JOHN GARDNER BLACK

DEVON CAPITAL MANAGEMENT

FINANCIAL MANAGEMENT SCIENCES

Before the

UNITED STATES
SECURITIES EXCHANGE COMMISSION

PETITION TO CEASE COLLECTION ON

DISGORGEMENT ORDER ENTERED APRIL 29, 1998
Civil Action No. 97-2257 (W. D. Pa.)

In the matter of:

John Gardner Black and

Devon Capital Management, Inc. ["Devon"]
Financial Management Sciences, Inc. ["FMS"]

I. Statement of the Petition

Petitioner John Gardner Black respectfully requests that the Securities Exchange
Commission ["SEC" or "Commission"] cease collection on the order of disgorgement entered
against Black by the United States District Court for the Western District of Pennsylvania on
April 29, 1998. The disgorgement amount was determined by including the operating expenses
of FMS, a company which is innocent of the Commission's allegations of violations of the
Securities and Exchange Acts 15 USC§ 77q(a) and 15 USC § 78j(b) ["Securities Acts"].
 The Commission chose not to litigate its allegations against the company. Therefore,
FMS, while accused by the Commission and destroyed publicly, is innocent of the Commission's
allegation. Since FMS did no wrong, there were no ill-gotten gains. An order of disgorgement
must causally relate to wrongdoing [Riordan v. SEC, 627 F.3d 1230, D.C. Cir 2010]

II. Relevant Facts

On September 26, 1997 the Commission filed an ex parte complaint against Black,
Devon and FMS alleging violations of the Securities Acts and against Black and Devon for
violations of the Investment Advisers Act. When the Commission filed its complaint, it had in its
possession a copy of Black's mathematical model verifying the fair value of the Collateralized
Investment Agreement ["CIA"], the security owned by the clients. The model also verified the
fair value of the assets owned by FMS.

The Commission acknowledged in 2010 that neither Black, Devon nor FMS had been
found guilty of violations of the Securities Acts when it determined that the bar it had imposed
on Black preventing him from associating with a broker was a collateral bar. 1

The amount of disgorgement determined by the Commission was based upon: (1) the
operating expenses of FMS; (2) the operating expenses of Devon; and (3) a determination of pre-
judgment interest. Black was advised by his attorney to accept the disgorgement amount as a
means of obtaining relief from the asset freeze imposed by the district court in the ex parte
hearing. That attorney said that the disgorgement order would be recalculated if the defendants
were found innocent of violations of the Securities Acts.

1
In 1997 the Commission alleged that Black and Devon but not FMS had violated the Investment Advisers Act of
1940 because Black had valued the CIA and the FMS assets using a mathematical model rather than a forced
liquidation value. [See: SEC Complaint ¶34]The allegations contained in the Commission's complaint are not being
contested here. Black's valuation of the CIA's fair value was not fraudulent and the Commission has never alleged
otherwise. Black, Devon and FMS are innocent of the Commission's allegations of violations of the Securities Acts.
 The Commission chose not to prosecute its complaint for almost fourteen years despite
repeated attempts by Black to litigate the allegations of the Securities Acts violations. Now, due
to the principle of res judicata, the Commission has lost that right. Black, Devon and FMS are
innocent of the Commission's allegations.

III. Analysis

A. Disgorgement

Pursuant to the District of Columbia's opinion in Riordan, disgorgement must be related

causally to wrongdoing. Simply stated, FMS, Devon and Black must have committed
wrongdoing "in connection with the offer or sale" of the CIA in order for there to be an amount
to be disgorged. A violation of the Securities Acts was the only allegation common to all parties
and the "in connection with" is a threshold requirement which must be met in order to allege
such a violation. The Commission's complaint fails to state a single instance where the CIA was
offered or sold at a fraudulent value.

Had the Commission disclosed to the district court during the ex parte hearing on
September 26, 1997 that there was no fraudulent transaction involving the CIA and that the value
of the CIA and FMS' assets were determined pursuant to a mathematical model, a commonly
accepted and Commission sanctioned valuation technique, that portion of the Commission's
complaint alleging violations of the Securities Acts would have been dismissed because there
was no federal question.

Since FMS is innocent of all the charges filed by the Commission and Black and Devon
are innocent of the allegations of violations of the Securities Acts, there was no wrongdoing to
which an order of disgorgement can be causally related. 2

2
The Commission never alleged that clients of Devon who did not own the CIA were victims of wrongdoing.
Therefore no disgorgement associated with those entities may be assessed.
IV. Summary

The Commission has had possession of Black's model verifying the fair value of the CIA
and the assets owned by FMS since August of 1997. The Commission did not disclose to the
district court during the ex parte proceedings the existence of that model. Since 1997, the
Commission has declined to litigate its allegations of Black's, Devon's and FMS' violations of the
Securities Acts.

The Commission has acted in an arbitrary and capricious manner. It introduced its
complaint in ex parte proceedings, preventing the district court from hearing Black's defense.
The Commission concealed from the district court the existence and analysis of the output from
Black's model verifying the fair value of the CIA security.

Having fraudulently obtained a freeze of Black's assets, the Commission then presented
its demands that Black settle the alleged violations of Investment Adviser Act, reserving for a
later date the litigation of the alleged Securities Acts violation. The disgorgement amount was
determined by the Commission and included the total operating expenses of FMS for the period
January 1, 1995 to September 26, 1997. The Commission then declined to litigate the alleged
violations of the Securities Acts. The Commission's refusal to litigate the fair value of the CIA
prevented Black, Devon and FMS from proving their innocence. The Commission has never
divulged the CIA's fair value nor did it compensate the CIA's owners for their losses. [See: The
Commission's April 27, 2001 Response in which it admits that the CIA owners were only given a
pro rata share of the FMS corporate assets.]

The Commission has failed to obtain an order of disgorgement which is causally related
to any wrongdoing. Therefore, Black respectfully requests this Commission cease collection
efforts under the order of disgorgement.
May 15, 2011 Respectfully Submitted,

John Gardner Black

1446 Centre Line Road
Warriors Mark PA 16877
814-632-8631
jblack010@gmail.com