[00:00:02] Speaker 01: Case number 14-1070, Gregory Barco, petitioner versus Securities and Exchange Commission. [00:00:07] Speaker 01: Mr. Masui for the amicus currai, Mr. Metro for the respondent. [00:00:41] Speaker 01: the courtroom is clear. [00:00:51] Speaker 01: Mr. Matsui, good morning. [00:00:54] Speaker 00: May it please the court, Brian Matsui on behalf of the court appointed amicus. [00:00:58] Speaker 00: The commission's sanction order should be vacated for two reasons. [00:01:02] Speaker 00: First, the commission impermissibly applied Dodd-Frank's new penalties retroactively to Mr. Barco. [00:01:11] Speaker 00: It sanctioned Mr. Barco in a way that it could not have done at the time of the misconduct, and it did so based solely on past misconduct. [00:01:20] Speaker 00: Second, contrary to the SEC's position here, the Commission is not immune from basic fundamental principles of equity. [00:01:29] Speaker 00: It cannot, as it did here, simply say that unclean hands does not apply. [00:01:34] Speaker 00: The Commission order should be vacated so Mr. Barco has the ability to try to prove his unclean hands defense in the first instance. [00:01:43] Speaker 00: Now, as to retroactivity, the SEC now acknowledges that its sanction order must be vacant, at least with respect to municipal advisors and rating organizations, because those penalties did not exist at the time the misconduct occurred. [00:02:00] Speaker 00: They are entirely new under Dodd-Frank. [00:02:03] Speaker 00: but more of the order also should be vacated. [00:02:07] Speaker 00: At the time the misconduct occurred, Dodd-Frank only allowed a broker-dealer sanction to bar Mr. Barco from the Association of Broker Dealers. [00:02:18] Speaker 04: It did not... Can you spell out for us exactly how Mr. Barco is harmed by the collapse proceeding? [00:02:31] Speaker 00: Yes, Your Honor. [00:02:32] Speaker 00: Well, under this court's prior decision in Taoiseach, there was required to be an industry-specific nexus in order to- What do you understand that nexus to consist of? [00:02:43] Speaker 00: In order to be barred, for example, with respect to investment advisors, Mr. Barco needed to be associated with an investment advisor at the time of the misconduct. [00:02:53] Speaker 04: And that's all? [00:02:54] Speaker 04: That's the only additional factual predicate [00:02:59] Speaker 04: beyond what went into the conviction. [00:03:02] Speaker 00: Yes, Your Honor. [00:03:03] Speaker 00: That's an additional element that was required, which Dodd-Frank removed. [00:03:07] Speaker 04: OK. [00:03:08] Speaker 04: So is it correct to say that the effect of Dodd-Frank here is that people barred from a certain set of financial firms. [00:03:25] Speaker 04: now cannot go under the radar and associate with a different type, because the Commission can bar him from association with a different type even before he starts to associate. [00:03:42] Speaker 04: That's correct, Your Honor. [00:03:43] Speaker 04: So what he's deprived of is an opportunity to sneak under the radar. [00:03:53] Speaker 04: In other words, there's no additional fact [00:03:56] Speaker 04: Other than that, that has to be shown, right? [00:03:59] Speaker 00: Yes, Your Honor, but that's a critical element of the sanction, that you need to have that association. [00:04:05] Speaker 00: And that's why this court. [00:04:07] Speaker 04: You say it's critical, but what interest is protected by that? [00:04:14] Speaker 04: An interest in being associated with a set of firms with which he knows and the SEC knows that as soon as they notice it, he can be stopped from associating with. [00:04:27] Speaker 00: Well, first of all, Your Honor, if we could just take a step back on this. [00:04:31] Speaker 00: This Court has recognized that these types of sanctions in the securities industry are the equivalent of capital punishment. [00:04:38] Speaker 04: And so this is not just simply... Well, it's capital punishment for a many-headed beast. [00:04:45] Speaker 00: Yes, Your Honor, and under the pre-Dodd-Frank world, Mr. Barco could have only been prevented from associating with broker-dealers. [00:04:54] Speaker 00: But now, to answer your point more specifically, it does make a very big difference in this case. [00:05:00] Speaker 00: Currently, Mr. Barco cannot seek any association with any other sort of area in the industry field. [00:05:08] Speaker 00: He cannot seek association with investment advisors. [00:05:11] Speaker 00: It would be unlawful for him to do so, given the existence of the order. [00:05:15] Speaker 00: Before Dodd-Frank, he could actually seek associations, and it would not be unlawful. [00:05:22] Speaker 04: It would not be unlawful, but as soon as the SEC noticed, [00:05:26] Speaker 04: It could be noticed to him. [00:05:29] Speaker 04: There could be no new factual predicates to be established and barred. [00:05:34] Speaker 00: I would