Securities & Exchange Commission v. Mohn , 465 F.3d 647 ( 2006 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 06a0374p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellee, -
SECURITIES AND EXCHANGE COMMISSION,
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No. 05-1762
v.
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KEITH L. MOHN, -
Defendant-Appellant. -
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 04-74427—George C. Steeh, District Judge.
Argued: September 22, 2006
Decided and Filed: October 12, 2006
Before: SILER, CLAY, and BALDOCK, Circuit Judges.*
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COUNSEL
ARGUED: Jack J. Mazzara, THE MAZZARA LAW FIRM, Grosse Pointe Woods, Michigan, for
Appellant. Thomas J. Karr, SECURITIES AND EXCHANGE COMMISSION, Washington, D.C.,
for Appellee. ON BRIEF: Jack J. Mazzara, Lanalee C. Farmer, THE MAZZARA LAW FIRM,
Grosse Pointe Woods, Michigan, for Appellant. Thomas J. Karr, Kathleen Cody, SECURITIES
AND EXCHANGE COMMISSION, Washington, D.C., for Appellee.
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OPINION
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CLAY, Circuit Judge. Defendant, Keith L. Mohn, appeals a district court order granting the
application of Plaintiff Securities and Exchange Commission (“SEC”) for enforcement of its order
affirming sanctions levied against Defendant by the National Association of Securities Dealers
(“NASD”), pursuant to the Securities and Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78a
et seq. The district court found that Exchange Act § 21(e), 15 U.S.C. § 78u(e)(1), authorized the
SEC to file an application for an enforcement order, and that the order was not precluded by § 21(f),
15 U.S.C. §78u(f), or barred by the statute of limitations as set forth by 28 U.S.C. § 2462.
For the following reasons, we AFFIRM the district court’s decision.
*
The Honorable Bobby R. Baldock, Circuit Judge of the United States Court of Appeals for the Tenth Circuit,
sitting by designation.
1
No. 05-1762 SEC v. Mohn Page 2
BACKGROUND
Defendant was an investment broker and dealer with John Hancock Distributors, Inc. and
John Hancock Mutual Life Insurance Co. (“brokerage firms”). (Joint Appendix (“J.A.”) at 26.)
Defendant and both brokerage firms are members of the NASD, a securities association registered
with the SEC. Defendant’s wife was also a registered representative in the securities industry. Id.
Defendant directly solicited customers to purchase limited partnership interests sponsored by Citi
Equity Group, Inc. and arranged for his wife to effectuate the transactions through a third-party firm.
Id. The brokerage firms neither knew of nor approved these transactions. Id.
On January 30, 1998, the NASD Business Conduct Committee (“Committee”) found
Defendant to be in violation of NASD Conduct Rules for participating in private securities
transactions without prior notice to, and approval of, his brokerage firms. (J.A. at 26.) Defendant
was censured, barred from association with any NASD-member firm in any capacity, and fined
$56,377.50. Id. His appeal to the NASD National Adjudicatory Council (“Council”) affirmed the
Committee’s findings and sanctions on January 22, 1999. Id. The Council added $750.00 to
Defendant’s fine for appeal costs, thereby increasing the total fine to $57,127.50. Id. Defendant
appealed the NASD’s final decision to the SEC, pursuant to the SEC’s adjudicatory oversight
authority over national securities associations under Exchange Act § 19(f), 15 U.S.C. § 78s(f). (J.A.
at 11.) By order dated November 16, 1999, the SEC affirmed the NASD’s censure and1 bar, but
reduced Defendant’s fine to $54,905.50. Id. Defendant did not appeal the SEC’s order.
On November 12, 2004, the SEC filed an application with the United States District Court
for the Eastern District of Michigan, pursuant to Exchange Act § 21(e), 15 U.S.C. § 78u(e)(1), for
enforcement of its November 16, 1999 order affirming the NASD judgment against Defendant,
alleging that the fine levied against Defendant remained outstanding. (J.A. at 3-9.) The district
court granted the enforcement application in an opinion and order dated April 7, 2005. (J.A. at 94-
95.)
