Opposition — Securities & Exchange Commission v. Sloan

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR SAMUEL H. SLOAN IN RESPONSE

Samuel! H. Sloan

1761 Eastburn Avenue, Apt. A5

Bronx, New York 10457

(212) 864-5770 and

(212) 299-2095

Dick Bailey Printers, 290 Richmond Ave. Staten Island. N Y 10302

Tel.: (212) 447-5358

TABLE OF CONTENTS

Page

EAS A Sea RES Ti eee 1

ait ee eee edi ee ee ee 1

I ctncnecctsndetatscecedansoecs 2

ED dcthhiuins Lnddetintnkebeanddesdasnsias 2

PD vebitiichdantsnencndaetsnadenendébes 14

SE cndndesccudecctonesencsecesoesésetes 41

Appendix:

A—Memorandum dated july 1, 1975 from the

Division of Enforcement to the Commission ..... la

B—Memorandum dated April 9, 1976 from the Office

of General Counsel to the Commission ......... 4a

C—Memorandum dated October 1, 1975 from the

Division of Enforcement to the Commission ..... 8a

D—Securities Exchange Act Release No. 11383 (April

SRO GEEEE an dvescuconesctesdtodstoshesdétnce 10a

CITATIONS

Cases:

Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S.

CODGGTTD oc ccccccccecsbescecesescecseseses 40

Chicago & Southern Air Lines, Inc. v. Waterman

Steamship Corp., 333 U.S. 103 (1948) .......... 40

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) .... 29

Estate of Stanford v. Commissioner, 308 U.S. 39

GFT ccccccccccdenccccccccsesensevseudoss 23

Federal Maritime Commission v. Seatrain Lines, inc.,

GOOGLE, FGGEED oc cbecdosescesesenseaeess 23

Foremost-McK esson v. Provident Securities, 423 U.S.

MERGUEEED ccccccccesseubencecaeeecseneesene 29

Fuentes v. Shevin, 407 U.S. 67 (1972)... ee eee 40

Goss v. Lopez, 419 U.S. S65 (1975) . 2... 6. ee ee eee 40

Greene v. McElroy, 360 U.S. 474 (1959)... 6.666. 39

Mancusi v. Stubbs, 408 U.S. 204 (1972) ............ 17

National Cable Television v. United States, 415 U.S.

SIO UIGID nc cccccccccvcceccccccecsccscccens 40

Nebraska Press Association v. Stuart, 427 U.S. 539

GUE sdkecrcbo coeds hn beeusecdeeds suet 17,21

Norwegian Nitrogen Products Company v. United

States, 288 U.S. 294 (1933)... 6... 23

Piper v. Chris-Craft Industries, Inc., 430 U.S. 1. 41

Pe Sesodesssccecdevédbuddedéecdasendce ees 28

Racaman v. Barish. 408 F. Supp. 1189 (E.D. Pa.

PE See dbevbiebideddedbedsevisccusécecs 38

Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367

DP cétiveneduddbbeneddndeeeseneaensahes 29

Roe v. Wade, 410 U.S. 113 (1973) ................ 16

S.E.C. v. Canadian Javelin Lid., 1958 Civil Action

a Le 8 A rere 6

S.E.C. v. Canadian Javelin Ltd., Docket No. 73 Civil

8 RO Oe ae 8

S.E.C. v. Canadian Javelin Ltd., et al. Civil Action

FS COPED Cds cdsccbiccess vbece: 4

S.E.C. v. Csapo, 533 F. 2d 7 (D.C. Cir. 1976) ....... 35

S.E.C. v. Doyle, et al, Civil Action No. 76-1882

SEE Saveeuesdncccdapecesoneucentus 32,35

S.E.C. v. Medical Committee for Human Rights. 404

CUE Sc0csddals sectebceoasernéees 17

S.E.C. v. Sloan, 369 F. Supp. 996 (S.D.N.Y. 1974) .. 18

Sibron v. New York, 392 U.S. 40 (1968) ............ 16

Sloan v. Bonime, No. 77-374 .. 2... 0000 ooo ee ee, 8

Sloan v. S.E.C., 527 F. 2d 11 (2d Cir. 1975) cert.

