Altman v. Securities & Exchange Commission , 666 F.3d 1322 ( 2011 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 10, 2011 Decided December 16, 2011
No. 11-1067
STEVEN ALTMAN,
PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT
On Petition for Review of an Order of
the Securities & Exchange Commission
Steven Altman, appearing pro se, argued the cause and filed
the briefs for petitioner.
Christopher M. Bruckmann, Senior Counsel, Securities and
Exchange Commission, argued the cause for respondent. With
him on the brief were Mark D. Cahn, General Counsel, Richard
M. Humes, Associate General Counsel, Melinda Hardy,
Assistant General Counsel, and Donna S. McCaffrey, Special
Trial Counsel.
Before: SENTELLE, Chief Judge, HENDERSON and ROGERS,
Circuit Judges.
Opinion for the Court by Circuit Judge ROGERS.
2
ROGERS, Circuit Judge: This case is before the court on a
petition to review the opinion and order of the Securities and
Exchange Commission permanently denying Steven Altman, an
attorney admitted to practice in New York State, the privilege of
appearing or practicing before the Commission, pursuant to Rule
102(e)(1)(ii) of the Commission’s Rules of Practice, and Section
4C of the Securities Exchange Act of 1934 (“the Act”). The
Commission found that Altman, in appearing before it, violated
three Disciplinary Rules of the New York Bar Association
Lawyer’s Code of Professional Responsibility, and that the
violations were “egregious, recurrent, and reflected a high
degree of scienter.” Steven Altman, Esq., Exchange Act Release
No. 63306, 2010 SEC LEXIS 3762, at *70 (Nov. 10, 2010).
Altman also petitions for review of the Commission’s denial of
his motion for reconsideration and a stay. Steven Altman, Esq.,
Exchange Act Release No. 63665, 2011 SEC LEXIS 30 (Jan. 6,
2011).
Altman, now proceeding pro se, contends that the procedure
employed by the Commission was unconstitutional, because (1)
the Commission lacked authority to sanction him under Rule
102(e)(1)(ii) and Section 4C of the Act based on its
determination of violations of the New York Bar disciplinary
rules; (2) the Commission failed to provide notice that it could
proceed against him in the absence of prior action by New York
State and of the standard of conduct that could be found to
violate Rule 102(e)(1)(ii) and Section 4C; and (3) the
Commission’s findings are not supported by substantial
evidence. He also contends that the sanction was excessive. For
the following reasons we deny the petition.
I.
Altman is a general commercial litigator who has rarely
practiced before the Commission. In this instance, he
3
represented a client who had been subpoenaed by the Division
of Enforcement in a proceeding against a company. Altman’s
client had previously been employed by another company but
occasionally performed secretarial tasks for the company under
investigation. At the time of the subpoena, the client (through
Altman) was involved in negotiations with the client’s prior
employer about a severance package. The Division learned the
client could testify that a key defense of the company being
investigated was false. After the Division contacted Altman to
request an interview with his client, Altman engaged in a series
of telephone conversations with the company’s attorney, Irving
Einhorn, who, unbeknownst to Altman, tape recorded five of the
six conversations. The transcripts show that Altman encouraged
Einhorn to convince the company to facilitate the payment of a
severance package to Altman’s client and to remove the client’s
name as a co-signer of two car leases held by the company’s
CEO. Among the various exchanges, in the final taped
conversation of February 10, 2004, Einhorn asked Altman:
“What is the bottom line? What is it going to take? What kind
of package is this? . . . What is the package that [the client]
wants to, you know, not cooperate or whatever?” Altman
responded: “Get [the client] off those leases and, you know, a
year’s salary . . . .” Einhorn then asked: “What will we get if
they do that, [the client] won’t cooperate or [the client] won’t
remember?” Altman responded: “Uh, probably both.” SEC Off.
of Gen. Counsel Ex. 18 at 1660.
