Busacca v. Sec. & Exch. Comm'n
| Decision Date | 28 December 2011 |
| Docket Number | No. 10-15918,Agency No. 03-13750,10-15918 |
| Parties | JOHN B. BUSACCA, III, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
[DO NOT PUBLISH]
Non-Argument Calendar
Petition for Review of a Decision of the
Securities and Exchange Commission
Before TJOFLAT, BARKETT and ANDERSON, Circuit Judges.
John B. Busacca, III, the former president of North American Clearing, Inc.("North American"), proceeding pro se, petitions this court to review a final order of the Securities and Exchange Commission ("SEC") sustaining a disciplinary action brought against him by the Financial Industry Regulatory Authority ("FINRA"), which resulted in a total fine of $30,000 and six-months' suspension from serving in any principal securities capacity.1 FINRA found that Busacca failed to exercise reasonable supervision over North American's operations and compliance functions in violation of NASD Conduct Rules 3010 and 2110.2 Specifically, Busacca knew that North American's conversion to a new computer program for preparing required books and records had created widespread errors in the firm's fundamental operations and would continue to do so in the future, yet he failed to take reasonable steps to solve the problems.
In his brief to this court, Busacca presents four issues.3 First, whether substantial evidence supports the SEC's finding that Busacca failed to exercise reasonable supervision over North American's operations in violation of Rules3010 and 20110.4 Second, whether FINRA denied Busacca denied due process in denying his request to compel the production of certain North American documents. Third, whether the SEC erred in rejecting his claim that he was subject to selective prosecution by FINRA. Fourth, whether the SEC abused its discretion in sustain the sanctions FINRA imposed.
In reviewing the SEC's decision, we treat the SEC's factual findings as conclusive if supported by substantial evidence. 15 U.S.C. § 78y(a)(4); see also Sheldon v. S.E.C., 45 F.3d 1515, 1517 (11th Cir. 1995). As mandated by the Administrative Procedures Act, we uphold the SEC's legal conclusions unless they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). Under this standard, the question becomes whether the SEC's decision "was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Sierra Club v. Johnson, 436 F.3d 1269, 1273-74 (11th Cir. 2006) (quotation omitted). We turnnow to the issues Busacca presents.
Under NASD Rule 3010, member firms are required to "establish and maintain" a supervisory system "that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD Rules." NASD Rule 3110(a). The SEC has long emphasized that the president of a member firm bears ultimate responsibility for compliance with all applicable requirements "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." Donald T. Shelton, 51 S.E.C. 59, 1992 WL 353048, at *13 (Nov. 18, 1992); see also Michael T. Studer, Exch. Act Release No. 50543A, 84 S.E.C. Docket 891, 2004 WL 2735433, at *6 (Nov. 30, 2004).
The SEC has further held that the duty of supervision includes the responsibility to investigate "red flags" suggesting irregularities and to conduct adequate follow-up and review. See Ronald Pelegrino, Exch. Act Release No. 59125, 94 S.E.C. Docket 2912, 2008 WL 5328765, *10 (Dec. 19, 2008); Edwin Kantor, 51 S.E.C. 440, 1993 WL 167840, at *5 (May 20, 1993). When indications of irregularity reach the attention of those in authority, they must act "vigorously," "decisively," and "with the utmost vigilance" to detect and prevent improperactivity. See Robert Grady, Exch. Act Release No. 41309, S.E.C. Docket 1392, 1999 WL 222640, at *3 (Apr. 19, 1999); Kantor, 1993 WL 167840, at *5.
Contrary to Busacca's position, FINRA and, on review, the SEC made it clear that Busacca was only being held accountable for his failure after he became North American's president in March 2004 adequately to address the operational problems wrought by the firm's prior conversion to the new back-office system. Moreover, substantial evidence supports the finding that Busacca, while president of the firm, failed to act with the requisite vigor, decisiveness, and vigilance to address known operational deficiencies, as well as to prevent the occurrence of future regulatory violations.
