[00:00:01] Speaker 00:
Case 14-1126, Montford and Company, Inc., doing business as Montford Associates and Ernest V. Montford Sr.

[00:00:11] Speaker 00:
Petitioners, the Security and Exchange Commission.

[00:00:14] Speaker 00:
Mr. Morris for the petitioners, Mr. Wiseman for the respondent.

[00:00:27] Speaker 02:
May it please the court.

[00:00:29] Speaker 02:
The SEC lacked authority to file an action in this case.

[00:00:33] Speaker 02:
Contrary to the Commission's arguments in this case, Section 78D5 is not a mere expression of Congress's hope or aspiration or desire that the Commission would, in its discretion,

[00:00:46] Speaker 02:
complete timely investigations.

[00:00:48] Speaker 02:
Rather, it is a unique provision that sets concrete deadlines on the Commission to complete an investigation 180 days after Wells notification is issued, and goes further and specifies that at the conclusion of that 180-day period, the Commission will either file an action or give notice that it is not filing an action.

[00:01:08] Speaker 02:
The consequence there is clear.

[00:01:10] Speaker 02:
The only exception to that is in subsection two, which requires a complexity determination for the division director to extend the deadline.

[00:01:18] Speaker 02:
There's no dispute here that the SEC didn't file within the 180-day period, and there's no evidence in the record that the complexity determination has been made.

[00:01:28] Speaker 02:
Therefore, the court should vacate the order.

[00:01:29] Speaker 07:
Well, I guess I want to go back, and I'm still not sure why we're talking about the 180-day rule at all, because you don't dispute, at least, that an extension decision was made.

[00:01:39] Speaker 07:
I know you have issues with their description of how it was made, but you don't dispute that one was made, do you?

[00:01:47] Speaker 02:
that an extension was purported to be... Decision was made.

[00:01:49] Speaker 02:
Yes.

[00:01:50] Speaker 02:
That's correct.

[00:01:51] Speaker 02:
They did purport to... Right.

[00:01:52] Speaker 02:
Right.

[00:01:52] Speaker 07:
You don't dispute that an extension decision was made before the 180 days ran out.

[00:01:57] Speaker 07:
I'm not sure why we're talking about 180, because once an extension decision is made, then the 180-day bar goes by the side, and you have the new time limit in the extension decision.

[00:02:08] Speaker 07:
So it seems to me your real argument here has to be there was something wrong with that extension decision, and unless we decide that, we don't even get to the 180-day issue, do we?

[00:02:21] Speaker 02:
It has to be a proper extension under the statute.

[00:02:23] Speaker 02:
Right.

[00:02:24] Speaker 07:
But I'm saying, don't we have to decide that before we can even address the status of the 180-day period?

[00:02:33] Speaker 02:
Well, I think the commission's argument all along has discretion under Section 1.

[00:02:39] Speaker 02:
If an extension is given,

[00:02:42] Speaker 02:
It has to be according to subsection two in our view.

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And that's because subsection one cabins in the commission's authority.

[00:02:50] Speaker 02:
So I think that predicate has to be there.

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And that's the dispute that we have with the commission.

[00:02:55] Speaker 02:
But the extension here wasn't proper.

[00:02:58] Speaker 02:
And so whether the court does it A or B, either way, it wasn't proper.

[00:03:02] Speaker 07:
In fact, you say it wasn't proper because... They didn't make the prerequisite determination.

[00:03:08] Speaker 07:
They didn't articulate it one way or the other, right?

[00:03:10] Speaker 02:
In the evidence.

[00:03:10] Speaker 02:
There's nothing in the evidence and they don't dispute there's any evidence that it was made.

[00:03:14] Speaker 02:
They have a declaration and it omits the one statutory prerequisite for that extension, which is that it was sufficiently complex.

[00:03:23] Speaker 05:
They do contend a complexity determination was made.

[00:03:25] Speaker 05:
They just say that there wasn't a written reason given, or they haven't proffered that in the record.

[00:03:33] Speaker 02:
They haven't articulated anywhere that the complexity determination has been made.

[00:03:38] Speaker 05:
Their argument is that we can- I think they have.

[00:03:40] Speaker 05:
They said that we don't see it quite as parsed out as you do.

[00:03:43] Speaker 05:
I think they've said we, in granting the extension, we grant the extension according to the relevant standard, which is that this was a complex case that warranted more time.

[00:03:53] Speaker 02:
They don't, in fact, say that what they say is that the commission and or the court can presume under the presumption of regularity that that statutory prerequisite is there.

[00:04:03] Speaker 07:
Wouldn't we have to decide that evidencing that judgment or articulating that judgment, is it self-jurisdictional for you to win?

[00:04:13] Speaker 07:
Because it could be that the time, even assuming you're correct that the time period is jurisdictional, that doesn't mean that

[00:04:23] Speaker 07:
and articulation requirements tied to an extension is itself jurisdictional.

[00:04:28] Speaker 07:
That has to have its own jurisdictional status, doesn't it?

[00:04:31] Speaker 02:
Well, the articulation, they do argue that there's no requirement of articulation.

[00:04:37] Speaker 02:
We're not saying that the commission has to publish an order when it does this.

[00:04:40] Speaker 02:
The point being that, for instance, take RH Stern.

[00:04:45] Speaker 02:
In that case, when there has been the agency stepping out of line, as it has done, it filed after the 180-day period.

[00:04:53] Speaker 02:
Under our age, Stern, it says the presumption then, and the burden goes to the government to show why it was appropriate in that case.

[00:04:59] Speaker 02:
At that instance, it then has to show that it complied with what the statute requires at that point.

[00:05:05] Speaker 02:
Under subsection two, it requires a determination that a case was sufficiently complex, and they exercised their discretion.

[00:05:12] Speaker 07:
Is that a jurisdictional determination?

[00:05:14] Speaker 07:
Does jurisdiction hinge on them finding and articulating complexity?

[00:05:23] Speaker 02:
It hinges on the complexity of determination being made.

[00:05:26] Speaker 02:
If they've not complied with subsection one, then the only way in which they can file after that 180-day period is through subsection one.

[00:05:35] Speaker 07:
So that would have to be jurisdictional, too, for you to win.

[00:05:37] Speaker 07:
Right.

[00:05:39] Speaker 05:
I just wanted to follow back on you said that they don't say that they made a complexity determination.

[00:05:45] Speaker 05:
They rely on the presumption of regularity.

[00:05:47] Speaker 05:
But I see those things as actually completely consistent in the sense that when you rely on a presumption of regularity, you say, yes, we did this.

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We're entitled to a presumption that we did it.

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So the presumption of regularity is an evidentiary rule.

[00:06:00] Speaker 05:
It's not a blank check to the government that they don't actually have to behave regularly because we counterfactually assume that they do.

[00:06:08] Speaker 05:
It's quite the opposite.

[00:06:09] Speaker 05:
It's that they're saying, yes, of course we did this.

[00:06:12] Speaker 05:
We read the law.

[00:06:13] Speaker 05:
We understood.

[00:06:14] Speaker 05:
We made a determination.

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maybe in a meeting, in the consultation about whether to seek the extra time, we did make a complexity determination.

[00:06:23] Speaker 05:
And so I think your position has to be driven by an understanding that because of the demands of administrative law, judicial reviewability, there has to be something memorialized on that.

[00:06:35] Speaker 05:
But I don't take them to be arguing, and I'm not sure whether you're arguing, that no complexity determination at all was made here.

[00:06:42] Speaker 02:
Well, we have no evidence whether or not that complexity determination has been made.

[00:06:46] Speaker 05:
That's a different point than saying that they don't dispute that no complexity determination.

[00:06:51] Speaker 02:
Fair enough.

[00:06:52] Speaker 05:
I take that to be significant.

[00:06:53] Speaker 02:
Right.

[00:06:53] Speaker 02:
But there's nothing in the record that it was made.

[00:06:56] Speaker 02:
The only declaration omits that one determination that that determination was ever made, and so they fall back to the presumption of regularity in order to fill that gap.

[00:07:05] Speaker 05:
As an evidentiary matter.

[00:07:06] Speaker 02:
As an evidentiary matter.

[00:07:07] Speaker 02:
But the point is that under R.H.

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Stern, when the government steps out of bounds, as it did by violating Subsection 1 and not filing in the 180-day period, the burden then goes to the government.

[00:07:18] Speaker 02:
And their only declaration omits the one thing that they had to do under Subsection 2 in order to... Assume you're right about Subsection 2.

[00:07:26] Speaker 04:
Is it a given that the Subsection 180-days gives a jurisdictional indication?