disagree with that, Your Honor, in one respect. [00:05:37] Speaker 00: Well, at least one respect, Your Honor. [00:05:40] Speaker 00: If Mr. Barco two years from now under the pre-Dodd-Frank world decided to associate with investment advisors, he could do so and that would not be a violation of the sanction order. [00:05:51] Speaker 00: So it would not be unlawful. [00:05:52] Speaker 00: It would not subject him to monetary fines pre-Dodd-Frank. [00:05:55] Speaker 00: It will post-Dodd-Frank. [00:05:57] Speaker 00: In addition, the SEC would have to conduct a public interest analysis at that point to determine whether or not he should be sanctioned. [00:06:05] Speaker 00: That's a different analysis, perhaps two years from now, as it is today. [00:06:10] Speaker 00: And in that case, it's like the St. [00:06:11] Speaker 00: Sire case, where what was removed was the ability to have a discretion to prevent removability. [00:06:19] Speaker 03: Let me make sure I understand. [00:06:20] Speaker 03: Is your point that under the old regime, [00:06:26] Speaker 03: even though the Commission could move against him, he would have perhaps a defense, whereas under the new regime he doesn't? [00:06:34] Speaker 03: He has no – I mean, he might win – might he win against the – if the Commission moves against him under the old regime, might he have a defense and prevail, whereas under the new regime he doesn't get an opportunity to contest that? [00:06:47] Speaker 00: Or am I not – That's correct, Your Honor. [00:06:49] Speaker 00: If we just take a look at this, under the old regime, the SEC tried to sanction him under the Advisors Act, which would have been capable of barring him from investment advisors. [00:06:59] Speaker 00: The ALJ determined that was sufficient, but the Commission reversed it. [00:07:03] Speaker 00: It found a failure of proof. [00:07:05] Speaker 03: But now post Dodd-Frank, just because... They don't need to make any evidentiary showing. [00:07:09] Speaker 03: They can just bar him totally, right? [00:07:11] Speaker 00: Exactly, Your Honor. [00:07:12] Speaker 00: So they have the categorical right to bar him across the entire industry. [00:07:16] Speaker 00: And under decisions like Landgraf, that's an additional disability that's being imposed upon an individual after post-outbreak. [00:07:25] Speaker 04: So what does the public interest analysis entail? [00:07:29] Speaker 04: And on whom is the burden of proof? [00:07:32] Speaker 04: And does that shift? [00:07:34] Speaker 00: The burden would be on the SEC to show that it's in the public interest to bar him. [00:07:39] Speaker 00: Under the post Dodd-Frank world, if Mr. Barkow was trying to get the sanction removed, the burden would be on him to try to show that he should be allowed admission. [00:07:50] Speaker 00: So that's another situation in which there is an additional burden placed upon Mr. Barkow based upon the retroactive application of Dodd-Frank. [00:08:01] Speaker 00: So. [00:08:01] Speaker 01: Well, isn't there another factor, and that is prosecutorial discretion? [00:08:07] Speaker 01: I mean, if Mr. Barkow [00:08:10] Speaker 01: And he's in prison for quite a while, isn't he? [00:08:13] Speaker 00: Yes, Your Honor. [00:08:13] Speaker 01: All right. [00:08:14] Speaker 01: And let's say he's rehabilitated. [00:08:16] Speaker 01: And in 10 years, he wants to get back into the field. [00:08:20] Speaker 01: He shows the SEC that he has been rehabilitated, and he has learned his lesson. [00:08:26] Speaker 01: If we allow this, the Dodd-Frank [00:08:34] Speaker 01: elimination of the associated with statutory requirement to apply pre-DOT rank. [00:08:43] Speaker 01: He can't do anything. [00:08:44] Speaker 01: He's out completely. [00:08:47] Speaker 00: I'm sorry, Your Honor, if the postdocs... I mean, if it's not retroactive. [00:08:51] Speaker 00: Right, if it's not retroactive and he is released from prison at some point and can show that he rehabilitated himself, then he would be allowed to seek association with an investment advisor, for example, and the SEC, if it decided to, could try to bring a sanction against him, and the public interest determination would occur, and at that point, the SEC may or may not decide [00:09:14] Speaker 00: that he should be barred, and that would be subject to a penalty. [00:09:18] Speaker 04: In this scenario, the SEC would confront the burden of showing that the public interest requires his being barred? [00:09:26] Speaker 00: Yes, Your Honor. [00:09:27] Speaker 00: In the pre-Dodd-Frank world, the SEC would have the burden in that proceeding. [00:09:32] Speaker 00: Post Dodd-Frank, it's just a categorical bar. [00:09:36] Speaker 04: Which he could, by carrying the burden of convincing them that he's [00:09:44] Speaker 00: Yes, Your Honor, but the burden would be upon him to do that, which under retroactivity principles should be impermissible. [00:09:52] Speaker 