Saad v. Securities & Exchange Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 16, 2017 Decided October 13, 2017

No. 15-1430

JOHN M.E. SAAD,

PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION,

RESPONDENT

On Petition for Review of an Order of

the Securities & Exchange Commission

Sara E. Kropf argued the cause for petitioner. With her on

the briefs was Steven Nathan Berk.

Dina B. Mishra, Attorney, U.S. Securities and Exchange

Commission, argued the cause for respondent. On the brief

were Anne K. Small, General Counsel at the time the brief was

filed, Sanket J. Bulsara, Deputy General Counsel at the time

the brief was filed, John W. Avery, Deputy Solicitor, and

Christopher Paik, Special Counsel.

Before: GARLAND, Chief Judge, and KAVANAUGH and

MILLETT, Circuit Judges.

2

Opinion for the Court filed by Circuit Judge MILLETT.

Concurring opinion filed by Circuit Judge Kavanaugh.

Dubitante opinion filed by Circuit Judge Millett with

respect to Section II.B of the opinion.

MILLETT, Circuit Judge: John M.E. Saad, a broker-dealer,

unlawfully misappropriated his employer’s funds on two

separate occasions, and then spent the next seven months

misleading investigators in an effort to cover up his

wrongdoing. After a lengthy review process, the Securities and

Exchange Commission sustained a decision of the Financial

Industry Regulatory Authority (“FINRA”) permanently

barring Saad from membership and from working with any of

its affiliated members. Saad challenges the Commission’s

decision as insufficiently attentive to mitigating factors and

argues that the permanent bar is impermissibly punitive rather

than remedial. We hold that the Commission reasonably

grounded its decision in the record, which extensively

evidenced Saad’s acts of misappropriation, his prolonged

efforts to cover his tracks through falsehoods, and his repeated

and deliberate obstruction of investigators. With respect to the

permanent bar on Saad’s registration with FINRA and

affiliation with its members, the court remands for the

Commission to determine in the first instance whether Kokesh

v. SEC, 137 S. Ct. 1635 (2017), has any bearing on Saad’s case.

Accordingly, Saad’s petition for review is denied in part and

remanded to the Commission in part.

3

I

A

FINRA is a private self-regulatory organization that

oversees the securities industry, including broker-dealers.

Saad v. SEC, 718 F.3d 904, 907 (D.C. Cir. 2013); see Public

Investors Arbitration Bar Ass’n v. SEC, 771 F.3d 1, 2 (D.C.

Cir. 2014). As part of its industry oversight, FINRA sets

professional rules of conduct for its members. See Saad, 718

F.3d at 907; see also 15 U.S.C. § 78o–3(b)(2). One such rule—

FINRA Rule 2010—requires “[a] member, in the conduct of its

business, [to] observe high standards of commercial honor and

just and equitable principles of trade.” FINANCIAL INDUSTRY

REGULATORY AUTHORITY, FINRA MANUAL, FINRA RULES,

Rule 2010. 1 The high ethical standards enforced by Rule 2010

are vital because “customers and firms must be able to trust

securities professionals with their money.” J.A. 111–112.

Trustworthiness and integrity thus are essential to the

functioning of the securities industry.

FINRA has developed “Sanction Guidelines,” which

elaborate upon the contours of its rules of conduct. As relevant

here, the Guidelines provide that conversion and the improper

use of funds or securities will violate Rule 2010. J.A. 93.

Conversion is defined as “an intentional and unauthorized

taking of and/or exercise of ownership over property by one

who neither owns the property nor is entitled to possess it.” Id.

In cases of conversion, the Sanction Guidelines provide that “a

[lifetime] bar is standard,” “regardless of [the] amount

converted.” Id.

1

http://finra.complinet.com/en/display/display_main.html?

rbid=2403&element_id=607.

4

In determining the appropriate sanction to be imposed for

a violation of its rules, FINRA’s Guidelines outline eight

factors to be considered: (i) the need for the sanction to be

remedial, to deter future misconduct, and to improve business

standards in the securities industry, (ii) the violator’s status as

a repeat or one-time violator, (iii) the appropriateness of the

sanction for the specific misconduct, (iv) the need in a

particular case either to aggregate or to sanction individually

similar violations, (v) the appropriateness of restitution or

rescission, (vi) the remediation needed to ensure the individual

does not benefit from ill-gotten gains, (vii) the necessity of

requalification before permitting continued participation in the

securities industry, and (viii) the violator’s ability to pay any

fine or restitution. J.A. 87–90.

In addition to those general principles, FINRA

adjudicators must consider any other mitigating or aggravating

factors. J.A. 91. FINRA’s Sanction Guidelines provide a non-

exhaustive list of nineteen potential aggravating or mitigating

factors, including whether the violator (i) accepts responsibility

for the misconduct, (ii) took voluntary corrective action prior

to detection, (iii) engaged in a pattern of misconduct, (iv)

perpetrated the misconduct over an extended period of time, (v)

attempted to conceal the misconduct, (vi) acted intentionally,

or (vii) was already disciplined by the FINRA member firm.

J.A. 91–92.

The disciplinary process begins when FINRA’s

Department of Enforcement or Department of Market

Regulation files a complaint with the FINRA Office of Hearing

Officers. FINRA Rule 9211. A panel of hearing officers then

conducts a disciplinary proceeding, FINRA Rule 9213, and

issues a final written decision addressing both liability and

remedial sanctions, FINRA Rule 9268.

5

Either FINRA or the violator may appeal to the National

Adjudicatory Council, FINRA Rule 9311, which “may affirm,

modify, reverse, increase, or reduce any sanction, or impose

any other fitting sanction,” FINRA Rule 9349(a). The Council

then provides a proposed decision to the FINRA Board.

FINRA Rule 9349(c). If no Board member calls for review of

the Council’s decision, it becomes final. Id.

