Teicher v. S.E.C.

Decision Date01 June 1999
Docket Number98-1414,Nos. 98-1287,s. 98-1287
Citation177 F.3d 1016
PartiesFed. Sec. L. Rep. P 90,486 Victor TEICHER, et al., Petitioners, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.
CourtU.S. Court of Appeals — District of Columbia Circuit

On Petitions for Review of an Order of the Securities and Exchange Commission.

Robert G. Morvillo argued the cause for petitioners Victor Teicher and Victor Teicher & Co. With him on the briefs were Catherine M. Foti and Neil M. Barofsky. Diana D. Parker entered an appearance.

Roger J. Bernstein argued the cause and filed the briefs for petitioner Ross S. Frankel. Eugene A. Gaer entered an appearance.

David M. Becker, Deputy General Counsel, Securities & Exchange Commission, argued the cause for respondent. With him on the brief were Jacob H. Stillman, Solicitor, and Susan S. McDonald, Senior Litigation Counsel.

Before: SILBERMAN, WILLIAMS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.

STEPHEN F. WILLIAMS, Circuit Judge:

Petitioners Victor Teicher and Ross Frankel were convicted of various charges of securities fraud, conspiracy and mail fraud for their participation in an insider trading scheme. In a later administrative proceeding, the Securities and Exchange Commission issued an order barring both petitioners from various branches of the securities industry, including association with registered and unregistered investment advisers. (Victor Teicher & Co. was also convicted and barred along with the individual; we refer to both simply as Teicher.) Both petitioners now challenge portions of the order as beyond the Commission's statutory authority. Teicher argues that the Commission's authority under § 203(f) of the Investment Advisers Act of 1940 (the "Advisers Act"), 15 U.S.C. § 80b-3(f), did not include the power to exclude him from association with an unregistered investment adviser; the language of the statute is emphatically against the claim, and Teicher presents nothing adequate to overcome that language, assuming anything could be adequate. Frankel claims that § 15(b)(6) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78o(b)(6), which is triggered by a person's past, present or future association with a broker-dealer, does not supply the Commission with authority to exclude persons from the investment adviser industry; indeed, the logic of the statutory structure convinces us that Congress withheld that power.

* * *

Section 203(f) of the Advisers Act provides in part:

The Commission, by order, shall censure or place limitations on the activities of any person associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with an investment adviser, or suspend for a period not exceeding twelve months or bar any such person from being associated with an investment adviser, if the Commission finds ..., that such censure, placing of limitations, suspension, or bar is in the public interest and that such person [has been convicted of specified offenses, including those of which Teicher was convicted].

15 U.S.C. § 80b-3(f)(emphasis added).

Some but not all investment advisers are required by the Act to register with the Commission. Among the exempt advisers, for example, would be one with fewer than 15 clients and not holding itself out to the public as an investment adviser nor acting as adviser to an investment company under the Investment Company Act of 1940. § 203(b), 15 U.S.C. § 80b-3(b). The term "investment adviser" in § 203(f) is unmodified, and the SEC read it to include any investment adviser, whether registered or not. Teicher says the term covers only a registered investment adviser. Since he was not associated with a registered investment adviser at the time of his wrongdoing or at the time of the Commission's administrative proceeding, he says that § 203(f) afforded it no authority to sanction him.

No language in the cited provision remotely suggests that its application is limited to "registered" investment advisers. And the Act explicitly defines an investment adviser as "any person who, for compensation, engages in the business of advising others ... as to the advisability of investing in, purchasing, or selling securities." § 202(a)(11) of the Investment Advisers Act, 15 U.S.C. § 80b-2(a)(11). Again, no mention of registration. As the Act in various places specifies "registered" advisers, see, e.g., §§ 203(d) & 208, 15 U.S.C. §§ 80b-3(d) & 80b-8, and in others those "exempt[ ] from registration," see §§ 204 & 205, 15 U.S.C. §§ 80b-4 & 80b-5, there seems every reason to believe that when it uses the term unmodified, it means both.