DISCUSSION
I. Standard of Review
Whether the SEC’s application to the district court for enforcement of its order is authorized
under Exchange Act § 21(e), precluded by §21(f), 15 U.S.C. §78u(f), or barred by the statute of
limitations in 28 U.S.C. § 2462, is a question of statutory interpretation that this Court reviews de
novo.2 See United States v. Wagner, 382 F.3d 598, 606-07 (6th Cir. 2004).
II. Exchange Act §21(e) Authorizes the SEC to Apply for Enforcement of its Orders
1. Statutory Framework
The NASD is a self-regulating, national securities association registered with the SEC. The
SEC exercises broad supervisory authority over the NASD, but the NASD is responsible for
enforcing securities laws and its own conduct rules against its member companies and their
1
Defendant does not and cannot appeal the affirmance of the NASD sanction because he failed to appeal the
SEC order. See 15 U.S.C. § 78y(a)(1).
2
The SEC concedes that de novo review is appropriate. (Gov’t Br. 8.) Since the Exchange Act does not appear
to provide the SEC with interpretive discretion over Exchange Act § 21(e) and the SEC has not promulgated any official
interpretations of the provision, de novo review is appropriate under United States v. Mead, 533 U.S. 218 (2001), and
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
No. 05-1762 SEC v. Mohn Page 3
employees. 15 U.S.C. § 78s(b). Any person or company subject to NASD disciplinary action may
seek review with the SEC pursuant to Exchange Act § 19(d)(2). 15 U.S.C. § 78s(d)(2). In turn, any
person aggrieved by an SEC order may appeal to the appropriate United States court of appeals.
15 U.S.C. § 78y(a)(1).
In addition to serving an appellate role over NASD actions, the SEC may also directly
enforce national securities laws and NASD rules by filing complaints against alleged violators in
district court pursuant to Exchange Act § 21(d), 15 U.S.C. § 78u(d). In pertinent part, § 21(d)
provides that
[w]henever it shall appear to the [SEC] that any person is engaged or
is about to engage in acts or practices constituting a violation of any
provision of this chapter, the rules or regulations thereunder, the rules
of a national securities exchange or registered securities association
of which such person is a member . . . it may in its discretion bring an
action in the proper district court . . . to enjoin such acts or practices,
and upon a proper showing a permanent or temporary injunction or
restraining order shall be granted without bond.
15 U.S.C. §78(u)(1). The SEC may pursue both injunctive relief and civil monetary penalties. Id.
The SEC may also seek a mandamus in a district court to enforce the Exchange Act and the rules
and orders issued thereunder. Exchange Act § 21(e), 15 U.S.C. § 78u(e). More specifically,
[u]pon application of the [SEC] the district courts . . . shall have
jurisdiction to issue writs of mandamus, injunctions, and orders
commanding . . . any person to comply with the provisions of this
title, the rules, regulations, and orders thereunder, [or] the rules of a
national securities exchange or registered securities association of
which such person is a member . . . .
15 U.S.C. § 78u(e)(1). The SEC’s authority under Exchange Act § 21(e) is constrained by
provisions in § 21(f), 15 U.S.C. § 78u(f). The SEC may not
bring any action pursuant to subsection (d) or (e) of this section
against any person for violation of, or to command compliance with,
the rules of a self-regulatory organization . . . unless it appears to the
[SEC] that (1) such self-regulatory organization . . . is unable or
unwilling to take appropriate action against such person in the public
interest and for the protection of investors, or (2) such action is
otherwise necessary or appropriate in the public interest or for the
protection of investors.