The violator may then seek review of FINRA’s decision

by the Securities and Exchange Commission, FINRA Rule

9370, which superintends the disciplinary decisions of

financial industry self-regulatory organizations like FINRA, 15

U.S.C. § 78s(d)–(e). The Commission conducts its own review

of the disciplinary action, and may modify, affirm, or set aside

the sanction. Id. § 78s(e)(1)(A)–(B). The Commission will set

a remedial order aside if the order “imposes any burden on

competition not necessary or appropriate” to further the

purposes of the Securities Exchange Act, or if the sanction “is

excessive or oppressive.” Id. § 78s(e)(2).

B

1

John Saad was a regional director in the Atlanta Office of

Penn Mutual Life Insurance Company, and was a FINRA-

registered broker-dealer employed by Penn Mutual’s affiliate

Hornor, Townsend, & Kent, Inc. Saad, 718 F.3d at 906.

Hornor, Townsend, & Kent, Inc. is a FINRA member firm. Id.

In July 2006, Saad scheduled a business trip from Atlanta,

Georgia, to Memphis, Tennessee, but the trip was canceled at

the last minute. Saad, 718 F.3d at 908; see also J.A. 107.

Instead of going home to his wife and infant twins, Saad

checked into an Atlanta hotel for two days. Saad, 718 F.3d at

6

908. Upon returning to his office, Saad submitted a false

expense report for air travel to Memphis and a two-night stay

in a Memphis hotel. Id. Attached to that false expense report

were forged receipts for the fictitious airfare and hotel. Id.

Unconnected to the fabricated Memphis trip, Saad

submitted another false expense report to his firm for a

replacement cellphone. Saad, 718 F.3d at 908. Contrary to his

representation in the expense report, Saad did not replace his

own cellphone but instead purchased the cellphone for a female

insurance agent at another firm. Id.; see also J.A. 62.

Saad’s misconduct was soon discovered by an

administrator in the Atlanta office of his firm because Saad

submitted for reimbursement a receipt for four drinks

purchased at an Atlanta hotel lounge on the same date that he

was supposedly in Memphis. Saad, 718 F.3d at 908. When the

administrator confronted him with the receipt, Saad grabbed

the receipt and threw it away. Id. The administrator retrieved

the receipt and sent it to Penn Mutual’s home office. Id. In

September 2006, Saad’s employment was terminated. Id.

After Saad’s termination, investigators from the National

Association of Securities Dealers (“NASD”)—FINRA’s

predecessor—questioned him about the false expense reports.

Saad, 718 F.3d at 908. In a November 2006 email, Saad falsely

told investigators that the fabricated trip report was “for a

business trip that had yet to occur[.]” Id. Five months later, in

April 2007, Saad falsely stated to investigators that he did not

know the person for whom he had purchased the cellphone. Id.

The next month, Saad untruthfully told examiners that he could

not remember if he had purchased a plane ticket for the

fabricated Memphis trip. Id.

7

In September 2007, FINRA brought a disciplinary

proceeding against Saad alleging “Conversion of Funds” in

violation of FINRA Rule 2010. Saad, 718 F.3d at 908. 2 The

hearing panel found that Saad had violated Rule 2010. Saad,

in his own defense, explained that he had been experiencing

significant personal and professional stress at the time he

submitted the false expense reports because his sales had

declined and one of Saad’s one-year old twins was suffering

from a stomach disorder that required frequent hospitalizations.

Id. The hearing panel imposed a bar that permanently forbade

Saad from associating with any FINRA member firm in any

capacity. Id. at 909.

Saad appealed, and the National Adjudicatory Council

affirmed. Saad, 718 F.3d at 909. In reviewing the lifetime ban,

the Council concluded that Saad’s misconduct involved several

aggravating factors, such as “the intentional and ongoing

nature of Saad’s misconduct, Saad’s efforts to deceive [Hornor,

Townsend, & Kent] and Penn Mutual, [and] Saad’s initial

instinct to conceal the extent of his actions from state and

FINRA examiners.” Id. at 909 (second alteration in original

and citation omitted). The Council further determined that no

mitigating factors counseled a lesser sanction. Id.

2

Saad was initially investigated for and charged with violating

National Association of Securities Dealers Rule 2110. See Saad, 718

F.3d at 909. NASD Rule 2110 is identical to FINRA Rule 2010. Id.

at 907; see also FINANCIAL INDUSTRY REGULATORY AUTHORITY,

FINRA MANUAL, NASD RULES, Rule 2110,

http://finra.complinet.com/en/display/display_main.html?rbid=2403

&element_id=605 (“A member, in the conduct of its business, shall

observe high standards of commercial honor and just and equitable

principles of trade.”). At the time Saad’s disciplinary proceeding

was formally initiated in September 2007, the SEC had “approved

the consolidation of NASD with certain functions of the New York

Stock Exchange to create” FINRA. Saad, 718 F.3d at 907.

8

The Securities and Exchange Commission affirmed,

holding that, on this record, FINRA’s sanction was not

“excessive or oppressive.” Saad, 718 F.3d at 909.

This court granted Saad’s petition for review in part. We

upheld the Commission’s use of the Sanction Guideline

governing conversion as a “starting point” for determining the

appropriate sanction for Saad’s two acts of misappropriation.

Saad, 718 F.3d at 911. We remanded only because the

Commission’s analysis failed to address potentially mitigating

factors, such as Saad’s termination by his employer and Saad’s

personal and professional stress. Id. at 913. We left open the

question whether the lifetime bar was an “excessive or

oppressive” sanction, noting that the Commission had an

obligation on remand to ensure its sanction was remedial rather

than punitive. Id.

2

On remand, the Commission directed the National

Adjudicatory Council to reconsider the imposition of the

lifetime bar and, in particular, to address whether (i) a member

firm’s discipline of a rule violator prior to regulatory detection

is a mitigating factor for the alleged violator, the member firm,

or both, J.A. 36; (ii) the mitigating effect, if any, of Saad’s

termination prior to regulatory detection, J.A. 38; (iii) the

mitigating effect, if any, of Saad’s personal and professional

stress, J.A. 39; (iv) any other mitigating considerations, J.A.

