DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
   
In the matter of: )
)
--------------------------------- )       ISCR Case No. 10-05869
)
Applicant for Security Clearance )
Appearances
For Government: Melvin Howry, Department Counsel
For Applicant: Theodore K. Roberts, Attorney At Law
September 29, 2011
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Decision
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LOKEY ANDERSON, Darlene D., Administrative Judge:
Applicant submitted his Electronic Questionnaires for Investigations Processing
(e-QIP) on January 5, 2010.  (Government Exhibit 1.)  On March 18, 2011, the Defense
Office of Hearings and Appeals (DOHA), pursuant to Executive Order 10865 and
Department of Defense Directive 5220.6 (Directive), dated January 2, 1992, (as
amended), issued a Statement of Reasons (SOR) to the Applicant, which detailed
reasons why DOHA could not make the preliminary affirmative finding under the
Directive that it is clearly consistent with the national interest to grant or continue a
security clearance for the Applicant and recommended referral to an Administrative
Judge to determine whether clearance should be denied or revoked.
The Applicant responded to the SOR on April 1, 2011, and he requested an
administrative hearing before a DOHA Administrative Judge.  This case was assigned
to the undersigned on July 5, 2011.  A notice of hearing was issued on July 6, 2011,
and the hearing was scheduled for August 16, 2011.  At the hearing the Government
presented five exhibits, referred to as Government Exhibits 1 through 5 that were
admitted without objection.  The Applicant called one witness and presented seventeen
exhibits, referred to as Applicant’s Exhibits A through Q that were admitted without
objection.  He also testified on his own behalf.  The Applicant requested that the record
remain open to submit additional documentation.  The record remained open until close
of business on September 1, 2011.  The Applicant submitted no Post-Hearing Exhibits.
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The official transcript (Tr.) was received on August 24, 2011.  Based upon a review of
the pleadings, exhibits, and testimony, eligibility for access to classified information is
granted.
 FINDINGS OF FACT
The Applicant is 44 years old and has a Master’s Degree.  He is employed as the
Vice President with a defense contractor and is seeking to obtain a security clearance in
connection with his employment.
The Government opposes the Applicant's request for a security clearance, on the
basis of allegations set forth in the Statement of Reasons (SOR).  The following findings
of fact are entered as to each paragraph and guideline in the SOR:
Paragraph 1 (Guideline F - Financial Considerations)  The Government alleges that the
Applicant is ineligible for clearance because he is financially overextended and at risk of
having to engage in illegal acts to generate funds.      
The Applicant admits with some qualifications that he was indebted to each of
the creditors set forth in the SOR totaling at one time approximately $200,000.
(Applicant’s Answer to the SOR.)  Credit Reports of the Applicant dated January 12,
2010; February 17, 2011; and August 10, 2011, collectively reflect that the Applicant
was indebted to these creditors.  (Government Exhibits 2, 3 and 5.)
Prior to 2009, the Applicant had an excellent credit history.  His FICO score was
above 750 and he paid all of his bills on time.  Since he and his wife had no pension or
investment properties, they researched the real estate market and decided to make
some investments.  Between 2004 and 2006, they purchased four rental properties.  In
2004, he purchased a house in a new development and rented the property.  He hired a
property management company and the rents covered the mortgage and expenses.
Later in 2004, he purchased another rental property in the same area.  Also, in 2006, he
purchased a four unit multi-complex located out of the state.  In 2006, he purchased
another out of state property.  Between 2006 and 2007, rents began to decline and the
Applicant had renters skip out without paying the rent.  To cover the costs of these
losses, he used cash advances from credit cards.  In 2008, real estate property values
took a drastic turn for the worse and the Applicant put all four properties up for sale.
Before doing so, he refinanced his primary residence, obtaining a larger second line of
credit, to help fund the losses that were coming from the rental properties.  The loan on
his primary residence which was originally $300,000 is now $675,000.  Two of the
investment properties were sold at a loss.  A third property was short saled, and the
fourth was foreclosed upon.    