15 U.S.C. § 78u(f).
2. The Plain Language of Exchange Act § 21(e) Authorizes the SEC to Seek
Judicial Enforcement of All Orders
Defendant contends that Exchange Act § 21(e) does not empower the SEC to seek
enforcement of the NASD order of January 22, 1999 because § 21(e) empowers the SEC to enforce
orders issued only in connection with its direct enforcement activities and not orders issued in
connection with its appellate authority over the NASD under Exchange Act § 19. He argues that
the SEC has separate and distinct roles under Exchange Act §§19 and 21. Section 19(d)(2)
authorizes the SEC to serve an appellate role over NASD disciplinary actions, while § 21(d)
empowers the SEC to directly enforce national securities laws and NASD rules. Defendant
No. 05-1762 SEC v. Mohn Page 4
maintains that § 21(e) does not authorize the SEC to seek enforcement of orders issued pursuant to
the SEC’s appellate role under § 19 because the mandamus provision of § 21(e) is structurally
separate from the SEC’s appellate powers. (Def. Br. 10-12.) Defendant contends that Congress
empowered the SEC to seek mandamus for enforcement of its orders under § 21(e), but did not
include a similar provision in § 19. Defendant maintains that the Court should interpret the
Exchange Act as precluding the SEC from seeking a mandamus in a district court for enforcement
of orders issued pursuant to its appellate authority under § 19, in accordance with the maxim inclusio
unius est exclusio alterius.
The Court finds that Defendant’s contentions are unpersuasive because they ignore the plain
language of Exchange Act § 21(e) and seek to create a structural separation in the Exchange Act
which simply does not exist. Exchange Act § 21(e) expressly empowers the SEC to solicit “writs
of mandamus, injunctions, and orders commanding [] any person to comply with the provisions of
this title, the rules, regulations, and orders thereunder [or] the rules of a national securities exchange
or registered securities association of which such person is a member.” 15 U.S.C. § 78u(e)
(emphasis added). The reference to “this title” in this provision implicates the entire Exchange Act,
and permits the SEC to apply to the district court for enforcement of orders issued pursuant to any
section in the Exchange Act, not just direct enforcement activities under § 21. Therefore, Exchange
Act § 21(e) simply does not differentiate between orders issued under § 21 and orders issued under
§ 19.
Three circuit courts of appeals have had the opportunity to rule on the use of Exchange Act
§ 21(e) to enforce SEC orders which affirm NASD disciplinary rulings, and all three courts have
held that the SEC may use § 21(e) for applications to enforce orders originally issued pursuant to
the SEC’s appellate authority under§ 19. See SEC v. Vittor, 323 F.3d 930, 934 (11th Cir. 2003)
(“[W]e conclude that the SEC’s order sustaining the NASD’s disciplinary sanctions was
unquestionably an order [enforceable under § 21(e)].”); SEC v. McCarthy, 322 F.3d 650, 655 (9th
Cir. 2003) (“The [SEC] does not lose standing to enforce its orders in district court simply because
it fulfills an appellate function, rather than one of direct enforcement or regulation, in making such
an order.”); Lang v. French, 154 F.3d 217, 222 (5th Cir. 1998) (“Inasmuch as the SEC’s affirmance,
by order, of sanctions imposed by the NASD operates as an ‘order’ to the same degree and in the
same fashion as do orders issued by the agency pursuant to its own enforcement initiatives, [§ 21(e)]
indisputably endows district courts with the enforcement authority at issue in this case.”). In
addition, the Third Circuit – in a case concerning the SEC’s authority to seek judicial enforcement
of its orders, but that did not involve the NASD – has also found that Exchange Act § 21(e)
empowers the SEC to obtain judicial relief in district court against a defendant who fails to comply
with a SEC order. See SEC v. J.W. Barclay & Co., Inc., 442 F.3d 834, 844 (3d Cir. 2006).
Moreover, numerous district courts have also found that the plain language of Exchange Act § 21(e)
empowers the SEC to apply for enforcement of orders issued pursuant to the SEC’s appellate
function under § 19. See, e.g., SEC v. Pinchas, 421 F. Supp. 2d 781, 783 (S.D.N.Y. 2006); SEC v.
Peta, No. 1:00 CV 1437 (N.D. Ohio Sept. 26, 2000) (enforcing order affirming NASD-imposed
sanctions upon SEC’s §21(e) application). In the instant case, the Court reaches the same
conclusion found in these well-reasoned opinions – namely, that the plain language of § 21(e)
empowers the SEC to apply to the district court for enforcement of all orders issued pursuant to the
Exchange Act.
