[00:00:02] Speaker 02:
Case number 15-1430, John M. E. Sodd, Petitioner versus Securities and Exchange Commission.

[00:00:08] Speaker 02:
Ms.

[00:00:08] Speaker 02:
Cough for the petitioner, Ms.

[00:00:10] Speaker 02:
Mishra for the respondent.

[00:00:18] Speaker 02:
Good afternoon.

[00:00:20] Speaker 02:
My name is Sarah Croft, and I represent the petitioner, John Sodd, in this case.

[00:00:26] Speaker 02:
The SEC's decision affirming FINRA's lifetime ban on Mr. Saad for submitting just over $1,000 in false expense reimbursements is an abuse of discretion, and it should be overturned.

[00:00:40] Speaker 02:
This court has called a lifetime bar the securities industry equivalent of capital punishment.

[00:00:48] Speaker 02:
So what FINRA imposed here was capital punishment

[00:00:51] Speaker 02:
for $1,000.

[00:00:52] Speaker 00:
It's also the misleading or evasive or however you want to describe it behavior when the investigation first kicked in.

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How should that be factored in?

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Do you think or should it be?

[00:01:08] Speaker 02:
Well, I think obviously it should be considered.

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It was something that was considered below, but I think the evidence of it in fact is quite weak.

[00:01:14] Speaker 02:
The FINRA and the Commission make much of it.

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But when you actually look at what they cite, the facts, rather than just their statements that there was a dishonest scheme or a cover-up, this was before Mr. Saad had counseled.

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It was two statements.

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It was an email.

[00:01:28] Speaker 01:
Are you challenging?

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I don't remember reading anything suggesting you're challenging the factual findings.

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I thought your only challenge was to the penalty.

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Is that right?

[00:01:37] Speaker 02:
Your Honor, I'm not challenging that these facts exist.

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I'm challenging the conclusions that were drawn from them.

[00:01:42] Speaker 01:
Right, but you're not challenging the fact that he forged receipts?

[00:01:47] Speaker 02:
No, Your Honor.

[00:01:48] Speaker 00:
No, this was on the statements to the investigators, right?

[00:01:51] Speaker 02:
Yes.

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

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So the first was a statement.

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You're not really challenging those either, but you're trying to put them in context.

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So go ahead.

[00:01:57] Speaker 02:
Absolutely, Your Honor.

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They do need to be put into context.

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One was a statement to an investigator saying that he the travel expenses were for a future trip, which was not true.

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And the second was one of them was that he didn't remember whether or not he purchased a ticket.

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Which is not a false statement, but just the failure to remember and he did correct it and there was a third one which was but that's the reason I asked is that Your opening statement said it was just based on the reimbursement.

[00:02:28] Speaker 00:
It's a little more than that You know you still have a you still have your main theme which is this is a significant penalty for the conduct, but it's

[00:02:36] Speaker 00:
It's a little more than just the... I have a factual question, too, and maybe it's not in the record anywhere, so if it's not, just tell me that.

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But why did he go to the hotel in Atlanta that weekend and not... I know the trip was canceled.

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Do you know the answer to that?

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Is that in the record?

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He was under a tremendous amount of stress, and that is one of the mitigating factors in the case.

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And it's one of the factors that the SEC, on remand,

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wanted to completely dismiss.

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The reason he went to the hotel was he was under a tremendous amount of stress for two reasons, but really one was primary, and that was the illness of one of his twin infants.

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On remand, we submitted medical records to FINRA, which they don't mention, which is sort of amazing.

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His infant son had something called H. pylori, which is bleeding ulcers.

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He'd been a preemie.

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He was having trouble keeping up his weight.

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And so he'd had emergency surgeries and had been in and out of the emergency room.

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That had led my client to have significant stress at work.

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He had a job where he was traveling 50 times a year.

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And he essentially had to cut way back on that to take care of his son.

[00:03:43] Speaker 02:
It's amazing that none of those facts about this unique level of stress made it into their decision.

[00:03:48] Speaker 02:
It's nothing that's challenged by them.

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They don't say it's not true.

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And the record was before them on remand.

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Well, I think what they say is...

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that they looked at the nature of the conduct here, and it wasn't the type of conduct that's associated with a sort of spontaneous response to stress, instead that it was, in fact, that you're not challenging a year-long pattern of not only submitting the false reports, doing the false cell phone, collecting the money,

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Throwing away paper when it started to cut.

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Someone, the secretary, noticed that it might not be all lining up the way he was portraying it.

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Lying to regulators.

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And so is it really fair to say they didn't address it or they addressed it in a way that simply says this is not what we can do?

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As an explanation, as something to be caused by stress.

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I would say both, Your Honor.

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First of all, they don't address it adequately.

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They don't mention.

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This is unique stress.

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They make it out in their decision as though he was under a little stress at work.

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We're all under a little stress at work.

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They discount the seriousness of this stress.

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Now, I agree, Your Honor.

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It doesn't fit the extremely narrow standard that FINRA and the Commission have put into place on their own without any court approving of it of when stress counts.

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Under their theory, essentially, you have to have a gun to your head to have the right amount of stress.

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It has to cause a momentary, immediate lapse in judgment.

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Now, that may be their standard.

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I don't believe that that standard properly captures the kind of stress that you cause.

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How much of a bar or suspension in this case would have been the line over which it is too far?

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I think a lifetime is too much.