[00:07:31] Speaker 04:
I mean, in light of

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Brock, that has not this statute, but a different 180-day limitation, said that the consequence is not spelled out as being jurisdictional in the statute, that it's not.

[00:07:49] Speaker 04:
Not necessarily jurisdictional.

[00:07:51] Speaker 02:
Well, right.

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The consequences have to be stated.

[00:07:55] Speaker 02:
But there's no explicit... Well, it doesn't require an explicit statement of no jurisdiction.

[00:08:04] Speaker 02:
It's an undertaking of statutory interpretation, given the normal indicia of congressional intent.

[00:08:08] Speaker 02:
And that's clear here.

[00:08:10] Speaker 05:
But we have legions authority, both in our court and in the Supreme Court, viewing this kind of deadline as directory rather than mandatory.

[00:08:20] Speaker 02:
Not under this kind of provision.

[00:08:24] Speaker 02:
The closest analogy here would be if Congress had said,

[00:08:28] Speaker 02:
Commission has to complete an investigation within 180 days.

[00:08:31] Speaker 02:
That's closer to the cases that they rely upon.

[00:08:33] Speaker 02:
Complete an investigation in 180 days, but that's not what this says.

[00:08:37] Speaker 02:
The title of it is a deadline for completing an investigation, but the provision itself then specifies what happens at the end of that, which is they either file an action or give notice that they're not filing an action.

[00:08:50] Speaker 02:
And that right there spells out exactly what's going to happen at the conclusion of that period.

[00:08:55] Speaker 07:
Just yesterday, the Supreme Court reminded us that the time limitations in statutes are presumptively non-jurisdictional.

[00:09:08] Speaker 07:
And in that statute, it said, file within x days, for it shall be forever barred.

[00:09:15] Speaker 07:
And that wasn't enough to make it jurisdictional.

[00:09:17] Speaker 07:
And so how is this stronger than that case?

[00:09:21] Speaker 02:
They were dealing with divesting an article through tribunal of authority in a case and didn't rely on any of the same precedent we're talking about here, which we're talking about an independent agency that only derives power from what Congress grants to it.

[00:09:35] Speaker 02:
And when it doesn't grant, it doesn't have the authority.

[00:09:38] Speaker 07:
Well, we only derive power from what Congress grants to us as well.

[00:09:43] Speaker 07:
And so I'm not sure why that's a distinction.

[00:09:45] Speaker 07:
This is about how you construe statutes that limit courts for agencies.

[00:09:49] Speaker 07:
And it would be a little hard to say a time limit that says it is violated shall be forever barred is non-jurisdictional.

[00:09:56] Speaker 07:
And then to have something here that doesn't have anything near that language be jurisdictional.

[00:10:01] Speaker 02:
We'd be happy to submit a letter on the impact of that Supreme Court decision, which came out yesterday and further elucidated.

[00:10:09] Speaker 07:
One of the things, and it's a good point, that is this isn't just a time limit, it's an either or with an extension.

[00:10:18] Speaker 07:
And the or is either file or inform the director that you're not filing.

[00:10:25] Speaker 02:
Correct.

[00:10:26] Speaker 07:
So let's say they inform the director they're not filing and the director says, I disagree.

[00:10:33] Speaker 02:
If he goes to sub... Have they violated the statute?

[00:10:34] Speaker 07:
They've done exactly what the statute says.

[00:10:37] Speaker 02:
If they go to subsection two.

[00:10:39] Speaker 07:
No, they don't have to.

[00:10:39] Speaker 07:
It says either file or tell the director.

[00:10:42] Speaker 07:
It doesn't say the director has to do anything.

[00:10:44] Speaker 02:
But the time limit is there.

[00:10:45] Speaker 07:
No, the time limit is on them to either file or tell the director.

[00:10:48] Speaker 07:
There's no time limit on the director.

[00:10:49] Speaker 07:
Did I see?

[00:10:51] Speaker 06:
I mean, correct me if I'm wrong, but I don't see any time limit on the director.

[00:10:54] Speaker 06:
Provide notice to the director.

[00:10:56] Speaker 02:
Right, subsection two makes clear though that the exception to that, to the 180-day window, is if there's an extension determination.

[00:11:06] Speaker 06:
No, it's not that the commission shall file, it's that commission staff, which is a little unusual, commission staff, not the commission shall file or commission staff shall provide notice to the director.

[00:11:18] Speaker 05:
I mean, it really seems like, so the question is, what is this trying to accomplish?

[00:11:23] Speaker 05:
And one thing it clearly was trying to accomplish is to make this agency more prompt and effective in getting its work done.

[00:11:29] Speaker 05:
And you also point out in your brief a separate interest, which is basically the repose interest of a target of investigation.

[00:11:37] Speaker 05:
and question whether that's really adequately supported in the congressional materials that you cite.

[00:11:46] Speaker 05:
But wouldn't it be the case if that were the interest that this determination or not would have to be something made public?

[00:11:55] Speaker 05:
There's no requirement that this be communicated.

[00:12:01] Speaker 02:
No, but the statute itself gives repose to the target of the investigation.

[00:12:07] Speaker 02:
If they read that and know that after the 180-day period that if there's no action filed.

[00:12:12] Speaker 05:
But then you wouldn't know because it's completely internal.

[00:12:14] Speaker 05:
Maybe they saw an extension based on complexity.

[00:12:17] Speaker 05:
Gee, I don't know.

[00:12:18] Speaker 05:
I got the Wells notice.

[00:12:20] Speaker 05:
And you would think that if this was about repose, and if that were the driving rationale, which it seems to me is your main sort

[00:12:29] Speaker 05:
logic for reading this as jurisdictional, that along with not acting would be some notice to the target of the investigation, your case is closed.

[00:12:39] Speaker 05:
But there was no discussion of that anywhere in the legislation that created this timeline.

[00:12:44] Speaker 02:
Agreed if that were the only purpose for it, but that's not the... Even if it were an important purpose.

[00:12:50] Speaker 02:
Setting aside that, another important purpose of the provision was to put real deadlines on the agency, which was basically dysfunctional prior to this point.

[00:12:59] Speaker 02:
The whole point behind Dodd-Frank was to make a more effective agency in conducting business, and a big problem prior to this was lingering investigations, not closing investigations, letting them go on forever.

[00:13:09] Speaker 02:
And so it's clear you read it against that background.

[00:13:12] Speaker 02:
This provision is meant to either you make an action or by the passage of time, it's closed.

[00:13:18] Speaker 07:
But I guess I get that.

[00:13:21] Speaker 07:
I understand that argument.

[00:13:22] Speaker 07:
It's a fair argument.

[00:13:23] Speaker 07:
But it seems like the way it's written is to make commission staff keep moving this up the chain internally.

[00:13:30] Speaker 07:
Staff take it to the director and do that with either file or take it to the director within 180 days.

[00:13:37] Speaker 07:
So that gets it up to the director's attention.

[00:13:40] Speaker 07:
And then if you want another 180 days, you have to go bother those commissioners.

[00:13:44] Speaker 07:
And they have to move on the extension.

[00:13:46] Speaker 07:
I bet you commissioners aren't real happy to have to deal with extension motions.

[00:13:50] Speaker 07:
They've got more important things to do.

[00:13:52] Speaker 07:
And so it's take it to director, take it to the commission.

[00:13:56] Speaker 07:
And so that seems like an internal push within the agency rather than an external repose for a targeted investigation.

[00:14:05] Speaker 02:
Undoubtedly, a big part of the purpose for this is to put pressure on the agency.

[00:14:10] Speaker 02:
But a big part of that is to actually have consequences.

[00:14:13] Speaker 02:
If they can just keep kicking it down the can down the road, that's not solving anything that Congress set out to do in this provision.

[00:14:19] Speaker 02:
It's just continuing to kick down the road.

[00:14:21] Speaker 02:
And so it has to mean something that at the end conclusion of the 180 days, unless that is jurisdictional in the same amount of time.

[00:14:28] Speaker 05:
And we'll press the Commission on that.

[00:14:29] Speaker 05:
But I think you also may underestimate the

[00:14:33] Speaker 05:
the incentives created by shame internally.

[00:14:36] Speaker 05:
Even judges have timelines, 60-day lists.

[00:14:41] Speaker 05:
They're not going to close the cases or sanction the judge for failing to meet them, but it really is something that people pay attention to and does move the work along.

[00:14:52] Speaker 05:
It seems like it's a natural way to

[00:14:54] Speaker 05:
I see your time is up, but I actually did want to ask you about your argument on the merits and just if you could sort of give us a succinct statement of why you think that there's a failure of causation or that the claim on the merits doesn't stand up.