45; and (v) the appropriateness of the lifetime bar for Saad’s

misconduct, J.A. 49.

The Council determined that (i) prior discipline by a

member firm may be mitigating for an individual violator, J.A.

37–38; (ii) Saad’s termination prior to regulatory detection was

9

not mitigating on this record, J.A. 39; (iii) neither Saad’s

personal nor his professional stress was mitigating, J.A. 43–45;

(iv) no other relevant mitigating factors existed in the case, J.A.

45–49; and (v) a permanent bar remained the appropriate

remedy for Saad’s misconduct, J.A. 49–50.

The Commission again affirmed. The Commission

determined that Saad’s repeated attempts over the course of

seven months to conceal his misconduct from his employer and

to mislead regulatory investigators were aggravating factors

that supported FINRA’s imposition of the permanent bar. J.A.

112. The Commission further concluded that the “‘collateral

consequences’ of misconduct, including loss of employment,

reputation, and income, [were] not mitigating” on the facts of

this case because they provided “‘no guarantee of changed

behavior’ and may not be enough to overcome [the

Commission’s] concern that he * * * ‘poses a continuing

danger to investors and other security industry participants

(including would-be employers).’” J.A. 112–113 (quoting

Denise M. Olson, Exchange Act Release No. 75837, 2015 WL

5172954, at *5 (Sept. 3, 2015)). The Commission also decided

that, “under these circumstances,” Saad’s claims of

professional and personal stress were not mitigating because

his misconduct involved multiple instances of deliberate and

deceptive conduct spread out over a long period of time, rather

than a spontaneous or “unthinking” action triggered by stress

and “later redressed.” J.A. 113. The Commission found no

mitigating value in Saad’s arguments that his misconduct was

“a series of blunders,” his misappropriation did not involve

customer funds, and he had a clean disciplinary record before

his misappropriation. J.A. 114. Finally, the Commission

reasoned that a permanent bar was the appropriate remedy in

Saad’s case because it “serves important deterrent objectives

and reaffirms long-standing FINRA policy that such

dishonesty by members or their associated persons will not be

10

tolerated.” J.A. 115. Accordingly, the Commission affirmed

the permanent bar finding it to be “remedial, not punitive,” and

“necessary to protect FINRA members, their customers, and

other securities industry participants[.]” J.A. 115.

II

We defer to the Commission’s sanction decision if it is

reasonable and reasonably explained, and will overturn it only

if it is “arbitrary, capricious, or an abuse of discretion.” Saad,

718 F.3d at 910 (quoting Siegel v. SEC, 592 F.3d 147, 155

(D.C. Cir. 2010)).

A

This court’s prior decision remanded for the Commission

to address Saad’s mitigating evidence. Saad, 718 F.3d at 913-

914. Saad now contends that the Commission failed to give his

mitigating evidence sufficient heed. We disagree. The

Commission reasonably balanced the relevant mitigating and

aggravating factors before determining that the gravity of

Saad’s behavior warranted remedial action.

First, with respect to the mitigating relevance of Saad’s

termination by his employer for misconduct, the Commission

recognized that a FINRA Sanction Guideline provides that

disciplinary action prior to regulatory detection may be

considered mitigating. J.A. 112–113 (noting FINRA Principal

Consideration in Determining Sanctions #14). But the

Commission explained that his termination carried little weight

in this case because “Saad repeatedly used dishonest means to

overcome personal and professional disappointments and

obstacles, and to mislead his employer and regulators.” J.A.

113. Given those facts, the Commission reasonably concluded

that “termination, while mitigating under certain

11

circumstances, [did not] overcom[e] the threat [Saad] would

pose to investors and other securities industry participants were

he to return to the industry.” J.A. 113.

Second, the Commission credited Saad’s claims of

personal and professional stress. The Commission

nevertheless found them to lack mitigating force in this case

because Saad’s conduct was not a momentary or impulsive

action driven by stress, but instead involved “deceptive

conduct demonstrat[ing] a high degree of intentionality over a

long period of time.” J.A. 113. The Commission found it

particularly significant that (i) Saad had not discussed the

professional setbacks he was undergoing with his firm or

otherwise sought assistance; (ii) his deception required

planning and research; and (iii) he “methodically forg[ed] hotel

and airfare receipts that bore logos that he had copied from the

internet.” J.A. 113. In addition, the Commission stressed that

Saad did not own up to his missteps when the firm

administrator confronted him about the fabricated expense

report, but instead tried to destroy the evidence and repeatedly

misled investigators for at least seven more months. J.A. 114.

On top of that, Saad engaged in a second act of

misappropriation by using firm funds to purchase a cellphone

for a person who worked at another firm. J.A. 114. The

Commission reasonably concluded that a pattern of such

prolonged and repeated misbehavior could not be attributed to

stress. J.A. 114.

Third, the Commission fairly addressed Saad’s arguments

that his misconduct did not involve the misappropriation of

customer funds, and that he otherwise had a clean disciplinary

record. J.A. 114. The Commission explained that it had not

differentiated between the source of mistreated funds in the

past, upholding bars even though “the underlying dishonesty

did not relate directly to customers.” J.A. 114; see also J.A.

12

114 n.24 (citing disciplinary proceedings involving

misappropriation of non-customer funds). That makes sense.

As the Commission previously has explained, it is the

deception and fraud in the handling of others’ property that

endangers the integrity of the securities industry, and that threat

remains the same whether the victim is a trusting employer or

trusting client. See Richard Dale Grafman, Exchange Act

Release No. 21648, 1985 WL 548687, at *2 (Jan. 14, 1985)

(upholding a sanction even though the conduct did not involve

public customers because “[t]he securities business presents a

great many opportunities for abuse and overreaching, and

depends very heavily on the integrity of its participants”).