On January 30, 2008, the Commission instituted
proceedings against Altman for “engag[ing] in unethical or
improper professional conduct” in violation of Rule 102(e)(1)(ii)
and Section 4C of the Act. An administrative law judge found,
after an evidentiary hearing at which Altman was represented by
counsel, that Altman had violated three of the New York Bar
4
disciplinary rules,1 and suspended him from appearing before
the Commission for nine months. Altman appealed to the
Commission; the Office of General Counsel appealed the nine-
month suspension. The Commission, upon reviewing the
transcripts of the taped conversations, the judge’s findings, and
Altman’s defenses, affirmed the factual findings that he had
knowingly violated three New York Bar disciplinary rules, but
concluded a permanent bar better “serves the public interest and
is remedial because it will protect the integrity of [the
Commission’s] prosecutorial and adjudicatory processes, and
thereby the investing public, from future harm by Altman.”
Altman, 2010 SEC LEXIS, at *75. Upon the Commission’s
denial of his motion for reconsideration and a stay, Altman
petitioned for review.
II.
Altman’s challenge to the Commission’s authority to
sanction him based on violations of the New York Bar
disciplinary rules fails. Section 4C of the Act provides:
The Commission may censure any person, or deny,
temporarily or permanently, to any person the
privilege of appearing or practicing before the
Commission in any way, if that person is found by the
Commission, after notice and opportunity for hearing
1
The Commission found Altman had violated Rule 1-
102(A)(4), prohibiting “conduct involving dishonesty, fraud, deceit,
or misrepresentation”; Rule 1-102(A) (5), prohibiting “conduct that is
prejudicial to the administration of justice”; and Rule 1-102(A)(7),
prohibiting “conduct that adversely reflects on the lawyer’s fitness as
a lawyer.” New York State Bar Association Lawyer’s Code of
Professional Responsibility Disciplinary Rules (herein “New York Bar
disciplinary rules”).
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in the matter . . . to be lacking in character or integrity,
or to have engaged in unethical or improper
professional conduct.
15 U.S.C. § 78d-3(a)(2). By its plain terms Section 4C
authorizes the Commission to deny the privilege of appearance
upon finding improper professional conduct. Because it does
not unambiguously define “unethical or improper professional
conduct,” the question is whether the Commission’s
interpretation of the statute to allow it to apply State Bar
disciplinary rules to define the proscribed conduct is
permissible. See Chevron U.S.A. Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837, 843 (1984). “In reviewing an
agency’s interpretation of its authority under a statute it
administers, the court will uphold that interpretation so long as
it is a reasonable interpretation of the statute.” Financial
Planning Ass’n v. SEC, 482 F.3d 481, 487 (D.C. Cir. 2007)
(citing Village of Bergen v. FERC, 33 F.3d 1385, 1389 (D.C.
Cir. 1994)).
Rule 102(e)(1)(ii) of the Commission’s Rules of Practice
was codified as Section 4C of the Act as part of the Sarbanes-
Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 (2002)
(codified as 15 U.S.C. § 78d-3(a)(2)). Prior to its codification
the Commission stated that it “perceives no unfairness
whatsoever in holding those professionals who practice before
[the Commission] to generally recognized norms of professional
conduct . . . whether or not such norms had previously been
explicitly adopted or endorsed by the Commission. To do so
upsets no justifiable expectations, since the professional is
already subject to those norms.” Carter and Johnson, 47 S.E.C.
471, 508 & n.65 (Feb. 28, 1981) (referencing the American Bar
Association (“ABA”) Code of Professional Responsibility
Disciplinary Rules). The text of Section 4C is virtually
6
identical to Rule 102(e)(1)(ii).2 “It is well established that when
Congress revisits a statute giving rise to a longstanding
administrative interpretation without pertinent change, the
‘congressional failure to revise or repeal the agency’s
interpretation is persuasive evidence that the interpretation is
the one intended by Congress.’” Commodity Futures Trading
Comm’n v. Schor, 478 U.S. 833, 846 (1986) (quoting NLRB v.