[00:05:36] Speaker 00:
A lifetime is too much.

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A lifetime is too much.

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For what would have been appropriate?

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I think a two-year ban would have been appropriate.

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He's been under an 11-year ban.

[00:05:45] Speaker 00:
But how, and this is a question I have for both sides in this case, and I find very frustrating when we have these cases.

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How are we supposed to say when something is too much in this kind of case?

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And it would be a real challenge if I were here standing up saying, your honor, it should have been a two-year ban versus a five-year ban versus a lifetime ban.

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But all we're asking this court to do is say that a lifetime ban is too much.

[00:06:10] Speaker 02:
I don't think we can parse it that clearly, in part because neither the commission nor FINRA has set forth.

[00:06:15] Speaker 00:
But how do we do that, given our standard of review here, which is deferential?

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Then we've got the commission, which is reviewing FINRA.

[00:06:27] Speaker 00:
A lifetime bar is a big deal.

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So I get that.

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And that's, to my mind, very serious.

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And I might not have done that on these facts.

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But I've got a deferential standard of review.

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So how am I supposed to start drawing lines here?

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I think you have to look at whether or not the record actually supports it.

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The primary reason they impose a lifetime bar is because they said that Mr. Saad posed a threat to investors.

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Now, that is an incredible leap that is not supported by a single fact in this record.

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He submitted false reimbursements to his employer.

[00:06:58] Speaker 02:
Absolutely.

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He admitted that.

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That does not justify the logical leap to say in the future... Again, you're leading out the rest of the case.

[00:07:07] Speaker 03:
I think the threat was that he showed a pattern of deception.

[00:07:11] Speaker 03:
A refusal, which the arguments seem to keep doing, to acknowledge the scope of his misconduct, which wasn't just submitting the false receipts to the employer, but was keeping the roost going for a year and then lying to regulators.

[00:07:29] Speaker 03:
Why isn't someone's willingness to lie repeatedly and then to lie or mislead regulators?

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relevant to the threat they pose in an industry that depends mightily upon trust.

[00:07:42] Speaker 02:
Well, first of all, it was not a year-long course of conduct.

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I want to make sure the record is very clear.

[00:07:46] Speaker 02:
These were submissions that were made only in July 2006.

[00:07:49] Speaker 02:
Now, only.

[00:07:51] Speaker 02:
Now, they were two submissions for travel and for a cell phone.

[00:07:54] Speaker 02:
There were then later misstatements to regulators, absolutely.

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But I would point out he was without counsel.

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He had corrected them fairly.

[00:08:02] Speaker 03:
What do you have counsel for to

[00:08:04] Speaker 03:
You don't need counsel to go to confess to your firm that I was under a lot of pressure, I spent the weekend, I shouldn't have.

[00:08:11] Speaker 02:
Absolutely, and it was the stress that led to that misconduct as well.

[00:08:15] Speaker 02:
It was all, you know, I don't want the court to have the impression this was a year-long pattern where he engaged in all sorts of misconduct and in all sorts of lies.

[00:08:23] Speaker 02:
It was a single month with two submissions of a thousand dollars, and then he admittedly... But now you are fighting with the facts found by...

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FINRA, and that is that it was a long, ongoing, intentional deception with repeated acts of factual findings you're not denying about misleading.

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When did the misleading of regulators happen?

[00:08:41] Speaker 02:
In 2006.

[00:08:42] Speaker 03:
Is that the same month you're talking about?

[00:08:44] Speaker 02:
November, it's three months, four months later, November 2006 and April 2007.

[00:08:49] Speaker 02:
So I'm not saying that they didn't exist, Your Honor, but I do disagree with the idea that the Commission can characterize

[00:08:57] Speaker 02:
a single, single bit of misconduct in July 2006, two misstatements later covering up the same exact misconduct, two isolated statements.

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He gave an entire on-the-record statement to them, and they don't cite anything else, not a single other misstatement in an entire on-the-record testimony.

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I'm not discounting that he did that at all.

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Neither is he.

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But the idea that they can then characterize those facts.

[00:09:22] Speaker 00:
Why did he go without counsel?

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He did not realize how serious it was.

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He then retained counsel, and that counsel, I think, was later convicted of a crime and was permanently barred by the SEC.

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He then retained Mr. Burke, who preceded me, and when Steve was named to the bench on the Superior Court, I replaced him.

[00:09:42] Speaker 02:
But he went in honestly because he did not realize how serious it was.

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How long was he with the company prior to this misconduct?

[00:09:49] Speaker 02:
Or is that not in the record either?

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I believe five years, Your Honor.

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And he stayed for six months after.

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And 11 years since, getting back to the SEC's point that the reason they impose this lifetime bar is to protect the investment community, is that he poses a threat.

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There is simply nothing in the record.

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We have the perfect experiment to test that.

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If this was something he was going to do over and over, lie to regulators, submit false reimbursements,

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He had that chance in the last 11 years to do that.

[00:10:18] Speaker 03:
Well, Finner said he didn't, given the nature of his limited role in the other firm.

[00:10:23] Speaker 02:
Well, that's not true, Your Honor.

[00:10:24] Speaker 02:
He's still in the insurance industry, and absolutely, if he was going to submit false reimbursements, the same conduct here.

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or make any false statements to regulators, and they are heavily regulated, he certainly could have done it in the previous 11 years.

