Riordan v. Securities & Exchange Commission , 627 F.3d 1230 ( 2010 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 20, 2010 Decided December 28, 2010
No. 10-1034
GUY P. RIORDAN,
PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT
On Petition for Review of an Order of
the Securities and Exchange Commission
Jason Bowles argued the cause for petitioner. With him
on the briefs was Caren I. Friedman.
Luis de la Torre, Senior Litigation Counsel, Securities
and Exchange Commission, argued the cause for appellees.
With him on the brief were David M. Becker, General
Counsel, Securities and Exchange Commission, Mark D.
Cahn, Deputy General Counsel, Securities and Exchange
Commission, Jacob H. Stillman, Solicitor, Securities and
Exchange Commission, and Dimple Gupta, Attorney,
Securities and Exchange Commission.
Before: TATEL, GARLAND, and KAVANAUGH, Circuit
Judges.
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Opinion for the Court filed by Circuit Judge
KAVANAUGH.
KAVANAUGH, Circuit Judge: The New Mexico State
Treasurer’s Office invested some of the state’s revenues in
securities. From 1996 to 2002, the Treasurer’s Office
selected Guy Riordan’s brokerage firms for many of those
transactions. But the process for choosing brokerage firms
was corrupt: Riordan paid kickbacks to New Mexico’s
Treasurer for the business. The crooked scheme ultimately
unraveled amid a series of government investigations and
enforcement actions. Relevant here is an action brought by
the Securities and Exchange Commission, in which the SEC
found Riordan liable for various violations of the securities
laws and imposed heavy sanctions on him.
In this Court, Riordan primarily argues that the SEC’s
findings of fact lacked sufficient evidentiary support and that
some of the SEC’s sanctions were imposed for conduct that
occurred outside the statute of limitations. We disagree and
therefore deny Riordan’s petition for review.
I
The New Mexico state government regularly invested
some of its revenue in securities so as to earn a return on
funds that would otherwise sit idle in the state treasury.
Michael Montoya became New Mexico’s Treasurer in 1995.
He prolifically abused his office, steering state securities
transactions to those who paid him kickbacks and bribes.
Montoya was eventually nabbed, and in 2005 he pled guilty to
extortion under color of official right, in violation of 18
U.S.C. § 1951 and 18 U.S.C. § 2. Montoya agreed to
cooperate in further investigations.
3
After his arrest and as part of his post-plea cooperation,
Montoya told the FBI that Guy Riordan had paid him
kickbacks in return for channeling state transactions to
Riordan’s brokerage firms. Although the Department of
Justice did not file criminal charges against Riordan, the
Securities and Exchange Commission brought a civil
enforcement proceeding against him for violation of § 17(a)
of the Securities Act of 1933, § 10(b) of the Securities
Exchange Act of 1934, and SEC Rule 10b-5. See 15 U.S.C.
§ 77q(a) (Securities Act); 15 U.S.C. § 78j(b) (Exchange Act);
17 C.F.R. § 240.10b-5 (Rule 10b-5). Those provisions
collectively prohibit the use of “any device, scheme, or
artifice to defraud” in connection with the purchase or sale of
any security.
At Riordan’s hearing before an SEC administrative law
judge, Montoya testified at length and explained that, from
1996 to 2002, he had directed business to Riordan through a
variety of devices. For example, Riordan had been allowed to
see competitors’ bids before placing his own and had been
permitted to submit bids past the due date. In return for that
preferential treatment, Riordan had typically given Montoya
cash, between $300 and $3000, for each transaction.
Montoya’s powerful testimony was supplemented by a
plethora of additional evidence against Riordan. One of
Montoya’s associates testified that Montoya had told him to
award state business to Riordan and had suggested that the
business was in return for kickbacks paid by Riordan. The
evidence also included a recording of a phone conversation in
which Montoya and Riordan agreed to meet at a Bennigan’s
after Montoya requested money. Riordan also acknowledged
that, in 2002, Montoya had repeatedly called Riordan
demanding a kickback and that they had then met at a gas
4
station. In addition, the SEC Enforcement Division’s
financial expert submitted a report stating that Riordan often
had received state business despite submitting the worst bid.
In his defense, Riordan produced his own expert’s
analysis of the Treasurer’s Office records. Riordan also
testified that he never paid Montoya in return for state
business.
After hearing the evidence, the administrative law judge
found that Riordan had paid extensive kickbacks to Montoya
in order to land business from the State. She concluded that
Riordan had thereby violated § 17(a) of the Securities Act,
§ 10(b) of the Exchange Act, and Rule 10b-5, and she
imposed a variety of sanctions.