denied, 426 U.S. 935 (1976) .................. 12,37

iv

Sloan v. S.E.C.. 535 F. 2d 676 (2d Cir. 1976) cert.

denied, 429 U.S. 885 (1976)... «6... eee eens 11

Sloan v. S.E.C., No. 76-1547 2.6. oe eee 30,32,37,38

Southern Pacific Terminal v. ICC, 219 U.S. 4%

SEED ccdccddvcecsedcccesecdcosssseveesés wo

Udall v. Tallman, 380 U.S. 1 (1905S) ... 6666s 29

United States v. Doyle, 348 F. 2d 715 (2d Cir. 1965)

cert. denied, 382 U.S. 483 (1960S) .... 2... 6.555: 6

United States v. Southern Ute Indians, 402 U.S. 159

— ere eT ee TTT 23

United States v. W.T. Grant Co., 345 U.S. 629 (1953)15,16

Zuber v. Allen, 39 U.S. 168 (1969)... 2... 6 ee eens 29

Constitution, Statutes and Rules:

FU RID oo 0 Si sc devectcnacdanvccddvened 35

Freedom of Information Act, 5 U.S.C. §552_ . .. 5,36,37,38

Securities Exchange Act of 1934

§12(j), 1S U.S.C. S781... . 6. ee eee eee eee 12

SRA: CED BE BED 5 ines cc ccdvcdicsecss 2,12,40

Judicial Code

I IIODS ooc cvdsacdusducsatecwewanns 2

DUD 6 vkvecveviesskcteeddane 30

I 8 iii dn ddks kenssesee 30

Rule 17(a), Federal Rules of Appellate Procedure .. . .11,15

S.E.C. Rule 1Sc2-11, 17 C.F.R. §240.15¢2-11 . . 9,11,21,22

Miscellaneous:

Barron's, August 16, 1976, “John Doyle—Evil

ET. -dubietndhubeabdenbhdhabe ee ds 4

H.R. Rep. No. 1418, 88th Cong., 2d Sess. (1964) .... 23

Hearings on Investor Protection Before the Sub-

committee of the House Committee Interstate and

Foreign Commerce, 88th Cong., Ist Sess. (1963) . 24

Litigation Release No. 6160, 3 SEC Docket 154

GED OUTED deccteesvassvcdietecl isi 8

Litigation Release No. 7371, 9 SEC Docket 535 (April

OOD dod kbibs <cbvied dcble deldivctbbcns 36

Litigation Release No. 7642, 10 SEC Docket 948

NE UTED 5 odncccccdeccbeccceccdess 9

Litigation Release No. 7650, 10 SEC Docket 980

Te eee 17

Litigation Release No. 7779, 11 SEC Docket 1772

ER Oe ee ee a

II Loss, Securities Regulation (2d ed. 1961) ........ 25,27

V Loss, Securities Regulation (1969 Supp.) ......... 25

Restatement (Second) of the Foreign Relations Laws

of the United States (1965), §18 ............... 38

S. Rep. No. 379, 88th Cong., Ist Sess. (1963) ....... 26

Senate Report No. 94-75 (1975S) .... «2.2... eee eee. 28

S.E.C. Division of Market Regulation, “Canadian

Javelin Ltd.."’ (December 16, 1975), CCH Fed.

Sec. Law Rep. 980,417 |197S-76 Transfer Binder| 37

Securities Exchange Act Relases:

No. 9111 (March 17, 1971) .........-- 000-0008. 7

No. 9124 (March 30, 1971) ...........0.0005: . 4

No. 9715 (August 3. 1972) ...........-.0..0000: -

No. 9912 (December 12, 1972) ..........-.+.-+- 19

No. 10209, 1 SEC Docket, No. 19 (June 8, 1973),

‘Interpretation of Rule 15c3-1 Respecting the Net

Capital Treatment of Securities Positions and

Transactions in Suspended Securities” ......... 19

No. 10534, 3 SEC Docket 154 (November 29, 1973) ~

No. 10571, 3 SEC Docket 257 (December 19, 1973) 19

No. 10732, 4 SEC Docket 82 (April 11, 1974) ..... 20

No. 11172, 6 SEC Docket 53 (January 9.1975) .... 8

No. 11178, 6 SEC Docket 78 (January 13,1975) ... 8

No. 11197, 6 SEC Docket 145 (january 22.1975) .. 8

No. 11383, 6 SEC Docket 780 (April 29,1975) .... 8

No. 12360, 9 SEC Docket 481 (April 22,1976) .... 20

a

a

vii

No. 12361, 9 SEC Docket 482 (April 22, 1976) ....

