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Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 1 of 10 PageID #: 194
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
`
`Case No.: 4:14-cv-348
`
`§§
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`§§
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`§
`§
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`§§
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`§
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`SECURITIES AND EXCHANGE COMMISSION,
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`Plaintiff,
`
`v.
`
`STEVEN MCCRAW,
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`Defendant,
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`REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
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`The Court held a hearing on Plaintiff’s Motion for Determination of Amount of Civil Penalty
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`(Dkt. 16) on October 6, 2015. Having considered the evidence and argument presented, the Court
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`recommends that the motion be GRANTED as set forth below.
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`This action was filed on May 30, 2014 by the Securities and Exchange Commission (“the
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`Commission”) against Defendant Steven McCraw, arguing that Defendant aided and abetted Kevin
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`White in a fraudulent securities scheme and committed other violations of the Securities Act. Dkt. 1.
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`The Commission requested permanent injunctive relief against Defendant, an order that Defendant
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`disgorge any ill-gotten gains and pay prejudgment interest, and an order that Defendant pay an
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`appropriate civil monetary penalty pursuant to Section 20(d) of the Securities Act, 15 U.S.C. §
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`77t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3). Id.
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`On June 4, 2014, the Commission filed an Unopposed Motion to Enter Interlocutory
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`Judgment, indicating that the Commission and Defendant had reached an agreement resolving the
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`claims for injunctive relief and the amounts for disgorgement and prejudgment interest, leaving only
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`1
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 2 of 10 PageID #: 195
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`the claim for civil penalties unresolved. Dkt. 3. On June 17, 2014, Defendant, through counsel, filed
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`a notice indicating that “he consents to the terms of the proposed interlocutory judgment against
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`him.” Dkt. 7. On June 19, 2014, the undersigned recommended that the unopposed interlocutory
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`judgment be entered, and, with no objections filed to that report, the Court entered an Interlocutory
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`Judgment as to Defendant Steven McCraw on April 1, 2015. See Dkt. 15.
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`The Court’s April 1, 2015 Interlocutory Judgment as to Defendant Steven McCraw entered
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`a permanent injunction against him and ordered him to pay a disgorgement amount of $111,800, and
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`prejudgment interest in the amount of $922.86. Dkt. 15. The Interlocutory Judgment also ordered
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`Defendant to pay a civil penalty in an amount to be determined later on motion by the Commission.
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`Id.
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`On June 1, 2015, the Commission filed its Motion for Determination of Amount of Civil
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`Penalty. Dkt. 16. In the motion, the Commission asks that the Court impose the maximum third-tier
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`penalty against Defendant. The Commission also requests that, once the Court determines the
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`penalty amount, the Court incorporate the penalty and the terms of the Interlocutory Judgment into
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`a Final Judgment in this matter.
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`In response, Defendant argues that the Court should find that no additional civil penalty
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`should be imposed and that Defendant should only be required to pay the disgorgement amount of
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`$111,800.00 plus prejudgment interest of $922.86 less the $71,000.00 previously paid to the Court
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`Receiver in Securities and Exchange Commission v. White, et al; Civil Action No. 4:13-CV-0383,
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`also pending in this District. Defendant further argues that the Commission has significantly
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`overstated the seriousness, the scope, and the amount of Defendant’s involvement in Kevin White’s
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`2
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 3 of 10 PageID #: 196
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`criminal conduct. Defendant asks that, if the Court determines that the imposition of a civil penalty
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`is appropriate, it be reduced significantly in light of the Defendant’s demonstrated current and future
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`financial condition.
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`STANDARD FOR DETERMINATION OF MONEY PENALTIES IN
`CIVIL ACTIONS FILED UNDER THE SECURITIES ACT
`
`In determining the amount of money penalties to be assessed in certain civil actions, the
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`Securities Act provides as follows:
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`(2)
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`Amount of penalty
`(A)
`First tier
`The amount of the penalty shall be determined by the court in light
`of the facts and circumstances. For each violation, the amount of
`the penalty shall not exceed the greater of (i) [$7,500] for a natural
`person..., or (ii) the gross amount of pecuniary gain to such
`defendant as a result of the violation.
`Second tier
`
`(B)
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`Notwithstanding subparagraph (A), the amount of penalty for each
`such violation shall not exceed the greater of (i) [$80,000] for a
`natural person ..., or (ii) the gross amount of pecuniary gain to such
`defendant as a result of the violation, if the violation described in
`paragraph (1) involved fraud, deceit, manipulation, or deliberate or
`reckless disregard of a regulatory requirement.