[00:15:15] Speaker 02:
The causation argument basically comes down to there's no evidence that the failure to disclose a conflict of interest caused the payments.

[00:15:26] Speaker 07:
You're making the discouragement not the penalty argument right now?

[00:15:28] Speaker 02:
Yes.

[00:15:28] Speaker 02:
There's no evidence that it caused the payments.

[00:15:32] Speaker 02:
The work had been done or substantially done, even according to J.A.

[00:15:37] Speaker 02:
299, where the commission says that the work, the communications with the clients, all happened prior to about mid-August.

[00:15:45] Speaker 02:
So the work in transferring was largely undertaken.

[00:15:48] Speaker 02:
It's only at the end of August where he basically says, I've done enough work here that, essentially, I need some kind of recompense because it's taken a lot more work than was required.

[00:16:00] Speaker 07:
What is the causal standard?

[00:16:02] Speaker 07:
How is it articulated between the illicit activity and disgorgement?

[00:16:08] Speaker 07:
It's not but for causation.

[00:16:10] Speaker 07:
I'm not sure it's even proximate causation.

[00:16:13] Speaker 07:
What is it?

[00:16:14] Speaker 02:
that a cause?

[00:16:16] Speaker 07:
See, I saw causally connected or attributed to, which sounds, actually I'm not sure causally connected is actually causation.

[00:16:24] Speaker 07:
I'm just asking, I'm asking what authority, is there a case somewhere that has said it is an actual causal requirement at which point then we have to ask about but for approximate?

[00:16:32] Speaker 02:
But I believe in our briefly cited in the case, it is a causal standard.

[00:16:37] Speaker 02:
Attributed.

[00:16:39] Speaker 07:
Because what the nature of the relationship is is very important.

[00:16:45] Speaker 07:
And if it's causally connected or attributable to, that's pretty soft.

[00:16:50] Speaker 07:
If it's but for, that's a pretty hard one.

[00:16:53] Speaker 02:
Well, attributed to, I think, is a articulation of it, causally connected is another.

[00:16:59] Speaker 07:
But the point is... Is that softer than but for approximate causation?

[00:17:03] Speaker 02:
I don't believe so.

[00:17:04] Speaker 07:
Which is it then?

[00:17:06] Speaker 02:
At a minimum, but for causation.

[00:17:10] Speaker 02:
the appropriate one, whether there are elements that might cut it off at some point, this is a separate question, but there's no connection between these at all, the disclosure violation and the payments themselves.

[00:17:21] Speaker 02:
There's no evidence that one basically was linked to the other.

[00:17:26] Speaker 07:
What evidence is there as to the time that the money moved into the SJK account?

[00:17:31] Speaker 04:
That happened later, correct.

[00:17:35] Speaker 04:
There's always an obligation to disclose.

[00:17:39] Speaker 04:
The actual transfer came after the clients of your client had been induced to move their money into the funds handling.

[00:17:56] Speaker 04:
Even though that happened first, they still had an obligation to disclose, well, we're not really a defendant, and we've been letting on.

[00:18:04] Speaker 04:
We took money from this fund-to-fund operator that we advised you to put money with.

[00:18:13] Speaker 02:
Right, but the failure to disclose a conflict of interest to his clients,

[00:18:18] Speaker 02:
didn't have anything to do with the request for compensation for the work done prior to that point.

[00:18:26] Speaker 02:
That work came and was done prior to that point.

[00:18:31] Speaker 04:
Well, although the actual transfer of the money was, it's not really possible to say when the incentive to fail to disclose first was in the mind of your client.

[00:18:43] Speaker 04:
As far as we know, they were going to get this money all the time.

[00:18:47] Speaker 04:
There was always a plan.

[00:18:48] Speaker 04:
As far as we know, they planned not to disclose all the time.

[00:18:52] Speaker 04:
That's the trouble with your non-disclosure.

[00:18:54] Speaker 04:
It doesn't tell us anything.

[00:18:56] Speaker 02:
Well, but there's no evidence that there was any kind of plan before.

[00:19:01] Speaker 02:
No, there never would be any evidence unless someone had rolled over.

[00:19:04] Speaker 07:
But he didn't get the amount of money he was going to get.

[00:19:09] Speaker 07:
It wasn't decided until after.

[00:19:11] Speaker 02:
Correct.

[00:19:12] Speaker 07:
The money all came in.

[00:19:13] Speaker 07:
Doesn't that suggest that, OK, well, we're going to have a relationship.

[00:19:16] Speaker 07:
And I'm going to give you something.

[00:19:20] Speaker 07:
But no amount's set right now.

[00:19:21] Speaker 07:
And then the money starts flowing in.

[00:19:23] Speaker 07:
Aha!

[00:19:24] Speaker 07:
Have $210,000.

[00:19:25] Speaker 07:
I don't understand how that's not causally connected.

[00:19:30] Speaker 07:
The failure to disclose to the clients in August that, aha, now I'm going to be getting money from this guy.

[00:19:38] Speaker 07:
is what caused them to put their assumption that this was all above level, he wasn't getting paid by this guy.

[00:19:43] Speaker 07:
They've said it's a factor, and what let them to have their money in, and then their money's all in, and he goes, you know what, you have earned $210,000.

[00:19:50] Speaker 07:
Does that order not work?

[00:19:56] Speaker 02:
No.

[00:19:59] Speaker 02:
The $210,000 came from the work that he'd done in transferring the client funds based on his recommendation prior to that point.

[00:20:07] Speaker 02:
There's no conflict of it.

[00:20:09] Speaker 02:
Agreed that there was a conflict that arose that he had to disclose.

[00:20:15] Speaker 02:
But under the SEC's own rationale, the conflict arose when he requested the amount, or requested the money, not based on certain amounts.

[00:20:24] Speaker 07:
Well, it arose and it kept going.

[00:20:26] Speaker 07:
I mean, he had a duty to amend, and the conflict continued every day and every minute between August and until it was all finally stopped, didn't it?

[00:20:36] Speaker 02:
Well, he had to change his forms, correct, yes, and disposed of.

[00:20:41] Speaker 05:
I'm just having trouble even understanding your argument.

[00:20:46] Speaker 05:
Because isn't it typical when somebody is being essentially bribed to do work, they get money, and then they deliver.

[00:21:02] Speaker 05:
And there's a quid pro quo.

[00:21:05] Speaker 05:
And you're saying, well, the fact that they got the money before they deliver, before they induced the clients to come over, means that there was no causal relationship.

[00:21:15] Speaker 05:
But I thought that was kind of the way it worked, and that if he didn't deliver, then he'd be in trouble with

[00:21:26] Speaker 02:
Mr. Kolowoski, but... Those are assertions made by the SEC.

[00:21:31] Speaker 02:
Right.

[00:21:32] Speaker 02:
But there's no evidence of any kind of quid pro quo or anything to keep it secret.

[00:21:36] Speaker 05:
But there's evidence that he's insisting that he's neutral, that he takes no money from anyone.

[00:21:42] Speaker 02:
Correct.

[00:21:43] Speaker 05:
Right.

[00:21:44] Speaker 02:
As an independent advisor, that was how he explained his services, that he was doing it.

[00:21:49] Speaker 04:
And the only evidence in here... Well, I don't understand what you just said.

[00:21:53] Speaker 04:
I'm sorry to interrupt.

[00:21:56] Speaker 02:
As an independent advisor, he told his clients that he was independent.

[00:22:03] Speaker 04:
Yeah.

[00:22:04] Speaker 02:
Okay.

[00:22:04] Speaker 04:
And he didn't tell them, I'm over here helping this person that I'm giving you advice to put your money with.

[00:22:11] Speaker 04:
Right?

[00:22:12] Speaker 02:
Correct.

[00:22:13] Speaker 02:
That he was transferring... I'm not sure how that was responsive to... The point is, the only evidence in the record is from Mr. Monfort himself.

[00:22:24] Speaker 02:
It's unrebutted, and it establishes that Koalowski was closing his account with Phoenix.

[00:22:32] Speaker 02:
He was starting a new business, and Phoenix wasn't doing fund to funds.

[00:22:35] Speaker 02:
They needed to get the clients over to SJK and invest there in the fund to funds, which is what he recommended.

[00:22:43] Speaker 02:
Because Phoenix wasn't doing that,

[00:22:45] Speaker 02:
He offered to do the process.

[00:22:47] Speaker 05:
The process took far longer, and it was more intensive than he... So he provides the person power, does the work, and then says, hey, you know, we've been administratively out of pocket.

[00:22:55] Speaker 05:
Help us out here.

[00:22:56] Speaker 05:
But both before and after, Mr. Monford is representing to his clients, I take no money from anyone that I'm recommending you invest, both before and after.