Bell Aerospace Co., 416 U.S. 267, 274–75 (1974)). In In re
Snyder, 472 U.S. 634, 645 & n.6 (1985), the Supreme Court
held that a federal court could charge an attorney appearing
before it “with the knowledge of and the duty to conform to the
state code of professional responsibility” and thus the court was
“entitled to rely on the attorney’s knowledge of the state code
of professional conduct applicable in that state court . . . .”
Similarly, the Commission was entitled to rely on Altman’s
knowledge of and duty to conform to the New York Bar
disciplinary rules. See Herman v. Dulles, 205 F.2d 715, 716
(D.C. Cir. 1953).
Contrary to Altman’s position, the Commission did not lack
2
Rule 102(e)(1)(ii) provides, with Section 4C’s codification
changes shown within brackets:
(1) Generally. [Authority to Censure] The Commission may
censure a [any] person[,] or deny, temporarily or permanently,
[to any person] the privilege of appearing or practicing before
it [the Commission] in any way to any person who [if that
person] is found by the Commission[,] after notice and
opportunity for hearing in the matter:
...
(ii) To be lacking in character or integrity[,] or to have
engaged in unethical or improper professional conduct[.]
Compare 17 C.F.R. § 201.102(e)(1), with 15 U.S.C. § 78d-3(a)(2).
7
authority to act because of previous pronouncements that it
would generally not do so without prior judicial or
administrative findings of misconduct. Altman points to the
Commission’s statements of its general policy.3 Nothing in
these statements suggested the Commission would not act in the
appropriate circumstances. To the extent the Commission has
for “nearly 20-year[s] stay[ed] [] its hand on attorney
discipline,” Petr.’s Br. 18, the Commission’s “powers . . . are
not lost by being allowed to lie dormant.” United States v.
Morton Salt Co., 338 U.S. 632, 647 (1950).
Neither, as Altman contends, does the Commission’s
exercise of authority absent prior disciplinary proceedings
against him by New York State implicate separation of powers
or federalism concerns. The sanction imposed on Altman is
limited to appearances before the Commission and has no effect
either on his ability to practice law in New York State and to
appear before any court, or on New York State’s authority to
3
“[T]he Commission generally should not institute Rule
102(e) proceedings against attorneys absent a judicial determination
that the lawyer has violated the federal securities laws.”
Implementation of Standards of Professional Conduct for Attorneys
[under Section 307 of the Sarbanes-Oxley Act regarding issuers], 67
Fed. Reg. 71,670, 71,672 (proposed Dec. 2, 2002); “[T]he
Commission has generally utilized Rule 2(e) proceedings against
attorneys only where the attorney’s conduct has already provided the
basis for a judicial or administrative order finding a securities law
violation in a non-Rule 2(e) proceeding.” Disciplinary Proceedings
Involving Professionals Appearing or Practicing Before the
Commission, Securities Act Release No. 33-6783, 41 SEC Docket
388, 394–95; 1988 SEC LEXIS 1365, at *22 (July 7, 1988). Rule
2(e), promulgated in 1935, was redesignated as Rule 102(e) in 1995;
the text of subpart (1)(ii) did not change. See Implementation of
Standards of Professional Conduct for Attorneys, 67 Fed. Reg. at
71,671 n.11.
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discipline him. Cf. United States v. Cutler, 58 F.3d 825, 838
(2d Cir. 1995). And Altman’s contentions that the Commission
could have taken a more limited approach under Rule 180 of its
Rules of Practice, that New York State follows a different, and
likely more comprehensive, disciplinary process, and that the
U.S. Patent and Trademark Office has a more robust
disciplinary process are not relevant to the question whether the
Commission acted within its authority in sanctioning him.
III.