Upon review, the full SEC upheld the administrative law
judge’s order in relevant part, affirming a host of sanctions on
Riordan. The sanctions included: civil fines of $500,000; a
bar on future association with securities brokers or dealers; an
order to cease and desist from violations of the securities
laws; and disgorgement of all commissions and bonuses
Riordan derived from his dealings with Montoya, amounting
to $938,353.78. Including prejudgment interest on the
disgorged funds, the disgorgement order rose to
$1,397,870.62. Riordan was thus forced to pay the
Government a total of $1,897,870.62 in fines and
disgorgement.
Riordan filed a petition in this Court under 15 U.S.C.
§ 78y(a)(1). Riordan contends that the SEC’s findings of fact
were not supported by substantial evidence, as required by 15
U.S.C. § 78y(a)(4), and that the administrative law judge
improperly excluded some of his proffered evidence.
Riordan also argues that most of the sanctions imposed on
5
him were based on conduct that occurred outside the statute of
limitations. See 28 U.S.C. § 2462.
II
Riordan argues that the record does not contain
substantial evidence that he paid Montoya kickbacks from
1996 to 2002. We disagree. The record overwhelmingly
demonstrates that Riordan paid Montoya in return for state
business. To recount just some of the most damning
evidence: Montoya testified about the kickbacks at length
and in detail; another witness corroborated key aspects of
Montoya’s testimony; Riordan himself admitted to having
met Montoya twice in response to Montoya’s demands for
kickbacks; and the SEC’s financial expert found that the
Treasurer’s Office records reflected a corrupt process – a
conclusion that Riordan’s own expert was largely unable to
contradict.
The issue is closer with regard to four of the five
transactions that Montoya’s office awarded to Riordan in
October 2002. Those four October 2002 deals are significant
because they represent the portion of Riordan’s conduct that
supports $400,000 of the $500,000 that the SEC imposed in
civil fines. (Riordan’s pre-October 2002 conduct was outside
the five-year statute of limitations for civil fines.) Those four
October 2002 transactions involved sales of state securities.
Riordan points out that Montoya testified that Riordan paid
kickbacks only for state purchases of securities.
To begin with, Montoya’s testimony on this issue was
confused and equivocal. When first asked about sales,
Montoya was not certain whether he had taken kickbacks on
them, stating, “I’m not saying I didn’t but I don’t – I guess
best guess is no.” Transcript of Hearing at 188, Guy P.
6
Riordan, Securities Act Release No. 9085, Exchange Act
Release No. 61153 (Dec. 11, 2009). But Montoya also
appeared to have forgotten that nearly half the recorded
transactions his office awarded to Riordan were sales, instead
believing (incorrectly) that Riordan received very few sales.
Id. Montoya did, moreover, state that he generally received a
kickback on every transaction his office awarded to Riordan,
and that no one in his office would award a sale without his
approval. Id. at 181-82, 354-55. Thus, Montoya’s confusion
may show only that he forgot what types of transactions
Riordan received, but remained certain that Riordan paid him
for each transaction.
Moreover, other record evidence supports the SEC’s
conclusion that Riordan did in fact pay kickbacks on the four
October 2002 sales. Montoya’s assistant testified that
Montoya directed him to steer both sales and purchases to
Riordan. And the SEC’s expert found that Riordan received
the four October 2002 sales despite submitting the worst bids.
Even Riordan’s expert could not provide any persuasive
explanation why Riordan would receive the state’s business
under those circumstances except for reasons of corruption.
This body of evidence regarding the October 2002 sales
suffices under our deferential standard of review to sustain the
SEC’s conclusion that Riordan paid kickbacks in connection
with those sales. See Siegel v. SEC, 592 F.3d 147, 155 (D.C.
Cir. 2010) (“The reviewing court may not substitute its own
judgment for the agency’s ‘choice between two fairly
conflicting views . . . .’”) (quoting Universal Camera Corp. v.
NLRB, 340 U.S. 474, 488 (1951)).
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III
Riordan also contends that the Commission erred in
approving the administrative law judge’s exclusion of some of
Riordan’s proffered evidence. In particular, the
administrative law judge prevented Riordan from introducing
evidence showing that Riordan had helped unravel another of
Montoya’s corrupt deals. Riordan wanted to use this evidence
to show that Montoya was biased against him and therefore
should not be believed. But Riordan never demonstrated that
Montoya knew anything about Riordan’s role in that separate
deal. Any evidence about Riordan’s acts against Montoya’s
interest therefore was irrelevant; those acts could not have
biased Montoya against Riordan if Montoya did not know
what Riordan had done.