`
`(C)
`
`Third tier
`Notwithstanding subparagraphs (A) and (B), the amount of penalty
`for each such violation shall not exceed the greater of (i)
`[$160,000] for a natural person ..., or (ii) the gross amount of
`pecuniary gain to such defendant as a result of the violation, if--
`
`(I) the violation described in paragraph (1) involved fraud,
`deceit, manipulation, or deliberate or reckless disregard of a
`
`3
`
`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 4 of 10 PageID #: 197
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`regulatory requirement; and
`(II) such violation directly or indirectly resulted in
`substantial losses or created a significant risk of substantial
`losses to other persons.
`15 U.S.C. § 77t(d); see also 17 C.F.R. Pt. 201, Supt. E, Table V (amending fine amounts as indicated
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`in brackets).
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`As noted in the Commission’s motion, other factors are relevant in determining whether a
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`civil penalty is appropriate and, if so, in what amount. These factors are: (1) the egregiousness of
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`the defendant’s conduct; (2) the degree of the defendant’s scienter; (3) whether the defendant’s
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`conduct created substantial losses or the risk of substantial losses to other persons; (4) whether the
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`defendant’s conduct was isolated or recurrent; (5) whether the defendant has admitted wrongdoing;
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`and (6) whether the penalty should be reduced due to the defendant’s demonstrated current and
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`future financial condition. SEC v. Razmilovic, 822 F. Supp. 2d 234, 280 (E.D. N.Y. 2011); SEC v.
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`Colonial Inv. Mgmt. LLC, 659 F. Supp. 2d 467, 503 (S.D. N.Y. 2009); see SEC v. Snyder, 2006 WL
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`6508273, at *11 (S.D. Tex. Aug. 22, 2006) (citing SEC v. Lybrand, 281 F. Supp.2d 726, 730 (S.D.
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`N.Y. 2003)).
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`EVIDENCE PRESENTED
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`At the October 6, 2015 hearing, the Commission offered into evidence the following: (1) May
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`30, 2014 Complaint, filed in SEC v. McCraw, Cause No. 4:14-CV-00348 (Doc 1); (2) May 27, 2014
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`Consent of Defendant Steven McCraw, filed in SEC v. McCraw, Cause No. 4:14-CV-00348 (Doc
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`4-1); (3) June 17, 2014 Notice of Consent, filed in SEC v. McCraw, Cause No. 4:14-CV-00348 (Doc
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`7); (4) April 1, 2015 Interlocutory Judgment as to Defendant Steven McCraw, filed in SEC v.
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`McCraw, Cause No. 4:14-CV-00348 (Doc 15); (5) June 1, 2015 Plaintiff’s Motion for Determination
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`4
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 5 of 10 PageID #: 198
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`of Amount of Civil Penalty and Brief in Support, filed in SEC v. McCraw, Cause No. 4:14-CV-
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`00348 (Doc 16); (6) August 5, 2015 Defendant’s Response to Securities and Exchange
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`Commission’s Motion for Determination of Amount of Civil Penalty, filed in SEC v. McCraw,
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`Cause No. 4:14-CV-00348 (Doc 21) (7) December 20, 2012 Email from Steve McCraw to Kevin
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`White Re: Forex; (8) December 20, 2012 Email from Steve McCraw to Kevin White Re: Forex; (9)
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`January 17, 2013 Email from Steve McCraw Re: Forex and attaching Revelation Forex Fund
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`Brochure and KGW Newsletter; (10) January 17, 2013 Email from Steve McCraw Re: Forex and
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`attaching Revelation Forex Fund Brochure and KGW Newsletter; (11) February 8, 2013 Email from
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`Steve McCraw Re: New Website; (12) February 12, 2013 Email from Steve McCraw Re: New web
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`address; (13) April 1, 2013 Email from Steve McCraw Re: KGW Slogans; (14) April 23, 2013 Email
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`from Steve McCraw Re: KGW Revelation Return vs Risk Calculations; (15) April 23, 2013 Email
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`from Steve McCraw Re: 2009 Annualized Return – RFF; (16) April 23, 2013 Email from Steve
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`McCraw Re: Revelation Fund Results Illustrating Monthly Compounding; (17) April 23, 2013 Email
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`from Steve McCraw Re: Data of Total Ruturn? [sic]; (18) April 24, 2013 Email from Steve McCraw
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`Re: Thank You; (19) April 25, 2013 Email from Steve McCraw Re: 24 FX Management Ltd Fund
