# Petition — Sloan v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1805%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 434 U.S. 821 ## Text Te Suprem tun & EILED OCTOBER TERM, 1976 ee 76-1547 SAMUEL H. SLOAN and SAMUEL H. SLOAN d/b/a SAMUEL H. SLOAN & CO., Petitioners, ~against- SECURITIES & EXCHANGE COMMISSION, RAY GARRETT, JR., PHILIP A. LOOMIS, JR., JOHN R. EVANS, A. A. SOMMER, JR., 24 GEORGE A. FITZSIMMONS, Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT SAMUEL H. SLOAN Petitioner pro se 1761 Eastburn Avenue, Apt. A5 Bronx, New York 10457 (212) 749-4727 Dick Bailey Printers, 290 Richmond Ave., Staten Islend, N.Y. 16802 Tel.: (212) 447-5358 INDEX Page ED cedcckticcescedtnaceuscecedécsuce 1 Pt cncckdds ceesesededondsduecdéeduncces 2 ED cceccncceccceececsesécesteces 3 Constitutional Provisions Involved.................. 6 Statutory Provisions Involved ...................... 8 PD caGccccbuctlvécbddddnvecdéctevcess 15 ED a misleading impression of what Statute scid. i ue ee e full and correct quotation of the (S) The Commission shall, after appropriate notice and opportunity for hearing, by order censure, deny registration to, suspend for a period not exceeding twelve months, or revoke the registration of, any broker or dealer if it finds that such censure, denial, suspension, or revocation is in the public interest and that such broker or dealer, whether prior or subsequent to becoming such, or any person associated with such broker or dealer, whether prior or subsequent t i poesia goa q 0 becoming so (C) is permanently or temporarily enjoined by order, judgment, or decree of any court of com- petent jurisdiction from acting as an investment adviser, underwriter, broker, or dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice 37 in connection with any such activity, or in con- nection with the purchase or sale of any security. (D) has wilfully violated any provision of the Securities Act of 1933, or of the Investment Ad- visers or of this chapter, or of any rule or regulation under any of such statutes. The brief of the S.E.C., however, quoted the law by stating the following: “In this regard, Section 15 (b\S) provided, inter alia, that the ‘Commission shall . . . suspend for a period not exceeding twelve months, or revoke the registration of, any broker or dealer if it finds _..that such broker or dealer ...(C) is per- manently or temporarily enjoined by . . . any court of competent jurisdiction . . . from engaging in or continuing any conduct or practice in connection with any .. . activity as a broker or dealer or} (D) has willfully violated any provision of _.. |Securities Exchange Act or of the rules promulgated by the Commission thereunder. |.’ From this it can be seen that the S.E.C., in drafting its brief, placed **. . ."’ where the law says “after appropriate notice and opportunity for hearing’ and at a later point placed **...°* where the law says “if it finds that such censure, denial, suspension or revocation is in the public interest. ..." Once the law is read correctly, it can be seen that an injunction in itself is not sufficient grounds to support the revocation of a broker dealer registration. There are three additional required elements which are (1) notice, (2) the opportunity for a hearing and (3) a finding by the S.E.C. that the revocation is in the public interest. The same three elements are also required for a bar or suspension under Section 15(b)(7) of the Securities Exchange Act. None of these three elements are present in the instant case and 38 hence the decision of the Court of Appeals must be reversed. The requirement that there be a finding of public in- terest has been noted in prior judicial opinions. For in- stance, in Jaffee & Co. v. S.E.C., 446 F. 2d 387, 394 (2d Cir. 1971) the Court of Appeals stated: “Had Jaffee & Co. been afforded adequate notice, it would have had an opportunity, both to take action to lessen the attractiveness of invoking derivative sanctions and to introduce evidence before the hearing examiner tending to show that the use of such sanctions would not have been in the public interest. These opportunities were totally denied by reason of the course adopted in the notice and at the commission's hearing.” The decision of the S.E.C. in the instant case did have a section labeled “public interest’. However, nothing discussed in that section was supported by or even alluded to in the 1286 page record of the proceedings before the S.E.C. Therefore, the findings of the S.E.C. regarding “public interest’ were not supported by substantial evidence and hence must be set aside and since a finding of public interest is an essential element in an S.E.C. disciplinary proceeding, the orders of the S.E.C. must be vacated in their entirety. However, the Court of Appeals bypassed this entire argument by its erroneous ruling that an injunction in itself is a sufficient ground to support the revocation of a broker dealer license. That section of the S.E.C.’s opinion which dealt with “public interest’ was devoted to a discussion of the very injunctions cited in the Court of Appeals opinion and to related court proceedings. The decision of the S.E.C. set forth its version of the terms of a preliminary injunction issued by United States District Judge Robert J. Ward on January 17, 1975 in an action instituted by the S.E.C. on 39 December 30, 1974 and quoted out of context and in a highly prejudicial way trom papers filed by Sloan in the Court of Appeals in a motion for a stay of that injunction and in a prior petition for a writ of mandamus in that case which asked the Court of Appeals to disqualify Judge Ward from proceeding further. (App. 28a-29a). In effect, the S.E.C. held that it was in the “public interest’’ not to have the authority of the S.E.C. challenged by a person such as Sloan and that Sloan should be barred from the securities business for that reason. However, it is clear from recent decisions of this Court that a delegation to an ad- ministrative agency of the broad discretionary authority to decide what is in the “public interest” is unconstitutional. See FEA v. Algonquin SNG, Inc. __ U.S. 49 L. Ed. 2d 49, 5&8 n. 10 une 17, 1976). Thus, in view of the manner in which the S.E.C. has exercised authority here, §15(b)(5) and §15(b)(7) of the Securities Exchange Act are unconstitutional. As it was pointed out previously, Sloan and Sloan & Co. did not have prior notice that either the court filings or the preliminary injunction issued by Judge Ward on January 17, 1975 or the permanent injunction issued by Judge Ward on January 18, 1974 were going to form the basis for the penalties imposed by the S.E.C. on April 28, 1975. The S.E.C. itself demonstrated the im- portance of these subsequent events by stating in its decision that it gave “weight’’ to the existence of the second injunctive suit in imposing sanctions (App. 28a) and by Stating: ‘Here we have facts and circumstances before us that were unknown to and could not possibly have been foreseen by our staff at the time of the set- tlement talks [which occurred prior to the hearing in Oct. - Nov. 1972] (App. 34a, n. 24).” It should be obvious that if the staff of the S.E.C. did not know and “could not have foreseen” the “‘facts and cir- 40 cumstances” which formed the basis for the S.E.C.’s imposition of sanctions, then Sloan did not know and could not have foreseen these facts and circumstances either. Had Sloan been afforded adequate notice, he, like the petitioner in Jaffee & Co. v. S.E.C., supra, would have had the op- portunity to introduce evidence before the Administrative Law Judge and to present legal arguments tending to show that the events of 1973, 1974 and 1975 referred to in the S.E.C.’s opinion did not demonstrate that it was in the public interest to impose sanctions on Sloan and Sloan & Co. The position of the Court of Appeals to the contrary boils down to the bald assertion that any time the S.E.C. obtains an injunction in a United States District Court, even by consent and without the defendant admitting or denying the charges, it can use that injunction as a basis for the imposition of administrative penalties without (1) notice (2) an opportunity for a hearing (3) an independent finding of public interest. This is clearly contrary to the requirements set by Congress in Section 15(b) of the Securities Exchange Act and hence the decision of the Court of Appeals must be reversed. On the basis of the foregoing it would seem apparent that the decision of the Court of Appeals should be reversed and this case should be remanded to that Court to determine if the findings by the S.E.C. of violations by Sloan and Sloan & Co. of S.E.C. rules and regulations are supported by substantial evidence. However, the S.E.C. has indicated, in a brief in opposition to a petition for a writ of certiorari filed under Docket No. 76-365, that it is prepared to argue that the Court of Appeals did review the evidence and found it to be sufficient. This petitioner regards that view as untenable since the opinion of the Court of Appeals did not mention the term “substantial evidence’’ although the petitioner devoted 7S pages of his brief to the argument that the evidence was insufficient. Even the S.E.C. ad- mitted that its principal witness, Arthur Burder, “‘ap- _— —— wie Ge tS 41 peared to be confused during the cross examination”’, briet p. 19, but it argued that the evidence was sufficient to support a finding that Sloan and Sloan & Co. had com- mitted at least some rule violations. In view of this, it seems reasonable to assume that had the Court of Appeals agreed that the evidence was sufficient it would have so stated and the absence of any discussion of the evidence means that either the court believed that it was unnecessary to review the evidence or the Court agreed with petitioner's argument that the evidence was insufficient and rested its decision on the grounds that an injunction is in itself sufficient to support the revocation of a broker dealer registration. In any event, it can be readily demonstrated that based upon the evidence in the record it could not be found that Sloan and Sloan & Co. wilfully violated any of the rules involved. This can be seen by taking up each of the rules in reverse order as follows: S.E.C. Rule 17a-11, 17 CFR §240.17a-11, requires a broker dealer to send a telegram to the S.E.C. notifying the S.E.C. of any violation the S.E.C. net capital rule ‘‘on the date of the violation.” The Order for Public Proceedings alleged that Sloan & Co. violated the rule on September 15. 1971, the date that the rule went into effect. The decision of the S.E.C. later “found” that this violation had occurred (App. 32a, n. 17) although two essential elements of proof were missing. First, the S.E.C. made no effort to prove that Sloan violated the net capital rule on September 15, 1971. Second, the S.E.C. failed to prove that Sloan did not send a telegraphic notice to the S.E.C. on that date or that he “wilfully” failed to do so. On appeal, the $.E.C. admitted this error and stated that the opinion of the S.E.C. had assumed “arguendo” that Sloan & Co. had not violated the net capital rule from July 28, 1971 until January, 1972. Nevertheless, the S.E.C. argued that Sloan & Co. was required to notify the S.E.C. by telegram of its January, 1972 net capital deficiency and ee 42 hence violated Rule 17a-11 by failing to do so. In other words, the S.E.C. argued that Sloan & Co. had not violated Rule 17a-11 on September 15, 1971 as the S.E.C. had found, but that he had violated the rule in January, 1972. The making of this argument provides one of the many examples of the continuously shifting theories of the prosecution of the S.E.C.’s case. In any event, the claim that Sloan violated Rule 17a-11 in January, 1972 has as its underpinnings the finding of the S.E.C. that Sloan & Co. had a net capital deficiency of $718 on January 31, 1972. (App. 26a) But the record shows that this finding was based upon faulty computations by S.E.C. investigator Kanoff of Sloan's net capital. In particular, Kanoff failed to give Sloan & Co. full credit for the market value of certain proprietary securities, principally Shareholders Excalibure Investments, an actively traded European mutual fund with over a billion dollars in assets, which Kanoff never- theless valued at zero. When asked why he valued these securities at zero, Kanoff testified that he did so “as a matter of expediency”’ (Transcript p. 244) and because his supervisor told him “not to bother” looking it up. (Transcript p. 242). Kanoff also testified that had he given these and certain other similarly treated items their full value rather than zero, Sloan & Co. would have been “right on the button” as far as being in compliance with the S.E.C.’s net capital rule. (Transcript p. 247). In short, it was Kanoff's faulty computation of Sloan’s net capital which created an otherwise non-existant violation of the S.E.C.’s net capital rule on January 31, 1972. At this point it is appropriate to mention that errors of this sort were typical of the computations made by Kanoff as a whole. For example, in the trial balances for July 31 and August 31, 1971, Sloan & Co. was long an item of 200 Voplex Corp. (Transcript p. 213-215, 230-231, 265-266). Kanoff valued this item at zero in spite of a computation submitted to the S.E.C. by Sloan which was available to 43 Kanoft and which showed Voplex Corp. to be worth $14 per share. Voplex Corp. was listed and traded on the American Stock Exchange but K anoff still valued its shares at zero apparently because he did not bother to look up the American Stock Exchange prices. Thus, Kanoffs com- putations for July 31, 1971 and August 31, 1971 were off by at least $2,800. Typical of its attitude towards this case, the S.E.C. has yet to admit that Kanoff was in error and that Voplex Corp. was traded on the American Stock Exchange at $14 per share on the dates in question even though this information is readily available in financial publications. Similarily, with respect to the August 31, 1971 trial balance, a failure in the S.E.C. photocopy machine caused three security positions worth $1676.25 to be washed out and Kanoff did not include the value of these securities in computing Sloan's net capital. (Compare Record p. 601 with Record p. 607-608). Kanoff, when confronted with this mistake on cross examination, admitted the error. (Transcript p. 232, 233 and 249). While honest human errors of this sort are understandable, it is significant to note that a year later in the trial in the injunction action before Judge Ward, the S.E.C. attorneys offered into evidence the identical capital computations containing the same errors without any explanation that Kanoff had previously admitted under oath that these computations contained mistakes. Judge