S.E.C. v. Mohn

• Decision Date: 12 October 2006
• Docket Number: No. 05-1762.,05-1762.
• Citation: 465 F.3d 647
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Keith L. MOHN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

465 F.3d 647

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Keith L. MOHN, Defendant-Appellant.

No. 05-1762.

United States Court of Appeals, Sixth Circuit.

Argued: September 22, 2006.

Decided and Filed: October 12, 2006.

ARGUED: Jack J. Mazzara, The Mazzara Law Firm, Grosse Pointe Woods, Michigan, for Appellant. Thomas J. Karr, Securities and Exchange Commission, Washington, D.C., for Appellee. ON BRIEF: Jack J. Mazzara, Lanalee C. Farmer, The Mazzara Law Firm, Grosse Pointe Woods, Michigan, for Appellant. Thomas J. Karr, Kathleen Cody, Securities and Exchange Commission, Washington, D.C., for Appellee.

Before SILER, CLAY, and BALDOCK, Circuit Judges.^*

OPINION

CLAY, Circuit Judge.

Defendant, Keith L. Mohn, appeals a district court order granting the application of Plaintiff Securities and Exchange Commission ("SEC") for enforcement of its order affirming sanctions levied against Defendant by the National Association of Securities Dealers ("NASD"), pursuant to the Securities and Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78a et seq. The district court found that Exchange Act § 21(e), 15 U.S.C. § 78u(e)(1), authorized the SEC to file an application for an enforcement order, and that the order was not precluded by § 21(f), 15 U.S.C. § 78u(f), or barred by the statute of limitations as set forth by 28 U.S.C. § 2462.

For the following reasons, we AFFIRM the district court's decision.

BACKGROUND

Defendant was an investment broker and dealer with John Hancock Distributors, Inc. and John Hancock Mutual Life Insurance Co. ("brokerage firms"). (Joint Appendix ("J.A.") at 26.) Defendant and both brokerage firms are members of the NASD, a securities association registered with the SEC. Defendant's wife was also a registered representative in the securities industry. Id. Defendant directly solicited customers to purchase limited partnership interests sponsored by Citi Equity Group, Inc. and arranged for his wife to effectuate the transactions through a third-party firm. Id. The brokerage firms neither knew of nor approved these transactions. Id.

On January 30, 1998, the NASD Business Conduct Committee ("Committee") found Defendant to be in violation of NASD Conduct Rules for participating in private securities transactions without prior notice to, and approval of, his brokerage firms. (J.A. at 26.) Defendant was censured, barred from association with any NASD-member firm in any capacity, and fined $56,377.50. Id. His appeal to the NASD National Adjudicatory Council ("Council") affirmed the Committee's findings and sanctions on January 22, 1999. Id. The Council added $750.00 to Defendant's fine for appeal costs, thereby increasing the total fine to $57,127.50. Id. Defendant appealed the NASD's final decision to the SEC, pursuant to the SEC's adjudicatory oversight authority over national securities associations under Exchange Act § 19(f), 15 U.S.C. § 78s(f). (J.A. at 11.) By order dated November 16, 1999, the SEC affirmed the NASD's censure and bar, but reduced Defendant's fine to $54,905.50. Id. Defendant did not appeal the SEC's order.¹

On November 12, 2004, the SEC filed an application with the United States District Court for the Eastern District of Michigan, pursuant to Exchange Act § 21(e), 15 U.S.C. § 78u(e)(1), for enforcement of its November 16, 1999, order affirming the NASD judgment against Defendant, alleging that the fine levied against Defendant remained outstanding. (J.A. at 3-9.) The district court granted the enforcement application in an opinion and order dated April 7, 2005. (J.A. at 94-95.)

DISCUSSION

I. Standard of Review

Whether the SEC's application to the district court for enforcement of its order is authorized under Exchange Act § 21(e), precluded by § 21(f), 15 U.S.C. § 78u(f), or barred by the statute of limitations in 28 U.S.C. § 2462, is a question of statutory interpretation that this Court reviews de novo.² See United States v. Wagner, 382 F.3d 598, 606-07 (6th Cir.2004).

II. Exchange Act § 21(e) Authorizes the SEC to Apply for Enforcement of its Orders

1. Statutory Framework

The NASD is a self-regulating, national securities association registered with the SEC. The SEC exercises broad supervisory authority over the NASD, but the NASD is responsible for enforcing securities laws and its own conduct rules against its member companies and their employees. 15 U.S.C. § 78s(b). Any person or company subject to NASD disciplinary action may seek review with the SEC pursuant to Exchange Act § 19(d)(2). 15 U.S.C. § 78s(d)(2). In turn, any person aggrieved by an SEC order may appeal to the appropriate United States court of appeals. 15 U.S.C. § 78y(a)(1).