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`Information – Return Calculation.xlsx; (20) April 25, 2013 Email from Steve McCraw Re: Elite 10
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`Ranking; (21) April 25, 2013 Email from Steve McCraw Re: KGW Capital Management
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`Newsletter – 2nd Quarter 2013; (22) April 26, 2013 Email from Steve McCraw Re: Forex
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`Fund – Return Calculation.xlsx; (23) April 29, 2013 Email from Steve McCraw Re: KGW
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`Revelation Return vs Risk Calculations SM Revised 4.29.2013.xlsx; (24) April 29, 2013 Email from
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`Steve McCraw Re: KGW Revelation Return vs Risk Calculations SM Revised 4.29.2013.xlsx; (25)
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`5
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 6 of 10 PageID #: 199
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`April 29, 2013 Email from Steve McCraw Re: KGW Revelation Return vs Risk Calculations SM
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`Revised 4.29.2013.xlsx; (26) April 30, 2013 Email from Steve McCraw Re: Revised Revelation
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`Fund Metrics; (27) May 1, 2013 Email from Steve McCraw Re: Banner ad for Las Vegas newspaper;
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`(28) May 1, 2013 Email from Steve McCraw Re: Fund Info; (29) May 2, 2013 Email from Steve
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`McCraw Re: RFF booklet presentation with SM Revisions 5.2.2013.pptx; (30) May 3, 2013 Email
`
`from Steve McCraw Re: Brochure Revelation Compared to Major Indexes RFF_EN Groth
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`5.2.2013.xls; (31) May 9, 2013 Email from Steve McCraw Re: Most Frequently Asked RFF
`
`Questions; (32) June 1, 2013 Email from Steve McCraw Re: 2013 Shanghai Finance & Investment
`
`Expo; (33) June 24, 2013 Email from Kevin White to Jill Waterston with cc to Steve McCraw Re:
`
`KGW Capital Investment Record – Updated 6-24-13; and (34) July 2, 2013 Email from Steve
`
`McCraw Re: RFF Performance and Comparison to Major Indexes through June 2013-
`
`07.02.2013.xlsx. There being no objections to their admission by Defendant, these exhibits were
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`admitted.
`
`Defendant offered the following exhibits: (1) Exhibit “A” Defendant’s Response to Securities
`
`and Exchange Commission’s Motion for Determination of Amount of Civil Penalty; (2) Exhibit “B”
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`Mutual Release between Cody Savage and Kelly M. Crawford, Receiver; (3) Exhibit “C” Mutual
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`Release between Christine Xu and Kelly M. Crawford, Receiver; (4) Exhibit “D” Mutual Release
`
`between Jill Waterston and Kelly M. Crawford, Receiver; (5) Exhibit “E” Kevin White Factual
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`Statement in Cause No. 4:13-CR-258; USA v. Kevin White; (6) Exhibit “F” Kevin White Judgment
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`in a Criminal Case in Cause No. 4:13-CR-258; USA v. Kevin White; (7) Exhibit “G” Petition No. 2 -
`
`Unopposed Motion for Expedited Order Lifting Asset Freeze to Permit Sale of Meridian Propane
`
`6
`
`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 7 of 10 PageID #: 200
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`LP’s Assets, and Brief in Support in Cause No. 4:13-CV-383; Securities and Exchange Commission
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`v. Kevin G. White, et al.; (8) Exhibit “H” Receiver’s Notice of Sale Regarding Assets of Meridian
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`Propane, LP in Cause No. 4:13-CV-383; Securities and Exchange Commission v. Kevin G. White,
`
`et al.; (9) Exhibit “I” Plaintiff’s Original Petition in Cause No. 429-00075-2014; Kelly M. Crawford
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`v. Weaver & Tidwell, LLP, et al; and (10) Exhibit “J” Agreed Motion to Dismiss Defendant Weaver
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`& Tidwell, LLP with Prejudice and Agreed Order Dismissing Defendant Weaver & Tidwell, LLP
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`with Prejudice in Cause No. 429-00075-2014; Kelly M. Crawford v. Weaver & Tidwell, LLP, et al.
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`There being no objection to their admission, these exhibits were also admitted and made part of the
`
`evidentiary record herein.
`
`ANALYSIS
`
`As to Defendant’s argument that no civil penalty should be awarded, the Interlocutory
`
`Judgment clearly provides that “Defendant ... is also liable for a civil penalty in the amount to be
`
`determined by the Court.” Dkt. 15 at 4. Not only has there been no appeal of this order by
`
`Defendant or objections to the Magistrate Judge’s report and recommendation that the Interlocutory
`
`Judgment be entered containing such a provision, the language of the Court’s Interlocutory Judgment
`
`was unopposed by Defendant when submitted to the Court. See Dkts. 3, 7 (Defendant “consents to
`
`the terms of the proposed interlocutory judgment against him.”) & 8.
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`Defendant consented to an award of a civil penalty. The dispute left for resolution by this
`
`Court is the amount to be awarded.