Ward then proceeded to overrule all attempts by Sloan to show that these com- putations were wrong and incorporated the results of these computations into his findings of fact. Of course, these computational errors now seem to be of little moment since the S.E.C. conceeded, for the purposes of the appeal and contrary to the apparent findings of the S.E.C., that Sloan & Co. did not violate the net capital rule on any date starting from July 31, 1971 and continuing through December 31, 1971 since Sloan & Co. was not doing business during this period. However, in view of this 44 concession it should be noted that the finding of a violation of the net capital rule on January 31, 1972 is predicated not only on the finding of a $718 net capital deficiency on that date but also upon a finding that in January, 1972 Sloan “inserted quotations for various securities in the pink sheets published by the National Quotation Bureau, Inc.” (App. 26a). There is no evidence to support this finding and the finding itself is untrue. Since there is no evidence to support this finding it follows that there is insufficient evidence to support a finding of a violation of the net capital rule on January 31, 1972 and from this it follows that there is insufficient evidence to support a finding of a violation of Rule 17a-11 on the same date. In arguing this point, the petitioner went one step further in the Court of Appeals by po: ating out that under Fifth Amendment principles set forth in cases such as Leary v. United States, 39S U.S. 6, 16 (1969) a statute or rule requiring that an individual notify the government by telegram that he has violated a criminal statute, is un- constitutional. This argument is clearly correct since a violation of the net capital rule is made criminal by §32(a) of the Securities Exchange Act and hence Rule 17a-11 must be found to be unconstitutional even if the S.E.C. had been able to prove a violation, which it did not do. © The S.E.C."s method of “proving” this finding was to call Sloan as its witness and to ask Sloan under oath whether he submitted quotations to the pink sheets in January, 1972. When Sloan failed to respond affirmatively, the S.E.C. tried to impeach his testimony. This attempt to prove this finding was clearly improper. If the S.E.C. wanted to do so it had only to produce a copy of the pink sheets, which are readily available to the S.E.C. and show a quotation inserted by Sloan in January, 1972. The S.E.C. failed to do so. Un a related point, the S.E.C. computations concerning whether Sloan & Co. was in compliance with the net capital rule turned primarily on the valuation of the proprietary securities held by Sloan and Sloan and Co. specialized as a market maker in over-the-counter securities and invariably held a large securities mventory for that reason. Since an error of 10% or less in determining the market value of Sloan's security inventory would make the difference in whether Sloan & Co. was shown to be in or out of compliance with the net capital rule on the dates in question, clearly the S.F.C. was required to produce the pink sheets, the Wall Street Journal, or other sources of security prices in order to demonstrate that its market valuations were correct. Again, the S.E.C. ftarled to do so. - a SC a AE a 45 Turning now to the finding that Sloan & Co. wilfully violated Rule 17a-10, it should be pointed out that the S.E.C. made no effort to prove this violation through testimony at the administrative hearing. The only reference to Rule 17a-10 is the entire record of this proceeding (not counting briefs, decisions and orders) is in an attestation signed by the Deputy Records officer of the S.E.C. This attestation stated that “a report on Form X-17A-10 was filed June 8, 1972 by Samuel H. Sloan d/b/a Samuel H. Sloan & Co. pursuant to the provisions of the Securities Exchange Act of 1934."’ This statement clearly referred to Sloan's 1972 filing, which is not in issue in this case. Nevertheless, the decision of the S.E.C. states that “respondent says he did not [file an X-17A-10 Report] until December, 1971."" (App. 32a, n. 16). In fact, respondent made no such statement. On appeal, the S.E.C. claimed that this statement by respondent (the petitioner here) could be found in his answer. (Brief p. 26). However, the answer filed by the respondent merely stated that the report required by Rule 17a-10 was filed late, without stating when it was filed, and denied “that such late filing was wilfully done so as to violate Section 17(a) of the Exchange Act.” (Record p. 694). Under the Administrative Procedure Act, 5 U.S.C. §556 (d), the burden of proof at the administrative hearing was on the S.E.C., since the S.E.C. was the proponent of the order being sought. For the S.E.C. to invoke sanctions under §15(b)(5)(C) and §1S(b)(7) of the Securities Exchange Act, it must prove (1) that there was a violation of a rule and (2) that the violation was wilfull. In the case of the allegation of a violation of Rule 17a-10, since the S.E.C. did not make an effort to demonstrate either through testimony or documentary evidence that there was a rule violation, it clearly did not prove that the violation was wilfull. It should also be noted that during the period in question, Sloan employed the services of three certified public accountants, one of which, Taylor, was hand picked by the S.E.C. Each of these accountants prepared for filing a separate X-17A-5 report 46 at considerable expense to Sloan & Co.” Sloan & Co. also submitted trial balances and supporting schedules to the S.E.C. on a monthly basis, although not required by any rule to do so.8 Since Rule 17a-10 simply requires a one page unaudited statement of income and expenses for each calendar year and since Sloan was submitting far more comprehensive and detailed information to the $.E.C. on a regular basis, it is obvious Sloan simply did not realize that an X-17A-10 report was required in addition to all of the other reports he was submitting and that neither his ac- countants nor his attorney nor the S.E.C. itself told him about it.9 In any event, a violation of Rule 17a-10 is clearly de minimus. Knowing what a broker dealer’s income and expense was for a calendar year does not help the S.E.C. learn whether its rules have been violated, nor does it serve any regulatory purpose. Although it has been held that Congress may require business entities to keep records and —— 7. Taylor charged Sloan & Co. $1200 for preparing his financial report as at June 30, 1971. A previous accountant, Martin London, billed Sloan & Co. $650 for preparing an X-17A-S report as at September 25, 1970. 8. The decision of the S.E.C. states that ultimately the S.E.C. staff obtained “almost all of the trial balances it requested.” (App. 31a, n. 10). It also states that Sloan & Co. violated Rule 17a-3 by virtue of the fact that the S.E.C. “staff generally had to make about two or three requests for each trial balance it obtained.” (App. 26a). However, it can be seen from reading Rule 17a-3 that although it requires every broker dealer to maintain, among other things, monthly trial balances, see Rule 17a-3(a)(1 1), it does not require a broker dealer to submit these trial balances along with supporting schedules to the S.E.C. Moreover, since Sloan's office was only about six brocks away from the New York Regional office of the S.E.C., it was a simple matter for an S.E.C. in- vestigator to come to Sloan's office and examine his monthly trial balances and indeed the S.E.C. investigators often did so. ¥. It is significant to note that the S.E.C. does not claim that it had previously advised Sloan of any of the rule violations alleged in the Order for Public Proceedings or that it sent the customary warning letter sent in similar cases. See Economou v. U.S. Dept. of Agriculture, 494 F.2d 519 (2d Cir. 1974). Indeed, in response to a Freedom of Information Act request discussed infra. the S.E.C. released to Sloan a memorandum dated Apri! 20, 1971 which stated that the commission had instructed the staff “to warn Sloan about the alleged violations.’’ The staff never did so The S.E.C. has recently advised Sloan that this memorandum was releasea \o him unintentionally. 47 make reports, United States v. Morton Salt Co., 338 U.S. 632, 647-651 (1950), these reports must reasonably be related to a specific purpose. Shapiro v. United States, 335 U.S. 1, 32 (1948); Yakus v. United States, 321 U.S. 414, 424 (1944): United States v. Darby, 312 U.S. 100, 125 (1941). In its brief to the Court of Appeals, the S.E.C. argued that the reports required by Rule 17a-10 are “used by the Commission for statistical purposes necessary in connection with the commission's regulation of broker- dealers." (Brief p. 33). No further information was provided such as why this statistical information was necessary or where it was compiled or published. On this basis, Rule 17a-10 is unconstitutional. The converse situation is presented with regard to the next rule which the S.E.C. found that Sloan and Sloan & Co. had wilfully violated, namely Rule 17a-S. Rule 17a-5 requires brokers and dealers to file with the S.E.C , comprehensive certified financial statements on a periodic basis. The S.E.C. argues that these reports are necessary because they enable the S.E.C. to determine if the broker dealer is in compliance with the net capital rule, Rule 1Se 3-1. This is clearly correct since a report filed on Form X- 17A-S must state specifically whether or not the broker dealer is in compliance with the net capital rule and if there is a net capital violation, the exact amount of the net capital deficiency. As was noted in the discussion concerning the alleged Rule 17a-11 violation, a violation of the net capital rule is criminal inasmuch as it constitutes violation of Section 1Sic)(3) of the Securities Exchange Act. Under §32(a) ot the Securities Exchange Act, any person convicted of a violation of any provision of the Securities Exchange Act or any rule or regulation thereunder shall be fined not more than $10,000 or imprisoned not more than two years or both. Therefore, a broker dealer who files an X-17A-5 report which states that he is in violation of the net capital rule is confessing to .he federal government that he has committed a serious crime. Consequently, Rule 17a-5 is 48 unconstitutional under the Fifth Amendment principles set forth in cases such as Marchetti v. United States, 390 U.S. 39, 47 (1968); Grosso v. United States, 390 U.S. 62, 64 (1968); Haynes v. United States, 390 U.S. 85, 96 (1968) and Leary v. United States, 395 U.S. 6, 16 (1969). In spite of the compelling logic to this argument, the Court of Appeals disagreed, ruling that the Securities Exchange Act “is not criminal but clearly regulatory in nature.” 547 F.2d at 154. How it reached this conclusion is not explained. The S.E.C. argued to the Court of Appeals that the reports required by Rule 17a-5 and Rule 17a-11 “are not designed to ferret out criminal wrongdoing but ... to provide a means of determining whether broker dealers are in compliance with the financial responsibility requirements.” (Brief p. 32). In other words, the S.E.C. argued that it uses the X-17A-S and X-17A-11 reports, not to determine if broker dealers are committing a crime, but to determine if they are violating the law. The S.E.C. has no interest in knowing, in the absolute sense, how much capital a broker dealer has. It is only interested in knowing whether or not the broker dealer is in compliance with the net capital rule. Due to the complex provisions of the net capital rule, a broker dealer with a net capital of $10,000,000 can nevertheless have a net capital deficiency whereas a broker dealer with net capital of only $5000 and sometimes even less can be in full compliance with the rule. The reports required by Rule 17a-5S serve only one purpose, and that is to tell the S.E.C. whether the broker dealer is in compliance with the net capital rule. If there is any other purpose, the S.E.C. has yet to state what it is. With regard to the claim that Sloan & Co. wilfully violated Rule 17a-S, here again the S.E.C.'s case is again weak. The evidence adduced at the hearing by the S.E.C. consisted of the answers to three questions which were propounded when Sloan was testifying as a witness for the S.E.C. The first question was “were you aware that you had to file an X17AS for 1970?" Sloan answered, “Yes.”’ 49 The second question was, “Was this report filed on or by January 15, 1971?"’ Sloan answered, “No.” (Transcript p. 334). The third question was, “Why wasn’t it filed as of January 15, 1971?"’ To this question, Sloan gave a lengthy answer which he elaborated on during cross examination. Sloan's uncontradicted testimony was that he hired an accountant named Martin London of the New York City accounting firm of Lader, Scheps & London, who proceeded to prepare an X-17A-S report as at September 25, 1970. (Transcript p. 424). However, when Sloan went to file this report, he was told by Lawrence Jaffee, an at- torney in the Division of Legal Interpretation of the S.E.C.., that the report London had prepared was not acceptable as an X-17A-S report because, unbeknownst to Sloan at the time he had hired London, London was a partner in a small stock brokerage firm in Long Island and it was the view of the Division of Legal Interpretation of the New York Regional Office of the S.E.C. that any partner or officer of any registered securities broker dealer was not “in- dependent” within the meaning of Rule 17a-5 (b)(1) and therefore could not act as an independent certified public accountant for any other registered securities broker dealer. Based upon this ruling, Jaffee instructed Sloan to prepare a new report not as of a date within the time required for filing an X-17A-S report but as of the most current date possible. (Transcript p. 385). Sloan did as instructed and subsequently his new accountant, Raymond Leon, filed an X-17A-5 report as of January 29, 1971 which was treated as a 1970 filing. 10 Later, Sloan submitted yet a 10. The Administrative Law Judge stated that the report of financial con- dition as of January 29, 1971 was treated as a 1971 filing (App. 16a). This was not correct. At the administrative hearing, the attorney representing the S.E.C. stated “there's no allegation that Mr. Sloan has not filed the X-17A-S report for 1970” (Transcript p. 428) which, in its brief to the Court of Appeals, the S.E.C. explained as meaning that the S.E.C. was instead alleging that Sloan had not filed the X-17A-5 report on time. (Brief p. 27 n. 22). Also, the allegation in the Order for Public Proceedings was that Rule 17a-S was violated “from on or about October 10, 1970 to March S, 1971."’ March 5, 1971 was the date Sloan filed the January 29, 1971 report. Thus it is clear that this report was taken as satisfying the 1970 filing requirement. 