845 F.3d 1217 (D.C. Cir. 2017), 14-1070, Bartko v. Securities & Exchange Commission

Docket Nº:14-1070
Citation:845 F.3d 1217
Opinion Judge:Karen Lecraft Henderson, Circuit Judge :
Party Name:GREGORY BARTKO, PETITIONER v. SECURITIES AND EXCHANGE COMMISSION, RESPONDENT
Attorney:Brian R. Matsui, appointed by the court, argued the cause as the amicus curiae in support of the appellant. Bryan J. Leitch and Deanne E. Maynard were with him on brief. Gregory Bartko, Pro se, filed the briefs for the appellant. Daniel Matro, Attorney, United States Securities and Exchange Commi...
Judge Panel:Before: HENDERSON and GRIFFITH, Circuit Judges, and WILLIAMS, Senior Circuit Judge. Opinion for the Court filed by Circuit Judge HENDERSON.
Case Date:January 17, 2017
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
SUMMARY

After petitioner was convicted of conspiracy, selling unregistered securities, and mail fraud, the SEC barred petitioner from associating with six classes of securities market participants. The court agreed with petitioner's argument that the Commissioner's imposition of Dodd-Frank’s collateral ban constitutes an impermissibly retroactive penalty because it is premised on pre-Dodd-Frank... (see full summary)

 
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845 F.3d 1217 (D.C. Cir. 2017)

GREGORY BARTKO, PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION, RESPONDENT

No. 14-1070

United States Court of Appeals, District of Columbia Circuit

January 17, 2017

Argued November 17, 2016

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

Brian R. Matsui, appointed by the court, argued the cause as the amicus curiae in support of the appellant. Bryan J. Leitch and Deanne E. Maynard were with him on brief.

Gregory Bartko, Pro se, filed the briefs for the appellant.

Daniel Matro, Attorney, United States Securities and Exchange Commission, argued the cause for the respondent. John W. Avery, Deputy Solicitor, Dominick V. Freda, and Stephen G. Yoder, Senior Litigation Counsel were with him on brief.

Before: HENDERSON and GRIFFITH, Circuit Judges, and WILLIAMS, Senior Circuit Judge. Opinion for the Court filed by Circuit Judge HENDERSON.

OPINION

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Karen Lecraft Henderson, Circuit Judge :

Between 2004 and 2005, Gregory Bartko masterminded a wide-ranging scheme that sought to defraud investors through the sale of securities. Five years later, Bartko was convicted of conspiracy, selling unregistered securities and mail fraud. Shortly thereafter, the United States Securities and Exchange Commission (SEC or Commission) instituted a follow-on administrative proceeding against him. In that proceeding, the Commission, inter alia, permanently barred Bartko from associating with six classes of securities market participants.1

Bartko's petition for review raises multiple challenges to the Commission's order. We have accorded each of Bartko's arguments " full consideration after careful examination of the record, but address in detail only those arguments that warrant further discussion." See, e.g.,

Ozburn-Hessey Logistics, LLC v. NLRB, 833 F.3d 210, 213 (D.C. Cir. 2016); United States v. Garcia, 757 F.3d 315, 321, 411 U.S. App.D.C. 33 (D.C. Cir. 2014) (" We have given full consideration to the various additional arguments that [appellant] raises, but find none convincing or worthy of discussion." ). Although we agree with the Commission's findings and conclusions, we believe it applied the bar regarding five of the six classes in an impermissibly retroactive manner. For the reasons that follow, we grant the petition in part and deny it in part.

I.

Background

A. Statutory Landscape

With the enactment of section 203(f) of the Investment Advisers Act of 1940, see 15 U.S.C. § 80b-3, and sections 15(b), 15B(c) and 17A(c) of the Securities Exchange Act of 1934, see id. § § 78 o (b), 78 o -4(c), 78q-1(c), the Congress authorized the SEC to oversee the registration and licensing of four different classes of participants in the securities markets: brokers and dealers, municipal securities dealers, transfer agents and investment advisers. See id. § § 78 o, 78 o -4, 78q-1, 80b-3 (2000) (respectively, broker-dealers, municipal securities dealers, transfer agents and investment advisers). As relevant here, these statutory provisions also authorized the Commission to suspend or bar a participant from specific classes if certain conditions were met. See id. § § 78 o (b)(6)(A), 78 o -4(c)(4), 78q-1(c)(4)(C), 80b-3(f). Generally, to impose such a sanction, the Commission had to first demonstrate that the penalty was in the public interest. See id. Second, the Commission had to show that the participant was, inter alia, convicted of a specified offense within the last ten years or had been enjoined by the SEC from

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working in the industry. See id. Finally, the Commission had to show that the participant was associated with--or seeking to become associated with--one of the four classes either at the time of the alleged misconduct or at the time of registration. See id.