No. 12393, 9 SEC Docket $09 (April 29, 1976) ....

No. 12394, 9 SEC Docket 509 (April 29, 1976) ....

No. 12505, 9 SEC Docket 787 (June 2, 1976) ......

No. 13064, 11 SEC Docket 1176 (December 13,

SUED S0casUbe A dabbes becca cvcccecescceesces

No. 13504, 12 SEC Docket 297 (May 4, 1977) .....

The New York Times, July 21, 1965, “Doyle Out as

Chief of Canadian Javelin” ...................

The New York Times, July 26, 1965, “John Doyle

Tells Why He Fled to Canada” ................

The New York Times, September 24, 1966, “Fugitive

Financier Returns to Role at Javelin After Year

GE” peGdp cocdkensdbdee cots édudedbedonrset

The New York Times, September 26, 1966, “Javelin

Gives John Doyle Committee Chairmanship” .. . .

The Wall Street Journal, March 1, 1972, “Brash

The Wall Street Journal, October 25, 1973, “Now You

See It: Canadian Javelin Doesn't Have Gold

13

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1977

No. 76-1607

SECURITIES & EXCHANGE COMMISSION,

Petitioner.

-against-

SAMUEL H. SLOAN,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR SAMUEL H. SLOAN IN RESPONSE

The opinion of the court of appeals (Pet. App. 3a-17a),

as modified (Pet. App. 18a-20a). is reported at 547 F. 2d

152 (Qd Cir. 1976).

The judgment of the court of appeals was entered on

November 18. 1976 and a petition for rehearing was denied

on January 24, 1977. On April 22, 1977 Mr. Justice

Marshall extended the time in which to file a petition for a

writ of certiorari to and including May 15, 1977. The

petition was filed on that date. Jurisdiction of this Court is

invoked under 28 U.S.C. §1254(1).

QUESTIONS PRESENTED

1. Did the Securities & Exchange Commission exceed

the authority given to it in §12(k) of the Securities Ex-

change Act which authorizes the Securities & Exchange

Commission “‘summary to suspend trading in any security

(other than an exempted security) for a period not ex-

ceeding teri days’ when it suspended trading in a security

for a period of more than a year by issuing a series of thirty-

seven consecutive ten-day suspension orders?

2. Did this case become moot when each of the thirty-

seven consecutive ten-day suspension of which review was

sought had expired before the time the court of appeals

made its decision declaring all but the first order to be

invalid?

3. Were each of the consecutive ten-day trading

suspension orders supported by substantial evidence and, if

not, must they be vacated?

4. Does §12(k) of the Securities Exchange Act, which

authorizes the Securities & Exchange Commission

“summarily to suspend trading in any security’’ whenever

“in its opinion the public interest and the protection of

investors so require,”’ constitute an unconstitutional

delegation of legislative authority to an administrative

agency and does it violate other provisions of the Con-

stitution?

STATEMENT

This petition for a writ of certiorari seeks review of a

decision by a court of appeals which reviewed a series of

thirty-seven consecutive ten-day orders which suspended

trading in all securities of Canadian Javelin Ltd. These

securities were listed on the American Stock Exchange.