[00:10:37] Speaker 02:
The record here directly contradicts the conclusions the SEC wishes to make, which is that Mr. Saad poses some dire threat to investors that deserves a lifetime bar in this case.

[00:10:48] Speaker 03:
Can I ask one other question?

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Did he ever, I've seen at least one case where

[00:10:55] Speaker 03:
imposed a bar but then said you can come back after I think five years so it's almost like a probationary period or something.

[00:11:03] Speaker 03:
Did he ask for that in this case?

[00:11:06] Speaker 02:
I don't believe he has your honor.

[00:11:08] Speaker 02:
I know that during the case he proposed settlements to FINRA which were never even responded to so there were attempts to try to resolve it including as I understand it after remand to go back to FINRA and say

[00:11:18] Speaker 02:
Come on, let's work this out.

[00:11:20] Speaker 02:
It's already been eight years at that point, and finger has refused to get in the settlement negotiation.

[00:11:25] Speaker 03:
Did he ever argue as a legal matter that that would be the appropriate appropriate way to deal?

[00:11:31] Speaker 02:
I don't believe he has your honor.

[00:11:34] Speaker 02:
The only last point I'd make if I can sneak it in very quickly is to consider whether or not

[00:11:39] Speaker 02:
FINRA is actually exercising any discretion in converging cases at all.

[00:11:43] Speaker 01:
They simply don't.

[00:11:44] Speaker 01:
So not only are you going to fit it in one minute and 30 seconds over time, but you didn't fit it in until your reply brief.

[00:11:50] Speaker 01:
Yes, Your Honor.

[00:11:51] Speaker 01:
This was not raised in the opening brief at all.

[00:11:52] Speaker 02:
That's correct, Your Honor.

[00:11:54] Speaker 02:
Thank you.

[00:12:24] Speaker 04:
Good afternoon, Your Honors.

[00:12:26] Speaker 04:
May it please the Court, my name is Dina Mishra.

[00:12:28] Speaker 04:
I am counsel for the respondent, United States Securities and Exchange Commission.

[00:12:32] Speaker 04:
There's a few things that I'd just like to respond to.

[00:12:35] Speaker 04:
I'm happy to obviously take questions at any time, so please just let me know.

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But one of the things I wanted to clarify, and I think this is clear to this Court,

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is that any of the challenges to the fact-finding on the quote, you know, not taking seriously the seriousness of the stress or on the misleading behavior, for example, are all new on oral argument and so under this court's precedent, you know, it shouldn't be considered.

[00:12:58] Speaker 04:
Regardless, you know, the recounting of the facts, you know, really omitted

[00:13:02] Speaker 04:
One of the key lies, for example, in the case of the mistaking behavior, which was that there were these notes from April 2007 that included an explicit lie about whether he knew the person for whom he had procured the cell phone and his reason for doing the cell phone purchase, whether it was to replace his own phone versus get it for somebody else.

[00:13:22] Speaker 04:
So those are things that are expressed evidence.

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And I think that the record kind of stands for itself in a lot of ways otherwise.

[00:13:31] Speaker 04:
In addition, to the extent that there's some question about the length of the misconduct, I think this got clarified, but just to be sure, it is a 10-month period because it goes from the beginning of the forgeries and the receipts being submitted, but also goes all the way through this November 2006 letters, both to FINRA and to state regulators, saying it was for a future trip, essentially a trip that had yet to occur,

[00:13:58] Speaker 04:
also, as I just discussed, April 2007, and also call, and then also the on-the-record interview.

[00:14:06] Speaker 04:
To the extent that there's any question about whether there was a problem in terms of him not having an attorney, this was an argument that had been raised to some degree before, but was expressly waived, I believe, before the commission.

[00:14:18] Speaker 04:
And so it's not something that should come up directly as an argument.

[00:14:23] Speaker 04:
In terms of the explanation as to why he didn't have counsel, it is clear that he admitted, I believe,

[00:14:27] Speaker 04:
I believe he admitted at the disciplinary hearing that he probably did receive this addendum and this letter from FINRA that explained to him that at the on-the-art court interview, for example, he could have counsel and that they would stop the interview at any time if they... So a lifetime bar, though, seems... Harsh.

[00:14:48] Speaker 00:
That's the word I was thinking of.

[00:14:50] Speaker 00:
Extreme harsh.

[00:14:53] Speaker 00:
There's a lot of huge misconduct out there in this industry.

[00:14:57] Speaker 00:
And this is not to minimize this, but this pales in comparison to a lot of misconduct that's out there in the industry.

[00:15:05] Speaker 00:
But it still gets the lifetime bar.

[00:15:06] Speaker 00:
So how is it remedial in that sense?

[00:15:10] Speaker 04:
Sure.

[00:15:11] Speaker 04:
So it is the highest sanction.

[00:15:13] Speaker 04:
No one's denying that.

[00:15:14] Speaker 04:
But the reason it's the highest sanction that was imposed here

[00:15:17] Speaker 04:
is that the particular type of misconduct that Mr. Saad engaged in, which includes everything from the beginning of all these forgeries and deceptive conduct.

[00:15:26] Speaker 00:
We had a bad weekend.

[00:15:27] Speaker 00:
He had a bad weekend.

[00:15:28] Speaker 04:
Well, and then he went on to... And then he panicked.

[00:15:31] Speaker 04:
Right, and then he went on to, you know, when his office administrator found that there was a discrepancy, he went on to continue to submit his receipts for reimbursement and just remove the telltale receipt, and then he didn't come clean to his

[00:15:43] Speaker 04:
you know, firm for until they came back.