III. Exchange Act § 21(f) Does Not Preclude the SEC’s Application for Enforcement of its
Order
Defendant argues that even if the Court were to conclude that Exchange Act § 21(e)
authorizes the SEC to seek enforcement of its orders in district court, the language of § 21(f)
precludes the SEC from doing so in the instant case. Section 21(f) is designed to prevent the SEC
from usurping NASD’s self-regulatory role and provides that the SEC may not
No. 05-1762 SEC v. Mohn Page 5
bring any action pursuant to subsection (d) or (e) of this section
against any person for violation of, or to command compliance with,
the rules of a self-regulatory organization unless it appears to the
[SEC] that (1) such self-regulatory organization is unable or
unwilling to take appropriate action against such person in the public
interest and for the protection of investors, or (2) such action is
otherwise necessary or appropriate in the public interest or for the
protection of investors.
15 U.S.C. § 78u(f). Defendant argues that this provision limits the SEC’s ability to bring direct
enforcement proceedings under § 21(d) and to seek a mandamus under § 21(e) for enforcement of
orders issued in its appellate role pursuant to § 19. (Def. Br. 17.) More specifically, Defendant
contends that the conditions set forth in § 21(f) have not been met – namely, there is no indication
that the NASD is unwilling or unable to enforce its own decision, and there is no allegation that this
litigation is necessary to protect the public interest. (Def. Br. 18.)
Section § 21(f) expressly applies only to the SEC’s authority to enforce compliance with
NASD rules under § 21, but does not restrict the SEC’s ability to apply for enforcement of its own
orders under § 21. In the instant case, the SEC’s application for enforcement to the district court
was not for compliance with NASD rules, but to enforce its own order under § 21. The Eleventh
Circuit has found § 21(f) inapplicable to SEC applications to enforce its own previously issued
orders. See Vittor, 323 F.3d at 935. This Court reaches the same conclusion as the Eleventh Circuit
in Vittor and finds that § 21(f) does not preclude the SEC’s application for an enforcement order.
Moreover, adopting Defendant’s approach would undermine the purpose of § 21(f). Section
21(f) prevents the SEC from usurping the NASD’s self-regulating role. In the instant case, the
NASD fulfilled its self-regulatory role by taking disciplinary action against Defendant. The SEC’s
application for judicial enforcement promotes the NASD’s authority to pronounce judgment against
its members by requiring that Defendant satisfy the judgment issued against him. Since Defendant
has already demonstrated that he is not willing to pay the fine voluntarily, (J.A. at 3-9), the district
court’s order will permit the NASD to collect the fine levied against Defendant. See Fed. R. Civ.
P. 71 (permitting enforcement of orders made in favor of third parties by those third parties). Since
the ability to pursue collection actions is a key component of a self-regulatory regime, the SEC’s
application for an enforcement order cannot be construed as usurping the NASD’s self-regulating
role.
IV. The Statute of Limitations in 28 U.S.C. § 2462 Does Not Bar the SEC’s Application for
an Enforcement Order
Defendant contends that 28 U.S.C. § 2462 bars the SEC’s application to enforce its prior
order. (J.A. at 59.) In pertinent part, § 2462 provides that:
an action, suit or proceeding for the enforcement of any civil fine,
penalty, or forfeiture, pecuniary or otherwise, shall not be entertained
unless commenced within five years from the date when the claim
first accrued . . . .
No. 05-1762 SEC v. Mohn Page 6
28 U.S.C. § 2462. This general, five-year statute of 3limitations provision applies to government
actions to enforce administratively assessed penalties. See, e.g., Johnson v. SEC, 87 F.3d 484, 492
(D.C. Cir. 1996) (finding that 28 U.S.C. § 2462 applies to an action under Exchange Act § 15(b));
SEC v. Caserta, 75 F. Supp. 2d 79, 89 (E.D.N.Y. 1999) (finding that 28 U.S.C. § 2462 applies to
SEC civil penalty claims); United States v. Meyer, 808 F.2d 912, 914 (1st Cir. 1987) (applying
§ 2462 to an action under 8 U.S.C. § 801 et seq.); cf. Mullikin v. United States, 952 F.2d 920, 929
(6th Cir. 1991) (evaluating whether 28 U.S.C. § 2462 applies in actions to collect already assessed
tax penalties). In applying the statue of limitations against the government, however, “the statute
of limitations must receive a strict construction in favor of the government.” Id. at 926.