[00:23:08] Speaker 05:
And so I don't understand where your chronology argument rests.

[00:23:15] Speaker 02:
The.

[00:23:17] Speaker 05:
Well, he's denying it, whether he's denying it before and then getting paid, or now he's been paid and he's still denying it.

[00:23:28] Speaker 02:
Well, he's not denying it.

[00:23:30] Speaker 02:
He's failing to disclose.

[00:23:31] Speaker 02:
Well, he's failing to disclose.

[00:23:32] Speaker 02:
Correct.

[00:23:33] Speaker 02:
Right.

[00:23:33] Speaker 02:
And so their theory rests.

[00:23:34] Speaker 05:
But in fact, he's been denying it in some interviews with, I mean, there's something, the entire interview is not just his.

[00:23:38] Speaker 02:
He has clients that have testified.

[00:23:42] Speaker 02:
Right.

[00:23:43] Speaker 02:
And part of the theory that SCC relies on is that,

[00:23:46] Speaker 02:
the lynch is that the clients would not have retained him had he disclosed that part of it.

[00:23:52] Speaker 02:
But all that is is testimony that it was important to them, right, and that they basically fired him after all of this came to light.

[00:24:01] Speaker 02:
But there's no evidence, no question directly to the point that says, would you have terminated him at that point?

[00:24:09] Speaker 02:
There's no evidence of that in the record.

[00:24:11] Speaker 04:
He made it impossible to really establish that by his favorite

[00:24:17] Speaker 04:
I mean, we don't know what would have happened if he had followed the law, if he had followed the regulations, if he had said, I'm not independent, I have a relationship with Colonel Kowalski.

[00:24:29] Speaker 02:
We can't know what would have happened, but he's the one who made it impossible for them.

[00:24:34] Speaker 02:
The SEC could have asked the witnesses there, would you have retained its services at the time, had you known?

[00:24:41] Speaker 05:
So you're pointing to the wrecker.

[00:24:44] Speaker 05:
I'm sorry.

[00:24:44] Speaker 05:
Were you finished answering that question?

[00:24:48] Speaker 05:
The SEC finds that Kalaweski paid Monford in exchange for Monford directing clients.

[00:24:54] Speaker 05:
to SJK.

[00:24:59] Speaker 05:
You're recharacterizing.

[00:25:00] Speaker 05:
I understand, I read your brief, and I understand your client's testimony that, no, I was doing that as payment for these administrative services.

[00:25:10] Speaker 05:
But they found otherwise.

[00:25:12] Speaker 05:
And is there a challenge to that evidentiary finding?

[00:25:16] Speaker 05:
I take you to making a strictly legal argument about causation

[00:25:21] Speaker 02:
Well, we do point out that there isn't substantial evidence to support that accusation in there.

[00:25:31] Speaker 02:
There's no testimony on it, again, other than Mr. Monfort's unrebutted testimony about how the events unfolded in this case.

[00:25:41] Speaker 07:
I just want to make sure I'm understanding.

[00:25:42] Speaker 07:
So I think I take it your argument is

[00:25:47] Speaker 07:
By some point in August, they had agreed he was going to get money for these transitional services.

[00:25:55] Speaker 07:
And the money went into the accounts.

[00:26:03] Speaker 07:
How did the flow of the money into the accounts relate in time to that determination?

[00:26:07] Speaker 02:
It wasn't until November there was a

[00:26:11] Speaker 02:
an invoice, a second invoice given, and funds at that point, and then it was approximately a year later that another amount was also given.

[00:26:19] Speaker 07:
Right.

[00:26:19] Speaker 07:
And you know, since that came after, they'd already made this determination.

[00:26:22] Speaker 07:
But I guess I'm still not clear on what the answer is.

[00:26:26] Speaker 07:
the determination of the amount of the payment came after money had started flowing into his accounts.

[00:26:33] Speaker 07:
I think if I've got the chronology right, if so, if I've got the chronology wrong and if I've got the chronology right, why isn't that independently sufficient?

[00:26:42] Speaker 02:
The amount, the determination.

[00:26:44] Speaker 07:
How much you're gonna get from me.

[00:26:46] Speaker 02:
Well, my understanding of the SEC's theory is that the mere receipt of any amount would have created the conflict of interest.

[00:26:54] Speaker 07:
But the disgorgement is going to be the amount.

[00:26:56] Speaker 07:
I mean, the disgorgement is the amount that he said these services, that he, Kowalski, independently determined to be the value of these services, whatever the services rendered are.

[00:27:10] Speaker 07:
And the SEC has its, you have yours.

[00:27:12] Speaker 07:
But the value determination by Kowalski was after the money flowed in.

[00:27:16] Speaker 07:
So why isn't that causal for disgorgement of that amount?

[00:27:22] Speaker 07:
Well... No money was paid in August.

[00:27:24] Speaker 02:
Correct.

[00:27:25] Speaker 02:
But according to the government, that's when the conflict and the disclosure obligation arose.

[00:27:30] Speaker 07:
And I think you don't dispute that it kept going, right?

[00:27:33] Speaker 07:
Correct.

[00:27:34] Speaker 07:
And so it seems like there was another decision that was caused by the flow of funds.

[00:27:42] Speaker 07:
And that was you have earned $210,000.

[00:27:45] Speaker 07:
The value of your services is $210,000.

[00:27:49] Speaker 02:
That put the amount on it.

[00:27:54] Speaker 07:
But again, I guess I'm asking why, as a matter of law, that second determination as to

[00:28:02] Speaker 07:
now that the stuff is all flowing, here's what I think you're worth.

[00:28:04] Speaker 02:
The causal standard ties to the wrongdoing, not necessarily the specific amount.

[00:28:10] Speaker 02:
It's got to be tied to the wrongdoing.

[00:28:12] Speaker 02:
The wrongdoing here is the failure to disclose.

[00:28:16] Speaker 02:
And that, according to the Commission, arose in August, at the end of August.

[00:28:19] Speaker 07:
It kept going.

[00:28:19] Speaker 07:
It arose every day in August and September and October and November and December and January and through the 2010 filing, right?

[00:28:30] Speaker 07:
I guess I'm not understanding why we're only looking at August.

[00:28:36] Speaker 07:
That's what I'm not understanding.

[00:28:37] Speaker 07:
Why does your causal thing say I can only look at what he did for Kowalski before that August agreement?

[00:28:45] Speaker 02:
Because as I understand, that's when the conflict arose.

[00:28:48] Speaker 02:
It may have had that conflict about him for quite some time, but that's when the conflict arose and the disclosure obligation arose.

[00:28:56] Speaker 04:
We really can't look at that in isolation.

[00:28:59] Speaker 04:
You've got to look at the whole story here.

[00:29:00] Speaker 04:
And they were in a relationship for months before that, what you call the services rendered or the extra services or whatever.

[00:29:11] Speaker 04:
Maybe there is a point there where you can clearly see there's certainly clearly a kind

[00:29:18] Speaker 04:
get the picture, you've got to look behind it.

[00:29:20] Speaker 04:
You've got to look all the way back to what was going on before.

[00:29:22] Speaker 04:
They were in a relationship for a long period of time.

[00:29:25] Speaker 04:
He never disclosed it.

[00:29:27] Speaker 04:
They were certainly sure to disclose it, at least by the time he got the money, but before that he was working

[00:29:40] Speaker 02:
Well, that was for his clients.

[00:29:42] Speaker 02:
That was work done in order to transfer his clients over.

[00:29:46] Speaker 02:
It wasn't a relationship that they had, and it wasn't one where he was getting paid.

[00:29:51] Speaker 02:
What did he say he got paid for, Becca?

[00:29:54] Speaker 02:
Transferring the funds?

[00:29:56] Speaker 02:
Right, but that request for payment didn't come until after, when more was done at that point than was required.

[00:30:07] Speaker 05:
Let me ask you, Mr. Morris, if it were clear on the record that Mr. Monford accepted funds from Mr. Kolowoski in exchange for Mr. Monford continuing to vigorously refer clients to SJK, that would be a violation of the act, no?

[00:30:31] Speaker 02:
Yeah.

[00:30:32] Speaker 05:
And so your argument is that the record doesn't support that that's what happened.

[00:30:36] Speaker 02:
Correct.

[00:30:37] Speaker 02:
Unless there are any further questions.

[00:30:54] Speaker 01:
Thank you.

[00:30:55] Speaker 01:
May it please the Court, my name is Theodore Wyman and I represent the Securities and Exchange Commission.

[00:31:00] Speaker 01:
I think the key flaw underlying Monford's argument is that he blurs the line between commission staff and the commission itself.