[00:15:47] Speaker 00:
I understand it all stems from that weekend, and then he's covering it up.

[00:15:50] Speaker 00:
And I'm not minimizing that.

[00:15:51] Speaker 00:
I'm just saying a lifetime bar.

[00:15:53] Speaker 00:
Absolutely.

[00:15:53] Speaker 04:
But crucially in this case, and I think this is true in general, which is that, you know, this court has sustained

[00:16:00] Speaker 04:
commission decisions that have upheld lifetime bars for other types of misconduct with respect to violation of the rules that include things that are justified, just as the commission did here, in a prophylactic, remedial way that is with respect to the public interest.

[00:16:16] Speaker 00:
How could we ever say, I'm trying to figure out what my role is here, which seems to be virtually nothing on this case, which is under your view, how could I ever say that something's not remedial?

[00:16:29] Speaker 00:
Under your theory, which is if there's any misconduct at all, we have to protect investors, and that's remedial, and that's...

[00:16:37] Speaker 00:
And you would always want to protect investors forever.

[00:16:40] Speaker 04:
Right.

[00:16:40] Speaker 04:
No, Your Honor.

[00:16:41] Speaker 04:
To clarify, the misconduct that was at issue here was conversion, which goes to the very heart of what is most fundamentally problematic if a person is engaged in the financial industry and is going to mishandle or act dishonestly with funds.

[00:16:53] Speaker 00:
I understand what you're saying, but the theory remedial is not even the right term.

[00:16:57] Speaker 00:
But I realize it's the term in the case law for this concept.

[00:17:00] Speaker 00:
But how could we ever say something's not remedial

[00:17:06] Speaker 00:
So, for example, if it was justified by some notion of moral desert or punishment or he should suffer as opposed to... No, it's always... I mean, so long as the commission or FINRA says, someone did something wrong and we need to protect investors in the future from this person who's now a threat, how could we ever overturn that?

[00:17:27] Speaker 00:
How do you think we should ever overturn that or could?

[00:17:30] Speaker 04:
Well, you know, I think it would have to depend on the particular Commission opinion and what its rationale was, and what it put forth with respect to its rationale.

[00:17:38] Speaker 04:
If its rationale was internally, you know, inconsistent, or it was, you know, failing to account for a crucial issue, any of these normal arbitrary appreciations.

[00:17:47] Speaker 01:
What if it was the same case and it involved $50 for the seats, and the Commission said the same thing?

[00:17:55] Speaker 04:
So I think that what's clear is that the commission gave the rationale of explaining why conversion goes so centrally to what is problematic for a person that they are not suitable, in a sense, for the financial industry.

[00:18:10] Speaker 04:
And the lifetime bar is really just barring them from associating with members in this particular industry.

[00:18:15] Speaker 04:
So that rationale would still certainly apply.

[00:18:18] Speaker 04:
Obviously, it would depend on the facts and circumstances of each individual case.

[00:18:21] Speaker 01:
So what if he, what if the,

[00:18:25] Speaker 01:
employer, a broker or insurance company had a rule, you can't take pens home, can't take office supplies home.

[00:18:33] Speaker 01:
And he takes one pen home.

[00:18:35] Speaker 01:
And the next day he's confronted by his superior, I saw you take the pen home, and he lies to him.

[00:18:42] Speaker 01:
And then three months later, he's confronted by the Venera police.

[00:18:47] Speaker 01:
And they say, did you take it home?

[00:18:48] Speaker 01:
And he says, oh, gee, I don't have a lawyer with me.

[00:18:51] Speaker 01:
No, I didn't take it home.

[00:18:54] Speaker 01:
And then he gets a lawyer and he comes back and he says, same.

[00:18:58] Speaker 04:
So I think there are a couple of points to that, Your Honor.

[00:19:01] Speaker 04:
The first is one thing that distinguishes that situation from this one is that the handling of all the supplies is somewhat different from the mishandling and misappropriating directly of funds, which is exactly the kind of management that someone has in the financial industry.

[00:19:15] Speaker 04:
It goes even more directly when it's conversion of funds or misappropriation of funds.

[00:19:19] Speaker 04:
So that's the first thing.

[00:19:20] Speaker 04:
The second thing is that

[00:19:21] Speaker 04:
In the case in which there is this misleading of regulators, the commission offered a rationale here that I think it would be important to question whether in your hypothetical that rationale also was present, which is that, you know, to the extent that there is this misleading of regulators or there is this dishonesty there in the follow-up, it is

[00:19:38] Speaker 04:
Obviously, it undercuts the ability of the commission to be able, or rather, sorry, FINRA in the first instance and the commission in assessing to be able to prevent the misconduct, to be able to detect it in the first instance.

[00:19:49] Speaker 04:
And that's a rationale that was provided and held by this court essentially, or sustained by this court in pause two.

[00:19:55] Speaker 04:
which is this notion that even when it's something like in pause two, it was with respect to being completely forthcoming with information to regulators, there is this connection between depriving the regulators of their crucial information that they need in order to detect and prevent misconduct.

[00:20:12] Speaker 01:
If there hadn't been the regulators in this case,

[00:20:16] Speaker 01:
If they hadn't been lying to the regulators in this case, then what?

[00:20:19] Speaker 01:
Then would the lifetime ban be okay?

