Sheldon v. S.E.C.

• Citation: 45 F.3d 1515
• Decision Date: 24 February 1995
• Docket Number: No. 93-4055,93-4055
• Parties: Fed. Sec. L. Rep. P 98,615 Donald T. SHELDON, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1515

45 F.3d 1515

Fed. Sec. L. Rep. P 98,615

Donald T. SHELDON, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.

No. 93-4055.

United States Court of Appeals,

Eleventh Circuit.

Feb. 24, 1995.

Donald T. Sheldon, pro se.

Jacob H. Stillman, Susan S. McDonald, Lucinda O. McConathy, S.E.C., Office of General Counsel, Washington, DC, for respondent.

Petition for Review of an Order of the Securities and Exchange Commission.

Before CARNES, Circuit Judge, and DYER and GUY, ^* Senior Circuit Judges.

CARNES, Circuit Judge:

After a de novo review of proceedings before an Administrative Law Judge ("ALJ"), the Securities and Exchange Commission found that Donald T. Sheldon, the former president of two securities broker- dealer firms, had violated federal securities laws and regulations and had failed to supervise adequately his firms, which resulted in securities violations by other individuals. As a result, the SEC barred Sheldon from associating with any securities broker or dealer. Sheldon appeals that order, which we affirm.

A.

In this type of appeal, we must affirm the SEC's factual findings if they are supported by substantial evidence. See 15 U.S.C. Sec. 78y; Elliott v. SEC, 36 F.3d 86, 87 (11th Cir.1994); see also Steadman v. SEC, 450 U.S. 91, 96 n. 12, 101 S.Ct. 999, 1005 n. 12, 67 L.Ed.2d 69 (1981). We look to the record upon which the SEC based its opinion to evaluate its conclusions, and the record contains sufficient evidence of Sheldon's misconduct to support those conclusions and the sanction. ¹

For the most part, Sheldon fails to contest the SEC's findings of fraud and other securities violations. He does object to some of the SEC's findings that he failed to supervise his firms' employees adequately. We agree with the SEC that even without these findings, Sheldon's other actions justify the SEC's sanction. Moreover, the record supports the SEC's conclusions about Sheldon's insufficient supervision. "The president of a corporate broker-dealer is responsible for compliance with all of the requirements imposed on his firm unless and until he reasonably delegates particular functions to another person in that firm, and neither knows nor has reason to know that such person's performance is deficient." In the Matter of Universal Heritage Investments Corp., 47 S.E.C. 839, 845 (1982) (finding securities firm's president had properly delegated duties). Substantial evidence shows that Sheldon failed to meet that responsibility.

B.

Sheldon also has launched a barrage of criticisms, many of them vague, against the process which created the record in this case. After reviewing the parties' briefs and the record itself, however, we find that none of these criticisms has merit. We address only the most serious ones.

First, Sheldon argues that the SEC withheld evidence favorable to his cause. In this case, because of the enormous amount of documents involved, both parties were given the opportunity to designate portions of testimony relevant to the proceedings. When presenting their case against Sheldon, the SEC investigators submitted redacted versions of testimony to the ALJ. However, the ALJ also gave Sheldon the opportunity to designate omitted portions for the record; indeed, at Sheldon's request, full transcripts were entered into evidence and considered by the ALJ in reaching his final decision. The record also reflects that Sheldon and his firms' former counsel were given access to full transcripts. Thus, Sheldon's claim that evidence was withheld is not persuasive.

Second, Sheldon argues that even though the ALJ considered full transcripts of the investigatory testimony in rendering his decision, the loss of some testimony before the SEC reviewed the ALJ's decision rendered the sanction against Sheldon invalid. Some evidentiary material was lost after the ALJ hearings and prior to the Commission's consideration of his case. ² As the SEC's decision notes, however, when full transcripts were missing and could not be replaced, the SEC refused to assume facts against Sheldon's interest based upon redacted testimony. The Commission was able to justify its findings against Sheldon on the basis of evidence that was not lost.

Sheldon would have us believe that the lost evidence and the omitted portions of the redacted testimony were exculpatory, yet he fails to explain how. Cf. Elliott, 36 F.3d at 88 ("Petitioner next argues that the SEC erred in denying his motion to compel production of the receiver's 'final report,' which he claims would be exculpatory. However, in regard to this and other documents, [petitioner] has failed to assert the manner in which they may be exculpatory, beyond making broad general statements."). Sheldon does not explain how any omitted testimony is exculpatory.

Next, Sheldon complains that at least four witnesses were intimidated by the SEC staff. One witness was Don Wheeler, an attorney and the president of a broker-dealer in municipal securities who testified on Sheldon's behalf. We find no error in the ALJ's conclusion that this alleged intimidation did not hamper Sheldon's ability to present fully his defense. The ALJ allowed Sheldon to present his allegations, he considered Sheldon's objections, and he also considered Wheeler's statement that his testimony was not influenced by his conversation with the SEC attorney. As for the other three witnesses to whom Sheldon refers--Jean Casazza, Larry Kent, and Larry Rosenblum--the record fails to reflect that they were intimidated by the SEC. Nor can we find any evidence in the record supporting Sheldon's contention that the SEC encouraged witnesses to lie.

In addition to his claims that the SEC investigators and the ALJ acted improperly in ways specific to his particular case, Sheldon maintains that some of the SEC's general operating procedures are unconstitutional. Only two of Sheldon's arguments on this point require discussion. First, he contends that Rule 2(e) of the SEC's Rules of Practice, which allows the SEC to discipline attorneys who practice before the Commission, intimidates attorneys, with the result that they cannot provide adequate representation for their clients. That rule states:

The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice of and opportunity for hearing in the matter (i) not to possess the requisite qualifications to represent others, or (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct, or (iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws ... or the rules and regulations thereunder.

17 C.F.R. Sec. 201.2(e)(1) (1994). Sheldon's argument lacks merit. "[A]n examination of the policies underlying the securities laws indicates that ... the Rule is not inconsistent with the Commission's statutory authority." Touche Ross & Co. v. SEC, 609 F.2d 570, 579 (2d Cir.1979) ("[Rule 2(e) ] provides the Commission with the means to ensure that those professionals, on whom the Commission relies heavily in the performance of its...