[00:31:09] Speaker 01:
Section 4E is directed at commission staff and regulates the internal investigation process.

[00:31:14] Speaker 01:
It doesn't limit the commission.

[00:31:15] Speaker 01:
It doesn't impose any obligations on the commission, which is the party that would be filing any lawsuit or instituting proceedings.

[00:31:23] Speaker 07:
In what case do you have where there was, the ones I saw all said,

[00:31:27] Speaker 07:
Do something by this time.

[00:31:30] Speaker 07:
And this one is different.

[00:31:31] Speaker 07:
It says, do this by the time, or do that by the time, or get an extension.

[00:31:37] Speaker 07:
Is there any other case that has those many, that sort of specification of here are your three options?

[00:31:43] Speaker 07:
Here's a time limit, you got three options.

[00:31:46] Speaker 01:
Well, the closest case in that sense would be Montalvo-Murillo, which does provide for a continuance.

[00:31:50] Speaker 01:
It says that you should bring the probationer before the court within a certain number promptly.

[00:31:56] Speaker 01:
And the hearing should be held on the first appearance, unless a continuance is sought, three days if it's by the government, five days if it's by the probationer.

[00:32:07] Speaker 01:
In that sense, that is an extension situation.

[00:32:10] Speaker 01:
And the court found that that wasn't

[00:32:12] Speaker 01:
that wasn't a situation in which the power to hold the probationer was lost.

[00:32:19] Speaker 01:
And I think the fact that there's this extension process undermines the argument that this is jurisdictional.

[00:32:25] Speaker 01:
It's entirely within the Commission's power to control the process, and it goes purely to the internal recommendation process, whether to file an action.

[00:32:33] Speaker 01:
Commission staff doesn't have the authority

[00:32:35] Speaker 01:
to go to court and file an action without commission approval.

[00:32:38] Speaker 01:
It has to go to the director, make a recommendation.

[00:32:40] Speaker 01:
That's what the intent not to file is.

[00:32:42] Speaker 01:
It's purely a recommendation.

[00:32:43] Speaker 01:
And then the commission ultimately authorizes an action or not.

[00:32:47] Speaker 01:
And even if the decision's made not to recommend an action, even if the investigation's terminated,

[00:32:52] Speaker 01:
Determination letter makes clear that the governing rules make clear that they can be reactivated at any time upon more evidence.

[00:32:58] Speaker 01:
So the whole process is not directed at filing in court or not filing in court.

[00:33:02] Speaker 01:
It's directed at you either file quickly or you get approval for continuing extensions.

[00:33:06] Speaker 01:
And I think

[00:33:08] Speaker 05:
Is there not a practice of telling an individual who's a target of investigation when a decision has been made to stop investigating?

[00:33:16] Speaker 05:
And as you say, it's subject to further reopening.

[00:33:19] Speaker 05:
But is there a process of notifying?

[00:33:21] Speaker 01:
Yes, there is a termination letter.

[00:33:23] Speaker 01:
Again, the whole process is informal and discretionary.

[00:33:25] Speaker 01:
There's informal rules that have been instituted to govern this.

[00:33:29] Speaker 01:
And it's all within the discretion of the commission to ensure that the commission's cases and prejudicings of that nature.

[00:33:35] Speaker 01:
But there is a termination letter.

[00:33:36] Speaker 05:
There's no statute requiring a termination letter.

[00:33:39] Speaker 01:
No, there's no statute.

[00:33:39] Speaker 05:
There's no regulation?

[00:33:40] Speaker 05:
Or is this just internal policy?

[00:33:42] Speaker 01:
It's internal policy.

[00:33:43] Speaker 05:
Is there anything you could cite for that?

[00:33:45] Speaker 01:
Yeah, well, it's in the enforcement, the enforcement manual online, I believe has the, and they cite it in their brief.

[00:33:54] Speaker 01:
Okay, that's fine.

[00:33:55] Speaker 01:
Yeah, and I believe there's

[00:34:00] Speaker 01:
OK, I could also give you a site, 17 CFR 2025D.

[00:34:05] Speaker 01:
And it says that, in its discretion, the staff may advise the party of termination.

[00:34:11] Speaker 01:
But such advice, if given, must in no way be construed as indicating that the party's been exonerated or that no action may ultimately result from staff's investigation of a particular matter.

[00:34:19] Speaker 01:
So there is a rule, but it's completely discretionary.

[00:34:21] Speaker 01:
Right.

[00:34:21] Speaker 05:
But I bet people are pretty happy to get those letters.

[00:34:24] Speaker 01:
Absolutely.

[00:34:24] Speaker 01:
And I think the whole statute is premised on the notion that the commission is trying to act professionally.

[00:34:28] Speaker 01:
We'll be following the normal investigative procedures, but the same holds true with respect to the extension.

[00:34:34] Speaker 05:
But let me press you a little bit on Mr. Morris's argument and the arguments in their brief about,

[00:34:41] Speaker 05:
If it's not enforceable, if it's not jurisdictional, is it worth anything at all?

[00:34:46] Speaker 01:
Oh, it's absolutely.

[00:34:47] Speaker 01:
It's worth a lot.

[00:34:47] Speaker 01:
I mean, there's no external consequence, such as the loss of commission's power to proceed.

[00:34:53] Speaker 01:
But the internal consequences are just as Your Honor recognized.

[00:34:57] Speaker 01:
Commission staff has to go to their boss and ask for a first extension.

[00:35:01] Speaker 01:
The division director has to approve it and notify the chairman.

[00:35:04] Speaker 01:
The second and any subsequent extension, they have to go to the full commission.

[00:35:07] Speaker 01:
And this does two things.

[00:35:08] Speaker 01:
First, it's a disincentive to commission staff to have a dilatory investigation because you keep having to

[00:35:14] Speaker 01:
notify your superiors that you're taking a long time.

[00:35:16] Speaker 01:
And secondly, it notifies the division director and the commission and ensures they're in the loop.

[00:35:21] Speaker 01:
They're aware that this is continuing and they can do something about it.

[00:35:24] Speaker 01:
And that's what this statute is directed at.

[00:35:25] Speaker 01:
The legislative history makes clear that this was to spur the commission to action to ensure that wrongdoers don't fall through the cracks when there's a promising investigation.

[00:35:35] Speaker 01:
And that's why, starting with the Wells notice,

[00:35:37] Speaker 01:
This process ensures that there's a speedy progression of the investigation.

[00:35:41] Speaker 01:
And again, the statute's only directed at the investigation.

[00:35:44] Speaker 01:
It terminates when there's a recommendation made.

[00:35:46] Speaker 01:
If there's a recommendation made not to file, the statute is no longer applicable.

[00:35:50] Speaker 01:
And then the statute relies on the Director of Enforcement and the Commission to promptly consider the recommendation act as in the normal course of business.

[00:35:58] Speaker 05:
And has it helped?

[00:36:00] Speaker 01:
Well, in this case, Your Honor, I think it's very clear that the process was followed.

[00:36:04] Speaker 01:
This investigation took 187 days.

[00:36:06] Speaker 01:
Before the 180-day mark, the extension was requested, it was granted, and it only took seven additional days to file this.

[00:36:14] Speaker 05:
I know this is sort of outside the record, but just sort of anecdotally as a general matter, is the agency more on top of its work and completing these investigations in a more timely manner?

[00:36:24] Speaker 01:
Well, I can't speak to whether there's a difference between how they acted before and now.

[00:36:28] Speaker 01:
But I can tell you that I've talked to enforcement attorneys on this case and others.

[00:36:34] Speaker 01:
And they pay attention to this rule.

[00:36:35] Speaker 01:
They notify.

[00:36:36] Speaker 01:
They ask for extensions.

[00:36:37] Speaker 01:
And they're aware of this 180-day rule and the requirement to ask for more time.

[00:36:41] Speaker 01:
So this is something that is governing the commission's conduct.

[00:36:44] Speaker 01:
And I think it certainly is a reasonable way of ensuring that the investigations continue at a prompt pace.

[00:36:52] Speaker 07:
Do you have a view on whether we should decide the 180-day issue at all, given that an extension was obtained here?

[00:37:00] Speaker 07:
So really the only question is whether it was a valid extension?

[00:37:02] Speaker 01:
Well, I think either alternative is equally strong.

[00:37:05] Speaker 01:
This Court could decide it on the fact that it's not jurisdictional at all, so there's no need to dismiss the action.

[00:37:11] Speaker 01:
Or it could also

[00:37:13] Speaker 07:
But I'm not sure is that question even presented, because I don't think anyone argues that it's 180 days, irregardless of extensions.

[00:37:20] Speaker 07:
I think it's 180 days unless extended.