In addition to serving an appellate role over NASD actions, the SEC may also directly enforce national securities laws and NASD rules by filing complaints against alleged violators in district court pursuant to Exchange Act § 21(d), 15 U.S.C. § 78u(d). In pertinent part, § 21(d) provides that

[w]henever it shall appear to the [SEC] that any person is engaged or is about to engage in acts or practices constituting a violation of any provision of this chapter, the rules or regulations thereunder, the rules of a national securities exchange or registered securities association of which such person is a member ... it may in its discretion bring an action in the proper district court ... to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond.

15 U.S.C. § 78u(1). The SEC may pursue both injunctive relief and civil monetary penalties. Id. The SEC may also seek a mandamus in a district court to enforce the Exchange Act and the rules and orders issued thereunder. Exchange Act § 21(e), 15 U.S.C. § 78u(e). More specifically,

[u]pon application of the [SEC] the district courts ... shall have jurisdiction to issue writs of mandamus, injunctions, and orders commanding ... any person to comply with the provisions of this title, the rules, regulations, and orders thereunder, [or] the rules of a national securities exchange or registered securities association of which such person is a member....

15 U.S.C. § 78u(e)(1). The SEC's authority under Exchange Act § 21(e) is constrained by provisions in § 21(f), 15 U.S.C. § 78u(f). The SEC may not

bring any action pursuant to subsection (d) or (e) of this section against any person for violation of, or to command compliance with, the rules of a self-regulatory organization ... unless it appears to the [SEC] that (1) such self-regulatory organization ... is unable or unwilling to take appropriate action against such person in the public interest and for the protection of investors, or (2) such action is otherwise necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78u(f).

2. The Plain Language of Exchange Act § 21(e) Authorizes the SEC to Seek Judicial Enforcement of All Orders

Defendant contends that Exchange Act § 21(e) does not empower the SEC to seek enforcement of the NASD order of January 22, 1999 because § 21(e) empowers the SEC to enforce orders issued only in connection with its direct enforcement activities and not orders issued in connection with its appellate authority over the NASD under Exchange Act § 19. He argues that the SEC has separate and distinct roles under Exchange Act §§ 19 and 21. Section 19(d)(2) authorizes the SEC to serve an appellate role over NASD disciplinary actions, while § 21(d) empowers the SEC to directly enforce national securities laws and NASD rules. Defendant maintains that § 21(e) does not authorize the SEC to seek enforcement of orders issued pursuant to the SEC's appellate role under § 19 because the mandamus provision of § 21(e) is structurally separate from the SEC's appellate powers. (Def.Br.10-12.) Defendant contends that Congress empowered the SEC to seek mandamus for enforcement of its orders under § 21(e), but did not include a similar provision in § 19. Defendant maintains that the Court should interpret the Exchange Act as precluding the SEC from seeking a mandamus in a district court for enforcement of orders issued pursuant to its appellate authority under § 19, in accordance with the maxim inclusio unius est exclusio alterius.

The Court finds that Defendant's contentions are unpersuasive because they ignore the plain language of Exchange Act § 21(e) and seek to create a structural separation in the Exchange Act which simply does not exist. Exchange Act § 21(e) expressly empowers the SEC to solicit "writs of mandamus, injunctions, and orders commanding [ ] any person to comply with the provisions of this title, the rules, regulations, and orders thereunder [or] the rules of a national securities exchange or registered securities association of which such person is a member." 15 U.S.C. § 78u(e) (emphasis added). The reference to "this title" in this provision implicates the entire Exchange Act, and permits the SEC to apply to the district court for enforcement of orders issued pursuant to any section in the Exchange Act, not just direct enforcement activities under § 21. Therefore, Exchange Act § 21(e) simply does not differentiate between orders issued under § 21 and orders issued under § 19.

Three circuit courts of appeals have had the opportunity to rule on the use of Exchange Act § 21(e) to enforce SEC orders which affirm NASD disciplinary rulings, and all three courts have held that the SEC may use § 21(e) for applications to enforce orders originally issued pursuant to the SEC's appellate authority under § 19. See SEC v. Vittor, 323 F.3d 930, 934 (11th Cir.2003) ("[W]e conclude that the SEC's order sustaining the NASD's disciplinary sanctions was unquestionably an order [enforceable under § 21(e)]."); SEC v. McCarthy, 322 F.3d 650, 655 (9th Cir. 2003) ("The [SEC] does not lose standing to enforce its orders in district court simply because it fulfills an appellate function, rather...