[00:00:00] Speaker 00:
Case number 19-1214, John Emmy Saad Petitioner versus Securities and Exchange Commission.

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

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

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

[00:00:16] Speaker 01:
Good morning.

[00:00:21] Speaker 04:
Good morning, Your Honor.

[00:00:22] Speaker 04:
Your Honors, may it please the court

[00:00:26] Speaker 04:
May I proceed, Your Honor?

[00:00:28] Speaker 01:
Yes, please proceed.

[00:00:31] Speaker 04:
Thank you.

[00:00:32] Speaker 04:
More than a decade after the underlying events, this case was remanded to the SEC to determine the impact of the Supreme Court's decision in Kokash on the lifetime bar imposed on Mr. John Saad.

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Kokash clarified the key principles that determine whether a sanction is punitive or remedial.

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The court focused first on whether a sanction addresses a public wrong or a private wrong, and second on whether a sanction was imposed for punitive purposes, including deterrence.

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Applying both these principles, the lifetime bar imposed on Mr. Saad is clearly punitive.

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Mr. Saad's lifetime bar is intended to address a public wrong.

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His former employer, Penn Mutual, fired him long ago in 2006 and is not a party to this action.

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The lifetime bar was also clearly imposed for punitive purposes.

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In Kokesh, the Supreme Court was explicit that deterrence is a punitive purpose, and both FINRA and the SEC have invoked deterrence as a primary reason for Mr. Saad's lifetime punishment.

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Nevertheless, on remand, the SEC ruled that Kokesh has no bearing, no bearing on its determination that Mr. Saad's lifetime bar is remedial, not punitive.

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This is error and should be reversed.

[00:01:46] Speaker 01:
Ms.

[00:01:47] Speaker 01:
Levine, let me ask you a question.

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Let me ask you to react to how I see this case and you tell me if that's not right.

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And what I'm wondering

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is whether this isn't just a typical situation we see from time to time, which is when is our case law, that is the case law of the DC Circuit, affected or changed by a later Supreme Court decision?

[00:02:18] Speaker 01:
And here's what I mean by that.

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Before co-catch, before the Supreme Court decided that case, beginning in Johnson, which the commission cites in its opinion,

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And through cases like Siegel, Paz, and even Sawan in this case, in this case, we've repeatedly distinguished between the analysis under Section 2462, the statuted issue in COCATCH, and other provisions like constitutional cases and security cases and other cases.

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Tell me what in COCATCH requires us to abandon that distinction.

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This is the case before.

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This is not a 2462 case.

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White and Kocash requires us to change Johnson, DAZ, abandoned all those cases.

[00:03:17] Speaker 04:
Yes, Your Honor.

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And I would say the court in Co-Cash could have, I think, done what it is that you're indicating and narrowly limited its holding and its ruling to 2642.

[00:03:33] Speaker 01:
But instead, the court... Co-Cash emphasizes that

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The sole question presented in this case is whether discourse is subject to 2462 limitations.

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It limited the case.

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And that's exactly what we did in Johnson.

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We applied, right?

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Isn't that correct?

[00:04:00] Speaker 04:
Respectfully, I would disagree, Your Honor.

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In Kokesh, the court tells us it begins its key analysis by saying, a penalty is a punishment, whether corporal or pecuniary, imposed and enforced by the state.

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And it cites 19th century case law, Huntington versus Attrill, which has nothing to do with section 2642.

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It's a full faith and credit case.

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It's completely unrelated.

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And that's the foundational definition that the court in Kokesh

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begins with, and then it announces the two clear principles, whether it's a public wrong or a private wrong, and then whether it's done for punitive purposes, including deterrence.

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And none of that rises and falls on the statutory language of 2642.

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And it's quite clear that the court could have crafted this in a more narrow way, and it didn't.

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And I would look to Kokesh's own statement of its holding.

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Kokesh tells us that disgorgement bears all the hallmarks of a penalty.

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It's imposed as a consequence of violating the public law, and it's intended to deter, not to compensate.

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The five-year statute of limitation therefore applies.