[00:37:23] Speaker 07:
And so since we're in extension land, I'm just trying to figure out how the 180-day question is even presented.

[00:37:28] Speaker 07:
While one might think about that as part of context, I'm just trying to make sure we're not reaching out to decide something that's not actually presented by this case.

[00:37:37] Speaker 01:
Well, I think, I see Your Honor's point.

[00:37:40] Speaker 01:
I mean, the extension clearly would be the first line to see whether the statute was complied with.

[00:37:44] Speaker 01:
But again, that would be not irrelevant, but it would be beside the point if it didn't have an impact on the court's jurisdiction at all.

[00:37:51] Speaker 01:
So I think the court could look at it either way, but could certainly resolve this on the very fact that the extension was granted.

[00:37:56] Speaker 01:
And I have to respond to, when the other side said that there's no evidence.

[00:37:59] Speaker 04:
Just a moment on the jurisdictional question.

[00:38:02] Speaker 04:
Yes.

[00:38:02] Speaker 04:
You do in your brief say something we didn't ask your opposing counsel about if that is

[00:38:13] Speaker 04:
So that all we'd have to find is they were reasonably interpreting their authority as opposed to saying, we agree with how they interpret it.

[00:38:23] Speaker 01:
I think that's absolutely right.

[00:38:24] Speaker 01:
And I don't think the court needs to even go that far because it's just so clear that the commission's interpretation is right.

[00:38:30] Speaker 01:
I don't think, it's not even reasonable.

[00:38:33] Speaker 01:
Don't pick that ditch today.

[00:38:37] Speaker 01:
Right.

[00:38:38] Speaker 01:
But yes, Chevon Deference would apply here.

[00:38:40] Speaker 01:
And I don't think they argue otherwise.

[00:38:42] Speaker 01:
They suggest that there was an explicit direction not to file.

[00:38:45] Speaker 01:
But that's, of course, the recommendation not to file.

[00:38:47] Speaker 07:
I thought they did argue otherwise and that the City of Arlington didn't apply to procedural irregularities.

[00:38:57] Speaker 04:
My understanding- They argued that in the reply, I believe.

[00:39:00] Speaker 01:
Maybe I misinterpreted their argument, but my understanding was they were arguing that because the statute has an expressed consequence, you don't get into the ambiguity.

[00:39:08] Speaker 01:
There's no silence or ambiguity at all.

[00:39:10] Speaker 01:
But in any event, it would be unreasonable.

[00:39:12] Speaker 01:
I think that's how I interpreted their argument, but I could have missed the nuance there.

[00:39:17] Speaker 01:
On the complexity determination, though, if the court does resolve this on the extension, the fact is the ALJ determined that the complexity determination was made by the fact that the extension was granted.

[00:39:28] Speaker 01:
The ALJ, I believe, said that you could deduce the fact that the proper factor was considered by the fact that it's a prerequisite to granting the extension, and the extension was granted.

[00:39:40] Speaker 07:
My assumption is that these extensions

[00:39:43] Speaker 07:
are obviously not public determinations because you have investigations going on.

[00:39:51] Speaker 07:
Are they generally even written down or are they done orally?

[00:39:53] Speaker 07:
The statute doesn't specify.

[00:39:54] Speaker 07:
Are they done orally, internally?

[00:39:57] Speaker 07:
It's a little hard to figure out if we're supposed to review something, but there's no documentation of the actual decision how the process works.

[00:40:04] Speaker 01:
The statute doesn't require anything at all, obviously.

[00:40:07] Speaker 01:
And the commission has discretion to implement... Well, it requires you to make a complexity determination, but... Excuse me?

[00:40:12] Speaker 01:
It requires the making... Yes, make the determination, but it doesn't specify any findings, obviously, or any record that has been made.

[00:40:19] Speaker 01:
Certainly, in this case, there was testimony that it was made.

[00:40:22] Speaker 01:
There's nothing required as to a formal writing or anything of that nature.

[00:40:32] Speaker 07:
Is it your view that the complexity determination is ever reviewable by a court?

[00:40:39] Speaker 01:
No, and they don't argue otherwise.

[00:40:41] Speaker 01:
They argue that the question of whether it was made is reviewable, but not the merits of it.

[00:40:46] Speaker 01:
And I think that part of it is right, that the merits of it are simply not reviewable.

[00:40:50] Speaker 01:
It's not merely an objective complexity determination that a court can really look at and say, this is a complex case.

[00:40:55] Speaker 01:
It's whether the director determines

[00:40:57] Speaker 01:
view that's sufficiently complex that it can't be completed within the time.

[00:41:02] Speaker 01:
Now, that requires looking at how complex it is and the abilities of the agency to commit resources and do it within the time.

[00:41:10] Speaker 01:
Even if it's somewhat simple, if it's not, if there's not resources to do it within the time, it's not, it's sufficiently complex to require more time.

[00:41:18] Speaker 01:
So I think that it's one of these situations where it requires consideration of agency resources, the attorneys to devote to the matter, and other aspects of the investigation.

[00:41:28] Speaker 04:
What was the original recommendation for the level of fines here, the penalty here?

[00:41:37] Speaker 01:
Well, the enforcement sought a lower level of fines.

[00:41:41] Speaker 01:
I think $25,000 versus $50,000, something like that.

[00:41:44] Speaker 04:
What was the final decision of the penalty?

[00:41:46] Speaker 01:
Per violation, for two violations, the commission decided to set two violations.

[00:41:50] Speaker 01:
I believe it was $75,000.

[00:41:50] Speaker 01:
Can you tell the total figure?

[00:41:51] Speaker 01:
What was it?

[00:41:53] Speaker 01:
$650,000, I believe.

[00:41:54] Speaker 01:
$650,000 plus $520,000.

[00:41:55] Speaker 04:
The total for the original enforcement would be a recommendation of $50,000.

[00:42:00] Speaker 04:
It may not be anything turning on it, though.

[00:42:03] Speaker 04:
Is that usual?

[00:42:07] Speaker 04:
higher than the original?

[00:42:09] Speaker 01:
Well, obviously, the Commission has de novo review of the entire record.

[00:42:11] Speaker 01:
Did I ask you this?

[00:42:15] Speaker 01:
I can't answer how usual it is.

[00:42:16] Speaker 01:
I know it does happen that the Commission goes higher or lower.

[00:42:19] Speaker 07:
Was that recommendation made before or after the discovery of the second payment that he hadn't been

[00:42:26] Speaker 01:
I believe it was made after discovery.

[00:42:27] Speaker 01:
You know, I'm not certain.

[00:42:29] Speaker 01:
I think it was after the second payment was discovered, but certainly it was before the entire evidence was put on before the ALJ, and the ALJ decided this was particularly egregious and judged the credibility of Monford, found him not credible, so made some additional determinations.

[00:42:47] Speaker 01:
Also aggravating, I think, the situation was that he received all these advisory fees.

[00:42:51] Speaker 01:
And certainly, I think the commission could have sought the advisory fees too, but didn't.

[00:42:55] Speaker 01:
But that's certainly another level of several hundred thousands of dollars that simply he made out with that he got for advice that wasn't independent when he said it was.

[00:43:03] Speaker 01:
So I think there's ample evidence supporting the amount that was given, which was, of course, well below the statutory maximum.

[00:43:08] Speaker 07:
I have a fat question for you, which I'm sorry, but I did not see it in the briefs or the record.

[00:43:14] Speaker 07:
What was the date of the Wells letter?

[00:43:15] Speaker 07:
Everyone's fighting about 180 days, but no one told me the starting point.

[00:43:19] Speaker 07:
I'm sure you all agree on that.

[00:43:20] Speaker 07:
It's just an odd trap to be missing.

[00:43:23] Speaker 01:
Let me see if I have that with me.

[00:43:27] Speaker 01:
They should.

[00:43:27] Speaker 07:
Are Wells letters ever made public?

[00:43:29] Speaker 07:
I didn't see it in the public anywhere.

[00:43:31] Speaker 01:
They're given to the party and not necessarily made public.

[00:43:34] Speaker 04:
But if they're enlisted security, the party is obligated

[00:43:41] Speaker 01:
Right.

[00:43:43] Speaker 01:
That's a way in which it may be made public, or the corporation, for example.

[00:43:47] Speaker 07:
I was just curious about the date.

[00:43:50] Speaker 01:
Yeah, you're absolutely right.

[00:43:51] Speaker 07:
I trust you all that it was 187 days.

[00:43:54] Speaker 01:
Yeah, it's 187 days back from the date this was approved, which was, I think, August 23rd.

[00:44:01] Speaker 07:
September 7th is when the action was filed.

