DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
In the matter of: )
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                                                                      )                                                          
           ----------------------------------                  )     ISCR  Case No.  11-08530           
                                                              )
)
Applicant for Security Clearance )
Appearances
For Government: Jeff Nagel, Esq, Department Counsel
For Applicant: Alan V. Edmunds, Esq.
______________
 Decision
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WESLEY, Roger C., Administrative Judge:
Based upon a review of the pleadings, exhibits, and testimony, I conclude that
Applicant mitigated  the security concerns regarding his finances. Eligibility for access to
classified information is granted. 
 
Statement of Case
On February 15, 2012, the Defense Office of Hearings and Appeals (DOHA)
issued a Statement of Reasons (SOR) detailing reasons why DOHA could not make the
preliminary affirmative determination of eligibility for granting a security clearance, and
DOHA recommended referral to an administrative judge to determine whether a security
clearance should be granted, continued, denied, or revoked. The action was taken
under Executive Order 10865, Safeguarding Classified Information Within Industry
(February 20, 1960), as amended, Department of defense Directive 5220.6, Defense
Industrial Personnel Security Clearance Review Program (January 2, 1992), as
amended (Directive), and the Adjudicative Guidelines (AGs) implemented by the
Department of Defense on September 1, 2006.  
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Applicant responded to the SOR on March 2, 2012, and requested a hearing.
The case was assigned to me on April 12, 2012,  and was scheduled for hearing on
May 10, 2012.  At Applicant’s request, the case was rescheduled for August 1, 2012.  At
hearing, the Government's case consisted of five exhibits (GEs 1-5). Applicant relied on
one witness (himself) and seven exhibits (AEs A-G). The transcript (Tr.) was received
on August 7, 2012. 
Procedural Issues
Before the close of the hearing, Applicant requested the record be kept open to
afford him the opportunity to supplement the record with documentation of his latest
bank statement reflecting his balance in his checking account. There being no objection
from Department Counsel, and for good cause shown, I granted Applicant seven days
to supplement the record and the Government one day to respond. Applicant
supplemented the record with his July 2012 bank statement covering funds in his
checking account. I admitted his submission as AE H.  
Summary of Pleadings
Under Guideline F, Applicant allegedly accumulated a past due debt of $110,759
on his home mortgage, which reflects a total mortgage balance of $2,207,471.  In his
answer to the SOR, Applicant denied the allegations, explaining that he did not have all
of the records necessary to verify the amounts owing on his mortgage .  He claimed that
he retained an attorney to help him and was making good-faith attempts to resolve the
matter. 
                 
Findings of Fact
Applicant is a 51-year-old chief executive officer of a defense contractor who
seeks a security clearance. The allegations covered in the SOR and admitted by
Applicant are incorporated and adopted as relevant and material findings. Additional
findings follow.
Background
Applicant married in June 1999 and has two children from this marriage. (GE 2;
Tr. 17)  He earned a bachelor’s degree in December 1983 from a respected university.
(GE 1; Tr. 17) He earned a certificate of completion of an executive program from
another respected university in 2006. (GE 2) 
Applicant served in the Navy’s civil engineering corps between April 1984 and
March 1988, and earned an honorable discharge. (GE 1; Tr. 18) Applicant’s father is a
retired Navy Rear Admiral. (AEs A-C; Tr. 18) Among his Navy assignments, Applicant
was responsible for road and school building projects on important humanitarian
missions. (AEs A and C) 
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Applicant’s finances
Between August 1992 and May 2008, Applicant was employed by an engineering
consulting firm in a managerial position as a senior vice president. (GE 2; Tr. 19) Due to
his company’s restructuring plans, Applicant was afforded an option by his company in
2008 to either resign or be laid off. (GE 2) At the time, he was earning $250,000 a year.