Originally, the Commission read these provisions as authorizing a " collateral bar." E.g., Meyer Blinder, Exchange Act Release No. 39180, 1997 WL 603788, at *3-5. (Oct. 1, 1997). A collateral bar is a tool by which the SEC can ban a market participant from associating with all classes based on misconduct regarding only one class. See Id. at *5-6. Thus, through the imposition of a collateral bar, the Commission could not only bar an investment adviser from associating with the investment adviser class but also from the broker-dealer, municipal securities dealer and transfer agent classes--even if he had no association with those classes. See id.

This Court, however, rejected the Commission's notion that section 203(f) of the Advisers Act and sections 15(b), 15B(c) and 17A(c) of the Exchange Act sanctioned a collateral bar. See Teicher v. SEC, 177 F.3d 1016, 1019-20, 336 U.S. App.D.C. 183 (D.C. Cir. 1999). In Teicher, we noted that both statutes set forth " an almost identically worded threshold nexus requirement" that " underscore[d] a congressional determination to create separate sets of sanctions . . . ." Id. at 1020. Because each statute required a market participant to be, at a minimum, " seeking to become associated" with a class before he could be barred from it, see 15 U.S.C. § § 78 o (b)(6)(A), 78 o -4(c)(4), 78q-1(c)(4)(C), 80b-3(f) (2000), we held that the Commission could not bar an individual from a class that he had no association--no " nexus" --with, see Teicher, 177 F.3d at 1020-21. An investment adviser could be immediately barred from associating with the investment adviser class; a broker-dealer could be barred from associating with the broker-dealer class--but because a collateral bar was not statutorily authorized, the SEC could not bar him from other classes unless and until he sought to associate with those classes. See id.

In 2010, the enactment of Dodd-Frank changed the landscape. See Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Pub. L. No. 111-203, 124 Stat. 1376 (2010). Perhaps in response to the Commission's lobbying,2 the Congress empowered it to impose a collateral bar. See Pub. L. No. 111-203, 124 Stat. 1376, 1850-51 (July 21, 2010). In addition, Dodd-Frank expanded the Commission's reach, adding two new classes to its purview: municipal advisors and nationally recognized statistical rating organizations (" NRSROs" ). See 15 U.S.C. § § 78 o (b)(6)(A), 78 o -4(c)(4), 78q-1(c)(4)(C), 80b-3(f) (2012). Under Dodd-Frank, then, the Commission is now able to bar a securities market participant from the six listed classes--broker-dealers, investment advisers, municipal securities dealers, transfers agents, municipal advisors and NRSROs--based on misconduct in only one class. See id. In effect, Dodd-Frank removed the industry-specific " nexus" central to the Teicher holding,

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making available an industry-wide ban for class-specific misconduct. See id.

B. Factual Background

From 1999 to 2011, Bartko, a securities lawyer, served as the chief executive officer and chief compliance officer of Capstone Partners, L.C., a registered broker-dealer under section 15 of the Exchange Act, 15 U.S.C. § 78o. Between 2004 and 2005, Bartko also oversaw two private equity funds: the Caledonian Fund and the Capstone Fund (Funds). These two Funds were at the center of Bartko's subsequent criminal prosecution.3

Bartko's troubles began in early 2004, when, after creating the two Funds, he began to recruit investors. Rather than undertaking the search for capital himself, Bartko joined John Colvin and Scott Hollenbeck, who took on that task for him. There was a significant problem with this arrangement, however: Colvin and Hollenbeck had a history of using questionable sales tactics. Both had previously been accused of fraudulent sales practices and Hollenbeck was the subject of a cease and desist order regarding securities sales in North Carolina. Despite having access to his two partners' history, see Joint Appendix 54-57, Bartko made no effort to distance himself from them. Instead, he entered into agreements under which Colvin and Hollenbeck were to raise millions of dollars for the two Funds.

Over the next two years, both Funds' coffers were filled by way of fraud and deception. For example, Hollenbeck held numerous seminars across the country, inducing investors to give him their money with false claims that their investments were fully insured and had a guaranteed return. His tactics achieved their purpose, as approximately two hundred investors poured hundreds of thousands of dollars into the two Funds.

The actions of Bartko's partners did not go unnoticed. In March 2005, an SEC lawyer warned Bartko of Hollenbeck's questionable fund-raising techniques. Bartko insisted that Hollenbeck was merely a " finder" for the Funds and further claimed that Hollenbeck only " forward[ed] the names of interested...

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