`
`For purposes of determining the civil penalty, as noted by the Commission in its motion and
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`at the hearing, in his signed consent form, Defendant agreed that, in connection with the
`
`7
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 8 of 10 PageID #: 201
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`Commission’s motion to determine the civil penalty, he is precluded from arguing that he did not
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`violate the federal securities laws as alleged in the Complaint; he cannot challenge the validity of the
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`permanent injunction entered against him; and the allegations in the Commission’s complaint must
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`be accepted and deemed true. See Dkt. 4-1 at ¶5 (Consent of Defendant Steven McCraw, executed
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`on May 27, 2014). Defendant also agreed that the Court may decide this motion based on affidavits,
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`declarations, excerpts of sworn deposition or investigative testimony, or other documentary
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`evidence, without regard to the standards for summary judgment in the Federal Rule of Civil
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`Procedure Rule 56(c). Id.
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`The Commission argues that Defendant’s conduct, as established by the facts alleged in the
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`complaint, warrants a third-tier penalty and that Defendant should be assessed a third-tier civil
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`penalty to deter him and others from committing fraud. Although the Commission declined to state
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`a specific amount requested, the Commission argued that, based on the facts in this case, the Court
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`could construe Defendant’s actions into three discrete categories of misconduct with a penalty of
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`$160,000 for each of those categories.
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`Having considered the argument and evidence presented, the Court finds that the evidence
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`supports a finding of a third-tier violation under 15 U.S.C. § 77t(d)(2)(C). The allegations contained
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`in the Commission’s complaint S which are deemed as true pursuant Defendant’s consent S indicate
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`egregiousness and knowing conduct. Although the Court declines to find that Defendant’s conduct
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`was knowingly fraudulent, his actions in creating the “EliteForexFunds.com” website were
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`substantial and certainly rose to a level of deceit and manipulation of potential investors of which
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`he was aware. Defendant conceded at the hearing that his conduct was “reckless,” and the Court
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`8
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 9 of 10 PageID #: 202
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`finds that the record here evidences a reckless disregard of a regulatory requirement under securities
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`law. The Court further finds that Defendant’s conduct directly and indirectly resulted in substantial
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`losses or created a significant risk of substantial losses to potential investors relying upon what they
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`thought to be an independent ranking service. A third-tier violation has been established.
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`As to the amount of the penalty for Defendant’s third-tier violation, the statute provides that
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`the amount may not exceed $160,000 or the gross amount of pecuniary gain to Defendant, which in
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`this case was approximately $111,800. 15 U.S.C. § 77t(d); see also 17 C.F.R. Pt. 201, Supt. E, Table
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`V. Although the Commission’s motion argues that Defendant’s conduct can be treated as three
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`separate categories of misconduct, the Court finds that such a distinction is not necessary given the
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`facts before it.
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`Defendant has offered evidence of his current financial condition. See Dkt. 22-1. The Court
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`has considered his current net worth, his liabilities and assets, and his anticipated obligations. In
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`light of his current financial condition and mindful of the fact that he has consented to many of the
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`findings against him regarding his role in the fraudulent scheme, the Court finds that the appropriate
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`third-tier penalty in this case for all of the violations for which Defendant was charged is $50,000.
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`For these reasons and in accordance with the Interlocutory Judgment entered on April 1,
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`2015, Plaintiff’s Motion for Determination of Amount of Civil Penalty (Dkt. 16) should be
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`GRANTED and a civil penalty in the amount of $50,000 should be assessed against Defendant
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`Steven McCraw for the conduct giving rise to this suit.
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`9
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`

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`Case 4:14-cv-00348-RC-DDB Document 27 Filed 11/02/15 Page 10 of 10 PageID #: 203
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`The Court further recommends that a final judgment be entered against Defendant
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`incorporating the terms of the penalty and the terms of the Interlocutory Judgment.1
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`Within fourteen (14) days after service of the magistrate judge’s report, any party may serve
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`and file written objections to the findings and recommendations of the magistrate judge. 28
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`U.S.C.A. § 636(b)(1)(C).
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`A party is entitled to a de novo review by the district court of the findings and conclusions
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`contained in this report only if specific objections are made, and failure to timely file written
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`objections to any proposed findings, conclusions, and recommendations contained in this report shall
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`bar an aggrieved party from appellate review of those factual findings and legal conclusions accepted
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`by the district court, except on grounds of plain error, provided that the party has been served with
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`notice that such consequences will result from a failure to object. Id.; Thomas v. Arn, 474 U.S. 140,
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`148 (1985); Douglass v. United Servs. Auto Ass’n, 79 F.3d 1415, 1417 (5th Cir. 1996) (en banc),
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`superseded by statute on other grounds, 28 U.S.C. § 636(b)(1) (extending the time to file objections
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`from ten to fourteen days).
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`1The parties are directed to submit any proposed final judgment incorporating the
`penalty and the terms of the Interlocutory Judgment within 14 days of service of this report and
`recommendation. Such submission may be made subject to any objections filed.
`
`10

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