(Tr. 19-20)
Applicant ultimately resigned and was awarded a severance package that did not
afford him any rehiring privileges. (GE 2; Tr. 20) His severance benefits included a
$450,000 stock option distribution. Because Applicant’s employer was a privately-held
company, his company stock was illiquid and could become liquid only upon sale of the
company. (Tr. 30) Due to this liquidity impediment, Applicant’s severance distribution
was withheld for several years. He received his $450,000 severance check just last year
following his ex-employer’s merger with another firm. (Tr. 20) 
In October 2005, Applicant and his wife purchased their current home for about
$1,850,000. (GEs 2-5; Tr. 22, 26) They financed the purchase with an $800,000 down
payment and a mortgage exceeding $1,000,000. (GEs 3-5; Tr. 26-27) Monthly mortgage
payments approximated $10,000. (Tr. 27) Following his resignation in May 2008,
Applicant continued to make his mortgage payments for a number of years with his
savings, and income from his new start-up consulting firm. (GEs 1 and 2). As of February
2012, he had a delinquency balance of $110,759. (GEs 3-5; Tr. 28)  
In November 2009, Applicant tentatively completed a loan remodification that
decreased his monthly payments from $10,000 a month to $7,000 a month and raised
the mortgage balance to around $2.2 million. (GE 2 and AEs E and F) In late 2010, he
was notified by his lender that he was no longer in the lender’s trial mortgage program
because of application discrepancies. (GE 2) With the help of his attorney, he was able
to reach modification approvals and was told to keep making the lowered payments. (GE
2 and AE E) Applicant complied with his lender’s instructions and continued making his
mortgage payments. 
As the result of two lender-requested appraisals in January 2011 and March 2011,
Applicant’s home lender lowered the appraised value of Applicant’s home to around $2
million. It is currently valued at only $1.9 million. (Tr. 31) Applicant earns about $250,000
a year from his consulting firm and has a monthly remainder of $4,000. (Tr. 22) Under
the terms of his most recently modified mortgage, he has a 30-year fixed rate of interest
on the monthly balance. (AE E) His monthly mortgage payments have increased to
$8,610 on a revised $2,252,664 loan balance. (AE E; Tr. 29) 
Applicant is current with his mortgage payments. (AE E; Tr. 21, 29)  Applicant’s
most recent bank statement covering the period of June 2012 through July 2012 reflects
an ending cash balance of $144,200, a slight reduction in his cash balance from the
period  of March 2012 through April 2012. Compare AEs G and H.  His credit reports and
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bank statements reveal solid credit and finances and earnest efforts to manage his
outstanding debts. (GE 2 and AEs F-H))
Endorsements
Applicant is highly regarded by retired commanding officers who either served
with Applicant or are familiar with his Navy and civilian work experiences. They extol his
leadership, judgment, and character as beyond reproach. (AEs A-C; Tr. 23-26)  Each of
them cites Applicant’s demonstrated leadership skills and commitment to U.S. safety and
security. They stress his Navy achievements and cite his awarded medals and
commendations when covering his major contributions to their commands before he was
medically discharged from further service. (GE 2 and AEs A-C) These retired
commanders credit Applicant as well with outstanding contributions to the defense
industry throughout his 15-year career with a major defense contractor. (AEs A-C)
A college classmate, who roomed with Applicant in college and is familiar with
Applicant’s academic pursuits and ethics, credits Applicant with deep commitments to
the United States and its military services and characterizes Applicant as trustworthy and
worthy of a high level security clearance. (AE D; Tr. 24-25)
Policies
         The AGs list guidelines to be used by administrative judges in the decision-making
process covering DOHA cases. These guidelines take into account factors that could
create a potential conflict of interest for the individual applicant, as well as considerations
that could affect the individual’s reliability, trustworthiness, and ability to protect classified
information. 
