Securities and Exchange Commission v. Sloan 27 28, 1978
| Decision Date | 15 May 1978 |
| Docket Number | No. 76-1607,76-1607 |
| Citation | 436 U.S. 103,98 S.Ct. 1702,56 L.Ed.2d 148 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. Samuel H. SLOAN. Argued March 27-28, 1978 |
| Court | U.S. Supreme Court |
The Securities and Exchange Commission (Commission) has the authority under § 12(k) of the Securities Exchange Act of 1934 (Act) "summarily to suspend trading in any security . . . for a period not exceeding ten days" if "in its opinion the public interest and the protection of investors so require." Acting pursuant to § 12(k) and its predecessor, the Commission issued a series of summary 10-day orders continuously suspending trading in the common stock of a certain corporation for over a year. Respondent, who owned 13 shares of the stock and who had engaged in substantial purchases and short sales of shares of the stock, filed a petition pursuant to the Act in the Court of Appeals for a review of the orders, contending, inter alia, that the "tacking" of the 10-day summary suspension orders exceeded the Commission's authority under § 12(k). Because shortly after the suit was brought no suspension order remained in effect and the Commission asserted that it had no plans to issue such orders in the foreseeable future, the Commission claimed that the case was moot. The court rejected that claim and upheld respondent's position on the merits. In this Court, the Commission contends that the facts on the record are inadequate to allow a proper resolution of the mootness issue and that in any event it has the authority to issue consecutive 10-day summary suspension orders. Held :
1. The case is not moot, since it is "capable of repetition, yet evading review," Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310. Effective judicial review is precluded during the life of the orders because a series of consecutive suspension orders may last no more than 20 days. In view of the numerous violations ascribed to the corporation involved, there is a reasonable probability that its stock will again be subjected to consecutive sum ary suspension orders; thus, there is a "reasonable expectation that the same complaining party" will be subjected to the same action again. Cf. Weinstein v. Bradford, 423 U.S. 147, 96 S.Ct. 347, 46 L.Ed.2d 350. Pp. 108-110.
2. The Commission does not have the authority under § 12(k), based upon a single set of circumstances, to issue a series of summary orders that would suspend trading in a stock beyond the initial 10-day period even though the Commission periodically redetermines that such action is required by "the public interest" and for "the protection of investors." Pp. 110-123.
(a) The language of the statute establishes the 10-day period as the maximum time during which stock trading can be suspended for any single set of circumstances. Pp. 111-112.
(b) In view of congressional recognition in other sections of the Act that any long-term sanctions or continuation of summary restrictions must be accompanied by notice and an opportunity for a hearing, the absence of any provision in § 12(k) for extending summary suspensions beyond the initial 10-day period must be taken as a clear indication that extended summary restrictions are not authorized under § 12(k). Pp. 112-114.
(c) The statutory pattern leaves little doubt that § 12(k) is designed to empower the Commission to prepare to deploy such other remedies as injunctive relief or a suspension or revocation of security registration, not to empower the Commission to reissue a summary order absent the discovery of a new manipulative scheme. Pp. 114-115.
(d) Those other remedies are not as unavailable as the Commission claims, as is evidenced by this very case, where the Commission during the first series of suspension orders actually sought an injunction against the corporation involved and certain of its principals and during the second series of suspensions approved the filing of an injunction action against its management. Moreover, though the Commission contends that the suspension of trading is necessary for the dissemination in the marketplace of information about manipulative schemes, the Commission is at liberty to reveal such information at the end of the 10-day period and let investors make their own judgments. And in any event the mere claim that a broad summary suspension power is necessary cannot persuade the Court to read § 12(k) more broadly than its language and the statutory scheme reasonably permit. Pp. 115-117.
(e) Though the Commission's view that the Act authorizes successive suspension orders may be entitled to deference, that consideration cannot overcome the clear contrary indications of the statute itself, especially when the Commission has not accompanied its administrative construction with a contemporaneous well-reasoned explanation of its action. Adamo Wrecking Co. v. United States, 434 U.S. 275, 287-288, 98 S.Ct. 566, 574, 54 L.Ed.2d 538 n. 5. Pp. 117-119.
