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ISCR Case 08-07615.h1 — CASE

ISCR Case 08-07615.h1granted

Case Headnote

ISCR Case No. 08-07615.h1

grantedDec 31, 2009· Hon. John Grattan Metz, Jr.· hearing

Summary

A 31-year-old access control manager for a defense contractor was granted a security clearance despite concerns under Guideline F (Financial Considerations). The Statement of Reasons cited an unpaid $200 electric bill, which the applicant subsequently paid, and multiple mortgage accounts on two properties. These properties were acquired through an investment program that was later revealed to be a Ponzi scheme.

The Disqualifying Conditions F.19(a) and F.19(c) were raised, but the judge applied Mitigating Conditions F.20(a), F.20(b), and F.20(d). The decision to grant the clearance was based on several factors. The applicant's financial difficulties were determined to be largely beyond his control, stemming from his victimization in the Ponzi scheme.

Furthermore, the applicant demonstrated responsible behavior in addressing his debts and maintaining sound personal finances. The judge concluded there was no reasonable risk that the applicant would resort to illegal activities to resolve his financial obligations.

Why the Applicant Prevailed

The applicant's financial difficulties were due to circumstances beyond his control, specifically being a victim of a Ponzi scheme.
The applicant demonstrated responsible behavior in addressing his debts and maintaining solid personal finances.
There was no reasonable risk that the applicant would resort to illegal activity to obtain funds to pay his debts.

Conditions Referenced

Disqualifying

F.19(a)raisedInability or Unwillingness to Satisfy Debts
F.19(c)raisedA History of Not Meeting Financial Obligations

Mitigating

F.20(a)appliedThe Behavior Happened so Long Ago, Was so Infrequent, or Occurred Under Such Circumstances That It Is Unlikely to Recur
F.20(b)appliedThe Conditions That Resulted in the Financial Problem Were Largely Beyond the Person’s Control
F.20(d)appliedThe Individual Initiated a Good-faith Effort to Repay Overdue Creditors or Otherwise Resolve Debts

Key Rule Quoted

“The government must prove, by something less than a preponderance of the evidence, controverted facts alleged in the SOR.”

Procedural Posture

SOR issuedMay 15, 2009
Answer filedJul 7, 2009
Hearing heldOct 6, 2009
Decision dateDec 31, 2009

Cite For

Mitigating Circumstances Under Guideline F Due to Being a Victim of a Ponzi Scheme
Responsible Financial Behavior Despite Significant Debt
Whole-person Assessment in Financial Clearance Cases

Editorial summary generated for research. Not legal advice; not a prediction. Verify against the full decision before relying on any quoted language.

Standardized Decision Profile

SEAD-4 Guideline F · descriptive summary of a decided case

Posture: Decision on RecordDecided: granted

The judge found that the applicant's financial difficulties stemmed from being a victim of a Ponzi scheme, which resulted in significant debts primarily related to two properties. Despite the substantial amount owed, the applicant's overall financial situation was deemed stable, leading to a decision to grant the security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	$200 electric bill for one of the properties that Applicant has since paid. $200	For Applicant	Utility or Phone Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(b) conditions largely beyond the person’s control; acted responsibly (d) good-faith effort to repay or otherwise resolve debts	Credited Debt Paid in Full
1.b	Three accounts for first and second mortgages on two properties Applicant bought through an investment program that turned out to be a Ponzi scheme.	For Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(b) conditions largely beyond the person’s control; acted responsibly	—
1.c	Three accounts for first and second mortgages on two properties Applicant bought through an investment program that turned out to be a Ponzi scheme.	For Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(b) conditions largely beyond the person’s control; acted responsibly	—
1.d	Three accounts for first and second mortgages on two properties Applicant bought through an investment program that turned out to be a Ponzi scheme.	For Applicant	Mortgage or Home Loan Debt	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	(b) conditions largely beyond the person’s control; acted responsibly	—

Descriptive standardized rendering of a decided public case (Guideline F). The verbatim source decision is shown in full below.