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The principles that Kokesh announces in the very utterance where it's telling us what its conclusion is, are these two principles which are not limited, the court does not limit them to 2016.

[00:05:23] Speaker 03:
Ms.

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Levine, the Supreme Court's decision of Liu shows that even on the very issue of the nature of the disgorgement sanction at issue in Kokesh,

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Kokesh's reasoning for purposes of 2462 does not apply to answer the question whether a sanction is excessive or oppressive under 78 S E2.

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So we've already seen the very court that decided Kokesh

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tell us that we don't transfer that reasoning.

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I mean, the court barely refers to Kokesh and Liu instead looking at it at a whole different line of law.

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So doesn't that really tell us that the Kokesh analysis does not apply to the interpretation of excessive or oppressive?

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Respectfully, I would disagree.

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The issue in lieu, and this is what Judge Tatel is referring to the footnote in Coquette that reserves this predicate issue, is about the nature of the SEC's authority to impose disgorgement.

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And part of the problem faced with that question is that there was no clear statutory language

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that gave the SEC authority to recover disgorgement, which had become a very widespread practice.

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And it's clear in Lew, and as you know, Lew decided close in time after Kokesh, Lew decided eight to one with the eight having been in the majority of Kokesh.

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Lou favorably invokes and refers to Kokesh.

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But Kokesh's own announcement of what is a penalty, what is a punitive sanction, how do we distinguish between a remedial sanction and a punitive section, it's not dictum.

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It's necessary to the court's holding.

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And we know it isn't in question whether that understanding of what's punitive

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necessarily informs our reading of what's excessive or oppressive under the Exchange Act.

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And I mean, the Exchange Act expressly calls for appropriate rules that, you know, for FINRA rules that would provide for appropriate discipline, including permanent bars, including permanent bars.

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And it refers very much to protecting investors and the public interest.

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So it's hard to see how one could square the

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the mandate of Congress in the Exchange Act with Kokesh's limiting principles, which say, no, don't look at the public, look only at the harmed individual.

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With respect, Your Honor, the statutes that are at issue here that authorize FINRA, other securities associations, to impose

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debarments, censures, and fines that are fitting.

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And the statute uses that word fitting.

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And then the statute that gives the SEC supervisory authority to ensure that whatever FINRA imposes is not excessive or oppressive.

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Those are compatible with the ruling in co-cache.

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The definitions, the principles that are laid out defining remedial and punitive.

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both those statutes can be read perfectly coherently.

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The FINRA can impose a bar, and the SEC can determine whether it's excessive or oppressive.

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Nothing requires the SEC to hold that it's remedial under the statutes or under co-cache.

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As we know, it's this court's prior ruling in PAZ, which I think as then Judge Kavanaugh referred to as,

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a two-line quotation from the Wright case in 1940, that overlaid, it added an additional requirement under excessive impressive.

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It interpreted that as requiring a remedial sanction.

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That's nowhere in the statutes, and that is not consistent with COCESH, because COCESH has defined what is a remedial sanction and what is a punitive sanction.

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That was the key issue that was presented in COCESH.

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And they announced a definition in principles which are not limited to 2642.

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The court did not itself limit it.

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And to do otherwise is to refuse to give effect to the holding in Co-Keshe.

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And the SEC in its... I'm not necessarily following you.

[00:09:50] Speaker 03:
How could Co-Keshe's first

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principle that a sanction redress a wrong to an individual and not to the public be satisfied in the context of applying a bar to prevent a deceptive securities professional from jeopardizing the public going forward.

[00:10:15] Speaker 04:
Well, Your Honor, and these examples are in our briefs as well, you could have a situation where someone applied to associate with a broker dealer or whatnot and- That's a cabinet example.

[00:10:27] Speaker 03:
And I understand there are one or two examples, but surely that's not everything that Congress was thinking about.

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And it's not the typical case that the commission or the FINRA

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is using a bar for.

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So you would point to that as the only thing Congress was thinking about.

[00:10:50] Speaker 04:
No, Your Honor.

[00:10:50] Speaker 04:
Actually, what I would say is in light of co-cache, that's not a problem in the sense that it's possible that many of Finres de Barment's are punitive sanctions.