Altman’s contention that he lacked sufficient notice of
either the possibility of Commission administrative proceedings
absent prior disciplinary action by New York State or of the
standards of conduct subject to discipline under Rule
102(e)(1)(ii) and Section 4C of the Act also fails. The court
will uphold the Commission’s legal conclusions unless they are
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A); Graham v.
SEC, 222 F.3d 994, 999–1000 (D.C. Cir. 2000); Wonsover v.
SEC, 205 F.3d 408, 412 (D.C. Cir. 2000).
In Marrie v. SEC, 374 F.3d 1196, 1205 (D.C. Cir. 2004),
this court stated, in a case involving the discipline of an
accountant pursuant to Rule 102(e)(1), that “[i]t cannot be
gainsaid that the Commission could reasonably conclude that
any licensed accountant is on notice of professional standards
generally and of what constitutes extreme departures in
particular.” The same principle applies here. The Commission
has previously relied on external codes of professional conduct,
including the ABA Canons of Professional Ethics, as a basis for
disciplining attorneys under its rules. See Kivitz, 44 S.E.C. 600,
607–08 (June 29, 1971), reversed on other grounds, Kivitz v.
SEC, 475 F.2d 956 (D.C. Cir. 1973). It announced in 1981, in
Carter and Johnson, 47 S.E.C. at 508, that generally recognized
9
norms could provide the basis for discipline under Rule
102(e)(1)(ii) (then Rule 2(e)(1)(ii), see supra note 3). And in
2002, in considering standards for issuers under Section 307 of
the Sarbanes-Oxley Act, the Commission noted:
Rule 102(e) does not establish professional standards.
Rather, the rule enables the Commission to discipline
professionals who have engaged in improper
professional conduct by failing to satisfy the rules,
regulations or standards to which they are already
subject, including state ethical rules governing
attorney conduct . . . .
Implementation of Standards of Professional Conduct for
Attorneys, supra note 3, 67 Fed. Reg. at 71,671 n.13.
Altman was on notice of his duty to comply with the New
York Bar disciplinary rules, and when appearing before the
Commission, he could be held to that duty. Cf. In re Snyder,
472 U.S. at 645 & n.6. He cannot seriously suggest that he
lacked notice that conduct in the nature of a fraud on
Commission proceedings falls within the purview of Rule
102(e), the purpose of which is to “protect[] the integrity of the
Commission’s own processes . . . .” Marrie, 374 F.3d at 1200.
Likewise, Altman’s contention that he lacked notice of the
standard of conduct proscribed by Rule 102(e)(1)(ii) and
Section 4C of the Act is unpersuasive. Although the court has
sustained challenges to the Commission’s imposition of Rule
102(e)(1) sanctions based on inadequate notice of the applicable
standard, see Marrie, 374 F.3d 1196; Checkosky v. SEC, 139
F.3d 221 (D.C. Cir. 1998); Checkosky v. SEC, 23 F.3d 452(D.C. Cir. 1994), those cases, on which Altman relies,
concerned the failure to provide standards or notice as to the
possibility that negligent or reckless conduct could fall within
10
Rule 102(e)’s ambit. See Marrie, 374 F.3d at 1202. The
Commission found Altman had engaged in “egregious”
intentional improper professional conduct, Altman,, 2010 SEC
LEXIS, at *70, specifically that he was seeking a severance
package for his client in exchange for untruthful testimony in
Commission proceedings or evasion of its process by his client.4
Whatever ambiguity may exist as to lesser mental states that
might implicate Rule 102(e), intentional improper conduct in
the nature of “extreme departures,” Marrie, 374 F.3d at 1205,
such as Altman’s sanctioned conduct, falls within the rule’s
ambit. Altman thus was on notice that based on the New York
Bar disciplinary rules the Commission could proceed against
him under Rule 102(e)(1)(ii) and Section 4C of the Act to
protect the integrity of its processes.
IV.
The Commission’s factual determinations are conclusive
“if they are supported by substantial evidence” in the record.
