoided losses.

Williky appealed, arguing the judgment ignored his cooperation as a whistleblower and was therefore an abuse of discretion. The 7th Circuit affirmed the lower court, however, finding it adequately assessed the value of Williky’s cooperation in Securities and Exchange Commission v. Gary S. Williky, 19-1243.

Specifically, the 7th Circuit rejected Williky’s request for a penalty of no more than $798,217, noting 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,” Circuit Judge William Bauer wrote for the 7th Circuit. “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.”

Additionally, the 7th Circuit concluded the value of Williky’s cooperation was properly weighed by the district court, which the 7th Circuit determined did not abuse its discretion in deciding to impose a civil penalty of two times Williky’s avoided losses. It further concluded Williky was not entitled to a reduced penalty because he entered into a bifurcated settlement with the SEC.

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