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They may be intended to address a public wrong and may be done for punitive purposes, including deterrence, as we see the lifetime bar that was imposed on Mr. Saad here.

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And that's permissible under the statute.

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The SEC by Congress is tasked with evaluating whether that sanction, whether that punitive sanction is excessive or oppressive.

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And that's a meaningful determination.

[00:11:25] Speaker 03:
And it's- This is very odd.

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So you're saying that we can decouple our reading of excessive or oppressive from something that's punitive.

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But because we haven't done that, we have to bring in the co-cache reading of what's punitive?

[00:11:42] Speaker 04:
Our position is we need to give effect, and this court respectfully needs to give effect to what Kokesh announced in terms of the definition of what is a punitive sanction and what is a remedial sanction.

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And before Kokesh, this court had imposed

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an additional obligation that's not present in the statutory language and said that a FINRA bar that's upheld by the SEC must be remedial, must be a remedial sanction.

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What Kokesh has taught us is that if you look at the bars, it actually fits the court's definition of a punitive sanction.

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Punitive sanctions can be consistent

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with the SEC's mandate to ensure that a bar is not excessive or oppressive.

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And in fact, we see Congress in its language intending to require proportionality.

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FINRA can empower a censure, a fine, a suspension, as long as it's fitting.

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The word fitting is in that obligation.

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And SEC needs to determine whether it's excessive or oppressive.

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The SEC can

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it's authorized under the statute to uphold a punitive sanction.

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And COCASH has told us, it has clarified in a way that was not understood, I don't think, in this circuit and possibly other circuits, how a punitive sanction is defined and how a remedial sanction is defined.

[00:13:03] Speaker 04:
But to hold otherwise would be to severely limit a fair reading of COCASH.

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We think the announcement of the holding is clearly not just

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not just that discouragement qualified as a penalty, but the court clearly uses the language of two principles that are not limited to, and the defining case law does not address 2642.

[00:13:26] Speaker 04:
All right, that's all I have.

[00:13:31] Speaker 01:
Judge Wilkins, you got any questions?

[00:13:33] Speaker 01:
Because you're out of time.

[00:13:34] Speaker 01:
Sorry, good.

[00:13:39] Speaker 00:
I'm sorry.

[00:13:40] Speaker 00:
Yeah, I just had one question.

[00:13:43] Speaker 00:
So why is the commission wrong in its argument that the debarment can be remedial in this instance?

[00:14:00] Speaker 04:
Yes, Your Honor.

[00:14:02] Speaker 04:
for the reasons that under the two principles announced in co-cache, the bar is clearly intended to impose a public wrong, doesn't make sense as redressing a private wrong.

[00:14:16] Speaker 04:
And the court in co-cache was explicit that the second principle is that the sanction is imposed as for punitive purposes, including deterrence.

[00:14:25] Speaker 04:
The SEC itself has told us multiple times that deterrence

[00:14:29] Speaker 00:
is a factor in terms of the imposition of this bar, which we know this court has recognized as a capital sentence in the context of- If it's not the only purpose, I mean, perhaps that is one of the purposes, but even restitution is deterrence in the sense that

[00:14:56] Speaker 00:
will hopefully deter others from doing something wrong because they're not going to be able to retain their ill-gotten gains.

[00:15:05] Speaker 00:
I guess I'm just trying to understand what beyond deterrence do you have?

[00:15:11] Speaker 04:
Well, as your honor indicates, and is, I think, reflected in co-cash, in co-cash, the court told us that a remedial sanction must be solely remedial, but a punitive sanction, a sanction is considered to be punitive, even if it's in part punitive, in part remedial.

[00:15:28] Speaker 04:
So here we know, I mean, this is, you know, inside one, the panel noted that the commission imposed the punishment as a deterrent to others.

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Inside two, they said the,

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Bar was appropriate because it serves important deterrent objectives.

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FINRA itself refers to deterrence in its rulings below.

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And so under co-cache, if a penalty is a remedial sanction, it must be exclusively remedial.