The court of appeals held all but the first of these thirty-

seven trading suspension orders to be invalid and deciared

(Pet. App. 17a):

“The S.E.C. is, therefore, directed to discon-

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of 941 securities, no security has been suspended on as

many distinct occasions as Canadian Javelin Ltd. Canadian

Javelin Ltd. and its principal stockholder, John C. Doyle,

who at all times has owned approximately 20% of the stock

in the company, have established considerable notoriety as

a result of their continuing bouts with the S.E.C. spanning

a period of more than twenty years. This notoriety has beea

enhanced by the publicity often given these matters by the

financial news media.! To some extent, the running

dispute between Canadian Javelin Ltd. and the S.E.C.

stems from differences between Canadian and United

States securities laws. Each province of Canada has its own

securities laws and the pervasive national scheme of

securities regulation which exists in the United States does

not exist there. In a number of instances, officers of

Canadian Javelin Ltd., none of whom are residents of the

United States, have engaged in activities which are strictly

legal in Canada but which, nevertheless, have been deemed

by the S.E.C. to run afoul of federal securities law.2

|. See e.g. “Brash Entrepreneur: Canadian Javelin Has Never Earned a Lot

But John Doyle Has,” The Wail Street Journal, March 1, 1972, p. 1 col. 6;

“Now You See It: Canadian Javelin Doesn't Have Gold Right in Panama,

Nation Says; Firm Disputes That,” The Wail Street Journal, October 25, 1973,

p. 40 col. 1. The first of the above articles precipitated a sharp decline in the

price of Canadian Javelin Ltd. leading to an S.E.C. trading suspension on

March 7, 1972. The second caused the failure of Canadian Javelin Lid. to open

om the American Stock Exchange on October 2S, 1973. A trading halt con-

a ee SE ee eee

t .

2. For example. on July 14, 1976 Quebec Superior Court Justice Rejane L.

Colas ordered that a special meeting of stockheiders of Canadian Javelin Lid.

Se held and that S.E.C. regulations including $.£.C. proxy rules be complied

with “as far as practicable.” The S.E.C. intervened and asked Justice Colas to

reverse her decision but om July 29, 1976 she rejected the contentions of the

SE © and ssued a decision stating that inasmuch as it was not

for Canadian Javelin Lid. to comply with S.E.C. proxy rules, it need not do so.

“John Doyle—Evil Genius.” Barron's, August 16, 1976, p. 15, records the

reaction of S E.C enforcement chief Stanley Sporkin to this development:

suit alleging the above-described boiler-room operation

and on the same day Canadian Javelin Ltd. and John C.

Doyle consented to an injunction. See S.E.C. v. Canadian

Javelin Ltd., 1958 Civil Action File No. 138-85 (S.D.N.Y.).

The terms of the consent decree were curious because the

parties entered into an oral undertaking which was set

forth at a hearing before Judge Sidney Sugarman under

which, in return for the consent by Canadian Javelin Ltd.

and Doyle to an injunction, the S.E.C. agreed to remove

Canadian Javelin Ltd. from its Canadian Restricted List

anc Canadian Javelin Ltd. agreed to list its shares on the

A:nerican Stock Exchange and to file 10-K reports with the

S.E.C. as well as all other financial reports required by the

S.E.C. to be filed by public corporations in the United

States. The rationale for this was that at the time of this

consent decree, John C. Doyle was a resident of the United

States and Canadian Javelin Ltd. maintained its corporate

headquarters in New York City and was only nominally

incorporated in Canada. The listing on the American Stock

Exchange became effective on June 26, 1959.

Subsequently, the situation changed. John C. Doyle

jumped bail following an adverse court of appeals decision

in United States v. Doyle, 348 F .. 2d 71S (2d Cir. 1965S) cert.

denied, 382 U.S. 843 (1965). Doyle then fled to Canada

where by that time Canadian Javelin Ltd. had moved its

corporate offices. Since the act of which he had been

convicted, namely mailing, in 1957, SO shares of

unregistered Canadian Javelin Ltd. stock, did not con-

stitute a violation of Canadian law, he was considered by

the U.S. Attorney's office to have committed a non-

extraditable offense.3 To this day, he is a fugitive from

justice.

3. See “Doyle Out as Chief of Canadian Javelin,” The New York Times, July

21. 1965, p. 47 col. 6.

~

that the trading suspension in total duration lasted from

March 17, 1971 until April 5, 1971.7 Thereafter, trading

was allowed to resume and continued until March 7, 1972.