50 third X-17A-S report, this one reflecting the financial condition of Sloan & Co. as of June 30, 1971, for the purpose of satisfying the 1971 filing requirement. During the administrative hearing, the S.E.C. seemed to be advancing a new charge, not alleged in the Order for Public Proceedings, that Sloan & Co. had failed to file an X-17A-5S report for 1971. This allegation was based on the assertion that the June 30, 1971 filing was not accepted by the S.E.C. (Incidently, the $.E.C. never notified Sloan that this filing had not been accepted and in fact notified Sloan’s accountant that the filing had been accepted (Transcript p. 172-173) ). Testimony was taken on the question of who on the staff of the S.E.C. made the decision not to accept the June 30, 1971 report as an X- 17A-S filing and why this decision was made. (Transcript p. 172-174). However, the Administrative Law Judge said that he was unable to see why it was not accepted as an X- 17A-S filing (Transcript p. 173-174) and the S.E.C. did not press its argument further. Once this background is understood, the finding that Sloan & Co. wilfully violated Rule 17a-S is not so obvious as the decision of the $.E.C. makes it appear. (App. 32a, n. 16). The threshold question would seem to be whether the S.E.C. acted arbitrarily and capriciously in refusing to accept Sloan's X-17A-5 report as of September 25, 1970. Had the S.E.C. been willing to accept this report, the filing requirement would have been satisfied and the instant case would probably never have come before the courts.!! 11. The S.E.C. started its investigation of Sloan and Sloan & Co. after receiving a letter from Sloan & Co. which stated that it was unable to file its X- 17A-5S report on time. The letter was sent on January 11, 1971 and Bruder, the S.E.C. staff investigator, made his first visit to Sloan's office the next day. — ee" 51 Then, assuming the S.E.C. was correct in refusing to accept Sloan's September 25, 1970 report, the next question is whether Sloan knew or should have known that this report would not be acceptable and whether, as a consequence, he wilfully violated Rule 17a-S. The third question is whether under applicable Fifth Amendment principles, the Government can constitutionally require the filing of an X-17A-S report which may require a broker dealer to admit criminal wrongdoing. Finally the fourth question is whether, assuming the answer to the first three questions is favorable to the position of the S.E.C., it is appropriate for the S.E.C. to bar Sloan for life from being associated with any broker or dealer because in 1971 he was four months late in filing his X-17A-S report.12 Actually, all of this is of little moment because it can be seen that S.E.C. is not authorized to institute an agency proceeding based merely upon a claim of a late filing of a required financial report. The Administrative Procedure Act, S U.S.C. §558(c)(2), requires the agency to give the respondent the “‘opportunity to demonstrate or achieve compliance with all lawful requirements.’’ With regard to the violations of the financial reporting requirements, the Order for Public Proceedings in this case alleged and the S.E.C. found that the violation of Rule 17a-S ended on March 5, 1971 and the violation of Rule 17a-10 ended on December 2, 1971 (App. 2a-3a, App. 32a). The S.E.C. 12. It is worth mentioning that the S.E.C. continued to give Sloan trouble with respect to the matter of X-17A-S reports. At a later date Sloan submitted an X-17A-S report prepared by Taylor as of July 31, 1972. The S.E.C. refused to accept this filing, stating that Taylor had appeared as counsel of record in this administrative proceeding and the S.E.C. would not permit the same person to act as both attorney and accountant for a broker dealer. Consequently, Sloan was forced to hire yet a fourth accountant who succeeded in preparing an X- 17A-S report dated December 31, 1972 which proved acceptable to the S.E.C. This, over a period of slightly more than two years, Sloan & Co. had a tota! of five X-17A-S reports prepared, of which three were rejected for arbitrary reasons which Sloan could not have anticipated. In view of Sloan's substantial efforts to satisfy the capricious demands of the S.E.C., it can hardly be said that he wilfully violated Rule 17a-5 $2 commenced its administrative proceeding on April 25, 1972 which was 13 and 4 months respectively after the conclusion of the alleged financial reporting violations. Therefore, the violations of Rule 17a-S and 17a-10 were non-existant at the time the S.E.C. commenced its agency proceeding against Sloan and Sloan & Co. consequently under 5 U.S.C. §558(c) the sanctions invoked in this case are “‘unlawful.”’ The foregoing points have eliminated all but two of the rules which the S.E.C. found that Sloan and Sloan & Co. had violated. The rules which remain are Rule 15c 3-1 (the net capital rule) and Rule 17a-3 (the bookkeeping rule). 13 The entire record generated by the S.E.C. with regard to its claims that Sloan and Sloan & Co. had violated the net capital rule on various dates consisted of handwritten ‘capital computations” and related documents which had been prepared by Bruder and Kanoff, the two S.E.C. staff investigators who testified at the administrative hearing. These capital computations were put into the record after only a cursory explanation of what they were based upon. On cross examination, Kanoff admitted at several points that his computations contained mistakes. Bruder, however, refused to admit any errors. Actually, most of Bruder’s figures bore no relation to the financial position of Sloan & Co. On direct examination, Bruder was asked nothing more than whether he prepared the figures and what his bottom line conclusion was. No further attempt was made by the S.E.C. to probe into how Bruder arrived at his computations or what was their factual basis. On cross examination, Bruder testified that he prepared his balance sheets for Sloan & Co. partly by taking figures he found somewhere in Sloan's books and records and partly by including in figures which he generated himself. (Transcript p. 57-61). Bruder was not an 13. The Administrative Law Judge found that Sloan and Sloan & Co. had also violated Rule 17a-4. (App. 13a). However, the S.E.C. reversed this finding. (App. 3a, n. 6). 53 accountant and, as far as the record shows, may not even have been a high school graduate. His testimony on cross examination and an examination of his capital com- putations shows that he took figures from various assorted places in Sloan's books and records and included them in his rendition of Sloan & Co.'s general ledger trial balance. When doing this put the trial balance he was preparing out of balance, Bruder then looked for other offsetting figures and if he could not find such figures he would create them himself. For example, in his January 18, 1971 trial balance, among those items labeled “‘non-current assets” Bruder listed ‘Receipts, Deliveries to customers =$9851.25."" On the liabilities side, Bruder listed “receipts, payments a/c customers = $11,010.13."" Sloan, incidently, had no customers at this time. Bruder admitted on cross examination that he did not find either of these figures in Sloan's general ledger accounts. (Transcript p. 58-60). Anyone with an elementary knowledge of bookkeeping principles knows that neither “Receipts, Deliveries to customers’’ nor “Receipts, payments a/c customers” are a proper general ledger item. Nevertheless, Bruder inserted these partially offsetting figures and then took the $9851.25 figure as a deduction from the net capital of Sloan & Co. Only after this and other equally ill-founded deductions did Bruder arrive at his final figures which purported to show a net capital deficiency for Sloan & Co. in the amount of $28,016.70. Annexed hereto as Appendix M is Bruder’s net capital computation for Sloan & Co. as of January 18, 1971. Any accountant can take one glance at this document and determine that the person who prepared it did not know the first thing about basic accounting and bookkeeping principles. Actually, the original document offered into evidence by the S.E.C. is illegible and Appendix M has been prepared for purposes of this petition with the aid of a magnifying glass. (Even with the use of a magnifying glass an inscription in the lower left hand corner of the original 54 document remains indecipherable). Appendix M is in- cluded by way of illustration since it is typical of the numerous computations introduced into evidence by the S.E.C. which form the underlying basis for the S.E.C.’s decision to bar Sloan for life from being associated with any broker or dealer. On appeal, the brief for the S.E.C. did not offer a word in defense of the obviously nonsensical computations of Bruder or the admittedly erroneous computations of Kanoff. Instead, the S.E.C. rested its argument on the point that “the capital computations involved were ad- mitted into evidence without any objection being made by Sloan's counsel.” (Brief p. 25). However, under 5 U.S.C. §SS6(d) there was no basis for an objection by Sloan's counsel on the grounds of admissibility. Administrative proceedings such as this one are not bound by the technical rules of evidence but after documents are received in evidence the burden of proof remains on the “proponent of the order’ to demonstrate that the documentary evidence has probative value. See Jacobowitz v. United States, 424 F.2d SSS, 559 (Ct. Claims, 1970). Clearly, capital com- putations riddled with mistakes, as most of the com- putations submitted by the S.E.C. admittedly or self evidently were in this case, have no probative value. Moreover, under 5 U.S.C. § SS8ic) Sloan should have had the opportunity, prior to the commencement of agency proceedings, to examine the capital computations and to demonstrate that they were wrong. Sloan was not given this opportunity and not only did the S.E.C. not let Sloan and his attorney and accountants examine the capital com- putations prior to the commencement of the agency proceedings, but the S.E.C. staff vigorously resisted all atiempts by Sloan's attorney to force production of these documents and the S.E.C. attorney in charge of its case even wrote a nasty letter to the Administrative Law Judge (Record p. 742) when on August 15. 1972 he ordered their 55 production (App. 7a-8a). Indeed, at the hearing, Taylor. Sloan's attorney, complained that he still had not been given the computations for January 29, 1971. Of course, the appropriate time to permit Sloan to see the January 29, 1971 computation was not on October 30, 1972, the first day of the hearing, or even two months before the scheduled hearing. Instead, the S.E.C. should have provided Sloan with a copy of its computations for January 29, 1971 in either January or February, 1971 and should have advised Sloan of its conclusion that Sloan & Co. was in violation of the net capital rule and given Sloan a meaningful opportunity to demonstrate that the figures were incorrect and/or to take corrective action. This point goes to the question of wilfullness. How can the S.E.C. claim that Sloan and Sloan & Co. wilfully violated the net capital rule in early 1971 when the S.E.C. itself, which had access to computations which Sloan did not have, never stated that this occurred until more than a year later? Compare Buchman v. S.E.C., slip. op. 3093, 3103 Qd Cir. April 20. 1977). The record in this case shows that Sloan had every reason to believe that he was in compliance with the net capital rule. As noted previously, Sloan & Co. filed with the S.E.C. a certified X-17A-S statement as of January 29, 1971 which had been prepared by Raymond Leon, a certified public accountant. This certified X-17A-S statement showed Sloan & Co. to have a net capital of $4,529.99 in excess of the S.E.C.’s requirements. The S.E.C. has never challenged the validity or the accuracy of this filed X-17A-5 report. Yet it continues to maintain, without a word of explanation. that Sloan & Co. was in violation of the net capital rule on January 29, 1971. Like the January 18 ‘971 computation, it can clearly be seen that Bruder’s January 29, 1971 computation was wrong. Most of the net capital deficiency he “found” was based upon a deduction of $10,000 which Bruder took from 56 Sloan's net capital. No logical explanation has ever been given for this deduction. As noted previously, the S.E.C. on appeal did not defend the accuracy of any of the capital computations but merely stated that no objection had been made to their admissibility. Bruder’s testimony was that he had deducted the $10,000 as an “unconfirmed gift’ from Sloan's mother. He testified that he had not found this item anywhere in the assets of Sloan & Co. (Transcript p. 69), that Sloan's mother did not write to the S.E.C. to say that she had given her son $10,000 (Transcript p. 71), and that consequently Bruder had included the sum of $10,000 as a “liability” of Sloan & Co. (Transcript p. 70). This assertion makes no logical sense. Neither Sloan nor his mother nor the books and records of Sloan & Co. stated that Sloan had received $10,000 from his mother as a gift or otherwise and yet Bruder deducted $10,000 from the net capital of Sloan & Co. The Administrative Law Judge demonstrated his misunderstanding of the case when he said that Sloan “claimed a $10,000 gift from his mother, which was not supported” (App. 15a). Actually, it was the other way around. Moreover, the Administrative Law Judge's Statement that the gift was “not supported"’ was based on the false testimony by Bruder that Sloan had failed to give him a deposit slip showing a deposit of $10,000. This false testimony occurred when Alan Rashes, the attorney ap- pearing for the S.E.C., asked Bruder a question in preparation to offering a deposit slip dated January 29, 1971 into evidence. Rashes asked Bruder whether Sloan ever gave him a deposit slip, obviously expecting a “yes” answer. (Transcript p. 90). When, to the surprise of Rashes, Bruder gave a “no” answer, Rashes put the deposit slip away leaving the Administrative Law Judge with the false impression that the $10,000 deposit “was not supported.” Actually, by introducing the $10,000 deposit slip, Rashes was trying to confuse the issue since this item could not possibly have represented the $10,000 which Sloan sup- posedly received from his mother at a much earlier date. 5? A year later, at the trial of the parallel injunctive action, Sloan obtained an order from Judge Ward requiring the S.E.C. to search its records and produce such a deposit slip, if one existed. After making a tremendous protest to Judge Wards order, the S.E.C. produced a deposit slip and an April, 1971 trial balance, both of which had been sub- mitted to the S.E.C. and both of which the