About this same time in 2008, the Applicant’s employer made a swift decision to
acquire a company hoping to use the cash flow of the new company to offset the loss at
their facility.  Company management soon realized that they had miscalculated the
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profitability of the company they purchased.  The Applicant’s employer was forced to
come up with cash to offset the loss. The company was financially strapped and in early
2009, stopped paying the Applicant for his travel costs associated with his job.  The
Applicant was required to front his travel costs and his company would later reimburse
him.  (Applicant’s Exhibit Q.)  The Applicant was not reimbursed for six months.  During
that period, he used his credit cards for cash advances to cover his expenses and the
mortgages that were out of control.  To help keep his primary residence, the Applicant
started two part-time teaching jobs to be able to make the house payment and buy food.
In December 2010, the Applicant helped his company bring in new financial investors
and they brought the company’s payroll current. They also offered the Applicant a
promotion to Vice President.  His gross earnings for tax year 2010 show income of
$259,000; and in 2009 of $233,935.  (Tr. p. 108.)
In late 2009, the Applicant hired a credit counseling agency to assist him in
resolving his debt.  He soon realized the agency was not helping him and only taking his
money.  In March 2010, he hired a law firm who has been negotiating with his creditors
for the past year to resolve his indebtedness.
      
As a result of the earlier cascading debt turmoil, the following debts set forth in
the SOR became delinquent. All but one debt has been resolved.  A delinquent debt
owed to a creditor in the amount of $10,430 has been settled.  (Applicant’s Exhibit E,
and Tr. p. 78.)  A delinquent debt owed to a creditor in the amount of $24,536 has been
settled.  (Applicant’s Exhibit D, and Tr. p. 78.)  A delinquent debt owed to a creditor in
the amount of $22,194 has been settled.  (Government Exhibit 5, and Tr. p.79.)  A
delinquent debt owed to a creditor in the amount of $5,168 has been settled.
(Applicant’s Exhibit M.)  There remains a question as to whether a delinquent debt owed
to a mortgage lender in the amount of $39,000 on a foreclosed property has been
forgiven.  (Tr. p. 81.)  The Applicant’s attorney is in the process of helping the Applicant
resolve this issue.  A delinquent debt owed to a mortgage lender on a property that was
short saled in the amount of $468,000 has  been forgiven.  (Applicant’s Exhibit G.)  A
delinquent debt owed to a creditor in the amount of $21,441 has been settled.  (Tr. pp.
99-100.)  A delinquent debt owed to a bank for a credit card in the amount of $36,110
has been settled.  (Applicant’s Exhibit O.)  A delinquent debt owed to a bank for a credit
card in the amount of $51,894 has been settled.  (Applicant’s Exhibit P, and Tr. p. 107.) 
    
The Applicant currently owns only his primary residence with a first and second
mortgage on the property.  The Applicant’s house payment is currently $4,300 on the
first mortgage, and $750.00 on the second, totaling approximately $5,400 monthly.  (Tr.
p. 109.)  He states that he can now comfortably afford the payments on his primary
residence.  He and his wife also now have 401(k) retirement plans that total about
$320,000.  (Tr. p. 116.)  
The paralegal from the law firm hired to assist the Applicant with his debt
resolutions testified that beginning in March 2010, he started working with the Applicant
to resolve his unsecured credit card debt.  The paralegal contacted each of the creditors
and reached an agreement with each of the credit card companies.  Payments were
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made and letters from each of the creditors indicate that all accounts are paid in full.
(Tr. pp. 125-134.)
POLICIES
Enclosure 2 of the Directive sets forth adjudication policies divided into
"Disqualifying Factors" and "Mitigating Factors."  The following Disqualifying Factors
and Mitigating Factors are found to be applicable in this case:
Guideline F (Financial Considerations)
18.  The Concern.  Failure or inability to live within one’s means, satisfy debts, and meet
financial obligations may indicate poor self-control, lack of judgment, or unwillingness to
abide by rules and regulations, all of which can raise questions about an individual’s
reliability, trustworthiness and ability to protect classified information.  An individual who
is financially overextended is at risk of having to engage in illegal acts to generate
funds. 