01: What does he have to show to have the bar removed? [00:09:56] Speaker 01: Even the bar that doesn't have a retroactive problem? [00:10:01] Speaker 00: I mean, I believe he would have to show that it's in the public interest to remove the bar. [00:10:05] Speaker 01: Well, I mean, is it in the statute? [00:10:08] Speaker 01: Is it in the regs? [00:10:10] Speaker 01: Do we know? [00:10:10] Speaker 00: I'm not entirely certain of what all the factors would be. [00:10:13] Speaker 00: I know what those factors would be. [00:10:14] Speaker 01: Is it possible? [00:10:16] Speaker 01: I mean, have bars been lifted? [00:10:18] Speaker 00: Yes, Your Honor. [00:10:18] Speaker 00: I believe that bars have been lifted in the past. [00:10:21] Speaker 00: Unless there are further questions, Your Honor, I'd like to reserve the ballot to my time. [00:10:25] Speaker 01: All right. [00:10:26] Speaker 01: Thank you. [00:10:28] Speaker 01: Mr. Matrow? [00:10:40] Speaker 02: We believe that the discourse decision in coach essentially forecloses the argument presented by by amicus in coach [00:10:58] Speaker 02: the petitioner there challenged the entire collateral bar. [00:11:02] Speaker 02: But the court vacated only the two new bars, the two post-Dot Frank bars. [00:11:07] Speaker 03: But the petitioner there only raised this specific issue in the reply brief, and that wasn't before the court then? [00:11:17] Speaker 02: It's true, Your Honor, that the issue was clarified in the reply brief. [00:11:22] Speaker 02: The opening brief challenged the entire law and retroactivity grounds. [00:11:26] Speaker 03: The petitioner then... But didn't parse it the way we are now in the opening brief. [00:11:31] Speaker 03: It wasn't that carefully. [00:11:33] Speaker 02: Perhaps not in the opening brief, but the Commission's brief talked about the two ways in which the two effects that that, Frank, had, the addition of the two new bars and the fact that the Commission, with respect to the remaining bars, no longer had to wait until someone associated with those [00:11:51] Speaker 02: industries in order to to impose a bar and then the petitioner clarified in the reply brief rejected the characterization that he was simply objecting to a bear change from multiple to single proceedings and said no what the problem he objected to was that before Dodd-Frank there would be a new hearing with new findings exactly the argument that the [00:12:13] Speaker 02: petitioner presents here, and the court didn't find that persuasive. [00:12:17] Speaker 02: The court, in a footnote, upheld the rest of the bar. [00:12:21] Speaker 02: No other basis for how that could be, other than that it found that that change was a change in procedure that regulated secondary conduct. [00:12:29] Speaker 01: Do you have coke in front of you? [00:12:31] Speaker 01: Pardon? [00:12:31] Speaker 01: Do you have coke in front of you? [00:12:33] Speaker 02: I have it here. [00:12:47] Speaker 01: Could you turn to 158? [00:12:54] Speaker 01: Next to the last paragraph, this holding does not apply to the other securities industries with which Coke may not associate. [00:13:02] Speaker 01: Now, I suppose it's possible to read that [00:13:08] Speaker 01: it's upholding the uh... application to all four of the others how is it possible to read that give it that reading when on one fifty two we specifically say that his third argument is that he contends the commission's order barring him only from associating with in other words the two new ones the municipal advisors are rating organizations nothing about the two [00:13:39] Speaker 01: fields with which he's not associated, but that he is still barred from. [00:13:45] Speaker 01: I think if I understand the question, the... Well, I guess my bottom line is, I don't see how you could read this as reaching the two fields [00:14:02] Speaker 01: Not the two new ones that we did vacate the bar, but the two fields that he was not either in or seeking to be associated with. [00:14:14] Speaker 01: I think it's because he's- And he may have raised it, you know, but we have to look at what we said. [00:14:18] Speaker 02: Yeah, and I think if you look at footnote three, he specifically raised the issue in the court in footnote- Footnote three talks about the procedure of going from separate proceedings to an omnibus proceeding. [00:14:30] Speaker 02: Yes, and the reason he objected to that, Your Honor, I think was because he no longer had access to a new hearing, new findings that would occur when he chose to associate with those other industries. [00:14:47] Speaker 02: that that change in procedure doesn't give rise to any retroactivity concerns, and it upheld the remaining bar. [00:14:54] Speaker 02: Mr. Coach was not a transfer agent, he was not a municipal securities dealer, he was not a broker dealer, and yet the court didn't vacate those bars. [00:15:10] Speaker 02: And I think [00:15:11] Speaker 02: I think the reasoning, whether or not it expressly applies, and I think it does, is clear that even before Dodd-Frank, the Commission would have had authority to bar Mr. Barco as soon as he tried to associate with any area of the securities industry. [00:15:31] Speaker 02: Dodd-Frank simply allows the Commission now to bar [00:15:34] Speaker 02: to bar him from all of them without having to wait until he tries to dissociate. [00:15:39] Speaker 02: And I think that's correct, Coach correctly held that that's a procedural change that regulates secondary conduct, because as a common sense functional matter, which is how the Supreme Court says we're supposed to look at the retroactivity analysis, [00:15:56] Speaker 02: Mr. Barco could not reasonably expect, upon his conviction, to be able to freely associate in the securities industry without triggering a proceeding that would look basically the same as the one... Well, that's, I guess, a critical question, how similar it would look. [00:16:13] Speaker 04: And to the extent that they heard and approved the shift, if that's the case, do you contest that? [00:16:21] Speaker 02: I think the question at any point would be what's in the public interest. [00:16:25] Speaker 02: Yeah, but that's rather vague. [00:16:28] Speaker 04: And where the burden lies is very important. [00:16:32] Speaker 02: And so before Dodd-Frank, there's no reason to believe that the public interest analysis would have changed in any material respect while Mr. Barco is serving his 23-year sentence. [00:16:44] Speaker 02: So there's no reason to think that Barco was harmed by the fact that [00:16:50] Speaker 02: that he no longer has that second hearing, that the process has moved to the outset. [00:16:54] Speaker 04: Well, that's kind of the peculiarity of this case, but I don't, I mean, unless you're making a standing argument, I don't think that gets us anywhere. [00:17:08] Speaker 04: I mean, I think if- We're talking about the principle of [00:17:26] Speaker 04: to the association with this different class of financial firm, right, which is not a prerequisite. [00:17:39] Speaker 04: And then arguably, I'm not sure if you're contesting it, arguably, whether the burden is on the SEC to show that some public interest is borrowing or the burden is on him to show that people [00:17:55] Speaker 02: Well, I think post-Dyfranc, if he feels like the public interest analysis has changed due to the passage of time or when he is released from prison, he does have the ability to request that the commission lift the bar on the commission. [00:18:08] Speaker 04: Does that mean you're agreeing with me on the burden of proof? [00:18:14] Speaker 02: I mean, the Commission has lifted bars, and the analysis they go through is whether the public interest warrants lifting the bar, and admittedly it's a high... Are there any clues in their decisions? [00:18:32] Speaker 02: Well, I think it requires some compelling evidence that the public interest analysis has changed, that the Commission doesn't regularly lift bars because [00:18:49] Speaker 02: We're talking about the public interest here. [00:18:51] Speaker 02: And I think ultimately, the same situation would be in place before Dodd-Frank. [00:19:02] Speaker 04: Is it fair to say that in the post-Dodd-Frank world, as seen by the Commission, as soon as you have misbehavior with respect to one class of financial firms, the whole line of yards [00:19:20] Speaker 02: I think with respect to a conviction like this and that yes, that someone who is in Mr. Barco's position could not expect a different result while he's serving his prison sentence or due to the passage of time or anything, that the commission would likely [00:19:46] Speaker 02: There would have been before Dodd-Frank a new proceeding, but the only question really would have been the question of association with a new industry. [00:19:53] Speaker 02: But all of the strong public interest factors that the Commission considered here would still be in place. [00:19:59] Speaker 02: And Mr. Barco, as an amicus, hasn't given any reason to think that the analysis would change based on the type of industry he's seeking to associate with or the passage of time. [00:20:10] Speaker 01: But what might change is what's happened to him, or let's say he's seeking to be in one of the fields as under tight control, as an assistant, just like if a lawyer is disbarred and he says, well, can I be a paralegal? [00:20:27] Speaker 01: Can I work in a lawyer's office? [00:20:30] Speaker 01: You don't allow for that possibility. [00:20:33] Speaker 02: Well, I think [00:20:35] Speaker 02: Even now, if he can come back to the commission and ask the commission to take that into account, but I think in practice the commission is likely to consider long periods of compliance in a regulated industry and [00:20:55] Speaker 01: Fine, but I mean at least he has a