S.E.C. had claimed in its proposed findings of fact that it had never received. Sloan then wrote to the S.E.C. and advised that Bruder and Kanoff had now admittedly testified falsely when they said that the deposit slip and the April, 1971 trial balance respectively had never been received by the S.E.C. (Record p. 1255-1256). However, the S.E.C. sidestepped the problem of perjured testimony by its two staff investigators (Transcript p. 90 and p. 102), knowingly induced and left uncorrected by its staff attorneys in charge of the prosecution of its case, when it said that the receipt of these items had “no bearing’ on the net capital deficiencies. (App. 31a, n. 8). This was not correct as it can be seen that the S.E.C., in a quick shift of its theory of prosecution of its case, offered Sloan's failure to give Bruder the $10,000 deposit slip as ‘‘proof”’ that Bruder was correct in deducting $10,000 from Sloan's net capital. Significantly, Kanoff, who was assigned to this matter after Bruder retired from the S.E.C.,which occurred shortly after he made his computation as of January 29, 1971, did not deduct the mysterious $10,000 figure when he com- puted the net capital of Sloan & Co. as of February 26, 1971. He did, however, deduct the sum of $58,175 as a “loan payable” to one Joseph Iny. Iny was a stock broker with whom Sloan had had financial dealings unrelated to his activities as a market maker in over-the-counter securities. The sum of $58,175 was the total amount of money which had changed hands between Sloan and Iny. However, Iny, who testified as a witness for the S.E.C., did not testify that he ever loaned Sloan the sum of $58,175. In fact, he testified, directly to the contrary, that although he “wouldn't question |Sloan's| honestly” he was afraid to put 58 “too much money in his hands.” (Transcript p. 382-383). Iny also testified that he was “‘satisfied’’ with the results of his financial dealings with Sloan (Transcript p. 381) although Sloan had “personally offended’ him at a later date, (Transcript p. 390). The record of this proceeding contains documents setting forth details of all of the financial transactions between Sloan and Iny during the pertinent period. An examination of these documents shows that Sloan did not owe Iny $58,175 or any other sum of money on February 26, 1971. Nevertheless, Kanoff arrived at the conclusion that Sloan & Co. had a net capital deficiency of $15,961 after deducting a “loan payable’ of $58,175 from Sloan's net capital. There is no factual basis for this deduction and, like the previously discussed deductions, the brief of the S.E.C. did not, obviously because it could not, defend the accuracy or the validity of this deduction. Thus it can be seen that the S.E.C.’s capital com- putations for January 18, 1971, January 29, 1971, February 26, 1971, and January 31, 1972 were plainly and, in the latter case, admittedly erroneous and, as noted previously, the S.E.C. now agrees that no violations of the net capital rule occurred on any of the dates from July 30, 1971 through December 31, 1971. That leaves June 30, 1971 as the only other date on which the S.E.C. specifically found a net capital violation.!4 However, due to an anomaly in the 14. The appeal brief for the $.E.C. claims that Sloan himself testified that he was in violation of the net capital rule on July 28, 1971, and that this testimony can be found on pages 409-410 of the transcript. However, on those pages Sloan testified that Taylor told the S.E.C. at the July 28, 1971 meeting that the report Taylor had prepared showed that Sloan & Co. did not have sufficient net capital to do business. As the S.E.C. well knows, the matter discussed at the July 28, 1971 meeting was Taylor's report concerning the net capital of Sloan & Co. as of June 30, 1971. In any event, in urging that there was a violation of the net capital rule on July 28, 1971, the S.E.C. was urging the Court of Appeals to make « finding which the S.E.C. itself did not make. Under § 2Sia)4) of the Securities Exchange Act, the Court of Appeals does not have the authority to make new findings of fact and is only authorized to set aside those findings of fact which are not supported by ‘substantial evidence.” 59 way in which the S.E.C. computes the net capital of broker dealers, a net capital computation reflects the proprietary securities owned by the broker dealer five business days earlier. In this case, that micans that ihe computation of the net capital of Sloan & Co. as of June 30, 1971 involved a valuation of the securities owned by Sloan & Co. on June 23, 1971, five business days earlier, since any securities bought or sold by Sloan & Co. on or after June 24, 1971 would not reach settlement date until on or after July 1, 1971 and consequently would not be reflected on he June 30, 1971 capital computation. However, the fact is that on June 23, 1971 and the days immediately proceeding, Sloan and Sloan & Co. were prohibited by a temporary restraining order obtained by the S.E.C. from effecting any purchases and sales of securities. Thus, in the normal circumstance, if the net capital of Sloan & Co. had become impaired, the situation could have been rectified by selling the long positions or buying the short positions maintained by Sloan & Co. so as to reduce the 30% haircut to the extent necessary to rectify the capital impairment. However, in this case, Sloan & Co. was prohibited by a district court order from conducting the necessary market operations to rectify any net capital problems that might arise. Con- sequently, it cannot be found that Sloan and Sloan & Co. wilfully violated the net capital rule on June 30, 1971. From this point it can further be seen that the net capital rule is unconstitutionally vague and uncertain. Every time the S.E.C. computes net capital, it bases its computation on the market price of the security positions of the broker dealer as they existed five business days earlier. If it happens that during the five days between the trade date and the settlement date, the securities owned by the broker dealer as of the trade date fluctuate the wrong way, the result might be a net capital violation, even though the offending securities were sold as many as four days prior to the date of the computation. For this reason, it is im- 60 possible for a broker dealer to tell whether a transaction is legal at the time he makes the transaction and hence under cases such as Connally v. General Construction Co., 269 U.S.385, 391 (1926) the net capital rule is unconstitutional. On appeal, the S.E.C. admitted that “because of market fluctuations it might be difficult for a broker-dealer to know whether he was in compliance with the capital requirements” (Brief p. 29) but argued that this problem would not arise if the broker used “trade date accounting rather than the settlement date accounting used by Sloan & Co.” However, “settlement date’’ accounting is used by virtually all broker-dealers and is required for all broker- dealers who are members of the New York Stock Exchange. Moreover, it was Bruder and Kanoff, not Sloan & Co., who made the decision to use “settlement date’’ accounting. It was they alone who made the computations which, ac- cording to the S.E.C., show that Sloan & Co. was in violation of the net capital rule. Clearly, Sloan & Co. was not in a position to dictate the accounting methods used by Bruder and Kanoff. In addition, the “trade date’ ac- counting method has a variety of other even more serious infirmities which explains the fact that it is virtually never used by broker dealers. Among these is the fact that under the trade date method, all sales of securities become “‘fails to deliver’’ five days before the settlement date and this results in an increase in the aggregate indebtedness which automatically results in a reduction in the net capital available to the broker dealer. The foregoing analysis has been somewhat tedious but it nevertheless has demonstrated that the record does not and could not show that Sloan and Sloan & Co. wilfully violated the net capital rule on any of the dates in question. That leaves only the violation of Rule 17a-3, the bookkeeping rule. A discussion of this alleged violation requires a sentence by sentence analysis of the decision of the S.E.C. which required 37 pages of the petitioner's brief in the 61 Court of Appeals and which resulted in the conclusion that none of the statements made by the S.E.C. regarding violations of Rule 17a-3 were supported by ‘‘substantial evidence”. It would not be appropriate to include this analysis in this petition for a writ of certiorari. For this reason, only a few brief points will be made. First, many of the facts found in the S.E.C.’s decision do not constitute recordkeeping violations. For example, the decision states that the S.E.C. staff had to ask two or three times for each trial balance it obtained. (App. 26a). However, regardless of how much this might inconvenience the S.E.C., it does not constitute a violation of Rule 17a-3. Second, many of the S.E.C.’s findings are directly contradicted by the record. For example, the decision states that on January 18, 1971 Sloan “furnished something.”” (App. 25a). Bruder, however, did not testify that Sloan furnished “something.” Instead, he testified that he received from Sloan “something which may have been a trial balance. I'd have to examine it.’’ After examining the document in question, Bruder said that it was ‘‘a trial balance as of January 14, 1971." (Transcript p. 26). Thus, Sloan did not furnish “something’’ but instead furnished a trial balance as of January 14, 1971. Similarity, the decision of the S.E.C. states that Sloan had ‘“‘no books, per se’’ and that “‘all |Sloan| had were debit and credit slips."’ (App. 25a). To be sure, Kanoff's testimony does support this finding but Kanoff went on to testify that the records Sloan maintained were the usual kind of records one would see in a broker using a computer system. (Transcript p. 204). The decision of the S.E.C. further states that computations of net capital were not prepared as required (App. 25a-26a) but Sloan's uncontradicted testimony in the record was that he had prepared all of the required capital computations and that these capital computations were available in his office any time anyone from the S.E.C. wanted to see them. (Tran- script p. 331). Third, although the main thrust of the 62 S.E.C.’s claim that Sloan violated the bookkeeping rule is derived from Bruder’s testimony that certain items “‘were not properly recorded,’ were ‘‘not kept current” or were not “prepared,”’ Bruder was unable to specify in any more detail than that found in the S.E.C.’s decision which records it was that were not “properly recorded,” “‘kept current” or ““prepared.’’ Moreover, the S.E.C. did not offer into evidence originals or copies of any of the records or ledgers which it claims were not properly prepared and the only “evidence” in support of the finding of a violation of the recordkeeping rule was Bruder’s extremely hazy recollection of the state of Sloan’s records a year and a half earlier. For example, on direct examination, Bruder testified that Sloan & Co. did not maintain a general ledger. (Transcript p. 23). On cross, however, he explained that the general ledger of Sloan & Co. was “not properly maintained.”’ (Transcript p. 51). Sloan’s counsel then spent several pages of the transcript pressing Bruder for details concerning the manner in which Sloan's general ledger and other records were ‘“‘not properly maintained.” Invariably, Bruder’s answer boiled down to “I can’t recall at this time” or words to that effect. For example, on pages 53-54 of the transcript Bruder testified: Q. Did you say, Mr. Bruder, that there was no general ledger maintained by Sloan & Co.? A.1 said the general ledger was not properly maintained. Q.I ask you again, how was it improperly maintained then? A. 1 explained that the capital account was not properly maintained. Entries for certain capital were not put in there, also income and expense was not properly recorded there. Q. How was the income and expense improperly recorded? A. There were missing items. 63 Q. Such as? A. Certain items of commissions, | would say. Q. Wheat specifically were the commissions omitted? A. Well, Mr. Sloan had a rather—rather, Sloan & Co. had executed an agency transaction. There were certain commissions that were omitted or in the book. I can’t recall at this time. Q. Do you know, if your testimony is, sir, that the records were improperly maintained because of this, | ask you what commission was not recorded on what agency transaction? A. That, Mr. Taylor, is a very hard question. | can't answer that. Q. You don’t know, fine, okay. That is the response. It is submitted that this testimony, which ironically forms the entire basis for the S.E.C.’s finding that “income and expense items were not properly recorded’”’ (App. 2Sa),!5 does not provide substantial evidence sufficient to justify the revocation of the broker-dealer registration of Sloan & Co. and the lifetime bar preventing Sloan from being associated with any broker or dealer. In short, the S.E.C.’s case is inordinately weak, if not non-existent. This explains why it is clear that the Court of Appeals did not and could not have reviewed the evidence and found it to be sufficient and why it must have based its decision solely upon its erroneous ruling, discussed supra. that an injunction in itself is sufficient to support the 1S. On direct examination, Bruder testified that there were “no account records of income and expenses.” (Transcript p. 23). Here and elsewhere, when Bruder’s testimony on direct examination was in conflict with his testimony on cross examination, the decision of the S.E.C. reflects what Bruder said on cross examination. It is interesting to note that although Bruder testified that Sloan & Co. maintained “‘no account records of income and expenses,” the trial balance he prepared as of January 18, 1971, which is in- cluded as Appendix M, has an item labeled “Operating Expenses $5135.05." 64 revocation of a broker-dealer registration. It should also be pointed out that the decision of the S.E.C. is jurisdic- tionally defective in that the S.E.C. did not find and the S.E.C. staff did not prove that Sloan or Sloan & Co. purchased or sold any security or made any use of the means or instrumentalities of interstate commerce. In any event, if the S.E.C. continues to maintain the untenable position that the Court of Appeals reviewed the record and found that the findings of fact were supported by “substantial evidence,” it will encounter a problem arising from the point that it is clear from decisions of this Court that in any proceeding brought by the Government in which punishment might be inflicted, the accused has the constitutional right to have the facts tried by a jury as opposed to, in this instance, an Administrative Law Judge whose principal qualification for the job is his many years of dedicated service as an employee of the S.E.C. and who has never found for any respondent in any proceeding over which he has presided. Sloan has been barred for life from being associated with any broker dealer. That is clearly punishment. For that reason, under the Sixth Amendment and possibly the Seventh Amendment, Sloan had the constitutional right to have the facts tried by a jury. This is clear from this Court’s decision in Atlas Roofing Co. v. Occupational Safety and Health Review Commission, U.S. . 