4. “John Doyle Tells Why He Fled to Canada,” The New York Times, July

2%, 1965, p. 33, col. 4.

information concerning _. mineral deposits within a miming concession in the

Republic of Panama... . In recent weeks there have been widespread rumors

concerning this concession and the price of securities of Canadian Javelin has

increased on relatively high volume.” Securities Exchange Act Release No.

9111 @arch 17, 1971).

7. A lengthy release was issued by the S.E.C. announcing that the suspension

would be termimated. This release warned that broker-deslers who solicit

when the S.E.C. issued the first of a longer series of trading

suspension orders lasting from that date until August 9,

1972.8 With the termination of that series of suspension

orders. trading again resumed in the normal manner on the

American Stock Exchange and continued until November

29. 1973, when the S.E.C. again ordered a trading

suspension? and this time simultaneously instituted a civil

action entitled S.E.C. v. Canadian Javelin Ltd., Docket

No. 73 Civil 5047 (S.D.N.Y.).!0 This trading suspension

continued until January 26, 1975.!! At that point the

S.E.C. allowed the suspension to terminate but on April

29. 1975 the S.E.C. commenced yet a fourth series of

trading suspension orders!2 which continued until May 2,

1976.'! At that point, the trading suspension again of-

ficially terminated. However, according to a memorandum

dated July 1, 1975, a copy of which is included as Appendix

A to this response, representatives of the American Stock

9. Securities Exchange Act Release No. 10534, 3 SEC Docket 154 (November

29. 1973).

10. The complaint is described in Litigation Release No. 6160, 3 SEC Docket

154 (November 29. 1973). That suit precipitated the filing of a class action

which is the subject of a petition for a writ of certiorari presently pending

before this Court. Sce Sloan v. Bonime, No. 77-374.

11. Securities Exchange Act Release No. 11172,6 SEC Docket 53 Ganuary 9,

1975), Securities Exchange Act Release No. 11178, 6 SEC Docket 78 Ganuary

13. 1975); Securities Exchange Act Release No. 11197, 6 SEC Docket 145

Uanuary 22, 1975).

12 Securities Exchange Act Release No. 11383, 6 SEC Docket 780 (April 29,

1975). (Appendix D. infra).

13. Securities Exchange Act Release No. 12393. 9 SEC Docket 509 (April 29,

1976).

Exchange had agreed to continue its trading suspension

until such time as the S.E.C. was in a position to reveal the

extent of a manipulation in the market for Canadian

Javelin Ltd. shares. This assertion was repeated in sub-

sequent memoranda. Accordingly. in spite of the fact that

the S.E.C. terminated its suspension of trading in

Canadian Javelin Ltd. on May 2. 1976, trading has to date

not resumed on the American Stock Exchange. In ad-

dition, the S.E.C. has invoked Rule 1Sc2-11, 17 C.F.R.

§240.15c2-11, to prohibit trading in Canadian Javelin Ltd.

shares in the over-the-counter market. This rule, in per-

tinent part. provides that whenever a security has not been

actively quoted in a “national quotations medium” for a

period of more than three days. quotations may not resume

until such time as the issuer of the security in question has

filed current financial reports satisfactory to the S.E.C.

and a registered broker-dealer applies for permission to

commence active quotations in the security. On November

8. 1976, the S.E.C. commenced an action in the District

Court for the District of Columbia entitled S.E.C. v.

Canadian Javelin Ltd., et al, Civil Action No. 76-2070 in

which the S.E.C. alleged that Canadian Javelin Ltd. was

delinquent in filing its 10-K report.!4 Although Canadian

Javelin Ltd. subsequently filed its delinquent 10-K report.

the S.E.C. has since amended the complaint to allege that

financial reports filed by Canadian Javelin Ltd. were

im and contained false and misleading statement-

s.!5 Because of the S.E.C.’s interpretation and application

of Rule 1Sc2-11. the continued pendency of this suit acts as

a bar to the resumption of over-the-counter trading in

Canadian Javelin Ltd.

a ae Reta Hn. TOM, 19 SEC Cartes OD Clvemter 10.

eae Me. 18, 11 SEC Docket 1772 (February 14.