[00:20:21] Speaker 04:
Well, as I noted, Your Honor, I think there, as to your hypothetical, there are differences that we're, you know, with respect to.

[00:20:27] Speaker 01:
No, I'm sorry when I say this case, I'm going back to your, to Mr. Saad.

[00:20:34] Speaker 04:
Right, Your Honor.

[00:20:35] Speaker 04:
I think that the first rationale that's crucial is that when it comes to conversion or misappropriation of funds, it goes so centrally to what the financial industry is about that it can be that depending on the circumstances that it is for Finner in the first instance and then just for the SEC to determine whether it's excessive or oppressive in this court to decide if that was an abuse of discretion, it can be that it is justified on the basis of the fact that it goes so fundamentally to what is the core

[00:21:02] Speaker 01:
So that's why I'm asking, would it go so fundamentally if there weren't the false statements to the Finner investigators in this case?

[00:21:09] Speaker 04:
So I think that, you know... You would say yes, I take it.

[00:21:13] Speaker 01:
You would still say yes.

[00:21:15] Speaker 04:
So I think there are multiple rationales, and that this Court, I think, probably should find that both rationales are actually sufficient with respect to this type of misconduct, and also with respect to the particular facts.

[00:21:27] Speaker 04:
I mean, I think that the whole package here is a very obvious case, but I also think that it is crucial to recognize that the Commission has a long expertise and experience in this area.

[00:21:36] Speaker 04:
As do Finner, these are members of the industry, and they understand what...

[00:21:39] Speaker 00:
I'm still stuck on how can a remedial sanction ever be excessive.

[00:21:44] Speaker 00:
I know when, I don't know, but punishment can be excessive.

[00:21:50] Speaker 00:
Too much for a certain offense.

[00:21:52] Speaker 00:
But a remedial sanction is based on the concept that this is a bad person, and this bad person will never change.

[00:21:59] Speaker 00:
That's the concept you're articulating to us.

[00:22:02] Speaker 00:
And I don't know if that's the case,

[00:22:06] Speaker 00:
how we could ever say that's too much or unreasonable.

[00:22:09] Speaker 04:
But I don't think that's right, Your Honor.

[00:22:10] Speaker 04:
I think that the way the Commission, for example, would be making the determination of what's excessive or oppressive in the first instance would be this determination of when you take remedial justifications only, not punitive justifications like this is a bad person, which is not what the Commission said here.

[00:22:27] Speaker 00:
That's exactly what they said, which is that we need to keep this person away from investors for the rest of his life.

[00:22:33] Speaker 04:
This is a risky person.

[00:22:34] Speaker 04:
This is a person who may cause harm because of the proven track record of having this misconduct and also covering it up and hiding it from regulators, so it makes it very difficult to detect.

[00:22:44] Speaker 04:
Those are remedial justifications.

[00:22:46] Speaker 04:
There are ways that it could be excessive if, for example, the only basis to justify a sanction of that type would be punitive.

[00:22:54] Speaker 04:
That's one example.

[00:22:54] Speaker 00:
I know, but that term, like it's either remedial or punitive, that's not in either order.

[00:23:00] Speaker 04:
Well, the question is whether there is any remedial purpose.

[00:23:03] Speaker 00:
Exactly.

[00:23:03] Speaker 04:
And that has to be articulated.

[00:23:05] Speaker 04:
And I think that has to be articulated by the Commission.

[00:23:07] Speaker 00:
And when you've articulated, I just have trouble seeing how we can say it's excessive.

[00:23:14] Speaker 00:
Well, here I don't think you can, Your Honor.

[00:23:17] Speaker 00:
That's what I'm trying to draw out, is I think the Commission's position really is.

[00:23:22] Speaker 00:
So long as it's remedial, it's gonna be hard for us ever to we can pick at the reasoning of the commission But it's gonna be hard for us ever to say it's excessive.

[00:23:30] Speaker 00:
I think that's your position And that makes me uncomfortable, but I'm having trouble figuring out how we can start drawing lines

[00:23:37] Speaker 04:
case that this is the position.

[00:23:39] Speaker 04:
The reason is because if you look at the statute and you look at the way the statute talks about what the commission's review is for, it talks about having due regard for the public interest and the protection of investors, et cetera.

[00:23:50] Speaker 04:
And then it talks about doing this excessive or oppressive review.

[00:23:54] Speaker 04:
The whole point is that that actually informs what excessive or oppressive means in the context of the statute, presumably.

[00:23:59] Speaker 04:
So the idea would be that it needs to be excessive or oppressive as measured against remedial justifications only.

[00:24:06] Speaker 04:
not against things that are not just for the public interest, just for preventing the misconduct, but things like moral deserter.

[00:24:12] Speaker 00:
If you'd done a, if you'd done, I'm sorry to prolong this, but one more question.

[00:24:15] Speaker 00:
If you'd, I'm apologizing to the chief judge.

[00:24:18] Speaker 00:
If we, if you did a two-year bar or five-year bar in the rationale or remedial, the theory that you must be articulating is that the person can in essence correct themselves after two years or five years.

[00:24:35] Speaker 00:
And

[00:24:36] Speaker 00:
be a better person and not be deceptive.

[00:24:39] Speaker 00:
And so you do that at times, right?

[00:24:43] Speaker 00:
The commission, FINRA, does that kind of bar at times, and it's still remedial justification.