51 L.Ed. 2d 464 (March 23, 1977). Moreover, it should be noted that the S.E.C. staff proposed that this proceeding be settled with merely a sixty day suspension of Sloan and Sloan & Co. The tremendous desparity between this settlement proposal and the punishment ultimately inflicted demonstrates that the potential for vindictiveness in administrative proceedings before the S.E.C. is high. Indeed, it is evident that the real reason that Sloan has been punished as severely as he has is not that he did anything which violated the Securities Exchange Act but that he was outspokenly critical of the S.E.C. itself. (See 65 28a-29a). In fact, this is the only case in the history of the S.E.C. in which the same or comparable penalties have been invoked based solely upon a finding of a violation of the net capital, bookkeeping and reporting rules where no fraud was involved. For this reason and because of con- stitutional considerations too familiar to be recited in detail here, there is a substantial question as to yang se proceedings against Sloan and Sloan & Co. have violat the Fifth, Sixth, Seventh, Eighth, Ninth and Tenth Amendments as well as §558(c) of the Administrative Procedure Act. It is submitted that this question is of sufficient importance as to require resolution by this Court. There is one further matter. Shortly after the passage of the 1975 amendments to the Freedom of Information Act, Sloan requested the S.E.C. to provide him with a copy of all documents in its files relating to the investigation and prosecution of Sloan and Sloan & Co. After Sloan gave the S.E.C. numerous extentions of time, the S.E.C. wrote a letter dated September 2, 1976 which stated that, with certain specified exceptions, all of the requested material would be released. However, due in part to problems with the photocopy machine in the public reference room of the S.E.C., Sloan was unable to make copies of the ‘released documents until only about a week before the oral argument of this case before the Court of Appeals. Contained in the released documents were some statements which contradicted the findings of the S.E.C. For example, the decision of the S.E.C. found that when Kanoff visited Sloan's office on May 6, 1971, he was unable to verify Sloan's trial balance. (App. 25a). However, in a memorandum dated May 7, 1971 which discussed the May. 6 visit, Kanoff stated: “‘To the extent of the trial balance, I was able to verify same.”’ In addition, the released material contained documents which were not in themselves ex- culpatory but which were sufficient to impugn the validity of certain of the S.E.C.’s findings. For example, one document was a typewritten net capital computation 66 prepared by an unidentified member of the S.E.C. staff which stated that Sloan & Co. had a net capital deficiency of only $1657.09 on January 29, 1971. Although this computation did not show Sloan & Co. to be in compliance with the net capital rule, it was considerably at variance with the handwritten and illegible computation prepared by Bruder which purported to show a net capital deficiency of $11,912 on the same date. On the basis of this material, Sloan filed a motion pursuant to Section 25(a)(S) of the Securities Exchange Act, 15 U.S.C. § 78y(a)(S), to remand this case to the S.E.C. with leave to adduce additional evidence. However, the Court of Appeals ignored this motion in its November 18, 1976 decision. Sloan also appealed to the S.E.C. from the refusal of the S.E.C. on September 2, 1976 to provide him with the remaining documents in accordance with the Freedom of Information Act. This appeal was decided on March 28, 1977 with Commissioners Loomis, Evans and Pollack participating. The decision was that the previously withheld documents would be released to Sloan with the exception of those parts which contained staff opinions which would be excised. Sloan actually obtained the documents on April 20, 1977. Among the documents released to Sloan was a five page memorandum dated February 16, 1971 which stated: On February 4, 1971 a member of the staff visited Registrant’s offices in order to determine (1) whether Registrant was still conducting business and (2) whether Registrant’s books and records had been put in order. It appeared that Registrant was still conducting business as a broker-dealer. It further appears that Registrant has no public customers and is dealing strictly for its own account. Further, Registrant's 67 books and records now appear to be current and are being brought to order and appear to balance. On February 4, the staff prepared another trial balance which also reflected the firm's financial condition as of January 18, 1971. An analysis of the trial balance indicated |remainder of paragraph excised |. According to the second analysis of the firms January 18, 1971 position prepared on February 4, it appears that registrant is now in compliance with the Commission's Net Capital Rule. Registrant's capital situation now appears to be as follows: Aggregate Indebtedness $9,565.76 Required Minimum Net Capital $5,000.00 Adjusted Net Capital $9,572.92 Total (Excess) $4,572.92 The above quoted passage is exculpatory in nature and is of such high value that it could not have been overlooked by the S.E.C. Clearly, the existence and contents of this memorandum should have been made known to the defense prior to the administrative hearing and the failure of the S.E.C. to do so requires either a remand or an outright reversal of the decision of the S.E.C. See United States v. Rosner, 516 F.2d 269, 272 (2d Cir. 1975) citing Jencks v. United States, 353 U.S. 657 (1957) and other cases. This is particularly true since the Administrative Law Judge denied the request by Sloan's counsel to examine the investigatory files of the S.E.C. (Transcript p. 109-110). The importance of the fact of this February 4, 1971 visit cannot be overestimated. In addition to the obvious points, it should be noted that the S.E.C. never previously revealed, either in this administrative proceeding or in the parallel injunctive proceeding, that a visit on February 4, 1971 took place. The S.E.C. did find that Bruder visited Sloan's office 68 on February 25, 1971. (App. 25a). However, Bruder ac- tually testified that he received Sloan's trial balance and prepared his computation of January 29, 1971 on February 25, 1971 in the offices of the S.E.C., not in Sloan's office. (Transcript pp. 37, 83). None of the memorandums prepared by the S.E.C. and released pursuant to the Freedom of Information Act mention any visit by any S.E.C. investigator to Sloan's office in February, 1971 on any date other than February 4, 1971. Thus, it appears that the February 25, 1971 visit, which the S.E.C. “found” in its decision (App. 25a), never took place.!6 The memorandum’s released to Sloan contain numerous additional items of interest. For example, one memorandum stated that on November 24, 1970 the New York Regional office of the S.E.C. denied the request of Sloan & Co. for an extention of time to file its Rule 17a-5 report. However, Sloan and Sloan & Co. were never notified of the denial of this request. Under S.E.C. Rule 17a-Sid), the denial of such a request must be by order in writing. In the Matter of International Shareholders Services Corp., 9 S.E.C. Docket 821, 823; Securities Exchange Act Release No. 12389 June 8, 1976) the S.E.C. dismissed a proceeding based on a Rule 17a-S violation on the ground that its staff had failed to comply timely with this rule. Based upon that decision the finding of the Rule 17a-S violation here should also be set aside. It is clear that the S.E.C. staff did not enter an order and give any written notification to Sloan and Sloan & Co. because had it done so it would have retained a copy in its records and the material released to Sloan under the Freedom of Information Act, which is 16. Judge Ward also “found” that a February 25, 1971 visit had occurred. See S.E.C. v. Sloan, supra, %9 F. Supp. 996, 369 F. Supp. 996, 998, 49. However, it is obvious that Judge Ward merely copied the proposed findings of fact submitted by the S_E.C. before the trial because had he checked the trial transcript he would have seen that Bruder never testified that he visited Sloan's office in February, 1971. It is significant to note that the Administrative Law Judge did not “find” that there had been a February 25, 1971 visit but rather found that there had been a visit on January 25. 1971. (App. Ila). supposed to include all the files and records of the S.E.C.., contained no order of notification. Sloan did not and could not have argued the significance of these points before the S.E.C., because the Freedom of Information Act material just discussed was not released to him until long after the S.E.C. concluded its proceedings. Therefore, at a minimum, this case should be remanded pursuant to §2SiaXS) of the Securities Exchange Act with leave to adduce additional evidence.!7 In addition to the foregoing matters, this petition requests this Court to review that part of the decision of the Court of Appeals which upheld the validity of the initial order suspending trading in the stock of Canadian Javelin Ltd. Petitioner contends that the order in question was not supported by substantial evidence and that a summary suspension of trading is unconstitutional. Moreover, petitioner contends that the questions presented are of sufficient importance as to require the granting of a petition for a writ of certiorari. It can be seen from examining Appendix L that the Court of Appeals is in error when it states that the record demonstrates ‘sufficient evidence of probable manipulation of (Canadian Javelin Ltd's} common stock and of the false and fraudulent representations as to its soundness and value. ...” 547 F.2d at 156. The record itself, which consists of appendix K and appendix L, says something entirely different and is devoid of ‘substantial evidence.” In addition it is clear from National Cable Television v. United States, 415 U.S. 336, 342 (1974) that a law which gives an independent administrative agency the broad authority to act in accordance with what it perceives to be the “public interest” and which provides no stan- 17. In December, 1975 Sloan requested that the S.E.C. itself grant this relief on different grounds but the New York Regional Office opposed Sloan's motion with a memorandum which stated that under §2Sia) the Court of Appeals has “exclusive jurisdiction” to do so. The motion was denied. 70 dards to guide the administrative agency in making the decision whether to act, is unconstitutional as a delegation of legislative power. On this basis, it is submitted that Section 12(k) of the Securities Exchange Act is un- constitutional. CONCLUSION For all of the reasons set forth above, this petition for a writ of certiorari should be granted. Respectfully submitted, SAMUEL H. SLOAN 1761 Eastburn Ave., Apt. AS Bronx, N.Y. 10457 (212) 749-4727 May 4, 1977 la APPENDIX A ORDER FOR PUBLIC PROCEEDINGS UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION xX In the Matter of SAMUEL H. SLOAN d/b/a SAMUEL H. SLOAN & CO. (8-157S0) X The Commission's public official files disclose that A. Samuel H. Sloan d/b/a Samuel H. Sloan & Co. (Sloan & Co.) a sole proprietorship with his principal place of business at 120 Liberty Street, New York, New York, has been registered with the as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) since May 10, 1970. B. Sloan & Co. is a member firm of S.E.C.O. II As a result of an investigation, the Division of Trading and Markets has obtained information which tends to show and it alleges that: A. During the period from about January, 1971 and continuing to the present, Sloan & Co. has willfully violated Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder in that Sloan & Co. has failed to 2a accurately make, keep current or maintain certain of its books and records including, but not limited, to: (1) ledgers (or other records) reflecting all assets and liabilities, income and expense and capital accounts; (2) A_ securities record or ledger reflecting separately for each security as of the clearance dates of all “long’’ and “‘short’’ positions (in- cluding securities in safekeeping) carried by such member, broker or dealer for his account; (3) Ledgers (or other records) reflecting securities failed to receive and to deliver; (4) Copies of all confirmations of all purchases and sales of securities and copies of notices of all - other debits and credits for securities, cash and other items for the account of customers and partners of such member, broker or dealer; and (S) A record of proof of money balances of all ledger accounts in the form of trial balances. B. During the period from about January 1971 to on or about January 31, 1972 with the exception of the month of March 1971, Sloan & Co. willfully violated Section 15S(c)3 of the Exchange Act and Rule 15c3-1 thereunder in that Sloan & Co. made use of the mails and means and in- strumentalities of interstate commerce to effect tran- sactions in and to induce and attempt to induce the pur- chase and sale of securities (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) otherwise than on a national securities exchange when Sloan & Co.'s aggregate indebtedness to all other persons exceeded 2,000 per centum of its net capital and Registrant did not have and did not maintain net capital of not less than $5,000. C. During the period from on or about October 10, 1970 to March 5, 1971, Sloan & Co. willfully violated Section 17(a) of the Exchange Act and Rule 17a-S thereunder, in 3a that Sloan & Co. failed to file a report of its financial condition with the Commission for the calendar year 1970 within the time specified by said rule. D. During the period from on or about April 30, 1971 to on or about December 2, 1971, Sloan & Co. willfully violated Section 17(a) of the Exchange Act and Rule 17a-10 thereunder, in that Sloan & Co. failed to file a report of income and expenses with the Commission for the calendar year 1970 within the time specified by said Rule. E. From on or about September 15, 1971, to the present, Sloan & Co. willfully violated