(f) There is no convincing indication that Congress has approved the Commission's construction of the Act. Pp. 119-123.
547 F.2d 152, affirmed.
Samuel H. Sloan, respondent, pro se.
Under the Securities Exchange Act of 1934, ch. 404, 48 Stat. 881, the Securities and Exchange Commission has the authority "summarily to suspend trading in any security . . . for a period not exceeding ten days" if "in its opinion the public interest and the protection of investors so require." 1 Acting pursuant to this authority the Commission issued a series of consecutive orders suspending trading in the common stock of Canadian Javelin, Ltd. (CJL), for over a year. The Court of Appeals for the Second Circuit held that such a series of suspensions was beyond the scope of the Commission's statutory authority. 547 F.2d 152, 157-158 (1976). We granted certiorari to consider this important question, 434 U.S. 901, 98 S.Ct. 295, 54 L Ed.2d 187 (1977), and, finding ourselves in basic agreement with the Court of Appeals, we affirm. We hold that even though there be a periodic redetermination of whether such action is required by "the public interest" and for "the protection of investors," the Commission is not empowered to issue, based upon a single set of circumstances, a series of summary orders which would suspend trading beyond the initial 10-day period.
On November 29, 1973, apparently because CJL had disseminated allegedly false and misleading press releases concerning certain of its business activities, the Commission issued the first of what was to become a series of summary 10-day suspension orders continuously suspending trading in CJL common stock from that date until January 26, 1975. App. 109. During this series of suspensions respondent Sloan, who owned 13 shares of CJL stock and had engaged in substantial purchases and short sales of shares of that stock, filed a petition in the United States Court of Appeals for the Second Circuit challenging the orders on a variety of grounds. On October 15, 1975, the court dismissed as frivolous all respondent's claims, except his allegation that the "tacking" of 10-day summary suspension orders for an indefinite period was an abuse of the agency's authority and a deprivation of due process. It further concluded, however, that in light of two events which had occurred prior to argument, it could not address this question at that time. The first event of significance was the resumption of trading on January 26, 1975. The second was the commencement of a second series of summary 10-day suspension orders, which was still in effect on October 15. This series had begun on April 29, 1975, when the Commission issued a 10-day order based on the fact that the Royal Canadian Mounted Police had launched an extensive investigation into alleged manipulation of CJL common stock on the American Stock Exchange and several Canadian stock exchanges. App. 11-12. This time 37 separate orders were issued, suspending trading continuously from April 29, 1975, to May 2, 1976. The court thought the record before it on October 15 inadequate in light of these events and dismissed respondent's appeal "without prejudice to his repleading after an administrative hearing before the SEC . . .," which hearing, though apparently not required by statute or regulation, had been offered by the Commission at oral argument. 527 F.2d 11, 12 (1975), cert. denied, 426 U.S. 935, 96 S.Ct. 2649, 49 L.Ed.2d 387 (1976).
Thereafter respondent immediately petitioned the Commission for the promised hearing. The hearing was not forthcoming, however, so on April 23, 1976, during the period when the second series of orders was still in effect, respondent brought the p esent action pursuant to § 25(a)(1) of the Act, 15 U.S.C. § 78y(a)(1) (1976 ed.), challenging the second series of suspension orders. He argued, among other things, that there was no rational basis for the suspension orders, that they were not supported by substantial evidence in any event, and that the "tacking" of 10-day summary suspension orders was beyond the Commission's authority because the statute specifically authorized suspension "for a period not exceeding ten days." 2 The court held in respondent's favor on this latter point. It first concluded that despite the fact that there had been no 10-day suspension order in effect since May 2 1976, and the Commission had asserted that it had no plans to consider or issue an order against CJL in the foreseeable future, the case was not moot because it was " 'capable of repetition, yet evading review.' " 547 F.2d, at 158, quoting from Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911).
The court then decided that the statutes which authorized summary suspensions—§ 12(k) and its predecessors—did not empower the Commission to issue successive orders to curtail trading in a security for a...
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