Blinder, Robinson & Co., Inc. v. S.E.C.
| Citation | 837 F.2d 1099 |
| Decision Date | 15 January 1988 |
| Docket Number | Nos. 87-1080,87-1086,s. 87-1080 |
| Parties | , 56 USLW 2419, Fed. Sec. L. Rep. P 93,588 BLINDER, ROBINSON & CO., INC., Petitioner, v. SECURITIES & EXCHANGE COMMISSION, Respondent. Meyer BLINDER, Petitioner, v. SECURITIES & EXCHANGE COMMISSION, Respondent. |
| Court | United States Courts of Appeals. United States Court of Appeals (District of Columbia) |
Arthur F. Mathews, with whom David M. Becker, Andrew B. Weissman, David D. Rosskam and Karen A. Getman, Washington, D.C., were on the brief, for petitioner Blinder, Robinson & Co., Inc.
Nathan Lewin, with whom Jonathan B. Sallet and Mary L. Lyons, Washington, D.C., were on the brief, for petitioner Meyer Blinder.
Jacob H. Stillman, Associate General Counsel, and Rosalind C. Cohen, Asst. General Counsel, S.E.C., with whom Daniel L. Goelzer, General Counsel, Paul Gonson, Sol., and Thomas L. Riesenberg, Senior Special Counsel, S.E.C., Washington, D.C., were on the brief, for respondent.
Before RUTH BADER GINSBURG and STARR, Circuit Judges, and GESELL, * District Judge, United States District Court for the District of Columbia.
Opinion for the Court filed by Circuit Judge STARR.
These petitions for review challenge an order by the Securities and Exchange Commission imposing sanctions on a registered broker-dealer and its president and principal shareholder. The petitioners advance a number of contentions, both constitutional and nonconstitutional in nature. For the reasons that follow, we vacate the Commission's order and remand the case for further proceedings.
This litigation pits the SEC against Blinder, Robinson & Co. (and its principal), a leading broker-dealer in the genre of securities known as "penny stocks." The action arose out of an investigation into the actions of Blinder, Robinson and its president, Meyer Blinder, in underwriting an initial public offering of securities of American Leisure Corporation between December 1979 and March 1980. The purpose of the offering was to provide start-up funds for American Leisure's proposed casino project in Atlantic City. In the course of the offering, Blinder, Robinson took a variety of steps destined to be challenged by the SEC. In particular, the Commission assailed Blinder, Robinson's undisclosed purchase for its own account of almost 1 million units of the 12-million unit offering; 1 a host of other violations were alleged as well, including violations of the antifraud provisions of both the Securities Act of 1933 and the Securities Exchange Act of 1934.
Based on these allegations, the Commission brought a civil enforcement action pursuant to its statutory authority under section 20(b) of the 1933 Act, 15 U.S.C. Sec. 77t(b) (1982), and section 21(d) of the 1934 Act, 15 U.S.C. Sec. 78u(d), against both Blinder, Robinson and Meyer Blinder in the United States District Court for the District of Colorado. After a full trial, the district court entered findings of fact and conclusions of law, which are reported at 542 F.Supp. 468 (D.Colo.1982). The comprehensiveness of the district court's thorough and careful opinion renders it unnecessary for us to recanvass the underlying facts. It suffices for present purposes to observe that the district court in Colorado found that (1) both Blinder, Robinson and Meyer Blinder had violated the antifraud provisions of the securities laws, 15 U.S.C. 77q(a), 78j(b), 78o(c) and various rules promulgated thereunder, including Rule 10b-5; (2) the defendants had failed to establish a claimed defense of good-faith reliance on counsel and that, to the contrary, the firm had refused to follow the advice of counsel; and (3) comprehensive injunctive relief was appropriate, as articulated in nine specific subparagraphs set forth in 542 F.Supp. at 481-82.
Blinder, Robinson and Meyer Blinder took an appeal to the Tenth Circuit, which in due course affirmed entirely the district court's judgment. SEC v. Blinder, Robinson & Co., et al. [1983-1984 Transfer Binder] Fed.Sec.L.Rep. (CCH) p 99,491 (10th Cir.1983). The Supreme Court thereafter denied certiorari. 469 U.S. 1108, 105 S.Ct. 783, 83 L.Ed.2d 777 (1985).