Section 17(a) of the Ex- change Act and Rule 17a-11 thereunder in that Sloan & Co. failed to telegraphically notify the Commission that it was not in compliance with the net capital rule (15¢3-1), file within 24 hours a report of its financial condition or file a Form X-!7a-11 report within the time specified by said Rule. F. On June 24, 1971, the United States District Court for the Southern District of New York entered an order by consent, which order preliminarily enjoined Sloan & Co. and Sloan from conducting a business as a broker-dealer in securities at a time when Sloan & Co. or any other registered broker-dealer of which Sloan became a principal or controlling person was not in compliance with Sections 1S(c)(3) and 17(a) of the Exchange Act and Rules 15c3-1, 17a-3 and 17a-4 thereunder. In view of the allegations made by the Division of Trading and Markets, the commission deems it necessary that public proceedings be instituted to determine: A. Whether the allegations set forth in Section II hereot are true and in connection therewith to afford respondents an opportunity to establish any defenses to such allegations; and 4a B. What, if any, remedial action is appropriate in the public interest pursuant to Section 15(b) and 15A of the Exchange Act. IV it is Hereby Ordered that a public hearing for the purpose of taking evidence on the questions set forth in Section III hereof be held at a time and place to be fixed and before a hearing examiner to be designated by further order as provided by Rule 6 of the Commission's Rules of Practice (17 CFR 201.6). It is Further Ordered that each party file an answer to the allegations contained in the order for proceedmgs within fifteen (15) days after service upon him of said order provided by Rule 7 of the Commission's Rules of Practice. If any party fails to file the directed answer or fails to appear at a hearing after being duly notified, such party shall be deemed in default and the proceedings may be determined against such party upon consideration of the order for proceedings, the allegations of which may be deemed to be true. This order shall be served upon Sloan & Co. and Sloan personally or by certified mail forthwith. By the Commission. s/Ronald F. Hunt Ronald F. Hunt Secretary 5a APPENDIX “B” ORDER POSTPONING HEARING AND DENYING MOTION FOR MORE DEFINITE STATEMENT UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION July 31, 1972 In the Matter of SAMUEL H. SLOAN d/b/a SAMUEL H. SLOAN & CO. (8-15750) The order for proceedings (“Order”) entered on April 25, 1972 pursuant to Sections 1S(b) and 15A of the Securities Exchange Act of 1934 (‘Act’) is based upon charges of the Division of Trading and Markets (“Division’’) that registrant, Samuel H. Sloan & Co. wilfully violated Sections 15(c)(3) and 17(a) of the Act and Rules 1Sc3-1, 17a-3, 17a-4, 17a-S, 17a-10 and 17a-11, thereunder. On June 15, 1972 a prehearing conference was held which resulted in an order by the undersigned concerning specific items to which the parties had agreed to stipulate. In addition, on June 20, 1972, counsel for registrant met with counsel for the Division at wa.ch time all documents relating to Paragraphs A & B of the Order were reviewed. Registrant has moved for a more definite statement as to paragraph A and E of the Order. Registrant seeks details regarding its own records concerning ledger, stock record, ledgers for Fail to deliver and Fail to receive, confirmations of customers and partners and trial balances. Registrant. also moves for continuation of the hearing pending compliance with the Order under this motion. The Division, in opposition points out that the stipulation, which was the subject of the ¢ Order of June 16, 1972, has been executed and that on June 20, 1972 registrant was allowed to examine all net worth com- putations prepared by the Division. It is well-established that in a notice of hearing such as the one in question, a respondent is entitled to sufficient information concerning the charges and issues involved to permit him to make adequate preparation of a defense, but is not entitled to a disclosure of the evidence upon which the Division intends to rely for proof of those charges and issues. M.J. Reiter Co., 39 SEC 484 (1959); Keith Richard Securities Corp., 39 SEC 240 (1958). Nor is it necessary for the notice of proceedings to detail and itemize “‘all ahe particular acts, which together constitute the offense.” Michael J. Meehan, 1 SEC 238, 240 (1935). Under applicable principles it appears that in view of the pre-hearing conference and subsequent order concerning the stipulation of facts and the June 20th meeting with Division counsel registrant has been reasonably apprised of the charges against it, and it not entitled to the sought-for particulars as a matter of right. Accordingly, It is Ordered that the motion of registrant for a more definite statement is denied except to the extent it has already been complied with by the Division. It is Ordered, further, that the hearing now scheduled to commence on August 14, 1972 is postponed to 11:00 A.M. on September 11, 1972, at the place heretofore designated. s/Ralph H. Tracy Ralph H. Tracy Hearing Examiner 7a APPENDIX “C” ORDER ON MOTION FOR MORE DEFINITE STATEMENT UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION August 18, 1972 In the Matter of SAMUEL H. SLOAN d/b/a SAMUEL H. SLOAN & CO. (8-157S0) The order for proceedings (‘Order’) entered on April 25, 1972 pursuant to Sections 15(b) and ISA of the Securities Exchange Act of 1934 (‘Act’) is based upon charges of the Division of Trading and Markets (“Division”) that registrant, Samuel H. Sloan & Co.., wilfully violated Sections 1S5(c)(3) and 17(a) of the Act and Rules 1Sc3-1, 17a-3, 17a-4, 17a-S, 17a-10 and 17a-11, thereunder. On June 15, 1972 a prehearing conference was held which resulted in an order by the undersigned concerning specific items to which the parties had agreed to stipulate. In addition, on June 20, 1972, counsel for registrant met with counsel for the Division at which time all documents relating to Paragraphs A & B of the Order were reviewed. Registrant's motion for a more definite statement as to paragraph A and E of the Order was denied on July 31, 1972. Registrant has now renewed its motion as to the following particular documents: i. Copies of computations as at the month end for: 1-18-71, 1-29-71, 2-26-71, 6-30-71, 7-31-71, 8-31-71, 9-30-71, 10-8-71, 10-19-71, 11-30-71, 12-2-71, 12-31-71, and 1-31-72. 2. Copies of long and short positions as marked to the market on each of the respective dates. 3. Copies of all exhibits stipulated to. In view of the prehearing conference and subsequent order concerning the stipulation of facts and the June 20th meeting with Division counsel at which time respondent was shown the requested documents, and upon con- sideration of all the circumstances, It is Ordered that the motion of respondent for a more definite statement is granted and that the requested documents be furnished forthwith. s/Ralph H. Tracy Ralph H. Tracy Hearing Examiner APPENDIX “D” INITIAL DECISION UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION In the Matter of SAMUEL H. SLOAN d/b/a SAMUEL H. SLOAN & CO. (8-15750) APPEARANCES: Alan R. Rashes, Jerome M. Selvers and Thomas Beirne, of the New York Regional Office of the Commission for the Division of Enforcement. Robert W. Taylor for Samuel H. Sloan and Samuel H. Sloan & Co. BEFORE: Ralph Hunter Tracy, Administrative Law Judge THE PROCEEDING This is a public proceeding instituted by an order of the Commission (“Order”) dated April 25, 1972, pursuant to Sections 15(b) and 15A of the Securities Exchange Act of 1934 (“Exchange Act”) to determine whether, as charged by the Division of Enforcement (‘Division’)! Samuel H. Sloan (“Sloan’’) d/b/a Samuel H. Sloan & Co., (“Sloan & Co.” or “registrant’’) willfully violated Sections 15(c)(3) and 17(a) of the Exchange Act and Rules 15c3-1, 17a- 3,4,5,10, and 11, thereunder, during various specified periods, and the remedial action, if any, that might be appropriate in the public interest. 10a The order included an allegation that on June 24, 1972, the U.S. District Court for the Southern District of New York had entered a consent decree temporarily enjoining respondents from violating certain of the foregoing counts. Respondents were represented by counsel throughout the proceeding and proposed findings of fact and conclusions of law and briefs in support were filed by the parties. The findings and conclusions herein are based upon the preponderance of the evidence as determined from the record and upon observation of the witnesses. FINDINGS OF FACT AND LAW Respondents Sloan is the sole proprietor of Sloan & Co., 120 Liberty Street, New York, New York, which has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act since May 10, 1970. Registrant has never been a member of the National Association of Securities Dealers (“NASD”). Injunctions Chargeable to Respondents Section 15(b)(S)(C) of the Exchange Act provides that one of the bases for revocation of a broker-dealer’s registration or the imposition of lesser sanctions is the existence of a described permanent or temporary in- junction issued by a court of competent jurisdiction.2 The Order alleges, and the record establishes, that on June 24, 1971, the U.S. District Court for the Southern District of New York entered a consent judgment preliminarily enjoining Sloan & Co. and Sloan from conducting a business as a broker-dealer in securities at a time when Sloan & Co. or any other registered broker- dealer of which Sloan became a principal or controlling person was not in compliance with the Commission's net lla capital and bookkeeping rules. In addition, the Court ordered Sloan to engage the services of a certified public accountant to prepare a certified report of the firm's financial condition, as of June 30, 1971, to be in the Commission's possession no later than July 31, 1971. Bookkeeping Violations The record establishes that during the period from January, 1971 to April 25, 1972, registrant, as charged in the Order, committed a number of violations of Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder by failing to maintain and to keep accurate and current certain required books and records.3 At the time of an inspection of the books and records of registyant conducted by a Commission investigator on January 12, and 13, 1971, a number of deficiencies existed. The general ledger disclosing assets, liabilities, income and expense, and capital account, was not current; no account record of bank balances or income and expenses was being kept; the firm's trading account, the fail to deliver and the fail to receive accounts were not current; the Sloan capital ac- count was only posted to July 19, 1970; no trial balances had been prepared;4 and the stock record was not in compliance. Registrant was informed of these violations by Commission letter of January 14, 1971, and requested to submit a trial balance supported by certain specified schedules. On January 18, 1971, registrant submitted what purported to be a trial balance but the Commission in- vestigator testified that a net capital computation could not be prepared from it so on January 25, 1971, he returned to registrant's office and prepared a computation of net capital as of January 18, 1971, using whatever books and records available. Subsequent visits to registrant's office by another Commission investigator in March, April, May, June and August. 1971 disclosed that the books and records were not 17a-3 and 17a-4."’ In support of this contention they assert that the testimony of the two Commission investigators concerning numerous violations of the record keeping rules was “so absolutely incredible as to defy understanding.” However. the record does not support this contention. On the contrary, a careful review of their testimony, together with some 19 supporting exhibits, plus observation of their demeanor. leads to the conclusion that rather than being incredible their testimony was credible and worthy of beliet. The requirement that records be kept embodies the requirement that such records be true and correct.> Compliance with the rule relating to maintenance of books and records is regarded as an “unqualified statutory mandate” dictated by a broker-dealer’s obligation to in- vestors to conduct its securities business on a sound basis.® Respondents’ other principal argument is that there is no evidence that they willfully violated the record keeping requirements. The argument that any violation arising out of the failure to make and keep current registrant's books and records cannot be considered “willfull” is rejected. Willfullness for purposes of Section 1S(b) of the Exchange Act does not require that a person know that he is breaking the law but only that he intended to do the act that resulted in the violation. ’ Upon consideration of all the circumstances it is found that Sloan, d/b/a Samuel H. Sloan & Co., willfully 13a violated Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder as alleged in the Order. Net Capital Violations The Order charges that during the period from January 1971, until on or about January 31, 1972, with the ex- ception of the month of March 1971, registrant willfully violated the net capital provisions of Section 1Sic)(3) of the Exchange Act and Rule 15c3-1 thereunder.8 The record clearly establishes that during the relevant periods registrant was in violation of the Commission's net capital requirements and that the additional capital _ Fequired to bring it into compliance on the dates indicat was as follows: , oe Per SEC As Adjusted (a) -18-71 $28,016.70 : 1-29-71 11,912.35 “* rm 2-26-71 15,961.36 No change 3-31-71 10,239.22 (b) No change 6-30-71 24,222.03 19,221.96 (c) 7-31-71 70,864.99 70,064.99 8-31-71 16,588.73 15,789.33 9-30-71 11,529.69 (d) 10,729.69 (d) 10-8-71 8.345.49 id) 7,545.49 id) 10-29-71 18,253.50 (d) 12,453.50 11-30-71 9,810.10 (d) 4,010.79 (d) 12-31-71 13,480.42 (d) 4,557.22 (d) 1-31-72 718.23 (a) As a result of a prehearing conference the Division furnished its net capital computations and supporting data to registrant's counsel who is. also. its accountant. Prior to the evidentiary hearing Division's representative and registrant's accountant arrived at the adjusted figures. l4a (b) The month of March originally showed net capital of $7,760.78. However, this included $18,000 of customer credit balance. (c) Prepared pursuant to order of the Court which issued the temporary injunction. (Supra p. 2). (d) Does not include an alleged personal trading loss by Sloan which is in arbitration before the NYSE. Its inclusion would increase the net capital deficiency by $13,000 for each period. Respondents do not contend that registrant was at all times in compliance with the