[00:15:51] Speaker 04:
But if it has mixed reasons, but at least some of them are punitive, the court is quite clear in co-cache that it qualifies as a punitive sanction.

[00:15:59] Speaker 04:
And of course, that was the case in disgorgement, the sanction that the co-cache court was evaluating.

[00:16:07] Speaker 04:
that at times the court acknowledged it could be remedial, but at times it was punitive.

[00:16:10] Speaker 04:
And as a result, the court held that it was a penalty and applied that to the 2642 context.

[00:16:16] Speaker 04:
So to here, for the lifetime bar, Mr. Saad is punitive.

[00:16:21] Speaker 04:
And we see that in part from the multiple times in which there's an acknowledgement that it's been imposed punitively for deterrence purposes.

[00:16:30] Speaker 00:
All right.

[00:16:30] Speaker 00:
Thank you.

[00:16:32] Speaker 01:
Thank you, Ms.

[00:16:32] Speaker 01:
Ledeen.

[00:16:33] Speaker 01:
We'll hear from the commission.

[00:16:43] Speaker 02:
Good morning, Your Honors.

[00:16:45] Speaker 02:
May it please the court, Dina Mishra, for the Securities and Exchange Commission.

[00:16:49] Speaker 02:
Sustaining the Commission's opinion follows from this Court Sod 2 decision.

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which approved the commission's focus in balancing and determining that the gravity of Saad's behavior warranted remedial action, specifically a remedy to protect ordinary American investors from his repeating his intentional taking of money and lying to regulators in an industry that exists to honestly handle money.

[00:17:09] Speaker 02:
Saad too reserved only the sole co-cash question, which is whether co-cashes statutes of limitation ruling changes the result here by silently rewriting the exchange acts

[00:17:19] Speaker 02:
Section 1982's text on the established circuit precedent on its standard.

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Co-kesh by its own terms did not, and post-co-kesh decisions, including the Supreme Courts in lieu, show that co-kesh should be taken at its word on that.

[00:17:31] Speaker 02:
I'm happy to discuss further any questions that your owners may have.

[00:17:36] Speaker 00:
So your friend on the other side says that co-kesh held that a sanction must be solely remedial, otherwise it is punitive.

[00:17:48] Speaker 00:
What's your response to that?

[00:17:51] Speaker 02:
So to be clear, in the first instance, Your Honor, we believe that COCESH does not rewrite the circuit precedent, which enables a consideration of various purposes, including that general deterrence can be considered as part of the broader remedial inquiry.

[00:18:08] Speaker 00:
But even under COCESH- That's the point that Judge Tatel was making earlier.

[00:18:13] Speaker 02:
I believe so, Your Honor.

[00:18:14] Speaker 02:
And even under COCASH, the understanding of the COCASH formulation we've explicated in the brief.

[00:18:21] Speaker 02:
It's a little complicated, but it ultimately boils down to the notion of the question is whether the remedy can be fairly explained without requiring resort.

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to punitive purposes.

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So even if there were some punitive effect or there were some purpose that was taken into account as part of the mix, if it can fairly be explained and justified as the commission did here in its only order under review, then it would not be a problem even under co-casual.

[00:18:53] Speaker 00:
And we're not allowed to consider the other instances where the commission has explained

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That this is a deterrent.

[00:19:05] Speaker 02:
So we would make two points as to that.

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Your honor.

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The first is that as this court established in the course of decisions that were pause one through pause to the question is whether the order of the commission that is under review here.

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meets the standards to to be a sustainable order and reasonably explained and justified.

[00:19:24] Speaker 02:
And that's true under the Ministry of Law principles.

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So the statutory standard that the commission is charged with applying is a question of whether the remedy is, you know, is justified with regard to the public interest in the protection of investors and is essentially under the circuit precedent is necessary or appropriate to that end.

[00:19:43] Speaker 02:
So that's the first point we would say.

[00:19:45] Speaker 02:
The second point that we would point out is that most of the references that have been made in as I saw them in the briefs, for example, by Saad to stray mentions of potential deterrence in prior opinions are a mentions that are either taking the legal position that deterrence can be considered under the circuit precedent, which was, of course,

[00:20:09] Speaker 02:
even before co-cache established that it could be considered.