The Commission further noted that it has “repeatedly held

that a clean disciplinary record is not mitigating.” J.A. 114; see

also J.A. 114 n.25 (citing a disciplinary proceeding holding that

the lack of a disciplinary history is not mitigating); J.A. 91 n.1

(FINRA Sanction Guidelines manual, citing Rooms v. SEC,

444 F.3d 1208, 1214–1215 (10th Cir. 2006), for the proposition

that disciplinary history can serve only as an aggravating factor

and its absence cannot be mitigating). There is nothing

unreasonable about the Commission concluding that

individuals in a profession that depends critically on public

trust and honesty are already expected to have a clean record,

so it is not something for which they get extra credit. See

Rooms, 444 F.3d at 1214 (noting that the violator “was required

to comply with NASD’s high standards of conduct at all

times”); see also World Trade Fin. Corp., Exchange Act

Release No. 66114, 2012 WL 32121, at *16 (Jan. 6, 2012)

(“[F]irms and their associated persons should not be rewarded

for acting in accordance with their duties.”).

Accordingly, we hold that the Commission’s

thoroughgoing decision directly addressed the mitigating

evidence, as required by our prior remand order, and provided

13

a careful and comprehensive analysis of Saad’s arguments

seeking a reduction in his sanction. Its decision reasonably

focused on the record of Saad’s prolonged pattern of

falsehoods and deception, as well as the direct threat that his

misconduct posed to customers’ and other participants’ faith in

the integrity of the securities industry.

B

Saad also challenges the Commission’s affirmance of

FINRA’s lifetime bar on his affiliation with FINRA and its

members as impermissibly punitive. We remand that question

to the Commission to address, in the first instance, the

relevance—if any—of the Supreme Court’s recent decision in

Kokesh v. SEC, 137 S. Ct. 1635 (2017). Accordingly, Saad’s

petition for review is denied in part and remanded to the

Commission in part.

So ordered.

KAVANAUGH, Circuit Judge, concurring: I add this brief

concurrence to explain why I believe the Court is correct to

remand this case to the SEC.

Our precedents say that the SEC may approve expulsion

or suspension of a securities broker as a remedy, but not as a

penalty. Our cases in turn have upheld various expulsions or

suspensions as remedial. See, e.g., PAZ Securities, Inc. v. SEC,

566 F.3d 1172, 1175-76 (D.C. Cir. 2009). Our use of the term

“remedial” to describe expulsions or suspensions finds its roots

in a single, unexplained sentence in a 77-year-old Second

Circuit case. See Wright v. SEC, 112 F.2d 89, 94 (2d Cir.

1940). Applying those precedents here, the SEC concluded

that the lifetime expulsion of Saad from the securities industry

was permissible because the sanction was remedial, not

punitive.

My fundamental problem with this line of cases is that the

term “remedial” makes little sense when describing the

expulsion or suspension of a securities broker. Like other

punitive sanctions, expulsion and suspension may deter others

and will necessarily deter and prevent the wrongdoer from

further wrongdoing. Expulsion and suspension may thereby

protect the investing public. But expulsion and suspension do

not provide a remedy to the victim. Under any common

understanding of the term “remedial,” expulsion and

suspension of a securities broker are not remedial. Rather,

expulsion and suspension are punitive.

Of course, as a three-judge panel, we ordinarily must stick

with our precedents. But here, the Supreme Court’s recent

decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017), means that

we can no longer characterize an expulsion or suspension as

remedial. After the Supreme Court’s decision in Kokesh, in

other words, our precedents characterizing expulsions or

suspensions as remedial are no longer good law.

2

In Kokesh, the Supreme Court ruled that disgorgement

paid to the Government is a “penalty” subject to the five-year

statute of limitations in 28 U.S.C. § 2462. 137 S. Ct. at 1643-

45, slip op. at 7-11. The Court reasoned that the disgorged

money often does not go to victims and, moreover, is not

limited to the amount of harm to victims – both of which would

be required if the sanction were truly remedial rather than

punitive. See id. at 1644-45, slip op. at 9-11. The Court stated:

“Sanctions imposed for the purpose of deterring infractions of

public laws are inherently punitive because deterrence is not a

legitimate nonpunitive governmental objective.” Id. at 1643,

slip op. at 8 (internal quotations omitted). And the Court

added: “A civil sanction that cannot fairly be said solely to

serve a remedial purpose, but rather can only be explained as

also serving either retributive or deterrent purposes, is

punishment, as we have come to understand the term.” Id. at

1645, slip op. at 11 (internal quotations omitted). Notably, the

Supreme Court’s decision in Kokesh overturned a line of cases

from this Court that had concluded that disgorgement was

remedial and not punitive. See, e.g., Zacharias v. SEC, 569

F.3d 458, 471-72 (D.C. Cir. 2009).

As I see it, the Kokesh analysis matters here. The Supreme

Court’s reasoning in Kokesh was not limited to the specific

statute at issue there. Like disgorgement paid to the

Government, expulsion or suspension of a securities broker

does not provide anything to the victims to make them whole

or to remedy their losses. Therefore, in light of the Supreme

Court’s analysis in Kokesh, expulsion or suspension of a

securities broker is a penalty, not a remedy.

Judge Millett’s separate opinion cites cases such as Smith

v. Doe, 538 U.S. 84 (2003), for the proposition that

occupational debarments are not punitive. But the question in

Smith v. Doe, for example, was whether a particular sanction

3

(there, required registration as a sex offender) was civil or

criminal for purposes of the Ex Post Facto Clause. Some

penalties are civil, and some penalties are criminal. The

question of whether a penalty is civil or criminal is distinct

from (although overlapping with) the question of whether a

sanction is a penalty rather than a remedy. See Hudson v.

United States, 522 U.S. 93, 105 (1997) (civil penalty at issue

there was not “criminally punitive” for double jeopardy

purposes). As I read it, nothing in Smith v. Doe or any of the

other Supreme Court cases cited by Judge Millett’s separate

opinion says or suggests that occupational debarment is a

remedy.