Commission's net capital rules. Rather, they argue that at a conference with ives of the Commission's New York Officé on July 28, 1971, an agreement was reached whereby the registrant would cease doing a retail business but would be allowed to liquidate accounts and transact personal business and that in accordance with this agreement registrant did cease doing business after July 28, 1971 and. therefore. could not be in violation of the net capital requirements after that date. In support of this argument they again attack the testimony of, and the evidence supplied by, the Commission investigators that Sloan was in fact actively engaged in consummating securities transactions after July 28, 1971. In addition, the argument is again advanced that any violation of Section 1Sic)(3) of the Exchange Act and Rule 15c3-1 thereunder was not registrant's trading record supports the Division's con- tention that registrant engaged in new business in July. August and September, 1971. During the month of August, 1971, registrant transferred a number of securities resulting from the transaction of new business to the brokerage firm of J.S. Love & Co.., while representing to the Commission staff that such securities were in the possession of Sloan & Co. ' 15a In December 1971 and January, 1972, while in net capital violation, registrant applied to the National Quotation Bureau and had a number of securities listed in the pink sheets in an attempt to induce the purchase or sale of such securities while in violation of the Commission’s net capital rules and while under a Court order enjoining such . activities Sloan's disregard for the securities laws is well illustrated by his attitude towards the net capital requirements. In order to conceal registrant's true net capital situation he included as firm capital a $10,000 customer credit balance for January, 1971; $60,000 of customer's securities for February, 1971; and an $18,000 customer credit balance for March 1971. For other periods he claimed a $19,000 gift from his mother, which was not supported; improperly valued shares of stock; failed to keep records from which a proper determination of net capital could be ascertained: procrastinated in the production of books and records in order to delay an accurate examination: and was un- cooperative in producing trial balances and other financia! information. His testimony in the proceeding concerniny his activities and his alleged efforts to comply with the securities laws is not worthy of belief. Registrant's inability to properly determine its financial condition flows, at least in part, from its failure to comply with Section | 7(a) of the Exchange Act and Rules 17a-3. 17a- Mail) and 17a-4 thereunder and well illustrates the Commission's repeated emphasis on the requirement that books and records be kept current and accurate as being at the heart of the regulatory scheme, particularly as it bears significantly on the ability to determine whether other types of violations have occurred.9 It is found that registrant and Sloan willfully violated the net capital provisions of Section 1Sic)(3) of the Exchange Act and Rule 15¢3-1 thereunder 16a Failure to File Required Reports Under the provisions of Section 17(a) of the Exchange Act and Rule 17a-5 thereunder, registrant's Form X-17A-5 for the year 1970, was due to be filed no later than November 23, 1970 as of October 10, 1970. No X-17A-5 report was filed by registrant for 1970 and Sloan admits in his answer that he failed to file such report. Sloan & Co. did file an X-17A-5S report as of January 29, 1971, on March 31, 1971. However, this was treated as a 1971 filing and did not discharge Sloan from his obligation to file a report for 1970. Sloan testified that he was aware of the requirement to file a report on Form X-17A-5 for 1970 but that the only qualified accountant he was able to obtain to prepare the report was not able to because af his association with another broker-dealer. The registrant cannot avoid the responsibility placed on it for filing an X-17A-5S report has been clearly expressed by the Commission in the case of John Munroe, 39 SEC 308 (1959) where it stated: “The obligations to file financial reports annually, as well as other obligations set forth in the Act and the rules and regulations thereunder, are imposed upon registrants directly and are non-delegable. A registrant can obtain all the assistance he needs from clerks, accountants, attorneys, and others but he cannot instruct anyone to see to it that he is brought into compliance with applicable rules and regulations and feel that he has thereby fully discharged his obligations.” Sloan admits that for the period from January 1, 197! to December 2, 1971, registrant failed to file a report of in- come and expenses with the Commission for the calendar year 1970 and thereby violated Section 17(a) of the Ex- change Act and Rule 17a-10 thereunder. !0 Sloan expresses no contention whatever concerning the ee - 17a alleged violation of Rule 17a-11 under section 17(a) of the en a 11 However, = record establishes that no telegra notice or report nancial conditi bon ition was ever Accordingly, it is found that Sloan and i . . ‘ violated section 17(a) of the Exchange Act and Rule 17-11 thereunder, as alleged in the Order. In their brief respondents argue that registrant’s report of income and expense required caine fits 17a-10 was filed on December 2, 1971; that its financial required under Rule 17a-5 for 1970 was filed on March 31 1971, as of January 29, 1971 and marked “Amended”: that such reports were filed before the date of the Order and accepted by the Commission and, therefore, the alfeged violations are merely technical in nature and the whole kn oat ee in view of the filings. not ress themselves violation of Rule 17a-11. —— There is no merit to respondents’ contentions. The Commission has repeatedly expressed itself in ro uncertain terms that “the requirement that annual reports be filed cannot be characterized as merely ‘technical’ "’,12 and that ‘the requirement that annual financial reports be filed on (ime and in proper form is a keystone of the surveillance of a pe aaa with — we are charged in the interest ing protect to investors, compliance with it is essential’’.13 —— Public Interest , Respondents’ willfull violations require consideration of the sanctions which are necessary in the public interest. In this connection the Division believes the conduct of respondents warrants a revocation of Sloan & Co.'s registration and a bar against Sloan's association with any broker-dealer. On the other hand, Sloan argues that no 18a public interest can be served by extremely and severely sanctioning him or registrant, particularly since, he alleges, he has suffered a financial loss of $39,000 resulting from his July 28, 1971, agreement with the Commission to cease doing business. In any event, respondents urge, any violations found herein were not willfull. The violations found to have occurred herein are numerous, serious and continued over an extended period of time. Each violation has been previously discussed in detail but the cumulative effect must be taken into account in considering appropriate sanctions to be applied for the protection of investors. This is particularly true here, where one person, Sloan, was at all times responsible for the conduct of registrant's business. In considering mitigating circumstances there is no evidence in the record as to Sloan's alleged loss and it appears to be merely a projection of what he was allegedly prevented from earning by not being allowed to conduct business while not in compliance with the securities laws and under Court order. This is a self-serving statement and is given no weight in the cir- cumstances. As to the question of willfullness, this has previously been dealt with in this decision.!4 All of the violations previously found herein are found to have been willfull. It is well established that a finding of willfullness under section 15(b) of the Exchange Act does not require an intent to violate the law and that it is sufficient that a respondent intentionally engage in conduct which cor: stitutes a violation.!5 The record of the registrant and Sloan, as evidenced by the violations found in this proceeding, reflects an un- willingness or a lack of capacity to operate as a broker- dealer in conformity with applicable laws and regulations. The impression imparted by Sloan through his actions as reflected by the record and his appearance as a witness is that of an individual who has no comprehension of what is required to properly manage a securities business. The fact BEST GOPY AVAILABLE 19a that it was necessary for Commission staff members to make innumerable visits and inquiries in an effort to obtain compliance on the part of registrant; Sloan's uncooperative attitude towards such efforts; the necessity of a Court order and a proceeding in an endeavor to prevent violations inimical to investors indicate the unlikelihood that respondents will observe the Commission's rules applicable to the conduct of a broker-dealer business. Therefore, under the circumstances, it is concluded that the registration of registrant should be revoked and that Sloan should be barred from association with any broker- dealer. 16 ORDER Accordingly, It is Ordered that the registration as a broker-dealer of Samuel H. Sloan & Co. is revoked and that Samuel H. Sloan is barred from association with a broker-dealer. This order shall become effective in accordance with and subject to Rule 17(f) of the Commission's Rules of Practice. Pursuant to Rule 17(f), this initial decision shall become the final decision of the Commission as to each party who has not within fifteen days after service of this initial decision upon him, filed a petition for review of this initial decision pursuant to Rule 17(b), unless the Commission, pursuant to Rule 17(c) determines on its own initiative to review this initial decision as to him. If a party timely files a petition for review, or the Commission takes action to review as to a party, the initial decision shall not become final with respect to that party.!7 Ralph Hunter Tracy Administrative Law Judge Washington, D.C. April 24, 1973 20a FOOTNOTES 1. This Division was formerly the Division of Trading and Markets. 2. Section 15(b)(S)(C) provides as follows: “(S) The Commission shall, after appropriate notice and opportunity for hearing, by order censure, deny registration to, suspend for a period not exceeding twelve months, or revoke the registration of, any broker or dealer if it finds that such censure, denial, suspension or revocation is in - the public interest and that such broker or dealer, whether prior or subsequent to becoming such, or any person associated with such broker or dealer, whether prior or subsequent to becoming s6 associated— *** (C) is permanently or temporarily enjoined by order, judgment, or decree of any court of com- petent jurisdiction from acting as an investment adviser, underwriter, broker, or dealer, or as an affiliated person or employee of any investment company, bank, or insurance company; or from engaging in or continuing any conduct or practice in connection with any such activity, or in con- nection with the purchase or sale of any security.” 3. Section 17(a) of the Exchange Act, as pertinent here, uires brokers and dealers to make and keep current such books and records as the Commission may prescribe as necessary and appropriate in the public interest or for the protection of investors. Rule 17a-3 specifies the books and records which must be maintained and kept current. Rule 17a-4 specifies the preservation of such records. 4. Rule 17a-3(11) requires that “such trial balances and computatious shall be prepared currently at least once a month.” 5. Lowell Niebur & Co., Inc., 18 SEC 471, 475 (1945). 2la 6. Billings Associates, Inc., Exchange Act Rel. No. 8217, p. 8 (Dec. 28, 1967). 7. Hughes v. SEC, 174 F.2d 969, 977 (C.A.D.C. 1949); Churchill Securities Corp., 38 SEC 856, 859 (1959): Thompson Ross Securities Co., 6 SEC 1111, 1122 (1940). 8. Section 15(c)(3) of the Exchange Act, insofar as here pertinent, prohibits securities transactions by a broker- dealer in contravention of the Commission's rules prescribed thereunder providing safeguards with respect to the financial responsibility of brokers and dealers. Rule 1Sc3-1 provides, subject to certain exemptions not ap- plicable here, that no broker or dealer shall permit his aggregate indebtedness to all persons to exceed 2,000% of his net capital computed as specified in the rule or have a net capital of less than $5,000. ‘ 9. Pennaluna & Company, Inc., et al., Securities Ex- change Act Release No. 8063 (April 27, 1967); Palombi Securities Co., Inc., et al., 41 SEC 266, 276 (1962): Midland Securities, Inc., et al., 40 SEC 333, 339-340 (1960); Olds & Company, 37 SEC 23, 26-27 (1956). 10. Rule 17a-10 provides that every broker or dealer registered pursuant to section 15 of the Exchange Act shall, not later than 120 days after the close of each calendar year, file a report of income and expenses and related financial and other information for such calendar year on Form X-17A-10. 11. Rule 17a-11 provides that every broker-dealer subject to Rule 1Sc3-1 whose net capital at any time is less than the minimum required by any net capital rule to which he is subject shall give telegraphic notice of such deficiency to the Commission on the day it occurs and shall, within 24 hours thereafter, file a report of financial condition in accordance with details specified in the Rule. 12. Samson, Roberts & Co., Inc., Exch. Act Rel. No. 7593 (May 4, 1965); see, also, Family Funds of New York. Inc., Exch. Act Rel. No. 7358 (une 30, 1964): John J. Murphy. 38 SEC 430, 432 (1958). 22a 13. W.E. Leonard & Company, Inc., 39 SEC 726, 727 (1960); see Olds & Company, 37 SEC 23, 26-7 (1956). 14. See page S footnote 7 supra. 15. Dunhill Securities Corporation, Exch. Act Rel. No. 8563, p. 5 Wuly 14, 1969); Tager v. SEC, 344 F. 2d, 5, 8, (CA 2, 1965). 16. It should be noted that a bar order does not preclude the person barred from making such application to the Commission in the future as may be warranted by the then- existing facts. Fink v. SEC (C.A. 2, 1969), 417 F.2d 1058, 1060; Vanasco v. SEC, (C.A. 2d, 1968) F.2d 349, 353. 17. To the extent that the proposed findings and con- clusions submitted by the parties, and the arguments made by them are in accordance with the views herein they are accepted, and to the extent they are inconsistent therewith they are rejected. 