[00:24:47] Speaker 00:
But here, it must be that we don't think this person can ever correct himself.

[00:24:53] Speaker 04:
Well, I think what's clear is that they're saying that there are any indications to the contrary, anything that, so the mitigating factors, for example, need to be assessed as to how would they affect whether this person is going to continue to pose the risk that the commission has found that Finner was right in finding that you would impose.

[00:25:09] Speaker 04:
And so in assessing those remedial justifications, it is the case that you would have to sort

[00:25:15] Speaker 04:
you know, step back and look at them.

[00:25:17] Speaker 04:
And I think that abuse of discretion view obviously means that the commission just needs to essentially be reasonable about its reasoning.

[00:25:26] Speaker 04:
But it is not the case that this court should be imposing some kind of extra statutory substantive judgment about whether, you know, they think a different or the court thinks a different sanction would be justified in the first instance of federal.

[00:25:40] Speaker 04:
I think that's just statutorily what's required in this case and in general.

[00:25:45] Speaker 03:
Can I ask a statutory question?

[00:25:49] Speaker 03:
He was barred from being associated with any member of FINRA, correct?

[00:25:54] Speaker ?:
Correct.

[00:25:55] Speaker 03:
So why isn't this case under 78SF rather than E?

[00:26:01] Speaker 03:
Because 78SF covers the barring of any person from becoming associated with a member of a self-regulatory organization.

[00:26:08] Speaker 03:
The reason I raise it is that statutory provision does not have the excessive or oppressive review.

[00:26:16] Speaker 04:
But the first answer is that in this case, that's obviously not the ground on which this proceeded.

[00:26:22] Speaker 04:
There was a petition for review saying, you know, challenging the sections of this ground.

[00:26:25] Speaker 03:
There's still review.

[00:26:26] Speaker 03:
There's still review.

[00:26:26] Speaker 03:
It's just not on for excessive repression.

[00:26:28] Speaker 03:
It's just for competition.

[00:26:29] Speaker 04:
Your Honor, I don't know that I feel comfortable answering that question without going back to the commission and finding out what the particular commission position might be on it.

[00:26:37] Speaker 04:
But let me just first take a quick look and see if there's anything I noticed off the, you said it was,

[00:26:42] Speaker 03:
78 SM, right after 78 SE, where everyone kept talking about in this case.

[00:26:52] Speaker 03:
Aren't any person becoming associated with a member of a self-regulatory organization, which is exactly the remedy, the sanction that was imposed here.

[00:27:04] Speaker 03:
If you go down.

[00:27:10] Speaker 04:
you know you're not i apologize because i haven't taken up i personally haven't taken a close look at this provision that i started you know it wasn't raised i just couldn't figure out and i just thought it might be significant because it doesn't include the excessive or oppressive review sure certainly certainly it wouldn't be implicated for this case and i think it would be you know outside the realm of what this case's focus was um i i can also you know go back to the commission that's exactly what happened in this case i mean if you think about

[00:27:35] Speaker 03:
What's going on here, we have private entities, FINRA, it's not the government, deciding who can be a member, affiliated with them or with their members.

[00:27:48] Speaker 03:
But it gets reviewed by the SEC because it implicates markets.

[00:27:51] Speaker 03:
And then we are round two of that review.

[00:27:54] Speaker 03:
But can you help us imagine why when the bar just says you can't be part of this group, that in fact we don't look for excessive.

[00:28:00] Speaker 03:
Sure.

[00:28:01] Speaker 04:
So your honor, I haven't taken a look at this closely.

[00:28:03] Speaker 04:
I would want to check with the commission on this.

[00:28:05] Speaker 04:
So this is not a representation of the commission.

[00:28:07] Speaker 04:
But one thing that I do notice that's different about this provision is that it talks about from becoming associated.

[00:28:12] Speaker 04:
So it may be that this is a provision that directs to the initial

[00:28:16] Speaker 04:
becoming associated in the first instance, as opposed to the ultimate sanction of removing someone from the association.

[00:28:22] Speaker 04:
I'm happy to check on that.

[00:28:23] Speaker 04:
If I'm incorrect on that, I'm happy to try to inform the court.

[00:28:27] Speaker 04:
But I do believe that no matter what, it's not implicated here.

[00:28:30] Speaker 04:
It's not the basis for the challenge here.

[00:28:31] Speaker 04:
And I don't believe it should be addressed.

[00:28:34] Speaker 03:
And I have one other question.

[00:28:36] Speaker 03:
So one of the things that the commission was to address on remand was this, I think it's principle 14 about whether someone essentially loses their job before the regulators show up on the scene?

[00:28:51] Speaker 03:
And the FINRA's rationale for why it wasn't mitigating is that they say it's an inherent consequence of misconduct that you get fired by your employer, which seems to me is going to be true about 100% of the time.

[00:29:08] Speaker 03:
And they said you can still get another job, which would also seem to be true 100% of the time.

[00:29:13] Speaker 03:
So what I'm trying to figure out is,

[00:29:17] Speaker 03:
When is 14 never mitigating?

[00:29:19] Speaker 04:
Sure.

[00:29:19] Speaker 04:
So to clarify, I'd like to look at the specific language of the commission's opinion, because I think it's important to understand what the commission was doing here.

[00:29:26] Speaker 04:
The commission noted that it held, it's previously held, that collateral consequences generally aren't mitigating.

[00:29:32] Speaker 04:
But then it said, that said, the guidelines direct that employment termination, which we have held is a very disciplinary action.