The parties agree that a claim accrues and the period of limitations begins to run on any
collection proceeding to which § 2462 applies once the underlying administrative action establishing
liability becomes final. See, e.g., Meyer, 808 F.2d at 914; Crown Coat Front Co. v. United States,
386 U.S. 503, 513-14 (1967) (holding that statute of limitations for bringing suit to contest
administrative ruling does not commence until administrative ruling becomes final). However, the
parties disagree as to when the SEC’s claim accrued for purposes of 28 U.S.C. § 2462. Defendant
argues that the SEC’s claim accrued when the NASD issued its final disciplinary order on January
22, 1999, and that the statute of limitations was not tolled during his appeal to the SEC because the
appellate proceedings did not impose any independent fine or assessment. (Def. Br. 20-21.)
Defendant’s argument is contrary to the general understanding of finality in administrative
proceedings.4 “A cause of action ‘accrues’ when a suit may be maintained thereon . . . .” Black’s
Law Dictionary 21 (6th ed. 1990). Admittedly, the January 22, 1999 order operated as the NASD’s
“final” order. However, the administrative proceeding against Defendant was not final until he
either exhausted or ceased to pursue his administrative appeals. In the instant case, the liability
proceeding against Defendant was not final on January 22, 1999, because he chose to pursue an
appeal as of right to the SEC. The SEC simply had no order to enforce until it issued the November
16, 1999 order affirming the NASD sanctions. Therefore, the underlying administrative action
adjudging liability was not final until at least November 16, 1999, the date of the SEC order. Since
the SEC applied for enforcement of its order on November 12, 2004, four days within the five-year
period of limitation, this action is timely.
CONCLUSION
Exchange Act § 21(e) empowers the SEC to apply to the district court for enforcement of
an SEC order affirming NASD sanctions under § 19. The SEC’s application for an enforcement
3
For its part, the SEC relies on United States Dep’t of Labor v. Old Ben Coal Co., 676 F.2d 259 (7th Cir. 1982),
for the proposition that 28 U.S.C. § 2462 does not apply to collection proceedings. (Gov’t Br. 18-19.) In the Seventh
Circuit, district courts have cited Old Ben Coal for the proposition that the statute of limitations in § 2462 begins to run
for collection actions once the underlying administrative proceeding adjudicating liability becomes final, impliedly
holding that Old Ben Coal’s alternative finding – that 28 U.S.C. § 2462 does not apply to collection actions – is no longer
good law. See, e.g., United States v. Serfilco, Ltd., No. 98-C-2490, 1998 U.S. Dist. LEXIS 14478, at *4-5 (N.D. Ill. Sept.
11, 1998). Moreover, the notion that § 2462 does not apply to collection actions is contrary to the plain language of the
statute and the overwhelming majority of case law. See United States v. Godbout-Bandal, 232 F.3d 637, 640 (8th Cir.
2000); United States v. Great Am. Veal, 998 F. Supp. 416, 424 (D.N.J. 1998); United States v. McCune, 763 F. Supp.
916, 918 (S.D. Ohio 1989); cf. Mullikin v. United States, 952 F.2d 920, 929 (6th Cir. 1991).
4
Were the “final” order of the NASD to commence the five-year statute of limitations under § 2462 for the SEC
enforcement action, as Defendant argues, a defendant could subvert the authority of both the NASD and SEC by
withholding payment and pursuing appeals. The combination of an appeal to the SEC, a subsequent appeal to a United
States court of appeals, and a request for certiorari to the Supreme Court could easily consume the entire five-year
statute of limitations following an NASD decision. This simply cannot be the intent of the statute.
No. 05-1762 SEC v. Mohn Page 7
order is not precluded by 15 U.S.C. §78u(f) or barred by the statute of limitations set forth in 28
U.S.C. § 2462.
For the foregoing reasons, we AFFIRM the district court’s decision.