Toth v. Securities & Exchange Commission ( 2009 )

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
4-6-2009
Toth v. SEC
Precedential or Non-Precedential: Non-Precedential
Docket No. 08-3289
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 08-3289
___________
DOUGLAS TOTH,
Petitioner
vs.
SECURITIES AND EXCHANGE COMMISSION,
Respondent
____________________________________
On Petition for Review of an Order
of the Securities and Exchange Commission
(No. 3-12739)
_______________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
April 2, 2009
Before: SCIRICA, Chief Judge, CHAGARES and WEIS, Circuit Judges.
(Opinion Filed: April 6, 2009)
______________
OPINION
______________
PER CURIAM.
Douglas Toth petitions for review of an order of the Securities and
Exchange Commission (“SEC”) sustaining a disciplinary sanction imposed on him by the
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National Association of Securities Dealers (“NASD”). We will deny the petition.
I.
Toth, a securities broker-dealer, was a representative of Bedminster
Financial Group, Ltd. (“Bedminster”), an NASD member firm.1 NASD rules required
Toth to register as a representative of Bedminster by filing a Form U-4. Before joining
Bedminster, Toth discussed what to include on his Form U-4 with Bedminster’s majority
owner, Robert Van Pelt, who then filed a Form U-4 on Toth’s behalf. Among other
things, Form U-4 requires the representative to disclose whether he or she has been
“named in any pending investment-related civil matter.” In response to that question,
Toth’s Form U-4 stated “no.”
In fact, however, Toth had been named as a defendant in a civil securities
fraud action brought by the New Jersey Bureau of Securities. The NASD learned of this
discrepancy in July 2004 as part of a routine examination of Bedminster. The NASD
began an investigation, and its enforcement division ultimately filed a disciplinary
complaint against Toth in October 2005. The complaint charged him with willfully
causing the filing of a Form U-4 containing a misrepresentation of material fact in
violation of NASD Membership Rule IM-1000-1 and Conduct Rule 2110.
1
The former NASD has been consolidated into an entity called the Financial Industry
Regulatory Authority, Inc. See Kashner Davidson Secs. Corp. v. Mscisz, 531 F.3d 68, 71
n.1 (1st Cir. 2008). Because all relevant events occurred before that consolidation, we
refer to the entity as the NASD.
2
An NASD Hearing Panel conducted a hearing in May 2006. At the hearing,
Van Pelt testified that Toth never told him about the New Jersey action, but Toth and his
witness, Nicholas Thompson, testified that they had. The Panel also received
documentary evidence. On August 9, 2006, the Panel issued a thorough written decision
sustaining the charge and suspending Toth’s license for one year. In particular, the Panel
found that: (1) Toth knew that he was required to disclose the New Jersey action on the
Form U-4; (2) Toth discussed with Van Pelt what to include on the Form U-4 but failed to
disclose the New Jersey action; and (3) Toth failed to review and sign the Form U-4
either before or after Van Pelt filed it despite Van Pelt’s efforts to get him to do so. In
essence, the Panel concluded that Van Pelt’s testimony was supported by other evidence
and was otherwise more credible than the testimony of Toth and Thompson.
Toth appealed to the NASD’s National Adjudicatory Council, which
affirmed in a thorough decision issued July 27, 2007. Toth then appealed to the SEC.
The SEC, exercising its jurisdiction under 15 U.S.C. § 78s(d)(2), thoroughly reviewed the
record and affirmed by decision issued July 1, 2008. The SEC deferred to the Hearing
Panel’s credibility determinations to the extent that they were based on the Panel’s
observation of the witnesses, but otherwise reviewed the record de novo and
independently reached the same conclusions. Toth now petitions this Court for review.
II.