[00:20:13] Speaker 02:
And others were things that were more in the nature of describing deterrence as an incidental effect, not the primary purpose, which co-cache itself recognizes is not problematic.

[00:20:24] Speaker 02:
We have cited in our brief to other case law post co-cache, such as I believe Collier, for example, and there's, I believe, a Ninth Circuit case may also make this point.

[00:20:35] Speaker 02:
that if it's a question of predicting that deterrence may result, that certainly wouldn't be problematic.

[00:20:42] Speaker 02:
It's also the case that the core analysis that was made at all stages, but clearly in this commission's opinion, which expressly states that it was justifying without invoking deterrence as a justification, the analysis has been preventive in nature.

[00:20:58] Speaker 02:
And that preventive analysis is one that is longstanding, is recognized as appropriate, is remedial,

[00:21:04] Speaker 02:
That's something that even post Kokesh in 2462 cases, decisions like the Third Circuits and Genteel have found to be an appropriate standard and Genteel actually referenced the analysis here, the preventive analysis from SAD in expressly endorsing that sort of goal of trying to prevent an individual who has taken money lied about it from repeating that issue with respect to investors and putting them at risk.

[00:21:32] Speaker 03:
So isn't the plaintiff correct that we look at the question whether Kokesh applies?

[00:21:41] Speaker 03:
We look at that at de novo.

[00:21:42] Speaker 03:
That's a purely legal question.

[00:21:45] Speaker 02:
Yes, as to that question, Your Honor.

[00:21:48] Speaker 03:
I thought you were saying otherwise in your brief.

[00:21:50] Speaker 02:
No.

[00:21:51] Speaker 02:
To clarify, Your Honor, the position we're taking in our brief is that whether co-cash applies is in part determined by the question of what the statute actually requires in this case.

[00:22:03] Speaker 02:
So whether the co-cash should be expanded or should be understood or read to apply in this context has to be informed by the nature of what the statutory language is as it's been well understood by the commission and also by this court.

[00:22:15] Speaker 02:
in long-established circuit precedent that has described what that standard is in a manner that forecloses the arguments that Ms.

[00:22:22] Speaker 02:
Levine has been making about why Kokesh would apply here.

[00:22:30] Speaker 03:
So are there just two categories under Section 78 or 3?

[00:22:35] Speaker 03:
We're talking about forward-looking public regarding prophylaxis as remedial.

[00:22:46] Speaker 03:
that's to be distinguished from a punitive penalty, even though it's not remedial in the sense of responding to the individual.

[00:22:57] Speaker 03:
Just help me map out.

[00:22:59] Speaker 03:
I mean, I understand that, you know, doctrinally, it doesn't seem like the Kokesh's application here is so clear that under Williams, it necessarily displaces circuit precedent, but just looking more broadly at how we make sense of these categories, it gets a little muddier.

[00:23:14] Speaker 02:
So, so I'm not quite sure I understand your question.

[00:23:17] Speaker 02:
But if your question is about how how this standard operates under under the existing statute and under the existing circuit precedent, or is the question about under co cash what co cash is Analysis is You know, does, does co cash have any Raise any sort of guidance for us going forward in terms of the language with that we've chosen to to

[00:23:44] Speaker 03:
encapsulate excessive or oppressive.

[00:23:46] Speaker 03:
I mean, the statute doesn't use the language penalty or punitive.

[00:23:51] Speaker 03:
It uses excessive or oppressive.

[00:23:53] Speaker 03:
And I'm just wondering whether, you know, but we nonetheless have talked about punitive sanctions and those, that excessive or oppressive as an

[00:24:08] Speaker 03:
As an equation of punitive and that's where we get into the co cash issue.

[00:24:11] Speaker 03:
And I'm just wondering whether you think we should be rethinking that or whether that's a different kind of, you know, punitiveness.

[00:24:19] Speaker 02:
So, so we're not calling for this court to change its circuit precedent.

[00:24:22] Speaker 02:
We actually think that the way that the circuit precedent has evolved.