As the foregoing litigation was proceeding through the appellate process, the SEC instituted an administrative proceeding against Blinder, Robinson and its president pursuant to section 15(b)(4) of the 1934 Act, 15 U.S.C. 78o(b)(4). That provision authorizes the Commission to impose sanctions on broker-dealers if, after notice and hearing, it determines that sanctions are in "the public interest." The stated purpose of the proceeding was to determine what sanctions, if any, to impose on petitioners by virtue of their conduct during the American Leisure underwriting. 2 See Order for Public Proceedings and Notice of Hearing (June 27, 1984), reprinted in Joint Appendix (J.A.) at 30.
In due course, a hearing ensued before an Administrative Law Judge. At the outset, the ALJ determined that petitioners could not, under principles of issue and claim preclusion, introduce evidence as to any matters addressed in the district court's opinion. Blinder, Robinson describes its fruitless efforts in this respect as follows:
First, petitioners sought to elicit testimony from Meyer Blinder concerning his reliance on counsel. Second, petitioners sought to introduce oral testimony from one of the principal attorneys concerning the advice to Meyer Blinder. When these requests were denied, petitioners sought to introduce into the record all evidence concerning reliance on counsel that had been before the District Court in the injunctive proceeding. This request, too, was denied.
Brief for Petitioner Blinder, Robinson & Co. at 7-8 (footnotes omitted.)
Largely rejecting petitioners' claims that the firm had undertaken "substantial rehabilitative efforts to ensure that the American Leisure events would not be repeated," id. at 9, the ALJ concluded that sanctions should be imposed. Specifically, the ALJ ordered that Blinder, Robinson's registration be suspended for 45 days and that a two-year ban be imposed on Blinder, Robinson's underwriting activities; as to Meyer Blinder, the ALJ concluded that he should be suspended from association with any broker or dealer for a period of 90 days. The ALJ put it this way:
In light of the egregiousness of the antifraud and antimanipulation violations found in the American Leisure injunction opinion ... coupled with the failures of Respondents to establish in the main their claims to fullsome rehabilatative [sic] actions and to a new and genuine dedication to compliance.... it is concluded that substantial sanctions ... are ... in the public interest, but that sanctions of the severity recommended by the [Enforcement] Division are not required in light of the mitigative factors found herein, including the remedial steps actually taken....
Initial Decision (Aug. 30, 1985), J.A. at 517-L.
Neither petitioners nor the SEC staff were enamored of the ALJ's decision. Both sides therefore appealed to the full Commission. In the order from which review is now sought, the SEC upheld the ALJ's decision and choice of sanctions as to Blinder, Robinson, but increased the sanctions imposed on Meyer Blinder individually, determining that he should be barred permanently from association with any broker or dealer (with the proviso that he could apply for reinstatement after two years). See Opinion of the Commission (Dec. 19, 1984), J.A. at 536. In a detailed opinion, the SEC made the following points, among others: (1) petitioners' claims of rehabilitation and reformation were unpersuasive, as evidenced by "wholly misleading" sales presentations and techniques still employed by the firm, J.A. at 547-48; (2) the firm's much vaunted personnel changes since the American Leisure imbroglio were entitled to "little weight," in view of key employees having been beguiled away from Blinder, Robinson by the enticing bid of a competing firm, as well as the tell-tale continuing presence of three high-ranking officers with disciplinary records, and, most importantly, of the firm's continued dominance by Meyer Blinder himself, id. at 549; and (3) the sanctions imposed by the Commission, while stringent, were necessary to guard against "any repetition of the blatant misconduct in which respondents engaged." Id. at 550.
The Commission expressly recognized the gravity of its decision:
We recognize the serious effect of the sanctions we are imposing. But we are convinced that lesser sanctions will not suffice. Our action is designed to protect the public interest not only by restricting respondents' future activity in the securities business but also by deterring them from any repetition of their violative practices. The sanctions are a clear message to registrant, and to Blinder if and when he returns to the securities business, that any recurrence of misconduct will be dealt with severely. At the same time, the sanctions serve the important purpose of general deterrence, and should operate as a warning to any other participant in the securities industry who might be tempted to engage in similar misconduct.
Id. at 550 (citation omitted.) 3
On New Year's Eve 1986, the Commission entered a stay with respect to the sanctions imposed on Blinder, Robinson. J.A. at 553-56. Applying the criteria articulated by this court, see, e.g., Wisconsin Gas Co. v. FERC, 758 F.2d 669, 673-74 (D.C.Cir.1985); Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 844 (D.C.Cir.1977), the Commission denied Meyer Blinder's request for stay. On March 26, 1987, this court, over the opposition of the SEC, entered an order staying the entry of sanctions against Meyer Blinder. See Brief for Petitioner Blinder, Robinson & Co. at 10 n. 28.
Petitioners assert a variety of grounds for overturning the SEC's order. For ease of discussion, their contentions can be divided into...
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