Teicher claims that our decision in Wallach v. SEC, 202 F.2d 462 (D.C.Cir.1953), construed the phrase "any broker or dealer" in an analogous provision in the Exchange Act to encompass only "registered" brokers or dealers; thus, he argues, § 203(f) in the Advisers Act should be similarly limited to "registered" investment advisers. In reality Wallach is a good deal narrower. There the SEC tried to force the joinder of a broker-dealer's employee-salesman as a party in disciplinary proceedings against the broker-dealer. We rejected the Commission's argument that the statute, which in terms focused on brokers and dealers, would reach their employees. The Commission's theory was simply that such an expanded proceeding would be much more practical--its findings would be res judicata as to the salesman as well as the firm, to be used against the salesman if he ever sought registration. See 202 F.2d at 109-10. The Commission did not argue that a salesman with a broker-dealer was an "unregistered" broker or dealer. (Such a theory seems unlikely to have been helpful for the SEC's claim, as the statute authorized only the denial or revocation of registration as a broker or dealer, and was thus necessarily limited to a person or firm seeking or already holding such a license.) 1 Here, the Act establishes some rules applying to unregistered investment advisers, some applying to registered ones, and some, such as § 203(f), that give every appearance of applying to both. The Commission's reading honors that structure.

Teicher calls our attention to the fact that when originally enacted in 1940 § 203 applied only to registered investment advisers--in the sense that it provided only for the denial, revocation or suspension of a registration as an investment adviser. See 15 U.S.C. § 80b-3(d) (1940). But since 1940 Congress has amended the Act and expanded the array of sanctions far beyond the early focus on registration. Now the SEC's sanction power--even looking only at that granted by § 203(f)--explicitly covers persons merely associated with or seeking association with investment advisers and ranges from censure to an outright ban on association with an investment adviser.

Teicher quotes an item from the legislative history of the 1970 amendment that added § 203(f): "[The proposed amendments] would strengthen existing disciplinary controls over registered investment advisers by making them more comparable to the provisions of Section 15(b) of the Securities Exchange Act relating to broker-dealers in securities." S.Rep. No. 91-184, at 44 (1969) (emphasis added). But such a use of the adjective "registered" in a Senate report is not of much help, especially when the statute itself offers no apparent ambiguity that the reference might help resolve. See Ratzlaf v. United States, 510 U.S. 135, 147-48, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994). And the SEC has pointed to references in the same Senate Report that describe the addition with no mention of "registered." See S.Rep. No. 91-184, at 46-47; see also H.R.Rep. No. 91-1382, at 41 (1970) (same). Teicher points to several other items of legislative history, bits not even associated with the enactment of § 203, but they are even less convincing. Reviewing the Commission's statutory interpretation under the principles of Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), we find that Teicher has not effectively challenged the Commission's reading of the Act's unambiguous language.

* * *

Frankel's claim rests on the scope of a phrase that could be very broad--out of context. It appears in the following section, under which he was sanctioned:

With respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a broker or dealer ... the Commission, by order, shall censure, place limitations on the activities or functions of such person, or suspend for a period not exceeding 12 months, or bar such person from being associated with a broker or dealer, ... if the Commission finds ... that such person [has been convicted of securities fraud or enjoined against conduct in violation of the securities laws].

§ 15(b)(6) of the Exchange Act, 15 U.S.C. § 78o(b)(6)(A) (emphasis added). The SEC's implicit reading is that this section authorizes it to "place," on any person guilty of the specified substantive violations, any "limitation[]" it chooses on his participation in any of the branches of the securities industry for which it administers an occupational licensing regime.

Frankel focuses primarily on two objections to the SEC's reading. First, he points out that the word "limitation" ordinarily has a meaning quite distinct from that of "bar." Second, the passage shows a quite intentional progression of penalty from mild to severe--censure, limitation, suspension, and finally bar; the SEC's interpretation flouts this progression, elevating "place limitations" to a scope broader than the climax penalty, "bar," which is explicitly limited to association with a broker-dealer.

We need not decide whether these arguments alone would carry the day for Frankel; the...

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