[00:29:38] Speaker 04:
Oh, I'm so sorry.

[00:29:39] Speaker 04:
It's JA 112.

[00:29:45] Speaker 04:
This is the most recent commission opinion.

[00:29:47] Speaker 04:
So the first sentence talks about what's been previously held, but then it says, that said, I can wait, sorry, I apologize, I'll wait till you.

[00:30:12] Speaker 04:
So at the bottom of that page before the footnotes it says we've repeatedly have held that paragraph and the first line is what you're discussing and then the second line says that said the guidelines direct that employment termination which we have held as a form of disciplinary action should be considered mitigating if it was related to the misconducted issue and it occurred before regulatory detection.

[00:30:32] Speaker 04:
But as we've held

[00:30:33] Speaker 04:
And then it says, but as we've held in similar situations, the mitigating effect from the termination is no guarantee of change of behavior and may not be enough to overcome our concern that he or she poses a continuing danger.

[00:30:44] Speaker 04:
So what it's saying here essentially is it's acknowledging that the guidelines essentially may make termination actually something to be considered, which is what this court said in its first opinion, it pointed to that potential.

[00:30:55] Speaker 04:
and highlighted that guideline.

[00:30:58] Speaker 04:
And then it goes on to say why there is not mitigating effect from Mr. Saad's termination in that whole next paragraph.

[00:31:05] Speaker 03:
I'm sorry, no, I guess I just don't understand what you're saying there.

[00:31:09] Speaker 03:
It'll be considered mitigating if it was related to the misconduct.

[00:31:13] Speaker 03:
What does that mean?

[00:31:14] Speaker 04:
So I think the idea would be that somehow the termination is going to be like discipline for the misconduct or... Isn't that what they said would always be true?

[00:31:24] Speaker 03:
You're getting fired.

[00:31:25] Speaker 03:
What is it that discipline for the misconduct?

[00:31:27] Speaker 04:
Oh, to clarify though, so first of all the guidelines aren't completely binding and what the Commission went on to say is that it's recognized that you have this initial guidance that this is the kind of situation where in the abstract

[00:31:40] Speaker 04:
termination might be mitigating.

[00:31:41] Speaker 04:
But then you have to look, obviously, to the facts and circumstances of each.

[00:31:45] Speaker 03:
I don't want to talk about this case.

[00:31:47] Speaker 03:
Oh, sure.

[00:31:48] Speaker 03:
I don't understand from these explanations when it's ever mitigating.

[00:31:52] Speaker 03:
Because I say it's not mitigating because if you get fired, because that's what employers do when you engage in bad stuff.

[00:32:02] Speaker 03:
And you could get another job.

[00:32:04] Speaker 03:
So why should we consider this a mitigating factor?

[00:32:07] Speaker 03:
But it's their principle.

[00:32:09] Speaker 04:
So just to take one quick step back and just clarify what I'm trying to say is that the Commission didn't actually make a broad ruling about how it's only termination is only mitigating on these circumstances or it is, you know,

[00:32:24] Speaker 04:
It was transitioning from talking about how, yes, termination could be mitigating the abstract, and I do want to answer your question directly about when, what types of circumstances.

[00:32:33] Speaker 04:
But then it goes on to say, here are all the reasons why in this context, and it gives a paragraph of detail that is very specific to Mr. Sodden, talks about how his termination obviously didn't dissuade further misconduct because he went on to mislead regulators and deceive them, et cetera.

[00:32:48] Speaker 04:
And then it goes on to, you know, to assess other things.

[00:32:52] Speaker 04:
I think the Commission's also pointed out that he did get a new job very quickly.

[00:32:55] Speaker 04:
That was, as he admitted, pretty much the same.

[00:32:58] Speaker 04:
Hypothetically, you know, there might be other situations, but obviously I can't prejudge for the Commission here, but there might be situations in which if termination actually did

[00:33:07] Speaker 04:
You know, certainly if termination completely foreclosed any possibility that there could be further misconduct.

[00:33:14] Speaker 04:
So, for example, if someone couldn't get another job in this type of industry, given their qualifications or other types of things, given what misconduct they had committed.

[00:33:23] Speaker 04:
Hypothetically, you could have situations in which termination would essentially sort of prevent there being remedial use for the sanction beyond that, because that person is, you know, this is so fun.

[00:33:36] Speaker 03:
If they're so bad, they did it so bad, no one will ever hire them, then we'll consider it mitigating?

[00:33:41] Speaker 04:
No, no, to clarify, you know, as I said, I don't think I should take a broad position for the Commission on this.

[00:33:47] Speaker 03:
Can you tell me when the Commission has applied this as a mitigating factor?

[00:33:50] Speaker 04:
So I don't I don't believe that That is something that is I don't have a case for you off off the top of my head.

[00:33:57] Speaker 04:
However What I think is important here is that in this situation?

[00:34:02] Speaker 01:
I think she just asked whether you knew of another case that you answered that you don't know Sure, I apologize.

[00:34:08] Speaker 01:
All right.

[00:34:08] Speaker 01:
All right.

[00:34:09] Speaker 01:
We'll hear from very time left for We'll give you another two minutes

[00:34:25] Speaker 02:
I'll try in two minutes to reach three of your questions.

[00:34:28] Speaker 02:
First of all, Judge Miller, to your point, you're exactly right.