chance. [00:20:58] Speaker 01: He has no chance now. [00:21:00] Speaker 01: And he did before. [00:21:01] Speaker 01: I mean that's what we're talking about is retroactivity. [00:21:04] Speaker 01: Something that he had before he no longer has if we find this, if we uphold. [00:21:10] Speaker 02: I think he still has a chance to ask that the commission lift the bar and argue that the public interest analysis has changed. [00:21:22] Speaker 02: Before, I think he also would have had a very difficult time arguing that he was entitled to participate in any other area of the industry. [00:21:31] Speaker 02: The effect on him was essentially [00:21:34] Speaker 02: was as a functional matter was simply to change when the formal bar came down but he you know it was not as if he was free before Dodd-Frank to participate in these areas of the industry given given his conviction and the public interest considerations. [00:21:51] Speaker 04: Let me ask you in this case, in the now consolidated type of imposition of broad bars, does the imposing bar on, with respect to the class of financial firms that there's been no association with, does the Commission perceive itself as having to [00:22:11] Speaker 04: anything besides what it established with regard to the misbehavior in the firms that he was associated with. [00:22:23] Speaker 04: Is there really any, in the post Dodd-Frank world, is there really any mental process that goes on? [00:22:36] Speaker 02: Well, I think all of the same public interest considerations would be taken into it. [00:22:41] Speaker 04: Once the commission has arrived at it with a class of firms that are clearly covered, or would have been covered pre-DOT frank, does it do anything? [00:22:53] Speaker 04: Does it exercise any thought about the others? [00:22:57] Speaker 04: Just check a box. [00:22:58] Speaker 02: I don't think it just checks the box, but even before it died frank, many of the same considerations that went into whether the public interest required a broker-dealer bar would have gone into whether the public interest required an advisors bar, municipal securities dealer bar, and when you have a case like this where Barco was found guilty with overwhelming evidence of orchestrating [00:23:23] Speaker 04: We're dealing with an issue of law. [00:23:26] Speaker 04: It doesn't really depend upon the particular degree of guilt in his case. [00:23:31] Speaker 02: I guess I'm just using his example to illustrate the point that the same considerations that [00:23:41] Speaker 02: that bear on one bar will bear on another bar. [00:23:44] Speaker 02: And the commission has to determine whether someone who has displayed the kind of conduct, misconduct that the person has is a risk in different capacities of the securities industry. [00:23:56] Speaker 02: In this case, that wasn't a difficult call. [00:23:59] Speaker 02: In other cases, depending on the facts and circumstances, it might be a more difficult call. [00:24:04] Speaker 02: call or a closer case. [00:24:08] Speaker 01: What's the benefit to the SEC in this omnibus proceeding other than efficiency? [00:24:15] Speaker 02: Well, I think efficiency is certainly one benefit. [00:24:22] Speaker 02: Another is something that Judge Williams alluded to, which is that it's, in a way, a prophylactic measure that [00:24:34] Speaker 02: that makes it so that the commission doesn't have to wait until someone has potentially caused harm before it's detected their attempts to associate. [00:24:44] Speaker 02: And the fact that Dodd-Frank was enacted to increase efficiency and as a prophylactic measure in that respect doesn't make it retroactive, doesn't mean that it necessarily has retroactive effect. [00:25:00] Speaker 02: But those are benefits that it does [00:25:04] Speaker 01: All right, any more questions? [00:25:07] Speaker 01: All right, thank you. [00:25:10] Speaker 01: Does Mr. Matsui have any time left? [00:25:17] Speaker 01: Why don't you take two minutes? [00:25:20] Speaker 00: Thank you, Your Honor. [00:25:21] Speaker 00: I'll just be very quick unless the Court has any additional questions. [00:25:25] Speaker 00: Before Dodd-Frank, the SEC, as the SEC has acknowledged, had to prove and show that it was in the public interest to keep Mr. Barco out. [00:25:34] Speaker 00: And now after Dodd-Frank, Mr. Barco, with this collateral bar, must prove that it's in the public interest affirmatively to let him back in. [00:25:43] Speaker 00: And that's a significant difference. [00:25:45] Speaker 00: This case is like Landgraf, where there are additional penalties that are being applied to past misconduct, which is the epitome of retroactivity. [00:25:54] Speaker 00: Unless there are any further questions? [00:25:56] Speaker 01: All right. [00:25:57] Speaker 01: Mr. Matzor, you are also appointed by the court to represent Mr. Barco, and thank you for your assistance. [00:26:03] Speaker 01: Thank you, Your Honor.