Conditions that could raise a security concern:
19.(a) inability or unwillingness to satisfy debts; and, 
19.(c) a history of not meeting financial obligations. 
Conditions that could mitigate security concerns:
20.(b) the conditions that resulted in the financial problem were largely beyond
the person’s control (e.g., loss of employment, a business downturn, unexpected
medical emergency, or a death, divorce or separation), and the individual acted
responsibly under the circumstances;
20.(c) the person has received or is receiving counseling for the problem and/or
there are clear indications that the problem is being resolved or is under control; and,
20.(d) the individual initiated a good-faith effort to repay overdue creditors or
otherwise resolve debts.
In addition, as set forth in Enclosure 2 of the Directive at pages 18-19, in
evaluating the relevance of an individual’s conduct, the Administrative Judge should
consider the following general factors:
a.  The nature, extent, and seriousness of the conduct and surrounding
circumstances;
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     b.  The circumstances surrounding the conduct, to include knowledgeable
participation;
c.  The frequency and recency of the conduct;
d.  The individual’s age and maturity at the time of the conduct;
e.  The extent to which participation is voluntary;
f.  The presence or absence of rehabilitation and other permanent behavior
changes;
g.  The motivation for the conduct; 
h. The potential for pressure, coercion, exploitation or duress; and
 i.  The likelihood of continuation or recurrence.
The eligibility criteria established in the DoD Directive identify personal
characteristics and conduct which are reasonably related to the ultimate question,
posed in Section 2 of Executive Order 10865, of whether it is “clearly consistent with the
national interest” to grant an Applicant’s request for access to classified information.
The DoD Directive states, “The adjudicative process is an examination of a
sufficient period of a person’s life to make an affirmative determination that the person is
an acceptable security risk.  Eligibility for access to classified information is predicated
upon the individual meeting these personnel security guidelines.  The adjudicative
process is the careful weighing of a number of variables known as the whole-person
concept.  Available, reliable information about the person, past and present, favorable
and unfavorable should be considered in reaching a determination.”  The Administrative
Judge can draw only those inferences or conclusions that have reasonable and logical
basis in the evidence of record.  The Judge cannot draw inferences or conclusions
based on evidence which is speculative or conjectural in nature.  Finally, as emphasized
by President Eisenhower in Executive Order 10865, “Any determination under this order
. . . shall be a determination in terms of the national interest and shall in no sense be a
determination as to the loyalty of the Applicant concerned.”
CONCLUSIONS
In the defense industry, the security of classified industrial secrets is entrusted to
civilian workers who must be counted upon to safeguard such sensitive information
twenty-four hours per day, seven days per week.  The Government is therefore
appropriately concerned when available information indicates that an Applicant for
clearance may be involved in instances of financial irresponsibility, which demonstrates
poor judgment or unreliability.
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It is the Government’s responsibility to present substantial evidence to support
the finding of a nexus, or rational connection, between the Applicant’s conduct and the
holding of a security clearance.  If such a case has been established, the burden then
shifts to the Applicant to go forward with evidence in rebuttal, explanation or mitigation,
which is sufficient to overcome or outweigh the Government’s case.  The Applicant
bears the ultimate burden of persuasion in proving that it is clearly consistent with the
national interest to grant him or her a security clearance.
In this case the Government has met its initial burden of proving that the
Applicant has been financially irresponsible (Guideline F).  This evidence indicates poor
judgment, unreliability and untrustworthiness on the part of the Applicant.  Because of
the scope and nature of the Applicant's conduct, I conclude there is a nexus or
connection with his security clearance eligibility.
