Thomson & McKinnon v. SECURITIES AND EXCHANGE COM'N
Decision Date | 25 April 1967 |
Docket Number | No. 67 Civ. 1423.,67 Civ. 1423. |
Citation | 268 F. Supp. 11 |
Parties | THOMSON & McKINNON, a limited partnership, and Walter T. O'Hara, Plaintiffs, v. SECURITIES AND EXCHANGE COMMISSION, Manuel F. Cohen, Byron D. Woodside, Hugh F. Owens, Hamer H. Budge and Francis M. Wheat, Defendants. |
Court | U.S. District Court — Southern District of New York |
Hall, Patterson, Taylor, McNicol & Marett, New York City, for plaintiffs; Donald E. McNicol, James J. Marett, Wilmot B. Mitchell, Charles J. Egan, Jr., Peter Siviglia, New York City, of counsel.
Richard M. Phillips, Asst. General Counsel, Securities and Exchange Commission, Washington, D. C., for defendant, Securities and Exchange Commission; Philip A. Loomis, Jr., General Counsel, David Ferber, Sol., Joel J. Rabin, Washington, D. C., of counsel.
Thomson & McKinnon, a securities brokerage partnership, and Walter T. O'Hara, one of the firm's general partners, brought this action against the Securities and Exchange Commission and its five members as individuals seeking to enjoin in part a pending investigation by that agency. The jurisdiction of this court is asserted to rest upon 28 U.S.C. §§ 1331 and 1337; the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202; the Administrative Procedure Act, 5 U. S.C. §§ 702, 704-706; and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. With the filing of their complaint, plaintiffs moved for a preliminary injunction. The suit is without merit, and the motion must be denied.
The undisputed facts, as plaintiffs allege them, are as follows: On August 9, 1963, the District Business Committee for District No. 12 of the National Association of Securities Dealers (NASD) brought a complaint against the plaintiffs herein charging, inter alia, that, "pursuant to a compensatory arrangement with H. C. Keister & Company, * * * said firm Keister was knowingly and wilfully interposed between Thomson & McKinnon and the best available market to the harm and detriment of their customers." The alleged misconduct was charged as violative of Article III, Sections 1 and 18, of the NASD's Rules of Fair Practice. On the same day the NASD Committee issued its complaint against H. C. Keister, two of its general partners, and one of its employees charging, inter alia, the same course of wrongful inter-positioning. Over the objections of the plaintiffs herein, the two proceedings were consolidated for hearing by the NASD. Upon the 650-page record thus made, the NASD issued a decision on June 30, 1964, sustaining the charges against plaintiffs, fining the firm $2,000, fining O'Hara $2,000, and suspending the latter for 30 days. A separate decision against Keister & Company and the individuals charged with it was issued on July 2, 1964. The Company was expelled from the Association, the registrations of two of the accused individuals were revoked, and the third individual was fined $1,000.
The Keister group sought review, first by the NASD's Board of Governors, then by the S.E.C. pursuant to Section 15A(g) of the Securities Exchange Act of 1934, 15 U.S.C. §78o—3(g).1 The plaintiffs here did not appeal. Their counsel upon oral argument of the present motion stated that their reason for not appealing the findings that they had violated the Association's Rules of Fair Practice was their unwillingness to bear the additional expense of such further proceedings.
Keister also argued before the Commission that the penalties imposed upon it "were excessive in comparison to the milder penalties imposed by the NASD in other cases involving serious violations, and particularly in view of the lesser penalties imposed upon Thomson & McKinnon and O'Hara * * * in the companion proceeding." Rejecting this argument, the Commission concluded that it presented no adequate basis for reducing the penalties against the appellants.2 The Commission observed, however, that the disparity in penalties suggested a potentially troublesome problem. It said in this connection:
Two of the Commissioners (Budge and Wheat) dissented on this last point. They concluded that the disparate penalties were not justifiable, and would have held that the sanctions imposed upon Keister should be reduced.
As appears just below, the comments of the Commissioners in Keister relating to the present plaintiffs supply the asserted basis for the present lawsuit. The occasion for the litigation is an order dated September 26, 1966, pursuant to § 21(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(a), by which the Commission directed a private investigation concerning the information in its "public official files" that plaintiff "Thomson & McKinnon, its employees and others":
In their complaint and application for a temporary injunction, the plaintiffs contend that the Commission must be barred in the investigation thus ordered from inquiring into any of the matters which were involved in the joint NASD trial and the resulting appeal by Keister to the Commission. They concede that the general subject of interpositioning may properly be explored by the Commission, but say that the facts involved in the Keister appeal must now be forever sealed from such inquiry. The grounds for this asserted foreclosure center upon alleged violations of plaintiffs' rights to due process unless the Commission's investigation is thus limited. To summarize it as plaintiffs state it, their position comes to this:
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...actual bias has been taken, administrative procedure should not be interrupted by judicial intervention); Thomson & McKinnon v. SEC, 268 F.Supp. 11, 14 (S.D.N.Y.1967) (exceptions to exhaustion rule are narrow); Peter Kiewit Sons' Co. v. United States Army Corps of Engineers, 714 F.2d 163, 1......