We have jurisdiction to review the SEC’s decision pursuant to 15 U.S.C. §
3
78y(a)(1). See Levine v. SEC, 407 F.3d 178, 182 (3d Cir. 2005). On review, Toth does
not argue that the SEC committed any legal error and does not challenge the propriety of
the sanction imposed on him. Instead, he challenges only the SEC’s factual finding that
he did not tell Van Pelt about the New Jersey action. We review that finding for
substantial evidence. See id. Under that standard, we must affirm if the finding is
supported by “‘such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.’” Rutherford v. Barnhart, 399 F.3d 546, 552 (3d Cir. 2005)
(citations omitted). See also Dolphin and Bradbury, Inc. v. SEC, 512 F.3d 634, 639 (D.C.
Cir. 2008) (“The Commission’s finding . . . is conclusive if, under our ‘very deferential’
substantial evidence standard, ‘a reasonable mind might accept the evidentiary record as
adequate to support the Commission’s conclusion.’”) (citations omitted). In undertaking
this review, “we may not ‘weigh the evidence or substitute our own conclusions for those
of the fact finder.’” Rutherford, 399 F.3d at 552 (citation omitted). Our review of the
record confirms that the SEC’s ruling is supported by substantial evidence here.2
Toth’s argument that the SEC should have found that he disclosed the New
Jersey action to Van Pelt is two-fold. First, he argues that the SEC should have believed
him and Thompson instead of Van Pelt for a number of reasons. The SEC, however,
2
Pursuant to Rule 17(b)(1)(B) of the Federal Rules of Appellate Procedure, the SEC
initially filed a certified list of the documents contained in the administrative record in
lieu of the record itself. Although Toth does not dispute the SEC’s account of the
witnesses’ testimony and documentary evidence, we directed the SEC to file the actual
record and have reviewed it ourselves.
4
thoroughly addressed each of these points, and our review of the record confirms that its
conclusions are supported by substantial evidence for the reasons stated in its opinion.3
Second, Toth argues that, given the conflicting testimony regarding whether
or not he disclosed the New Jersey action to Van Pelt, the evidence against him was not
sufficiently compelling to support the SEC’s conclusion. As the SEC argues, however,
the evidence on which the SEC relied need not be “compelling” to survive review.
Instead, it need only be substantial—i.e., evidence that “a reasonable mind might accept
as adequate to support a conclusion.’” Rutherford, 399 F.3d at 552. Our review of the
record confirms that Van Pelt’s testimony, together with documentary evidence such as
3
For example, Toth argues that Van Pelt’s testimony about his efforts to have Toth
review and sign the Form U-4 is called into question by Van Pelt’s financial incentive to
quickly register Toth. As the SEC explained, however, Van Pelt’s testimony is supported
by the parties’ correspondence. Toth also argues that the SEC excused Van Pelt’s
mistaken recollection of the location of the meeting at which they discussed what to
include on the Form U-4 but rejected his and Thompson’s testimony for similar reasons.
We agree with the SEC, however, that Van Pelt’s isolated mistaken recollection is the
kind of minor discrepancy that does not require the rejection of a witness’s testimony.
See Rutherford, 399 F.3d at 558. The SEC’s reasons for rejecting Toth’s and
Thompson’s testimony, on the other hand, were of a different order. Among other things,
the SEC concluded that Thompson was impeached by his own failure to disclose his own
involvement in the New Jersey action in a Form U-4, that neither Toth nor Thompson
could recall the details regarding their alleged discussion of the New Jersey action with
Van Pelt, and that the only documents Toth sent to Van Pelt regarding his employment
disclosed certain arbitrations but not the New Jersey action. Toth also argues that it
simply made no sense for him to fail to disclose the New Jersey action because he knew
that the Form U-4 would be reviewed by the very agency that brought that action.
Whatever Toth’s motivations, however, the SEC concluded that he nevertheless failed to
disclose that lawsuit, and its conclusion has more than adequate support in the record.
5
the correspondence between Toth and Van Pelt, was more than adequate to support the
SEC’s ruling. Accordingly, we will deny the petition for review.
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