Sanctions levied by the New Jersey Bureau of Securities against an executive for inducing 225 investors to buy unregistered stock in his energy company, among other securities violations, was upheld by an appellate panel.

The penalties were imposed by the chief of the bureau on Samuel Burlum and his firm, Extreme Energy Solutions Inc., based in Sparta, including a $1.13 million fine for selling unregistered securities, employing at least 14 unregistered agents to sell them, making false statements, and ignoring the bureau chief's instructions to cease offering and selling securities during a pending investigation.

The panel also upheld the finding that Burlum acted as an unregistered agent in violation of N.J.S.A. 49:3-56(a), and concluded Burlum and EES violated the New Jersey Uniform Securities Law, N.J.S.A. 49:3-47 to -83.

"Given our deferential standard of review, the Bureau Chief's sanctions were not disproportionate to defendants' offenses as to be 'shocking to one's sense of fairness,' and thus were neither arbitrary, capricious, nor unreasonable," Appellate Division Judges Douglas Fasciale and Garry Rothstadt said in the per curiam decision on Sept. 20.

Janet Del Gaizo, a solo practitioner in Hackensack, represented Burlum and EES. Del Gaizo was not available for comment.

Attorney General Gurbir Grewal's office was counsel for the New Jersey Bureau of Securities. The office declined to comment through spokesman Lee Moore.

According to the decision, the chief of the New Jersey Bureau of Securities issued a decision on Burlum on Jan. 18, 2018, and imposed $1.13 million in penalties. The bureau charged that, from March 2011 through August 2014, Burlum and EES raised more than $2 million from the sale of unregistered EES stock.

In 2009, Jack Wagenti and his associates formed ECO Green Inc., and Burlum started EES. On Nov. 1, 2010, the two firms merged, with Burlum appointed chairman of the board and CEO of EES. He was responsible for the company's day-to-day operations, which were subject to oversight by the board, the court said.

In May 2011, Wagenti and his associates resigned. But before resigning, Wagenti had drafted a "private placement memorandum" (PPM) to raise funds through investor contributions, which the board approved. The PPM was sent to existing investors and Wagenti's personal contacts, but not the general public, according to the decision. The PPM explained, among other things, that the investment was not registered with the U.S. Securities and Exchange Commission or any state securities commission, and that it was being offered under the Regulation D or "Reg-D" exemption.

The initial PPM and three more PPMs resulted in $1.9 million in funds being deposited into corporate accounts from May 2011 to August 2012, according to the decision.

In September 2012, the bureau chief instructed the defendants to "immediately cease the offering and sale of unregistered securities while the Bureau's investigation [was] pending."

But, in April 2013, EES sent investors a document titled "Call to Action," encouraging all 225 existing investors to invest a minimum of $2,500 with a yield of 10% per year, and that yielded $796,600, according to the decision. One year later, the defendants made another call for investments.

In September 2014, the bureau chief again issued an order to cease and desist against EES and Burlum.

The bureau charged that EES and Burlum raised $2.81 million through emails and conference calls.

The order also accused Burlum of making materially false and misleading statements or omissions, including false statements that an S-1 registration form was filed with the SEC, and that EES was going to conduct an initial public offering of its stock by the end of 2012.

Burlum, for his part, would testify that he believed that Wagenti filed a signed S-1, the court noted.

In September 2017, an administrative law judge issued an initial decision granting summary judgment in favor of the bureau, affirming the bureau's charges against Burlum and EES. The judge also found that Burlum's misrepresentations were material, striking down the defendants' contention that a summary decision should not have been rendered.

The bureau chief rendered the final decision accepting the ALJ's initial decision, but modifying it to apply a strict liability standard to defendants' conduct.

The Appellate Division ruled on Burlum's appeal on Sept. 20.

"We conclude the Bureau Chief properly adopted the ALJ's findings and conclusion to grant a summary decision," the panel wrote. "Because an administrative agency's final decision will be upheld absent 'a clear showing that it is arbitrary, capricious, or unreasonable,' or lacks support in the record, there is no basis to overturn the summary decision."

The judges noted Burlum and EES raised more than $2 million from the sale of EES stocks and notes, employed unregistered agents to raise the funds, and approved the content of the PPMs and EES notes.

"In the Final Decision, the Bureau Chief assessed penalties totaling $1,125,000, and wrote that, [i]n light of the number of violations, the duration of the unlawful conduct, the number of impacted investors, the amount of money raised by the illegal sale of the securities, and the egregiousness of [defendants'] conduct, it is in the public interest to affirm the civil penalties ordered in the Summary Order," wrote the panel.