Judge Millett’s separate opinion also states that Saad

forfeited any argument that the sanction here was punitive, not

remedial. I respectfully disagree. Saad expressly argued both

to the SEC and to this Court that the lifetime expulsion in his

case was punitive, not remedial. He of course did not cite

Kokesh because Kokesh was not yet decided at the time. In my

view, Saad preserved the argument that the sanction imposed

on him was a penalty, not a remedy.

Judge Millett’s separate opinion distinguishes this case

from ordinary civil penalty cases by relying on FINRA’s status

as a self-regulatory organization. But by statute, FINRA is

heavily regulated by the SEC, and a FINRA-sanctioned party

has a right to appeal FINRA sanctions to the SEC. See 15

U.S.C. § 78s; 78s(d).1 FINRA is therefore not akin to, for

1

“In their review of disciplinary orders, the federal courts of

appeals do not distinguish between SEC orders that affirm FINRA

disciplinary sanctions and SEC orders that affirm sanctions imposed

through the SEC’s administrative hearing system; both are

considered SEC orders. Accordingly, parties rarely raise the

objection that FINRA is not a government body, and if the objection

is raised, courts quickly dispense with it.” Barbara Black, Punishing

4

example, a state bar association or the National Football

League – organizations that may impose discipline without

statutorily required review by a federal agency.

In appeals from FINRA sanctions, the SEC must

determine whether the FINRA-imposed sanctions are

“excessive or oppressive.” 15 U.S.C. § 78s(e)(2). Our pre-

Kokesh cases in turn say that the SEC may uphold FINRA

sanctions as not being excessive or oppressive if the sanctions

are remedial, not punitive. See Siegel v. SEC, 592 F.3d 147

(D.C. Cir. 2010); Paz, 566 F.3d at 1175-76. And our pre-

Kokesh cases further say that an expulsion or suspension can

be considered remedial, not punitive.

My sole point here is to cast doubt on our pre-Kokesh

cases’ characterization of an expulsion or suspension as

remedial rather than punitive. My point is not to suggest that

FINRA lacks power to impose punitive sanctions such as

expulsions or suspensions. After all, FINRA Rule 8310

expressly allows FINRA to impose expulsions and suspensions

in appropriate cases. See also 15 U.S.C. § 78o-3(b)(7)

(authorizing FINRA to impose expulsions or suspensions).

And the SEC may still approve an expulsion or suspension if

such a FINRA-imposed sanction is an appropriate (that is, not

“excessive or oppressive”) penalty in particular cases. The

question here therefore is whether the lifetime expulsion of

Saad – what our prior opinion in this case called the “securities

industry equivalent of capital punishment,” Saad v. SEC, 718

F.3d 904, 906 (D.C. Cir. 2013) – was a permissible and

appropriate penalty under the relevant statutes and regulations.

Bad Brokers: Self-Regulation and FINRA Sanctions, 8 BROOK. J.

CORP., FIN. & COMM. L. 23, 41-42 (2013).

5

If FINRA and the SEC can still impose expulsions and

suspensions in certain cases, why does the terminological

distinction matter? In other words, why should we care that

FINRA and the SEC must characterize certain sanctions as

punitive rather than remedial? One answer is this: If FINRA

and the SEC must justify expulsions or suspensions as punitive

(as I believe they must after Kokesh), they will have to explain

why such penalties are appropriate under the facts of each case.

FINRA and the SEC will no longer be able to simply wave the

“remedial card” and thereby evade meaningful judicial review

of harsh sanctions they impose on specific defendants. Rather,

FINRA and the SEC will have to reasonably explain in each

individual case why an expulsion or suspension serves the

purposes of punishment and is not excessive or oppressive.

Over time, a fairer, more equitable, and less arbitrary system of

FINRA and SEC sanctions should ensue. Cf. 18 U.S.C. §

3553(a). 2

With those observations, I join the Court’s decision to

remand the case to the SEC for the Commission to address in

the first instance whether, in light of Kokesh, the penalty

imposed on Saad was excessive or oppressive.

2

Judge Millett’s separate opinion suggests that the SEC on

remand should not and, indeed, may not change its approach to this

issue in the wake of Kokesh. To state the obvious, her separate

opinion speaks for only one judge, as does my separate opinion. If a

majority of the panel agreed with all of the sentiments expressed in

Judge Millett’s separate opinion, we presumably would not be

remanding the case. If a majority of the panel agreed with all of the

sentiments expressed in my separate opinion, we presumably would

be remanding the case with specific directions about Kokesh.

Instead, the Court is remanding for the SEC, in the first instance, to

address the relevance of Kokesh. The Kokesh issue remains

undecided for now in this Court.

MILLETT, Circuit Judge, dubitante regarding Part II.B:

I have grave doubts about the propriety of remanding this

case to the Commission yet again. This time, the remand seeks

the Commission’s views on the relevance—if there is any at

all—of Kokesh v. SEC, 137 S. Ct. 1635 (2017). But in my

view, the Commission amply explained the remedial reasons

for sustaining FINRA’s permanent bar on Saad’s affiliation

with it and its members, and there is nothing in Kokesh that

helps Saad. That presumably is why Saad himself has not

whispered a word to this court about Kokesh having any

bearing upon his case. Not one word. Accordingly, adding

another round to this already decade-long saga does not seem

worth the candle. Nor does further delay seem fair to FINRA’s

efforts to protect the integrity of the securities industry from

securities brokers who exploit and abuse the trust of their

employers and the investing public.

In my view, the Commission did exactly what our earlier

decision flagged for remand: It addressed Saad’s mitigating

evidence and quite reasonably concluded that FINRA’s

permanent bar on Saad’s affiliation with its members is

remedial, rather than “excessive or oppressive,” 15 U.S.C.

§ 78s(e)(2). The Commission’s affirmance of FINRA’s

decision about how best to deal with Saad’s pattern of serious

professional misconduct echoes the Supreme Court’s

recognition of “how essential it is that the highest ethical

standards prevail in every facet of the securities industry.” SEC

v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186–

187 (1963) (quotation omitted); see Kokesh, 137 S. Ct. at 1640

n.1.

