Kabani & Company, Inc. v. Ussec ( 2018 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 13 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
KABANI & COMPANY, INC.; MICHAEL No. 17-70786
DEUTCHMAN, CPA; KARIM KHAN
MUHAMMAD, CPA; HAMID KABANI, SEC No. 3-16518
CPA,
Petitioners, MEMORANDUM*
v.
U.S. SECURITIES & EXCHANGE
COMMISSION,
Respondent.
On Petition for Review of an Order of the
Securities & Exchange Commission
Submitted August 9, 2018**
Pasadena, California
Before: CALLAHAN and NGUYEN, Circuit Judges, and EZRA,*** District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable David A. Ezra, United States District Judge for the
District of Hawaii, sitting by designation.
Kabani & Company, Michael Deutchman, Karim Khan Muhammad, and
Hamid Kabani petition for review of the SEC’s order sustaining sanctions imposed
by the Public Company Accounting Oversight Board (“PCAOB”). We have
jurisdiction under 15 U.S.C. § 78y(a)(1). Reviewing the SEC’s scienter
determination and other factual findings for substantial evidence and its legal
conclusions de novo, see Gebhart v. SEC, 595 F.3d 1034, 1040, 1043 (9th Cir.
2010), we deny the petition for review.
1. Substantial evidence supports the SEC’s finding that petitioners violated
PCAOB Accounting Standard No. 3 (“AS3”) with the requisite scienter. The
indications of an attempted cover-up—the backdated sign-off dates, the altered
metadata, and petitioners’ failure during the inspection to disclose the changes
made after the documentation completion deadlines—all strongly support an
inference of knowledge and intent.
2. The PCAOB proceedings comported with procedural due process. The
PCAOB timely commenced disciplinary proceedings, and substantial evidence
supports the hearing officer’s finding that petitioners lacked good cause to
designate a substitute expert after the deadline had passed. Petitioners’
concealment of auditing violations and multiple requests for time extensions
caused most of the delays in the proceedings, and petitioners fail to show prejudice
from the other delays. Petitioners also fail to show prejudice from the publication
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of the SEC’s settlement with Rehan Saeed, which concerns audits of issuers not at
issue here and does not raise an inference of wrongdoing by petitioners. A
showing of prejudice is essential to their due process claims. See 5 U.S.C. § 706;
NLRB v. Heath TEC Div./S.F., 566 F.2d 1367, 1371 (9th Cir. 1978); cf. United
States v. Talbot, 51 F.3d 183, 185 (9th Cir. 1995) (explaining that to establish due
process claim based on delay in filing criminal charges, defendant “must prove
actual, non-speculative prejudice from the delay”).
Petitioners’ other procedural complaints are meritless. The PCAOB did not
“suppress” evidence in the audit files that petitioners themselves provided.
Petitioners were not entitled to a jury because the Seventh Amendment does not
apply to administrative proceedings. See Tull v. United States, 481 U.S. 412, 418
n.4 (1987). And the SEC considered all relevant circumstances, including the
appropriateness of less severe remedies, when upholding the PCAOB’s sanctions.
The hearing officer did not improperly place the burden on petitioners to
prove that they did not violate AS3. The burden of establishing a fact-based
defense to liability falls on the party asserting it, see Olin Corp. v. FTC, 986 F.2d
1295, 1307 (9th Cir. 1993), and defendants failed to meet their burden of proving
that Saeed was reviewing non-final versions of the audit work papers. Petitioners
cite neither record evidence nor legal authority for their argument that the hearing
officer was inexperienced, unfamiliar with their case, and improperly deferential to
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the agency. This argument is therefore deemed waived. See United States v. Graf,
610 F.3d 1148, 1166 (9th Cir. 2010). Likewise, petitioners forfeited their
Appointments Clause claim by failing to raise it in their briefs or before the
agency. Cf. Lucia v. SEC, 138 S. Ct. 2044, 2055 (2018) (“‘[O]ne who makes a
timely challenge to the constitutional validity of the appointment of an officer who
adjudicates his case’ is entitled to relief.”).
PETITION FOR REVIEW DENIED.
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