Busacca contends that FINRA and subsequently the SEC denied him due process of law by concealing evidence and denying his request to compel North American to produce documents "vital to his defense." He asserts that the desired documents concerning company meetings and e-mails would have demonstrated that he was intimately and actively involved in fixing all operational problems that were brought to his attention. He also asserts that the SEC excluded two documents from its certified listing of documents presented in the FINRA proceedings: (1) the May 20, 2008, order denying his production request fromNorth American; and (2) the August 2008 pre-hearing conference, where the FINRA Hearing Officer informed Busacca that he could request any needed documents from the court-appointed trustee overseeing North American's liquidation.
The Fifth Amendment's Due Process Clause generally requires "notice and the opportunity to be heard incident to the deprivation of life, liberty, or property at the hands of the government." Grayden v. Rhodes, 345 F.3d 1225, 1232 (11th Cir. 2003). We have not yet determined whether FINRA is a government actor subject to the Clause's requirements. Other circuits have reached conflicting holdings on this question. See, e.g., D'Alessio v. S.E.C., 380 F.3d 112, 120 n.12 (2d Cir. 2004) (); Rooms v. S.E.C., 444 F.3d 1208, 1214 (10th Cir. 2006) (). To the extent the Due Process Clause applies to FINRA proceedings, its core demand is an opportunity to be heard "at a meaningful time and in a meaningful manner." Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965); see Nat'l Ass'n of Bds. of Pharm. v. Bd. of Regents of the Univ. Sys. of Ga., 633 F.3d 1297, 1317 (11th Cir. 2011). Nevertheless, in the context of criminal cases, the Supreme Court has emphasized that "[t]here is no generalconstitutional right to discovery" and that "the Due Process Clause has little to say regarding the amount of discovery which the parties must be afforded." Weatherford v. Bursey, 429 U.S. 545, 559, 97 S.Ct. 837, 846, 51 L.Ed.2d 30 (1977).
In the absence of subpoena power, FINRA must rely on its procedural rules to compel the production of materials from member firms. PAZ Sec., Inc., Exch. Act Release No. 57656, 93 S.E.C. Docket 47, 2008 WL 1697153, at *4 (Apr. 11, 2008). FINRA Rule 8210 only authorizes the agency to compel the production of documents from member firms or associated persons. FINRA Rule 8210(a). Moreover, pursuant to FINRA Rule 9252(b), a request to compel the production of documents from a member firm may only be granted upon a showing that the "information sought is relevant, material, and non-cumulative," and "the requesting [p]arty has previously attempted in good faith to obtain the desired [d]ocuments . . . through other means but has been unsuccessful in such efforts." FINRA Rule 9252(b). In accordance with this standard, Rule 9252(a) requires that a production requests describe the category or type of documents sought with specificity, state why those documents are material, and describe the requesting party's previous efforts to obtain them. FINRA Rule 9252(a).
Assuming that FINRA constitutes a governmental entity subject to the DueProcess Clause, Busacca was not deprived of any process he was due. He was afforded a meaningful opportunity to be heard during the disciplinary proceedings and, despite ample opportunity to obtain the requested documents from North American, failed to satisfy the requirements of Rule 9252 by, for example, explaining the materiality of the broad category of documents sought and detailing any prior good-faith efforts to obtain the documents directly from the firm. When he reiterated his request for the documents, and finally demonstrated his failure to obtain them from North American, FINRA was unable to compel their production from the court-appointed trustee who, in the interim period, had been charged with liquidating the firm. Moreover, as the SEC aptly noted, the administrative record contained other competent evidence, including Busacca's own testimony, that described the measures Busacca took to address North American's difficulties once he assumed the role of president. Finally, the record affirmatively contradicts his claim that the SEC excluded the two identified documents from the administrative record. Accordingly, he was not denied any process to which he may have been entitled, nor has he otherwise demonstrated that the SEC abused its discretion in affirming the denial of his request to compel production from North American.
Busacca argues that he was improperly singled out for prosecution and punishment based on his criticisms of FINRA and the securities industry. In considering his argument, we are mindful that, in light of the broad discretion accorded prosecutors in determining whom should be prosecuted, we must "presume that [Busacca's prosecutors] properly discharged their official duties." United States v. Armstrong, 517 U.S. 456, 464, 116 S.Ct. 1480, 1486, 134 L.Ed.2d 687 (1996) (quotation omitted). So long as a prosecutor has probable cause to believe that the accused has committed an offense, "the...
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