In addition, in imposing Saad’s bar, FINRA hewed to the

remedy its Sanction Guidelines recommend, which we

previously held FINRA could properly extend to this case. See

Saad v. SEC, 718 F.3d 904, 911 (D.C. Cir. 2013) (upholding

2

FINRA’s reliance on the Sanction Guideline for conversion or

improper use because “misappropriation is doubtless

analogous to conversion”) (internal quotation marks and

citation omitted). That Sanction Guideline reflects a deliberate

and objective assessment of the type of remedy needed to

protect the securities industry and the investing public from

misconduct involving mendacity and the misuse of entrusted

property—misdeeds that strike at the heart of the investing

public’s trust in the securities industry. FINRA’s evenhanded

application of that prescribed remedy supports the sanction’s

remedial character.

As the Commission also explained, FINRA’s

determination in this case to permanently bar Saad from

registering with FINRA or affiliating with its members was

tailored to the individual circumstances of his case and Saad’s

serious and serial misconduct. In addition to two separate acts

of misappropriating property entrusted to him—the fabricated

Memphis trip and the abusive use of employer funds to

purchase a cellphone for someone else—Saad forged

documents, attempted to hide evidence of his misconduct after

it was discovered by the Atlanta administrator, and deliberately

deceived and misled regulators for more than half a year as they

investigated his misconduct. The Commission thus had an

adequate factual foundation to sustain FINRA’s judgment that

“Saad’s actions betray a dishonest character * * * [and]

demonstrate that he cannot be entrusted with firm or customer

money[.]” J.A. 115. In an industry the functioning of which is

predicated on the public trust, “[c]haracter is as important a

qualification as knowledge[.]” Hawker v. New York, 170 U.S.

189, 191 (1898). For the same reason, the Commission

reasonably concluded that Saad “would pose a continuing and

unacceptable threat to investors and other industry participants

if not barred.” J.A. 115; see Kokesh, 137 S. Ct. at 1640 n.1

(emphasizing the need to “achiev[e] a high standard of business

3

ethics in the securities industry”) (quoting Capital Gains

Research Bureau, 375 U.S. at 186).

Given all of that, Kokesh is of no help to Saad. Kokesh

held only that “[d]isgorgement” ordered by the Commission in

“enforcement proceedings” prosecuted by the Commission

itself to punish violations of “public law” “operates as a penalty

under [28 U.S.C.] § 2462,” 137 S. Ct. at 1644, 1645. In

multiple respects, that bears no resemblance to FINRA’s

private decision in this case to disaffiliate from Saad because

of his repeated violations of FINRA’s own professional rules

of conduct.

First, the two cases implicate quite different remedial

schemes and materially different statutory standards. As noted,

Kokesh interpreted the term “penalty” under 28 U.S.C. § 2462,

which prescribes a five-year statute of limitations for the

imposition of any “civil fine, penalty, or forfeiture, pecuniary

or otherwise” in proceedings brought to enforce Acts of

Congress.

Commission review in this case, by contrast, does not

involve a governmental entity enforcing an Act of Congress,

federal regulation, or any other type of public law. Instead, in

this case, the Commission is exercising discretionary

superintendence over the decisions of a private self-regulatory

organization (FINRA) to ensure only that its disciplinary

decisions do not “impose[] any burden on competition not

necessary or appropriate” and are not “excessive or

oppressive.” 15 U.S.C. § 78s(e)(2). If they are, the

Commission “may” alter them. Id.

Those distinctions are critical. Kokesh is quite explicit that

the defining feature of a “penalty” under 28 U.S.C. § 2462 is

that it is “imposed as a sanction for violating federal securities

4

law.” Kokesh, 137 S. Ct. at 1639 (emphasis added). Indeed,

“violating a public law” is a “hallmark[] of a penalty.” Id. at

1644; see id. at 1643 (“SEC disgorgement is imposed by the

courts as a consequence for violating what we described in

Meeker as public laws.”) (emphasis added); id. (“Sanctions

imposed for the purpose of deterring infractions of public laws

are inherently punitive[.]”) (emphasis added); id. at 1641 (“The

Commission sought civil monetary penalties, disgorgement,

and an injunction barring Kokesh from violating securities

laws in the future.”) (emphasis added).

By contrast, all that Saad is charged with violating—and

all that is being remediated in this proceeding—is FINRA’s

rules of professional conduct. See J.A. 109 (“FINRA instituted

disciplinary proceedings * * * alleging [a] * * * violation of

NASD Rule 2110.”) (emphasis added); J.A. 110 (“‘[P]ersonal

problems’ could be mitigating if they ‘interfered with an ability

to comply with FINRA rules[.]’”) (emphasis added).

The Supreme Court has ruled time and again that such

“occupational debarment” is a “nonpunitive” sanction. See

Hudson v. United States, 522 U.S. 93, 104 (1997) (order

forbidding further participation in the banking industry is a

nonpunitive sanction); see also De Veau v. Braisted, 363 U.S.

144, 156–160 (1960) (barring certain persons from work as

union officials); Hawker, 170 U.S. at 194–200 (permitting the

revocation of a medical license); see generally Smith v. Doe,

538 U.S. 84, 100 (2003). 1

1

The Concurring Opinion dismisses the Supreme Court’s debarment

cases by suggesting that such discipline is, as a matter of law, a civil

“penalty,” and thus automatically “excessive or oppressive.”

Concurring Op. 3. But in upholding those measures, the Supreme

Court recognized the important remedial role that such debarments

can play in protecting the integrity of an industry and those members

of the public who interact with it. See Hudson, 522 U.S. at 105

5

This case is even easier than those Supreme Court cases.

The question of whether debarments (or even suspensions, as

the Concurring Opinion suggests) are “excessive or

oppressive” is, at bottom, a pure question of statutory

construction. And on that question, Congress has mandated

that any securities-industry self-regulatory organization that

wishes to register with the Commission include in its rules the

ability to “discipline[]” members who violate “the rules of the

association” by, inter alia, “expulsion, suspension, * * * [and]

being suspended or barred from being associated with a

member.” 15 U.S.C. §78o-3(b)(7); see id. §78o-3(h)(3).