Moreover, even if the exclusion of this evidence
constituted error, the error would be harmless. See PDK
Laboratories Inc. v. DEA, 362 F.3d 786, 799 (D.C. Cir. 2004)
(“In administrative law, as in federal civil and criminal
litigation, there is a harmless error rule . . . .”). It was already
clear that Montoya disliked Riordan, rendering further
evidence of that fact redundant. Further, the evidence against
Riordan was utterly overwhelming on most issues. And on
the one issue where it was not (the October 2002 sales),
Montoya’s testimony actually favored Riordan, meaning that
the excluded evidence would not have helped Riordan with
regard to the October 2002 transactions.
IV
Riordan’s most significant argument concerns the statute
of limitations. The key question centers on the general five-
year civil statute of limitations for certain actions by the
Government, 28 U.S.C. § 2462. See 3M Co. v. Browner, 17
8
F.3d 1453, 1455-57 (D.C. Cir. 1994). That statute reads: “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.”
The SEC brought this action on September 25, 2007.
Therefore, Riordan’s conduct before September 25, 2002,
falls outside the applicable statute of limitations.
The Commission based two of its sanctions – the bar on
association with brokers or dealers and the $500,000 in civil
fines – solely on Riordan’s dealings with Montoya in October
2002. Those sanctions therefore pose no statute of limitations
problem.
In levying the disgorgement order, however, the SEC
relied not only on the October 2002 transactions but on the
entirety of Riordan’s misconduct, including the substantial
portion of his wrongdoing that took place before September
25, 2002. The SEC’s reliance on the pre-September 25, 2002,
conduct for the disgorgement order is significant: Riordan
was required to pay nearly $1.5 million in disgorgement and
interest. But he would have to pay just a small portion of that
amount if the SEC could consider only the five October 2002
transactions when calculating disgorgement.
The five-year statute of limitations in 28 U.S.C. § 2462applies to an action for the enforcement of a “fine, penalty, or
forfeiture.” Does that list include disgorgement? This Court
has said no. We have reasoned that disgorgement orders are
not penalties, at least so long as the disgorged amount is
causally related to the wrongdoing. See, e.g., Zacharias v.
SEC, 569 F.3d 458, 471-72 (D.C. Cir. 2009); SEC v.
Bilzerian, 29 F.3d 689, 696 (D.C. Cir. 1994); SEC v. First
9
City Financial Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989).
Because we have held that disgorgement is not a “civil
penalty,” the Court in Zacharias held that disgorgement was
not subject to the five-year statute of limitations. 569 F.3d at
471-72. In light of our precedents, we must reject Riordan’s
similar argument here.1
The final question is whether the cease-and-desist order
poses a statute of limitations problem. We think not. That
order simply requires Riordan not to violate the relevant
securities laws in the future. In a related context, we have
stated that a cease-and-desist order is “purely remedial and
preventative” and not a “penalty” or “forfeiture.” Drath v.
FTC, 239 F.2d 452, 454 (D.C. Cir. 1956). We see no reason
for a different result here: The cease-and-desist order is not a
“fine, penalty, or forfeiture” covered by the five-year statute
of limitations in 28 U.S.C. § 2462. Cf. Johnson v. SEC, 87
F.3d 484, 487-89 (D.C. Cir. 1996).
1
In reaching that conclusion in Zacharias, the Court focused
on the meaning of “penalty” in 28 U.S.C. § 2462. The statute also
applies to “forfeiture.” It could be argued that disgorgement is a
kind of forfeiture covered by § 2462, at least where the sanctioned
party is disgorging profits not to make the wronged party whole,
but to fill the Federal Government’s coffers. Our precedents have
not expressly considered that point in holding that there is no
statute of limitations for SEC disgorgement actions. But
Zacharias’s holding at least implicitly rejects that argument and is
binding on us as a three-judge panel. Here, moreover, the
disgorged moneys will apparently be returned to the New Mexico
State Government and not retained by the U.S. Government. See
Guy P. Riordan, Securities Act Release No. 9085, Exchange Act
Release No. 61153 at 39 (Dec. 11, 2009).
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***
We have considered all of Riordan’s arguments and find
them without merit. We deny the petition.
So ordered.