1977).

10

Altogether, the four periods during which trading in

Canadian Javelin Ltd. has been suspended amount to

slightly less than 33 months. Since the applicable

provisions of the Securities Exchange Act gave the S.E.C.

the authority to suspend trading in a security ‘for a period

not exceeding ten days,” the $.E.C. accomplished most of

its 33-month trading suspension through its practice of

tacking on an additional ten-day suspension at the time the

ten-day suspension order then in effect was about to expire.

According to the petition, the $.E.C. first adopted this

procedure in 1944 (Pet. 7-8) and has since followed it in

suspending trading in a total of 235 securities (Pet. 9)

thereby lengthening the total duration of a trading

suspension beyond the ten days permitted by statute.

Perhaps the best known example of this concerned the

securities of Continental Vending Machine Corp., which

were suspended from trading for a 13 year period from

March 8, 1963 until June 2, 1976.16

Respondent's efforts to have this practice declared illegal

and to invalidate the trading suspension of securities of

Canadian Javelin Ltd. on this and other grounds com-

menced on June 27, 1974, when Respondent instituted an

action in the United States District Court for the Southern

District of New York by filing a complaint which alleged

that the S.E.C. had abused its discretion, acted illegally,

and violated the constitutional rights of Respondent by

suspending trading in Canadian Javelin Ltd. and a number

of other securities. Subsequently, Respondent filed an

amended complaint which alleged specifically that the

S.E.C. had suspended trading in a total of 28 securities in

which Respondent was a stockholder or a market maker,

among them being Canadian Javelin Ltd. The S.E.C. filed

an answer in which it admitted that it had suspended

trading in the 28 securities in question and in which it

16. See Securities Exchange Act Release No. 12505, 9 SEC Docket 787 Gune

2, 1976).

11

averred as affirmative defenses that the S.E.C. could not be

sued eo nomine, that a district court has no jurisdiction

over the S.E.C. and that the exclusive remedy of

Respondent was to file a petition for review of each trading

By this time, Petitioner had filed in the United States

Court of Appeals for the Second Circuit a petition for

review challenging the validity of the then current orders

suspending trading in Canadian Javelin Ltd., the only one

of the 28 securities in which Respondent had a financial

interest which was still the subject of a current trading

suspension order. Respondent's petition for review was

filed on November 8, 1974. Under Rule 17(a) of the Federal

Rules of Appellate Procedure, the S.E.C. had 40 days to

file the record of the trading suspension orders

in the petition for review. The S_E.C. took the full 40 days

and then filed only a certified list of the documents con-

stituting the record. However, after Respondent com-

plained to the court of appeals, the S.E.C. filed the full

record of the trading suspension orders challenged.

By Gis Gun, Go Unde Gln ene nde at

terminate. Shortly thereafter, the S.E.C. filed in the court

of appeals a “suggestion” that the court dismiss the

petition for review as “moot."’ The court of appeals did not

act on that suggestion. Briefs were thereafter filed and on

'7 The amended complaint in that action alleged violations of

antitrust laws

by certain private party defendants and, in addition, averred that S.E.C. Rule

1Se2-11 and other rules were unconstitutional.

12

September 26, 1975 oral argument was held before the

court of appeals. By that time trading in Canadian Javelin

Ltd. shares again had been suspended, this time by a series

of orders commencing on April 29, 1975 at 3:00 p.m. and

renewed every ten days thereafter. In spite of the fact that a

trading suspension of shares of Canadian Javelin Ltd. was

then in effect, the S.E.C. argued before the court of ap-

peals that the question of the validity of the prior trading

suspension orders was moot because the orders then

currently in effect were not part of the same series of orders

which included the trading suspension orders which were

challenged in the petition for review. Although the decision

subsequently rendered by the court of appeals did not

discuss the mootness question, it dismissed the petition for

review ‘without prejudice” thereby making it clear that it

did not agree with the S.E.C.’s contention that the question

of the validity of the prior trading suspension orders was

moot. See Sloan v. S.E.C., $27 F.2d 11 (2d Cir. 1975) cert.

denied, 426 U.S. 935 (1976).