Disciplinary tools required by Congress in Section 78o-3

cannot categorically be impermissibly “excessive or

oppressive” under Section 78s(e)(2). 2

Second, Kokesh involved an order of disgorgement

commanding the payment of funds into the United States

Treasury. That sanction thus did nothing to protect or to

compensate the victims of the crime. Kokesh, 137 S. Ct. at

1644 (“When an individual is made to pay a noncompensatory

sanction to the Government as a consequence of a legal

violation, the payment operates as a penalty.”) (emphasis

added); id. (“SEC disgorgement thus bears all the hallmarks of

a penalty: It is imposed as a consequence of violating a public

law and it is intended to deter, not to compensate.”).

(holding that ancillary deterrence effects are not dispositive when a

sanction’s main purpose is “to promote the stability of the banking

industry”); Hawker, 170 U.S. at 192 (upholding character

requirements for medical licensing because of the “most intimate”

relationship between the medical profession and the “life and health”

of the general public).

2

Section 78o-3 does not mention disgorgement.

6

By contrast, Saad’s offense harmed FINRA’s members

not just by misappropriating his employer’s money, but also by

imperiling, through both his fraud and his deceitful cover-up,

the trust and confidence of the investing public that is the

lifeblood of the securities industry. Saad’s seven-month-long

obstruction of investigators also squandered FINRA’s and its

members’ resources, forcing them to expend time, personnel,

and money unravelling the truth from his falsehoods. Under

these circumstances, allowing an industry to protect itself and

its clients from Saad’s mendacity and purloining by

disassociating from him is a remedial measure that protects the

industry and its investors. See J.A. 115 (“Because we conclude

that a bar is necessary to protect FINRA members, their

customers, and other securities industry participants, we find

that it is remedial, not punitive.”); see also id. (“[Saad’s

actions] demonstrate that he cannot be entrusted with firm or

customer money, and that therefore he would pose a continuing

and unacceptable threat to investors and other industry

participants if not barred.”). Saad’s discipline, unlike

Kokesh’s, does not surrender anything “to the Government.”

137 S. Ct. at 1644. The remedy here thus bears no punitive

resemblance to the disgorgement order in Kokesh.

Third, given the significant differences in the two statutory

schemes, Saad cannot wrap himself in Kokesh without first

establishing that the meaning of “penalty” in 28 U.S.C.

§ 2462’s statute of limitations governing the enforcement of

Acts of Congress both (i) directly dictates the meaning of

“excessive or oppressive” under 15 U.S.C. § 78s(e)(2), and

also (ii) overrides the Commission’s discretionary judgment

whether to correct a FINRA disciplinary measure, thereby

mandating relief in his case, cf. id. (Commission “may” correct

orders).

7

Saad, however, has never argued in any way at any point

in these proceedings that we should extrapolate the meaning of

“penalty” under 28 U.S.C. § 2462 to the determination of

whether a sanction is “excessive or oppressive” under 15

U.S.C. § 78s(e)(2). Saad made no such argument before

FINRA or the Commission. And before this court—giving

Saad every benefit of the doubt—he at most indirectly bumped

into the point by citing a case that arose under Section 2462—

and even that appeared for the first time in his reply brief. Saad

Reply Br. 2 (mentioning a case that involved a proceeding

under 28 U.S.C. § 2462, but not citing the statute or arguing its

extension to this context); see 15 U.S.C. § 78y(c)(1) (“No

objection to an order or rule of the Commission, for which

review is sought under this section, may be considered by the

court unless it was urged before the Commission or there was

reasonable ground for failure to do so.”); United States v. TDC

Mgmt. Corp., 827 F.3d 1127, 1130 (D.C. Cir. 2016)

(undeveloped arguments are forfeited); American Wildlands v.

Kempthorne, 530 F.3d 991, 1001 (D.C. Cir. 2008) (“We need

not consider this argument because plaintiffs have forfeited it

on appeal, having raised it for the first time in their reply

brief.”).

More to the point, Saad himself apparently sees no

relevance to the Supreme Court’s decision in Kokesh because,

in the five months since Kokesh was decided, he has not said a

single word to this court about that decision or its potential

applicability. Because Saad himself does not consider the

decision worth mentioning and has never argued at any point

that 28 U.S.C. § 2462’s definition of “penalty” controls this

very different statutory scheme enforcing a different statutory

standard (“excessive or oppressive”), he has forfeited any

reliance on that argument. Or so the Commission could

sensibly conclude.

8

Fourth, binding circuit precedent—indeed, law of the

case—has established that the Commission “may approve

‘expulsion not as a penalty but as a means of protecting

investors.’” Saad, 718 F.3d at 913 (quoting PAZ Securities,

Inc. v. SEC, 494 F.3d 1059, 1065 (D.C. Cir. 2007)). See also

Siegel v. SEC, 592 F.3d 147, 158 (D.C. Cir. 2010) (consecutive

suspensions permissibly imposed “to protect customers”)

(internal quotation marks omitted); PAZ Securities, Inc. v.

SEC, 566 F.3d 1172, 1175 (D.C. Cir. 2009) (debarment

permissibly imposed “to protect investors” and to redress “a

significant harm to the self-regulatory system”); McCurdy v.

SEC, 396 F.3d 1258, 1265 (D.C. Cir. 2005) (suspension

permissibly imposed “to protect the public from [the violator’s]

demonstrated capacity for recklessness”).

This court is not alone in that judgment. See, e.g., ACAP

Fin., Inc. v. SEC, 783 F.3d 763, 768 (10th Cir. 2015) (Gorsuch,

J.) (suspension permissibly imposed where the violator’s

conduct “cast doubt on his ability to carry out his obligations

as a securities professional in any capacity”). The Eighth

Circuit, moreover, recently ruled that nothing in Kokesh called

into question the authority of the Commission to sustain a

disciplinary order enjoining the continued violation of the

securities laws. That prospective order remained remedial

because it was designed “to protect the public prospectively[.]”