The evidence shows that circumstances largely beyond the Applicant’s control,
namely, the collapse in the housing market, coupled with the Applicant’s poorly timed
and numerous real estate investments, and his employer’s financial problems, caused
his financial indebtedness.  The problems that surfaced were completely unforeseeable
and isolated.  Throughout this period of financial hardship, the Applicant acted
reasonably and responsibly.  He used his credit cards to pay his bills.  He refinanced his
primary residence and got two part-time jobs to help pay the mortgages and other
expenses.  When he could no longer afford to make the payments on the properties, he
tried to sell them.  He was extremely diligent in doing his part to prevent foreclosure.
Three of the properties sold, and one was foreclosed upon.  In regard to the foreclosed
property, the Applicant did everything he possibly could to avoid foreclosure on the
property.  He tried to short sale the property, but the bank did not want to negotiate.  He
is in the process of determining whether he owes any deficiency to the lender on the
foreclosed property.  In the event that he does, he plans to immediately pay the debt.
He currently has only his primary residence and he has resolved all of his credit card
debt.   Given the circumstances, the Applicant acted responsibly and with integrity
under the circumstances.  He hired an attorney to assist him in negotiating any
deficiency he may have on the foreclosed property.  He did the best he could under the
circumstances, and as much as humanly possible to resolve his financial problems. 
Under the particular circumstance of this case, the Applicant has made a good
faith effort to resolve his past due indebtedness.  Up until he started investing in real
property his credit history was unblemished.  Since then, he has been working hard to
resolve his debts.  He understands the importance of paying his bills on time and living
within his means.  He also knows that he must remain fiscally responsible in the future.
There is sufficient evidence of financial rehabilitation.  The Applicant has demonstrated
that he can properly handle his financial affairs and that he is fiscally responsible.
Considering all of the evidence, the Applicant has introduced persuasive evidence in
rebuttal, explanation or mitigation that is sufficient to overcome the Government's case. 
Under Guideline F (Financial Considerations), Disqualifying Conditions 19.(a)
inability or unwillingness to satisfy debts; and 19.(c) a history of not meeting financial
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obligations apply.  However, Mitigating Conditions 20.(b) the conditions that resulted in
the financial problem were largely beyond the person’s control (e.g., loss of
employment, a business downturn, unexpected medical emergency, or a death, divorce
or separation), and the individual acted responsibly under the circumstances; 20.(c) the
person has received or is receiving counseling for the problem and/or there are clear
indications that the problem is being resolved or is under control; and, 20.(d) the
individual initiated a good-faith effort to repay overdue creditors or otherwise resolve
debts also apply.  Accordingly, I find for the Applicant under Guideline F (Financial
Considerations).    
I have also considered the “whole-person concept” in evaluating the Applicant’s
eligibility for access to classified information.  Under the particular facts of this case, the
totality of the conduct set forth above, when viewed under all of the guidelines as a
whole, support a whole-person assessment of good judgement, trustworthiness,
reliability, candor, and a willingness to comply with rules and regulations, and/or other
characteristics indicating that the person may properly safeguard classified information.
I have considered all of the evidence presented, including the Applicant’s
favorable testimony, recommendations, and dedicated work history.  They mitigate the
negative effects of his financial indebtedness and the effects that it can have on his
ability to safeguard classified information.  On balance, it is concluded that the Applicant
has overcome the Government's case opposing his request for a security clearance.
Accordingly, the evidence supports a finding for the Applicant as to the factual and
conclusionary allegations expressed in Paragraph 1 of the SOR.   
FORMAL FINDINGS
Formal findings For or Against the Applicant on the allegations in the SOR, as
required by Paragraph 25 of Enclosure 3 of the Directive are:
Paragraph 1: For the Applicant.
        Subpara.  1.a.: For the Applicant.
    Subpara.  1.b.: For the Applicant.
    Subpara.  1.c.: For the Applicant.
    Subpara.  1.d.: For the Applicant.
        Subpara.  1.e.: For the Applicant.
    Subpara.  1.f.: For the Applicant.
    Subpara.  1.g.: For the Applicant.
    Subpara.  1.h.: For the Applicant.
    Subpara.  1.i.: For the Applicant.
   
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  DECISION
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 the
Applicant.
  Darlene Lokey Anderson
Administrative Judge