Full decision

The complete, official text — footnotes and signatures included — is in the original PDF.

Decision text, by section

DEFENSE OFFICE OF HEARINGS AND APPEALS

HEARING

APPEARANCES

DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS

In the matter of: ) ) ) ISCR Case No. 08-07615 SSN: ) ) Applicant for Security Clearance )

For Government: Eric N. Borgstrom, Esquire, Department Counsel For Applicant: Pro se

December 31, 2009 ______________

STATEMENT OF CASE

______________

METZ, John Grattan, Jr., Administrative Judge:

On 15 May 2009, the Defense Office of Hearings and Appeals (DOHA) issued a Statement of Reasons (SOR) to Applicant detailing security concerns under Guideline F (Financial Considerations). Applicant answered the SOR 7 July 2009, requesting a hearing. DOHA assigned the case to me 31 August 2009, and I convened a hearing 6 October 2009. DOHA received the transcript (Tr.) 14 October 2009.

FINDINGS OF FACT

Applicant admitted the SOR allegations. He is a 31-year-old access control manager employed by a defense contractor since September 2007. He seeks to retain the clearance he obtained in December 2002. The SOR alleges, government exhibits confirm, and Applicant admits, four delinquent accounts totaling over $1.2 million. Three accounts (SOR 1.b., 1.c., and 1.d.) are for first and second mortgages on two properties Applicant bought through an investment program that turned out to be a Ponzi scheme. The fourth account (SOR 1.a.) is a $200 electric bill for one of the properties that Applicant has since paid. This debt was incurred by tenants living in the property who were responsible for paying the electric bill. He was unaware of this bill until the Ponzi scheme began to unravel.

Applicant received his undergraduate degree in May 2002. He has been employed by a series of defense contractors since September 2002, and obtained his first clearance in December 2002. He has never had a security violation or had his clearance suspended. He bought his own home in December 2005, and his first and second mortgages on this home have never been delinquent. His credit reports show that the vast majority of his credit accounts are current or paid satisfactorily. His net monthly income is approximately $4,400. He lives within his means.

The debts alleged in the SOR arose when Applicant was led into what he believed was a legitimate investment opportunity through more seasoned and experienced colleagues at work and at his church. Applicant was raised to respect the judgment of his elders, and in this case the elders themselves believed the program was a legitimate enterprise. Broadly described, the program involved Applicant (and others) buying houses in his name with the assistance of the company, and then hiring the company to manage the properties for five years—at which point the properties would conceivably be sold at a profit that Applicant and the company would share. Applicant bought two properties, in May and June 2007.

The program turned out to be a Ponzi scheme, the kind that generates news headlines and criminal charges against the proponents. The scheme began to fall apart in August 2007, when state agencies acted to shut down the program and pursue securities violations and investment fraud charges against the program’s principals. The assets of the company have been seized, but the “investors” are stuck with mortgages on properties that they generally cannot pay.

In Applicant’s case, his two properties were foreclosed, and he has attempted with varying degrees of success to work with the lenders and real estate agents to resolve the debts through short sales. The final disposition of the properties remains unsettled, but it is unlikely Applicant can pay any deficiency remaining after the properties are sold. It is also unlikely that the creditors will pursue any deficiency. There is the possibility of individual suits or class action suits against the perpetrators. However, any recovery is unlikely to be enough to cover any remaining debt on the properties.

POLICIES

The Revised Adjudicative Guidelines (RAG) list factors to be considered in evaluating an applicant’s suitability for access to classified information. Administrative judges must assess both disqualifying and mitigating conditions under each issue fairly raised by the facts and circumstances presented. Each decision must also reflect a fair and impartial commonsense consideration of the whole-person factors listed in RAG ¶ 2(a). The presence or absence of a disqualifying or mitigating condition is not determinative for or against applicant. However, specific adjudicative guidelines should be followed where a case can be measured against them, as they represent policy guidance governing the grant or denial of access to classified information. Considering the SOR allegations and the evidence as a whole, the relevant, applicable, adjudicative guideline is Guideline F (Financial Considerations).