[00:24:25] Speaker 02:
is derived from, as described, I think it's agreed upon, for example, by all the opinions inside too, that it derives from some early cases in which the determination was made that this was a remedial statute, that these are remedies that are remedial and not penalties because they are justified as a means of protecting investors if necessary or appropriate to that end.

[00:24:50] Speaker 02:
That's the standard that's described in Wright

[00:24:53] Speaker 02:
all the way back and then McCarthy and then in this court's precedent, I believe it's in, it could be pause one or pause two, I think it's pause two.

[00:24:59] Speaker 02:
So given that there is that standard and the question is about this protection of investors in the public interest, which are directly hooked and tethered language in the statute, we don't believe that this court needs to look beyond that to Kokesh's analysis, which was clearly cabined by Kokesh's own terms,

[00:25:19] Speaker 02:
as Lou confirms, to import or shoehorn that analysis into something that simply used some similar language.

[00:25:27] Speaker 02:
We think there's already a well-established body of understanding what it means for something to be remedial and not punitive in the sense meant by the Section 19E2 context.

[00:25:38] Speaker 02:
And so we don't believe that anything needs to be imported.

[00:25:41] Speaker 03:
So it's just that the remedial discussion

[00:25:49] Speaker 03:
talking about individuals, whereas the remedial discussion in our line of Section 78 cases is partly thinking about individuals and partly thinking about, as you said, protecting investors prospectively as well and protecting the private self-regulatory organizations and their membership as well.

[00:26:11] Speaker 02:
As it's evolved is that the standard has been justified in that language that comes from the statute that is focused on protecting investors in the public interest.

[00:26:20] Speaker 02:
So it's completely at odds with that to import a standard that, for example, keys itself off of whether or at least in sods reading of it keys itself off of whether

[00:26:29] Speaker 02:
something is directed at the public interest, for example.

[00:26:32] Speaker 02:
That's exactly an endorsed consideration and endorsed justification under the statute.

[00:26:37] Speaker 02:
That's something that is directly at odds with something that would suggest that that deprives the authority to sustain the remedy of that nature.

[00:26:48] Speaker 03:
That's helpful.

[00:26:52] Speaker 01:
Anything else?

[00:26:54] Speaker 01:
Judge Miller, Judge Wilkins?

[00:26:55] Speaker 00:
Not for me.

[00:26:57] Speaker 01:
Thank you.

[00:26:58] Speaker 01:
Thank you.

[00:26:59] Speaker 01:
Ms.

[00:26:59] Speaker 01:
Levine, you were out of time, but if you have something that's responsive to what you just heard, you can have one minute.

[00:27:09] Speaker 04:
Very briefly, Your Honor, yes.

[00:27:10] Speaker 04:
In response to Judge Wilkins' question, of course, Coquette expressly says a sanction of punitive if it constitutes punishment, even in part, and remedial only if it serves solely a remedial purpose.

[00:27:22] Speaker 04:
Also, as Judge Pillard addressed, excessive and oppressive does not require a punitive sanction, and in Coquette,

[00:27:32] Speaker 04:
the court is absolutely clear that acting in the public interest, and this is also at 1643, when the SEC seeks to escort and acts in the public interest to remedy the harm to the public at large, and that is still what was designated punitive.

[00:27:52] Speaker 04:
And finally, Your Honor, if this court doesn't take the opportunity

[00:27:57] Speaker 04:
to correct, at least acknowledge and reverse the SEC and its application interpretation of co-cash.

[00:28:03] Speaker 04:
We're going to be left with a situation where the Supreme Court has defined a remedial sanction, defined a punitive sanction in a very succinct and principled way, but yet the circuit continues to force parties and

[00:28:20] Speaker 04:
And the government agencies to use the label of remedial sanction in a way that is inconsistent with the definitions in co cash and this appears to be an opportunity to prevent that that ongoing situation.

[00:28:32] Speaker 04:
Thank you.

[00:28:35] Speaker 01:
Thank you.

[00:28:36] Speaker 01:
Thank you.

[00:28:37] Speaker 01:
The case is submitted.