These guidelines include "[c]onditions that could raise a security concern and may
be disqualifying” (disqualifying conditions), if any, and many of the "[c]onditions that
could mitigate security concerns.” They must be considered before deciding whether or
not a security clearance should be granted, continued, revoked, or denied. The
guidelines do not require administrative judges to place exclusive reliance on the
enumerated disqualifying and mitigating conditions in the guidelines in arriving at a
decision. Each of the guidelines is to be evaluated in the context of the whole person in
accordance with AG ¶ 2(c) 
In addition to the relevant AGs, administrative judges must take into account the
pertinent considerations for assessing extenuation and mitigation set forth in AG ¶ 2(a)
of the AGs. AG ¶ 2(a) is intended to assist the judges in reaching a fair and impartial
commonsense decision based upon a careful consideration of the pertinent guidelines
within the context of the whole person. The adjudicative process is designed to examine
a sufficient period of an applicant’s life to enable predictive judgments to be made about
whether the applicant is an acceptable security risk. 
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When evaluating an applicant’s conduct, the relevant guidelines are to be
considered together with the following AG ¶ 2(a) factors: 
(1) the nature, extent, and seriousness of the conduct; (2) the
circumstances surrounding the conduct, to include knowledgeable
participation; (3) the frequency and recency of the conduct; (4) the
individual’s age and maturity at the time of the conduct; (5) the extent to
which participation is voluntary; (6) the presence or absence of
rehabilitation and other permanent behavioral chances; (7) the
motivation for the conduct; (8) the potential for pressure, coercion,
exploitation, or duress; and (9) the likelihood of continuation or
recurrence.
       Viewing the issues raised and evidence as a whole, the following adjudication policy
factors are pertinent herein:
Financial Considerations
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. Compulsive gambling is a concern as it may lead to financial
crimes including espionage. Affluence that cannot be explained by known
sources of income is also a security concern.  It may indicate proceeds
from financially profitable criminal acts.
Adjudicative Guidelines, ¶ 18.
Burden of Proof
By virtue of the principles and policies framed by the AGs, a decision to grant or
continue an applicant's security clearance may be made only upon a threshold finding
that to do so is clearly consistent with the national interest.  Because the Directive
requires administrative judges to make a commonsense appraisal of the evidence
accumulated in the record, the ultimate determination of an applicant's eligibility for a
security clearance depends, in large part, on the relevance and materiality of that
evidence. See United States, v. Gaudin, 515 U.S. 506, 509-511 (1995). As with all
adversarial proceedings, the judge may draw only those inferences which have a
reasonable and logical basis from the evidence of record.  Conversely, the judge cannot
draw factual inferences that are grounded on speculation or conjecture.
The Government's initial burden is twofold: (1) it must prove by substantial
evidence any controverted facts alleged in the SOR, and (2) it must demonstrate that the
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facts proven have a material bearing to the applicant's eligibility to obtain or maintain a
security clearance. The required materiality showing, however, does not require the
Government to affirmatively demonstrate that the applicant has actually mishandled or
abused classified information before it can deny or revoke a security clearance. Rather,
the judge must consider and weigh the cognizable risks that an applicant may
deliberately or inadvertently fail to safeguard classified information.
Once the Government meets its initial burden of proof of establishing admitted or
controverted facts, the evidentiary burden shifts to the applicant for the purpose of
establishing his or her security worthiness through evidence of refutation, extenuation, or
mitigation.  Based on the requirement of  Exec. Or. 10865 that all security clearances be
clearly consistent with the national interest, the applicant has the ultimate burden of
demonstrating his or her clearance eligibility. “[S]ecurity-clearance determinations should
err, if they must, on the side of denials.” See Department of the Navy v. Egan, 484 U.S.
518, 531 (1988).  And because all security clearances must be clearly consistent with the
national interest, the burden of persuasion must remain with the Applicant.
Analysis  
Applicant is a chief executive officer of a small defense contractor that he formed
in 2008. After losing his senior management position in May 2008 (a position he had held
for many years), Applicant incurred major delinquencies with his home mortgage. Prior to
the loss of his employment, Applicant enjoyed excellent credit and was current with the
mortgage he and his wife assumed in 2005 in connection with their home purchase. 
After losing his senior position, Applicant managed to stay current with his
mortgage for several years with his available savings while he pursued loan modification
with his lender.  By 2011, he had fallen behind in his mortgage by more than $110,000.