Security clearance decisions resolve whether it is clearly consistent with the national interest to grant or continue an applicant’s security clearance. The government must prove, by something less than a preponderance of the evidence, controverted facts alleged in the SOR. If it does so, it establishes a prima facie case against access to classified information. Applicant must then refute, extenuate, or mitigate the government’s case. Because no one has a right to a security clearance, an applicant bears a heavy burden of persuasion.

Persons with access to classified information enter into a fiduciary relationship with the government based on trust and confidence. Therefore, the government has a compelling interest in ensuring each applicant possesses the requisite judgement, reliability, and trustworthiness of those who must protect national interests as their own. The “clearly consistent with the national interest” standard compels resolution of any reasonable doubt about an applicant’s suitability for access in favor of the government.

ANALYSIS

The government established a case for disqualification under Guideline F. On paper, Applicant owes an enormous amount of money that he cannot repay. However, this inability, not unwillingness, to pay does not constitute a history of financial problems. Applicant’s personal finances have been, and remain, solid. He was the victim of a Ponzi scheme that left him solely responsible for debts on two properties that he never reasonably expected to bear. He entered the scheme on the recommendation of more seasoned and experienced colleagues, who themselves appear to have been victimized by the scheme.

Applicant satisfies important aspects of the mitigating factors for financial concerns. While his financial difficulties were both recent and multiple, they were confined to a relatively short period. They certainly occurred under circumstances not likely to recur. The debts were largely due to circumstances beyond his control, but he acted responsibly in addressing his debts. Under the circumstances of this case, keeping his personal finances straight while the Ponzi-scheme-related properties are resolved is the responsible course of action. Similarly, credit counseling is not an issue in this case, his personal finances are under control, and the ultimate resolution of the Ponzi-scheme-related properties is unlikely to effect his personal finances. Finally, he paid the one debt that was reasonably within his ability to pay, one he was not aware of until the scheme began to unravel.7

The disqualifying and mitigating factors under financial conditions do not really contemplate the kind of financial circumstances Applicant found himself in. The real security concern in this case boils down to a whole-person issue. Despite the size of the debt, the circumstances surrounding it are such that there is no reasonable risk that Applicant would resort to illegal activity to obtain funds to pay it. I conclude Guideline F for Applicant.

FORMAL FINDINGS

Paragraph 1. Guideline F: FOR APPLICANT

Subparagraph a-d: For Applicant

CONCLUSION

In light of all the circumstances presented by the record in this case, it is clearly consistent with the national interest to grant or continue a security clearance for Applicant. Clearance granted.

JOHN GRATTAN METZ, JR Administrative Judge

FOOTNOTES

DOHA acted under Executive Order 10865, Safeguarding Classified Information within Industry (February 20, 1990), as amended; Department of Defense (DoD) Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended (Directive), and the revised adjudicative guidelines (RAG) effective within DoD on September 1, 2006. The amounts alleged in the SOR are the totals of the three outstanding mortgages, not all of which are delinquent. Nevertheless, the houses were foreclosed and Applicant lacks the means to satisfy the mortgages. ¶ 19.(a) inability or unwillingness to satisfy debts; (c) a history of not meeting financial obligations. ¶ 20.(a) the behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur .

¶ 20.(b) the conditions that resulted in the financial problem were largely beyond the person’s control . . . and the individual acted responsibly under the circumstances.

¶ 20.(c) the person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control.

¶ 20.(d) the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts. For this factor to apply, there must be an “ability” to repay the debts, the “desire” to repay, and evidence of a good- faith effort to repay. A systematic, concrete method of handling his debt, which is present here as to the electric bill.