[00:44:07] Speaker 07:
So I assume it was August 31st or something like that.

[00:44:11] Speaker 07:
All right.

[00:44:12] Speaker 01:
Yeah, I'm sorry, Your Honor.

[00:44:12] Speaker 01:
I should have that.

[00:44:13] Speaker 07:
That's OK.

[00:44:15] Speaker 07:
Or at least I know it wasn't right in front of me, and I missed it.

[00:44:18] Speaker 07:
On the causation question, what evidence did you put into the record that the payment was tied

[00:44:29] Speaker 07:
to money actually come in, since they made this agreement in August before the money started flowing and he'd already done transitional work.

[00:44:37] Speaker 07:
What evidence did you have that it was contingent?

[00:44:42] Speaker 01:
But one thing I think is the invoices themselves, which said this was a marketing syndication fee.

[00:44:46] Speaker 01:
I mean, his explanation was this was just for the administrative work in transferring things over.

[00:44:51] Speaker 01:
But the bill was for marketing and syndication, which is essentially getting clients over.

[00:44:56] Speaker 07:
I didn't get what the syndication meant.

[00:44:59] Speaker 01:
Well, I think syndication means expand.

[00:45:01] Speaker 01:
In this context.

[00:45:02] Speaker 01:
I looked it up to see how.

[00:45:03] Speaker 07:
What did he do that was syndication?

[00:45:05] Speaker 01:
I think the syndication was getting more, I think it meant in the sense of getting people involved in a joint venture together, you know, joining up for this fund.

[00:45:14] Speaker 01:
So I think that's the way to interpret it, but it certainly isn't administrative work, which is his explanation.

[00:45:18] Speaker 01:
So I think the very fact that the invoice has said this is for

[00:45:21] Speaker 01:
essentially marketing syndication, getting clients over.

[00:45:25] Speaker 07:
But Monfort, there was a change in what the invoices said.

[00:45:28] Speaker 07:
Monfort described it as, he didn't use marketing syndication.

[00:45:33] Speaker 01:
No, initially he didn't, but then he changed it.

[00:45:37] Speaker 07:
He says, like, Kowalski's direction.

[00:45:39] Speaker 01:
Sure, but, you know, obviously, he didn't have to agree to that.

[00:45:41] Speaker 01:
And I think the fact that he did illustrates the nature of the transaction.

[00:45:46] Speaker 01:
And certainly, that's enough evidence for the commission to believe that that is the nature of it.

[00:45:51] Speaker 01:
I think, you know, there's evidence that Kowalski was praising him for getting clients to transition over.

[00:45:59] Speaker 01:
There was an email where Monk first said that,

[00:46:03] Speaker 01:
They were discussing the payment, and Monder said, by the way, I got another client.

[00:46:06] Speaker 01:
He's like, great job.

[00:46:07] Speaker 01:
I mean, it's in the context of getting the clients over and getting the payment made.

[00:46:12] Speaker 01:
I think that's evidence as well.

[00:46:14] Speaker 01:
And also, certainly, the chronology of it all, that he made this agreement originally to get clients over.

[00:46:22] Speaker 01:
He then goes to work persuading them to.

[00:46:26] Speaker 01:
Midway through the transfers and the persuasion, he demands the payment.

[00:46:32] Speaker 01:
The payment matures into a request for two payments over time, not negotiated, not based on his administrative work, his time spent.

[00:46:42] Speaker 01:
It's purely set by Kobaleski for the value of essentially the clients being the marketing syndication.

[00:46:47] Speaker 01:
And over time, Monfort is essentially lying directly to certain clients and certainly omitting information to all of them, and again, firmly misrepresenting his independence.

[00:47:01] Speaker 01:
So I think all of that together makes it very clear that the payments were for getting the clients to move over.

[00:47:07] Speaker 01:
And certainly that's what the commission has expressed finding to that effect, that this was the purpose.

[00:47:11] Speaker 01:
The clients wouldn't have moved over if this had been disclosed.

[00:47:16] Speaker 01:
essentially, he was paid for the clients moving over.

[00:47:19] Speaker 01:
Ergo, the payments were essentially for the non-disclosure violation.

[00:47:24] Speaker 01:
That's how he received them by virtue of the non-disclosure and the affirmative investor representations.

[00:47:29] Speaker 07:
How exactly would you articulate the

[00:47:33] Speaker 07:
causal connection that needs to be here.

[00:47:35] Speaker 07:
It just says causally connected, and I wasn't sure.

[00:47:37] Speaker 01:
Well, I think the standard is, you know, reasonable approximation of the profits causally connected to the violation.

[00:47:42] Speaker 07:
What does causally connected mean?

[00:47:44] Speaker 01:
Essentially, it's the ill-gotten profits.

[00:47:46] Speaker 01:
It's what he gained, the ill-gotten gains by virtue.

[00:47:49] Speaker 07:
So is it but for causation?

[00:47:51] Speaker 01:
You know, I don't know if it would

[00:47:53] Speaker 01:
Certainly, at most, it would be but for causation.

[00:47:57] Speaker 01:
I think it's a little illusory.

[00:47:58] Speaker 01:
It certainly is a reasonable approximation.

[00:47:59] Speaker 01:
And there's a causal connection.

[00:48:00] Speaker 01:
It doesn't require absolutely but for.

[00:48:03] Speaker 01:
So I think it is a lesser standard.

[00:48:06] Speaker 01:
But certainly, even the greater standard would be met here.

[00:48:08] Speaker 05:
Aren't the ill-gotten gains the points that Monford gets from SJK for the business referred?

[00:48:17] Speaker 05:
the points he gets from them for advising them.

[00:48:21] Speaker 01:
That would be O'Gotton Gaines as well, and that could have been... But that wasn't sought.

[00:48:24] Speaker 01:
It wasn't sought.

[00:48:25] Speaker 01:
I think it simply was an oversight.

[00:48:26] Speaker 01:
It should have been sought, or could have been sought at least.

[00:48:28] Speaker 01:
I can't make the value determination, but it could have been sought here, and enforcement staff decided to go for the bribes themselves, the kickbacks, excuse me.

[00:48:35] Speaker 07:
And where did the Commission find

[00:48:38] Speaker 07:
kickbacks or that the payment turned on anything that happened after the August agreement as opposed to the stuff that was done before the August agreement?

[00:48:47] Speaker 01:
Sorry.

[00:48:48] Speaker 07:
Where did the commission find, because there's this mid-August agreement I'm going to get paid for the stuff I've done.

[00:48:54] Speaker 07:
You've already done a fair amount of administrative stuff at that point and, you know, cajoling clients into going forward.

[00:49:01] Speaker 07:
Sure.

[00:49:01] Speaker 07:
Where did, where, just help me find in the commission decision where specifically they said

[00:49:06] Speaker 07:
that the payments were for all the actual flow or the kickbacks that you now call it that happened later as opposed to

[00:49:17] Speaker 07:
the stuff that was done before the August agreement.

[00:49:20] Speaker 01:
The Commission, in its opinion, rejected the argument that these were administrative services.

[00:49:27] Speaker 01:
I could find that.

[00:49:28] Speaker 07:
They rejected that, but then I'm sure you know where they said the causation was the longer-term one as opposed to this was all for services rendered.

[00:49:37] Speaker 07:
Whatever those services were, non-administrative services rendered before August.

[00:49:42] Speaker 01:
Certainly the causal connection is connected to the non-disclosure of the misrepresentation.

[00:49:47] Speaker 01:
Even aside from the kickbacks, the fact that they demanded the kickbacks alone creates the conflict of interest that must be disclosed.

[00:49:53] Speaker 07:
And that continued and amplified... I don't think the commission used the word kickback anywhere.

[00:49:57] Speaker 01:
The commission, I don't know that it used the word kickback, but it said that it was payment for getting his clients to move over to SJK.

[00:50:04] Speaker 01:
It wasn't an administrative fee.

[00:50:06] Speaker 01:
That wasn't its liability determination.

[00:50:08] Speaker 07:
Except they agreed to the payment before anybody moved, right?

[00:50:12] Speaker 01:
Well, while people were in the process of moving, he said he was already doing the work.

[00:50:14] Speaker 01:
He said, I want to be paid for all this.

[00:50:16] Speaker 01:
I'm getting clients over, essentially.

[00:50:18] Speaker 07:
And that was when- That's what I couldn't find in the record was it wasn't clear to me, because there was this sort of big July, August, September timeline, and it just wasn't clear to me whether

[00:50:27] Speaker 07:
money had started moving even before the August agreement?

[00:50:30] Speaker 01:
It isn't entirely clear.

[00:50:31] Speaker 01:
I believe my understanding is... Do they need to be clear?