Still, Applicant persevered with his mortgage remodification efforts. With increasing
income from the consulting company he founded, and counseling advice from his
attorney, he completed a remodification of his home loan in March 2012. To date, he is
current with his lowered monthly payments. 
       Applicant’s accumulation of mortgage delinquencies on his home and his past
inability to resolve his mortgage delinquencies raise potential security concerns about his
judgment, reliability, and trustworthiness in managing his finances. His actions warrant
the application of two of the disqualifying conditions (DC) of the Guidelines ¶ DC 19(a),
“inability or unwillingness to satisfy debts,” and ¶19(c) “a history of not meeting financial
obligations.”
Holding a security clearance involves the exercise of important fiducial
responsibilities, among which is the expectancy of consistent trust and candor.  Financial
stability in a person cleared to access classified information is required precisely to inspire
trust and confidence in the holder of the clearance. While the principal concern of a
clearance holder’s demonstrated financial difficulties is vulnerability to coercion and
influence, judgment and trust concerns are implicit in financial cases.
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Unexpected loss of employment with his engineering firm in 2008, continuing
payment efforts, and ensuing difficulties in obtaining a loan modification from his home
lender, merit application of four of the mitigating conditions for financial considerations: ¶
MC 20(a), “the behavior happened so long ago, was so infrequent, or occurred under
circumstances that it is unlikely to recur and does not cast doubt on the individual’s
reliability, trustworthiness, or good judgment;” MC ¶ 20(b), “the conditions that resulted in
the behavior 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,”  MC ¶ 20(c), “the person
has received counseling for the problem and/or there are clear indications that the
problem is being resolved or is under control,” and MC ¶ 20(d), “the individual initiated a
good-faith effort to repay overdue creditors or otherwise resolve debts.” These mitigating
conditions all apply to Applicant’s accumulated mortgage deficiencies.
In circumstances similar to the present case, the Appeal Board has said that an
applicant need not have paid or resolved every one of his proven debts or addressed all
of his debts simultaneously. What Applicant needs is a credible plan to resolve his
financial problems, accompanied by implementing actions. See ISCR Case No. 07-06488
(App. Bd. May 21, 2008) 
By the proofs presented, Applicant has achieved his objectives. He completed a
remodification of his only listed debt (his home mortgage), and is current with his lowered
monthly payments. He has a new engineering company that produces solid income for
himself and his family, and he retains a considerable monthly remainder to cover any
contingencies in the foreseeable future.
Based on his strong financial history prior to his company resignation in 2008, and
his successful efforts in modifying his home mortgage, Applicant demonstrates significant
stabilization of his finances and excellent prospects for sustaining his recovery efforts in
the foreseeable future.
Consideration of Applicant’s military and educational background, the extenuating
circumstances associated with his mortgage deficiencies, his current income from the
small company he founded in 2008, and the documented affirmative steps he has taken
to resolve his mortgage deficiencies with his home lender permits a favorable assessment
of his overall good judgment, reliability, and trustworthiness. Applicant’s proofs provide
sufficient credible indicators of his ability to be trusted in times of financial stress and
enable him to satisfy his evidentiary burden of mitigating the covered debts. 
From a whole-person standpoint, the evidence is substantial that Applicant has
performed well during his military and civilian service and is entitled to considerable credit
for his military/civilian contributions. Unfortunate economic circumstances played a pivotal
role in his inability to keep up with his mortgage payments on his home. His successful
loan modification efforts and overall stabilization of his finances over the year are
sufficient to meet mitigation requirements imposed by the AGs governing his finances.  
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Formal Fin d  i n gs
In reviewing the allegations of the SOR and ensuing conclusions reached in the
context of the findings of fact, conclusions, conditions, and the factors listed above, I
make the following formal findings:
GUIDELINE F: (FINANCIAL CONSIDERATIONS): FOR APPLICANT
Subparagraph 1.a            For  Applicant
Conclusions
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 Applicant’s security clearance.
Clearance is granted. 
                                          
Roger C. Wesley
Administrative Judge