Horning v. SEC, 570 F.3d 337, 343 (D.C. Cir. 2009); 15 U.S.C.
§ 78y(a)(4). Altman, however, has forfeited his challenges to
the tapes evidence upon which the Commission relied. He
identified these challenges only in introductory sections of his
opening brief, see Petr’s. Br. at xiii, 6, but provided no
argument or citations, see Anna Jaques Hosp. v. Sebelius, 583
F.3d 1, 7 (D.C. Cir. 2009), and did not present his argument
until his reply brief, see Petr’s. Reply Br. at 5–9. See United
States v. Moore, 651 F.3d 30, 50 n.4 (D.C. Cir. 2011); American
4
Altman’s challenge to the Commission’s source of law for
its scienter finding fails. Regardless of whether the administrative law
judge relied on Black’s Law Dictionary in finding Altman’s conduct
to be intentional, the Commission relied on published case law from
New York State where he is licensed to practice law. See Altman,
2010 SEC LEXIS, at *44-*50.
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Wildlands v. Kempthorne, 530 F.3d 991, 1001 (D.C. Cir. 2008);
FED. R. APP. P. 28(a)(9)(A). The court “generally will not
entertain arguments omitted from an appellant’s opening brief
and raised initially in his reply brief.” McBride v. Merrell Dow
and Pharmaceuticals, Inc., 800 F.2d 1208, 1210 (D.C. Cir.
1986) (citing, inter alia, Carducci v. Regan, 714 F.2d 171, 177
(D.C. Cir. 1983)); see Rollins Envtl. Servs. Inc. v. EPA, 937
F.2d 649, 652 n.2 (D.C. Cir. 1991). In any event, the entirety of
the stipulated transcript of the tape recordings provides
substantial evidence for the Commission’s finding that Altman
engaged in intentional improper professional conduct.5
V.
Finally, Altman contends the sanction was excessive in
view of his otherwise unblemished disciplinary record,
mitigating personal factors, and his subsequent significant
community service. Again he has presented his arguments only
in his reply brief and forfeited them. See Rollins, 937 F.2d at652 n.2. In any event, the court will not “disturb the
Commission’s choice of sanction unless it is either unwarranted
in law or without justification in fact.” Horning, 570 F.3d at
343 (internal quotation marks, ellipsis, and citation omitted);
see WHX Corp. v. SEC, 362 F.3d 854, 859 (D.C. Cir. 2004).
The Commission’s factual findings are supported by
5
Altman’s suggestion at oral argument that the transcript of
the tape recordings contain errors comes too late. Oral Arg. at 3:44-
7:20. He concedes that he did not provide the court with a “corrected”
transcript, id. at 4:27, and that, in the proceedings before the
Commission, he stipulated, through counsel, to the majority of the
transcript, id. at 23:10-23:57. Moreover, counsel for the Commission
stated that the differences between the Commission’s version and
Altman’s version of the transcripts are immaterial. Id. at 17:50-18:48.
12
substantial evidence in the record and its choice of sanction was
statutorily authorized under Section 4C of the Act. The
Commission applied the public interest standards set forth in
Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), see
Kornman v. SEC, 592 F.3d 173, 187–88 (D.C. Cir. 2010), and
it was unpersuaded that circumstances in mitigation identified
by Altman in his Reply Brief warranted a lesser sanction. To
the extent Altman would reprise arguments in mitigation that he
presented to the Commission, he has not provided grounds for
the court to conclude the Commission abused its discretion. See
Wonsover, 205 F.3d at 413 (quoting Svalberg v. SEC, 876 F.2d
181, 185 (D.C. Cir. 1989)); see also Kornman, 592 F.3d at187–88. To the extent he raises new arguments, it is unclear
how his subsequent community service demonstrates an abuse
of discretion by the Commission, much less how claimed
reputational damage would be undone by a lesser sanction given
the nature of the improper professional conduct found by the
Commission.
Accordingly, the petition for review is denied.