[00:50:33] Speaker 01:
Well, no, because the money, whether the money... Essentially, the process of moving clients over took several months.

[00:50:41] Speaker 01:
And the record doesn't show when money was precisely transferred over.

[00:50:45] Speaker 01:
But of course, even if it was transferred, it could have been withdrawn and it could have been changed.

[00:50:48] Speaker 01:
So I don't think...

[00:50:50] Speaker 01:
merely if some of the money happened to flow before he demanded to be paid.

[00:50:53] Speaker 01:
I don't think that changes anything because if he had disclosed it, his clients would have the opportunity to say, wait a minute, I want my money back.

[00:50:59] Speaker 01:
I don't want this to go to SJK.

[00:51:01] Speaker 01:
And it was evidence in the record that the transfer process took several months and finished after he demanded payment.

[00:51:08] Speaker 01:
So the entire process of transfer.

[00:51:09] Speaker 07:
So I think that goes to the point that- That's why I was trying to understand the causal connections of how synergistic or holistic the inquiry is.

[00:51:18] Speaker 01:
Right, right.

[00:51:18] Speaker 07:
And how linear the inquiry is.

[00:51:20] Speaker 01:
Right.

[00:51:20] Speaker 01:
Well, I think the question, the causal connection is the profits that he received, his ill-gotten profits from the violation.

[00:51:27] Speaker 01:
So I think it's not necessarily tied to when the money was transferred, demand for it or not.

[00:51:31] Speaker 01:
It's simply the conflict of interest arose as early as August 30, 2009 when he demanded payment.

[00:51:36] Speaker 01:
the money was transferred over, it could have been brought back, it could have been, the clients could have changed their mind, either it had been transferred or they could have stopped the transfer.

[00:51:43] Speaker 01:
Either way, he got the payment because those clients moved to SJK and stayed with SJK and continue to stay with SJK for the second payment.

[00:51:52] Speaker 01:
So I think the fact is the nondisclosure predated all of that.

[00:51:56] Speaker 01:
The nondisclosure predated any receipt of the ill-gotten gains.

[00:52:00] Speaker 01:
And when you received that money, that was the payment for

[00:52:03] Speaker 01:
for the non-disclosure violation, essentially for the fraud that led his clients to SJK through his non-disclosure.

[00:52:12] Speaker 07:
Any more questions?

[00:52:13] Speaker 01:
If there's no more questions, thank you.

[00:52:17] Speaker 07:
Mr. Morse, we'll give you a couple of minutes if you'd like for rebuttal.

[00:52:26] Speaker 02:
Really for your honors.

[00:52:28] Speaker 02:
just to pick up on a couple of points, Montalvo, which is the one case that they said was similar to this, but that one was bring someone forth with.

[00:52:36] Speaker 02:
It didn't have the same kind of language that we're talking about here, which is file no file.

[00:52:41] Speaker 02:
Going to the internal consequences that will occur, they point to subsection two of 78D5 as that's the

[00:52:49] Speaker 02:
the layout of how they're going to get extension processes and how it's going to move up the chain.

[00:52:53] Speaker 02:
But their reading of subsection one is it's not mandatory.

[00:52:58] Speaker 02:
In other words, it's discretionary whether they comply or don't comply with the 108 timeframe.

[00:53:03] Speaker 02:
So they don't need to go to subsection two under their reading of the statute.

[00:53:07] Speaker 02:
They can just basically blow the deadline, and it's more of a nice encouragement for them to carry along in their normal course of business.

[00:53:16] Speaker 02:
responding to your question about whether or not you need it actually deciding subsection one.

[00:53:20] Speaker 02:
Point is, they didn't get a proper extension under subsection two.

[00:53:25] Speaker 02:
The consequence then is, what does that mean?

[00:53:28] Speaker 02:
And that means... It wasn't proper because they didn't... There's no evidence in the record that they made the right determination.

[00:53:33] Speaker 07:
So if they affidavit had said, we obtained the extension because it was substantially complex, you wouldn't be here at all.

[00:53:42] Speaker 02:
No.

[00:53:42] Speaker 07:
So it's just that failure to articulate.

[00:53:45] Speaker 02:
The failure of proof on that point.

[00:53:48] Speaker 05:
Well, wouldn't it even need to be more?

[00:53:50] Speaker 05:
It would need to be something susceptible of judicial review, so it would need to have some articulation of why it was deemed to be complex, no?

[00:54:02] Speaker 02:
Whether we can challenge the complexity of the determination wasn't raised below and so we're in a position or a posture now where we can't really challenge whether or not that's reviewable.

[00:54:13] Speaker 02:
The point is it is a necessary prerequisite that that determination be made.

[00:54:17] Speaker 02:
Under RH Stern, it's pretty clear.

[00:54:20] Speaker 07:
If that necessary prerequisite is not itself jurisdictional, then doesn't your whole argument on the jurisdictional request?

[00:54:27] Speaker 02:
Well, it's jurisdictional because of subsection one.

[00:54:30] Speaker 02:
Subsection one says jurisdiction ends the

[00:54:33] Speaker 02:
by failure to meet the 180-day deadline, unless, and the only exception being under the structure, that it was extended properly under Section 2.

[00:54:42] Speaker 02:
I see my time is up.

[00:54:43] Speaker 07:
Did you want to say anything about discouragement quickly?

[00:54:45] Speaker 07:
The causation.

[00:54:47] Speaker 07:
I'm still very confused about the timeline and the causation standard.

[00:54:52] Speaker 02:
Causation standard, we would articulate, I don't think the court's cases have been especially clear on what exactly the causation standard, right?

[00:55:01] Speaker 02:
The way it was is the ill-gotten gains from the disclosure violation.

[00:55:05] Speaker 02:
In this case, I think, had it been the advisory fees that were paid after the failure to disclose had gone forward, that sounds like, that is ill-gotten gains from the failure to disclose.

[00:55:19] Speaker 02:
The payments made based on work done to transfer to a fund of funds and they had substantially been undertaken.

[00:55:27] Speaker 02:
The agreement to make the transfer had already been done and it's only at the conclusion when it's clear that that is too much work that is then there is something there that

[00:55:36] Speaker 05:
You're fighting a little bit with the record.

[00:55:38] Speaker 05:
In the Joint Appendix of 317, the Commission says, Monford twice admitted that SJK paid him, at least in part, to convince clients to stay with SJK.

[00:55:49] Speaker 05:
And your view of the facts is that the only reason that Monford was ever paid was for these administrative services.

[00:55:56] Speaker 05:
And so you have both that, what the Commission uses in admission, you have the invoices saying that they're for marketing.

[00:56:05] Speaker 05:
So they're seeing the rationale is quite different.

[00:56:07] Speaker 02:
The only evidence on that they were paid for moving anyone over is the invoices.

[00:56:12] Speaker 02:
I think that's the only thing that the Commission points to.

[00:56:16] Speaker 07:
Why isn't that enough?

[00:56:17] Speaker 02:
Well, you have under-budded testimony from Lonford, no one else explaining what's going on here, who said they were for these services.

[00:56:23] Speaker 02:
The initial invoice that was given, and I believe that's at JA 47, is for consulting fees for the initial one.

[00:56:30] Speaker 02:
It's only

[00:56:32] Speaker 02:
who then says, for my tax purposes, please make it for this, he changes the invoice, and that's it.

[00:56:38] Speaker 05:
Does it make a tax difference?

[00:56:41] Speaker 05:
I mean, it's business expenses, isn't it, one way or the other?

[00:56:44] Speaker 02:
Yeah, I don't know whether, I doubt it makes any taxes.

[00:56:47] Speaker 02:
Why isn't it enough?

[00:56:49] Speaker 04:
That's the question you were asking a moment ago.

[00:56:50] Speaker 02:
Why isn't that sufficient evidence for us to... It's speculation as to what exactly happened.

[00:56:57] Speaker 02:
There's nothing to bolster or explain that other than Monsberg's unprovided testimony.

[00:57:02] Speaker 02:
Why wasn't it enough?

[00:57:09] Speaker 04:
Why isn't that a no?

[00:57:13] Speaker 02:
It explains nothing as to whether or not he was convincing clients or what it was that he did.

[00:57:18] Speaker 02:
But the rest of the record does that.

[00:57:19] Speaker 04:
It may be a proof statement, but it's not an answer to the question of what's not a no.

[00:57:25] Speaker 02:
I would go to, again, Monfort's unproven testimony, unless there are any further questions.

[00:57:30] Speaker 07:
Thank you very much.

[00:57:31] Speaker 02:
Thank you.

[00:57:32] Speaker 07:
Case is submitted.