23a APPENDIX E SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 11376/April 28, 1975 Admin. Proc. File No. 3-3680 In the Matter of SAMUEL H. SLOAN doing business as SAMUEL H. SLOAN & CO. 120 Liberty Street, New York, New York, (8-15750) SECURITIES & EXCHANGE COMM. MAILED FOR SERVICE APR 30 1975 CTFD. NO. 804363 thru 804366 FINDINGS AND OPINION OF THE COMMISSION BROKER-DEALER PROCEEDINGS Ground for Remedial Action Where registered broker-dealer willfully violated Exchange Act's record keeping, net capital and reporting provisions and had also been enjoined from violating certain of those provisions as well as those requiring that records be made available tor examination by Commission representatives and precluding the initiation of quotations without specified information, Aeld, public interest requires revocation of broker-dealer registration, and bar of sole proprietor from association with any broker-dealer. APPEARANCES: Robert W. Taylor tor Samuel H. Sloan, doing business as Samuel H. Sloan & Co.; and Samuel H. Sloan, pro se. 24a William D. Moran, William Nortman, Thomas R. Beirne. Alan M. Rashes and Jerome M. Selvers, for the Division of Enforcement of the Commission. 1. BACKGROUND This case deals with the back office operations of a small securities firm in New York City. Finding serious deficiencies in those operations and an injunction based thereon, the administrative law judge revoked the broker- dealer registration of Samuel H. Sloan & Co. (“registrant”), and barred Samuel H. Sloan, registrant's sole proprietor, from association with any broker or dealer. | Respondent's poten for review of that decision brings the case to us. This administrative proceeding is closely intertwined with a judicial one. On our complaint, the United States District Court for the Southern District of New York preliminarily enjoined respondent on June 24, 1971, with*his consent, from effecting transactions while registrant was not in compliance with the recordkeeping and net capital provisions under the Securities Exchange Act. Thereafter the instant proceeding was instituted. It was based on the preliminary injunction and on specified violations, most of which had also been allegef in the injunctive action.4 Following the issuance of the administrative law judge's initial decision which took cognizance of the preliminary injunction, the court in January 1974, after a trial, entered a permanent injunction. Il. RECORDKEEPING VIOLATIONS We find, as did the administrative law judge, that registrant willfully violated the recordkeeping provisions of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder.© A broker-dealer inspection conducted by our staff in January 1971 (about eight months after registrant's registration became effective) revealed various infractions in this area. Following such inspection, registrant was kept under close surveillance with frequent visits being made by our staff from January to Asgust 1971. The initial inspection disclosed, among other things, that capital, income and expense items were not properly recorded in registrant's general ledger; that the stock record was not kept current; that there was no account record of bank balances; and that no trial balance had been prepared. Stating that the inspection showed that respondent's records did not comply with our requirements and afforded no bsis for establishing his financial position, our staff asked Sloan to produce a trial balance and other data. He furnished something. But no capital computation could be made from what he submitted. A subsequent examination was made on February 2% It disclosed that the stock record and customer ledger were not up-to-date, and that the income and expense account was not properly maintained. A March 19 examination revealed a capital contribution on the books of $58,175 when, in fact, no such contribution had been made. On April 8 our investigator was once more in respondent's office. But he could not conduct an examination. Ac- cording to him, Sloan said “he had no books, per se’ —all he had were debit and credit slips pending the receipt of “machine runs"’ from a bookkeeping service that used the slips to produce his records. From those slips our in- vestigator was unable to prepare a trial balance. Having received the March 31 trial balance eleven days after his April 8 request for it, he returned to registrant's office on May 6 to verify it. But he could not do so. He was unable to obtain the stock ngcord and daily blotter. But the books were unavailable.’ When he was able to make an in- spection two days later, he found the general ledger posted only through July 31. The foregoing chronicle shows extensive and persistent keeping deficiencies during the first eight months of 1971.° Moreover, computations of net capital during that year were not prepared as required.9 And our staff generally had to make about two or three requests for each trial balance it obtained from registrant. ! Ill. NET CAPITAL VIOLATIONS We find. as did the administrative judge, that registrant willfully violated Section 15(c)(3) of ine Exchange Act and Rule 15c3-1 thereunder by effecting securities transactions and attempting to induce them when registrant's aggregate indebtedness exceeded 2.000% of registrant's net capital. Net capital deficiencies ranging from $718 to $70,064 were found by the administrative judge on ton Gates | in 1971 and on an eleventh date in January of 1972.1! And respondent does not challenge those findings. What he attacks is, the administrative judge's finding that he engaged in so-called “new” business from the end of July to September. He claims that such business as he did in that period consisted entirely of liquidating his long positions and covering his short positions. That, he says, was permissible under an agreement that he had reached with our staff on July 28, which allowed him to close out existing positions but precluded him from conducting new business. But Sloan's own testimony shows that he engaged in the securities business in the usual unrestricted sense from January to July 28, 1971. And in January of 1972 he in- serted quotations for various securities in the sheets published by the National Quotation Bureau, Inc. In view of registrant's net capital deficiencies in January, February, June and July, 1971,!? and in January of 1972, during those periods registrant clearly, violated the Ex- change Act's net capital soquivennaats. 3 it is equally clear that those violations were willful!4 as that term is used for Exchange Act purposes. ! 1V. NONCOMPLIANCE WITH REPORTING REQUIREMENTS Respondent's Rule 17a-5 report of financial condition tor 27a 1970 and his repor: of income and expenses under Rule 17a-10 for the same year were admittedly filed late.!® Hence registrant willfully violated Section 17(a) of the Exchange Act and Rules 17a-S and 17a-10.!7 V. INJUNCTION As noted at the outset, the preliminary injunction on which this proceeding was initially based has now become per- manent. The permanent injunction. unlike the preliminary one, was entered after a trial. On the basis of the evidentiary record before it, the court found willful violations of our recordkeeping and net capital provisions. in a number of instances the same or substantially the same as those thai we have found on the basis of the record before us.!8 Those judicial findings show a continual pattern of recordkeeping and net capital violations in- cluding some between May 1973 and January 1974, 3 period subsequent to that involved in these proceedings. !9 Vl. OTHER MATTERS Sloan says that institution of the earlier injunctive action constituted an election by us of the forum in which to proceed against him. 20 That is not so.2! The Exchange Act provides several parallel and compatible procedures for the attainment of its objectives, and resort to one avenue does not preclude the use of another.22 The injunctive and administrative remedies serve different purposes, one restrains further violative activity, the other seeks to determine whether it is in the public interest to exclude somebody from the securities business or to limit his ac- tivities in it. Far from being a barrier to administrative action, an in agpreticn is an express and distinct ground for such action. Vil. PUBLIC INTEREST Respondent argues that the revocation and the bar im- posed by the adeni administrative judge are excessive and un- warranted. We disagree. 24 Sioan's violations are neither continued breaches of significeng . Cuties imposed on persons in the securities business. Hence we find, as did the administrative judge, that it is in the public interest to revoke registrant's broker-dealer registration2© and to bar Sloan himself from association with any broker or dealer. In arriving at that conclusion we have given some weight to the fact that in January of this year Sloan was again enjoined on our complaint. That second injunction: (A) Restrains Sloan from removing, destroying, or altering the books and records required by Section 17(a) of the Exchange Act and our rules thereunder; ‘ (B) Orders him to permit our staff to make an immediate examination of those records in an easily accessible place; and (C) Restrains him from initiating quotations for over-the-counter securities when he lacks the information required by our Rule Seg under Section 1S(c(2) of the Exchange Act.” Sloan's own papers in the second injunctive suit show his continuing disposition to disregard or defy the rules governing registered broker-dealers. He glories in having submitted “more than 350” quotation applications “in the face of an admonition by the $.E.C. that the submission of these forms constituted a violation of its rules." And in an affidavit submitted to the Court of Appeals he has said: “I do not intend to comply with the ... in- junctive order. | am sure that both Judge Ward |the district judge} and the S.E.C. realize that this is the case. However, | would much prefer to have this matter decided . . . quickly so as to reduce the likelihood that | will actually be held in con- tempt. ... Clearly, if 1 am act contempt, 1 will eufler weparchie baat An appropriate order will issue. By the Commission (Chairman GARRETT and Com. missioners LOOMIS, EVANS and SOMMER): Com- missioner POLLACK not participating. George A. Fitzsimmons Secretary FOOTNOTES 1. Registrant became registered with us in May 1970 as a ai. consisting of Sloan and another person. The other partner withdrew from the firm in January 1971, making Sloan its sole proprietor. Sloan thereafter sought to have registrant registered as a sole proprietorship, but this was not accomplished because of defective filings. Hence registrant is still carried on our records as a partnership although now wholly owned by Sloan. Accordingly, we shall for present purposes treat registrant as a sole proprietorship. 2. Briefs were filed with us by respondent and our Division of Enforcement. Our findings are based upon an independent review of the record. ‘ 3. S.E.C. v. Sloan, 71 Civil 2695. Respondent consented to the entry of the preliminary injunction, without either admitting or denying the allegations in our complaint. 4. The Securities Exchange Act (Sections 15(b)(S) and (7)) authorizes us to impose remedial sanctions if we fird it in the public interest to do so and that any respondent (1) is permanently or temporarily enjoined by any court from engaging in any conduct in connection with broker-dealer activities or the purchase or sale of securities, or (2) has willfully violated any provision of the Exchange Act or rules thereunder. 5. Sloan's appeal from the permanent injunction was dismissed for want of prosecution on March 27, 1975. S.E.C. v. Sloan, Docket No. 74-1436 (C.A. 2). 6. The administrative law judge also found willful violations of the record-preservation provisions of our Rule 17a-4 under Section 17(a). We do not agree. We do not consider that the failure to preserve records, as required by Rule 17a-4, constitutes a separate and additional infraction once a violation has been found based upon a failure to make those same records, as required by Rule 17a-3. L.C. Fisher Company, Inc., Securities Exchange Act Release No. 10259 une 29, 1973), 2 SEC Docket 81. 3la 7. Our inspector testified he was told respondent's accountant had them. 8. Sloan's claim that he gave our staff certain papers (a deposit slip, a trial balance, and a stock record) has no bearing on these deficiencies. 9. Net capital computations, as well as trial balances, are required by Rule 17a-3(11) to be “prepared currently at least once a month." 10. Ultimately, however, it obtained almost all of the trial balances it requested. 11. He found the following deficiencies on the dates set forth below: 197] DT bids pt cadeectuaaenseauanneds $28,016 EE EE EROS Be ae OE fe 11,912 i cl 15,961 EE ET ee eg aera 19,222 ERA > ee eae ee en ee 70,064 Dt itoisicishedchidbenedssveonbect 15,789 MG K6oeesbsevdeenndesciuecces doce 10,729 TS tis i te 7,545 i i 4,010 Ee pene ent co eee es 4,557 1972 Jan. 31 12. Respondent admits that his net capital was deficient during this period. He states that under his July 28 agreement with out staff “he was to be permitted to correct his... net capital deficiencies by conducting a limited securities business.’ (Emphasis added.) 13. Section 1S(c)(3) prohibits a broker-dealer not only from effecting transactions, but from attempting to induce them, in contravention of our rules. Hence a securities dealer whose net capital is deficient is barred from in- Serting quotations in the sheets. 14. An act is “willful” within the meaning of that word as used in Section 1S(b) of the Exchange Act even if the 32a does not intend to violate the law. The act which pon the violation is “willful whenever the — intends to do that which he did. Tager v. S.E.C., 344 oa 5, 8 (1965); Gearhart & Otis, Inc. v. S.E.C., 348 F.2d 798, 802-3 (1965). ; ne ome 15. We think it unnecessary to reach certain capital infractions alleged in the order for proceedings and found by the administrative judge. 16. Under Rule 17a-S, as then in effect, a broker-dealer was required to file his report of financial condition not more than 45 days after the date of the report. The + further specified that the date of his first report should - from one to five months after his registration became = fective. Since registrant became registered on wy A 1970, he was required to file his report by November But he himself says it was not filed until March 1971. Rule 17a-10 requires that a report of income and —- penses and related information be filed not later than | | days after the close of the calendar year. Although it yo required to be filed by April 1971, respondent says he not do so until December 1971. istrant also willfully violated Section 17(a) of the td Act and our Rule 17a-11 thereunder from September 15, 1971 (the date on which that rule went into effect) until January of 1972. That rule requires = a broker-dealer give the Commission teleg [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1805%3A1. Public record. Not legal advice.