[00:34:31] Speaker 02:
With this mitigating factor and the way they explain it in their decision, there is absolutely no way it would ever apply.

[00:34:36] Speaker 02:
Mr. Saad fits that factor exactly.

[00:34:40] Speaker 02:
The commission does not disagree that all the facts are there, and it absolutely should have been applied.

[00:34:45] Speaker 02:
In fact, in a case, it's not cited in our brief, but I found later, it's against Tracy Chen, the FINRA applied the exact mitigating factor under the exact circumstances.

[00:34:53] Speaker 02:
So they do sometimes apply it.

[00:34:55] Speaker 02:
They just refuse to apply it here, and I don't think for good reason.

[00:34:58] Speaker 02:
Second of all, Judge Garland, to your question, would $50 fit?

[00:35:03] Speaker 02:
There is nothing that Finner or the commission has said that wouldn't allow a lifetime bar for conversion of $50.

[00:35:09] Speaker 02:
There simply is no standard.

[00:35:11] Speaker 02:
Every single case, and the lowest I've found is $740 in a case cited in their brief, the Olson case.

[00:35:16] Speaker 02:
Every single case, they apply a lifetime bar.

[00:35:19] Speaker 02:
I understand this is serious.

[00:35:21] Speaker 02:
Mr. Sot understands it's serious.

[00:35:23] Speaker 02:
But if there is no discretion being exercised between $50

[00:35:26] Speaker 02:
$740, $1,144, in the case we cite in our brief, $96.5 million, then FINRA is not exercising its discretion.

[00:35:37] Speaker 02:
Now, we aren't asking for a broad ruling.

[00:35:39] Speaker 02:
I would love a broad ruling that an automatic lifetime bar for any level of conversion, which is effectively what exists here on their own record,

[00:35:47] Speaker 02:
is problematic, but this court at least to look at the facts of this case and the mitigating circumstances that have been proven, every fact supporting them is here.

[00:35:56] Speaker 02:
To your question, Judge Kavanaugh, which is a very hard question, whether or not any remedial purpose fixes a punitive,

[00:36:04] Speaker 02:
I think there's no question that this is punitive.

[00:36:08] Speaker 02:
I don't know how anyone could look at a lifetime bar for $1,144 and not say some level of that's punitive.

[00:36:15] Speaker 02:
The SEC can always say, as you pointed out, that there's a remedial purpose to it.

[00:36:19] Speaker 02:
But I don't think the standard can possibly be that a tiny bit of remedial purpose bleeds into an excessively and oppressive punishment, and that is enough to save them.

[00:36:30] Speaker 00:
So I would submit that although... Well, their theory is, and I'm not ascribing to this theory, but I think their theory is, once dishonest, always a threat of being dishonest.

[00:36:40] Speaker 02:
Your Honor, you know,

[00:36:42] Speaker 02:
One, it's not true here, because the idea that he spent the last 11 years without a single blemish on his record completely belies that, completely.

[00:36:51] Speaker 01:
The other idea is they- I'm not sure how we can take into consideration that at this point.

[00:36:56] Speaker 01:
I think that if you had done what I think maybe one of my colleagues suggested, file a request to get back in, and they rejected it in the face of 11 years of good behavior, that would be back.

[00:37:08] Speaker 01:
But it's a little bit like saying,

[00:37:12] Speaker 01:
government had probable cause for the search because it turns out there's drugs in the pocket even when there wasn't probable cause before.

[00:37:20] Speaker 02:
I'm sure we will go back to them if the lifetime bar is imposed.

[00:37:24] Speaker 02:
And I would hope that they would consider everything here.

[00:37:26] Speaker 02:
But as long as we were on appeal, I don't think it makes sense to go back and ask.

[00:37:30] Speaker 02:
We did try and it did not work.

[00:37:32] Speaker 01:
I'm not second guessing your strategy.

[00:37:33] Speaker 01:
I'm just saying this particular set of facts go to a different case.

[00:37:37] Speaker 02:
They do, Your Honor.

[00:37:38] Speaker 02:
But I would just say that you cannot simply say a tiny bit of remedial purpose, which is frankly

[00:37:42] Speaker 02:
Oh, that's just what they say.

[00:37:44] Speaker 02:
There is nothing here that really supports it or nothing that really shows a threat.

[00:37:47] Speaker 02:
He's just not a bad guy.

[00:37:49] Speaker 02:
The record doesn't show it.

[00:37:50] Speaker 02:
It was one bad weekend.

[00:37:51] Speaker 02:
He made very, very bad decisions.

[00:37:54] Speaker 02:
He did try to cover it up.

[00:37:55] Speaker 02:
No question.

[00:37:56] Speaker 02:
But the idea that that will lead to a complete bar in this industry.

[00:37:59] Speaker 02:
He's in the insurance field now.

[00:38:01] Speaker 02:
If he gets a lifetime bar, he can't be bonded.

[00:38:03] Speaker 02:
He can't keep his current job.

[00:38:05] Speaker 02:
So the idea that this only affects the securities industry is just not true.

[00:38:09] Speaker 02:
It affects many other parts of a person's employment, and I'd ask that you reverse.

[00:38:12] Speaker 02:
Thank you.

[00:38:13] Speaker 01:
I'll take the matter under submission.

[00:38:14] Speaker 01:
Thank you.

[00:38:14] Speaker 01:
Thank you.

[00:38:15] Speaker 01:
Call the next case.