SEC v. Collyard, 861 F.3d 760, 764 (8th Cir. 2017) (discussing

Kokesh).

Nothing in Kokesh unravels our on-point circuit precedent.

Kokesh involved a different sanction (disgorgement), imposed

under a different statute under an entirely different type of

Commission proceeding, to enforce public law not industry

professional standards, and involved markedly different

remedial and protective implications for private industry and

private investors. Accordingly, nothing in Kokesh “effectively

9

overrules” or “eviscerates” that binding precedent, which is

what we require before abandoning law of the circuit. See

National Inst. of Military Justice v. Department of Defense,

512 F.3d 677, 682-683 n.7 (D.C. Cir. 2008) (“[W]hether [a]

Supreme Court opinion supersedes Circuit precedent

* * * depends on whether [that] opinion ‘effectively

overrules,’ i.e. ‘eviscerates’ precedent”) (quoting United States

v. Williams, 194 F.3d 100, 105 (D.C. Cir. 1999)).

Accordingly, under settled authority, the Commission’s

affirmance of a FINRA debarment decision is not “excessive

or oppressive” when it is designed, as it was here, to remedially

protect the industry and the investing public. This panel, and

any panel reviewing the Commission’s decision on remand, is

bound by that precedent, and (absent an intervening en banc

ruling) will continue to be bound by that precedent on review

of any subsequent SEC decision. See LaShawn A. v. Barry, 87

F.3d 1389, 1393 (D.C. Cir. 1996) (en banc). 3

The foundational premise of the Concurring Opinion is

that only disciplinary sanctions that “provide a remedy to the

victim” can qualify as “remedial.” Concurring Op. 1; see id. at

2. But Kokesh does not go anywhere near that far. More to the

point, it says nothing at all about what constitutes a remedial

sanction in the context of a self-regulatory organization’s

enforcement of its professional standards, rather than public

laws. This circuit has ruled that, in this exact statutory context,

3

The Concurring Opinion says that Kokesh overturns circuit

precedent characterizing “expulsion[s] or suspension[s]” as

remedial. Concurring Op. 1. But the Concurring Opinion cites no

language in Kokesh that even suggests such a sweeping holding, let

alone that clearly “eviscerates” our precedent. Nor does the

Concurring Opinion grapple with our strict circuit standard for

relying upon intervening Supreme Court precedent to abandon

circuit precedent.

10

a disciplinary sanction that is “purely remedial and

preventative” but not compensatory—such as a general order

to cease-and-desist violating the securities laws—is “not a

‘penalty’ or ‘forfeiture’” within the meaning of 28 U.S.C.

§ 2462. Riordan v. SEC, 627 F.3d 1230, 1234 (D.C. Cir.

2010); see id. at 1232 (labeling the cease-and-desist order

“remedial”). A prospective cease-and-desist order of that

general breadth “does not provide anything to the victims to

make them whole or to remedy their losses,” as the Concurring

Opinion would require. Concurring Op. 2. Yet it certainly is

remedial to ensure that, going forward, a harm stops.

The Concurring Opinion says that debarment and even a

one-day suspension have to be treated as a penalties because,

in its view, they do not “provide a remedy to the victim.”

Concurring Op. 1. But that argument conflates “remedial” with

“compensatory.” Victimization and harm entail more than just

replacing lost dollars. There can be non-pecuniary harms too.

There certainly were here. The harm that Saad inflicted and

that FINRA remedied did not stop with his employer’s bank

account. His conduct also sowed distrust in the industry, and

his seven months of falsehoods and misrepresentations to

regulatory investigators stole their time and scarce resources,

while compounding the harms he caused to industry integrity.

FINRA’s order of debarment directly remedied that full

range of harms by making sure they stopped. Ordering the fox

out of the henhouse falls comfortably within the “common

understanding of the term ‘remedial,’” Concurring Op. 1, and

indeed provides to Saad’s many victims a more comprehensive

11

and realistic remedy than the Concurring Opinion’s dollars-

only approach. 4

In sum, Saad’s repeated turpitudinous misconduct, his

nearly year-long venture in misleading and lying to his

employer and investigating regulators, and the paramount need

for the utmost honesty and integrity in the handling of others’

property in the securities industry amply justified the

Commission’s decision to sustain FINRA’s imposition of

debarment as a remedy in this case. I do not see anything in

Kokesh that bears on that decision by a private self-regulatory

organization to disaffiliate with someone who repeatedly

transgressed industry rules that are necessary to protect the

investing public and the integrity of the securities industry. For

those reasons, I have deep doubts about the decision to remand

this case to the Commission to address a case that is so off-

point that Saad himself has paid it no heed, especially because

the remedial sufficiency of the Commission’s order is

controlled by circuit precedent. I have gone along only because

4

The Concurring Opinion’s suggestion that FINRA “may”

somehow be able to impose “civil penalt[ies]” is quite puzzling.

Concurring Op. 4. Civil penalties punish violations of federal law,

not private industry rules. See, e.g., Kokesh, 137 S. Ct. at 1639, 1644.

And nothing in the relevant federal securities laws empowers a non-

governmental body like FINRA to prosecute and punish violations

of federal law directly. Nor does federal law provide any avenue by

which the Commission “may” be able to review FINRA’s

prosecution of civil penalties. Concurring Op. 4. More puzzling still

is the Concurring Opinion’s suggestion that FINRA was supposed to

justify Saad’s debarment as “punitive.” Concurring Op. 4-5. This

court remanded this case to the Commission to explain why its

disciplinary measures were not “punitive.” Saad, 718 F.3d at 913.

Thankfully, law of the case and law of the circuit foreclose the

Concurring Opinion’s volte-face.

12

nothing in our simple remand order says that Kokesh should

alter the outcome of Saad’s case.