The dismissal “without prejudice” by the court of ap-

peals of the petition for review was apparently based on a

statement made at oral argument by the attorney

representing the S.E.C. which implied that the S.E.C.

would be willing to grant Respondent “some sort of ad-

ministrative hearing.”"'8 The court of appeals also stated

that the record filed by the S.E.C., which consisted of

summary trading suspension orders and expurgated

memoranda similar to that included as Appendix A, was

“insurmountably sparse.”

18. Earlier during the same oral argument, when one of the members of the

panel of the court of appeals first asked the attorney for the S.E.C. what

remedy Respondent had. the attorney replied. “He doesn't have any.” It was

only after repeated questioning from the panel that the attorney for the S.E.C

felt obliged to soften his position and to assert that an administrative hearing

would be available.

described in the letter from the S.E.C. Thereafter, ac-

cording to a memorandum dated April 9, 1976 which the

S.E.C. included in the record it subsequently filed with the

court of appeals, a copy of which is included as Appendix B

to this response, the S.E.C. decided to adopt a procedure

whereby a person claiming to be adversely affected by a

suspension could petition not to renew such a suspension.”

Although the adoption of this procedure had not been

publicly announced, the S.E.C. relied upon it in its

decision dated April 21,1976 which denied Respondent's

request for an administrative hearing and continued the

consecutive orders which suspended trading in Canadian

Javelin Ltd. beginning with the order dated April 29, 1975.

At the same time, Respondent filed a motion for a stay, a

proposed order to show cause, and a request for an ex-

14

pedited review of the S.E.C.'s trading suspension orders.

Rather than respond in writing, an attorney for the S.E.C.,

without notifying Respondent, called the office of the clerk

of the court of appeals and said that the court should not

act on Respondent's motion because the S.E.C. had

decided that it was going to terminate its trading

suspension of Canadian Javelin Ltd. at the end of the

current ten-day period. Respondent was not told about this

telephone conversation at the time and neither he nor the

public were informed that the S.E.C. intended to terminate

its trading suspension until the S.E.C. announced this in a

press release issued several days later.!9 As the result of the

oral request by the S.E.C. attorney in question, the court of

appeals never acted on Respondent's request for a stay and

an expendited review. Instead, after several extentions of

time granted at the request of the S.E.C., briefs were filed

and the case was argued orally and the decision for which

review is now sought followed.

ARGUMENT

I

It is submitted that this court should grant the petition

for a writ of certiorari, but not for the reasons given in the

petition. One of the two principal arguments given as

reasons for granting the writ, namely the claim that this

case is moot, is so meritless as to hardly warrant detailed

discussion. The S.E.C. continues to argue that the question

of the validity of the trading suspension orders is moot in

face of the fact that, as Judge Gurfein noted during the oral

argument before the court of appeals, this case is “just like

the old Southern Pacific Terminal case,” i.e. Southern

Pacific Terminal v. ICC, 219 U.S. 498, 515 (1911) where

this Court held that “short-term orders, capable of

19. See note 13, supra.

words, when the S.E.C. asks this court to declare this case

to have been moot it is really asking this Court to declare

that under no circumstances can an S.E.C.

suspension order ever be reviewed by any federal court

unless the S.E.C. specifically acquiesces to such review.

This attempt to frustrate all judicial review of S.E.C.

suspension orders cannot be permitted to succeed because

otherwise the S.E.C. would have “a powerful weapon

against public law enforcement.” See United States v.

W.T. Grant Co., 345 U.S. 629, 632 (1953).

the S.E.C.'s mootness argument. It was clear during the

first oral argument before the court of appeals that

court was prepared to vacate the then current trad

suspension order and would have done so had the attorney

for the S.E.C. not claimed that the S.E.C. was prepared to

16

hearing because it was not “verified or properly for-

mulated" (Pet. App. 10a) as required by a procedure not

yet promulgated. On March 11, 1976, Respondent sub-

mitted to the S.E.C. a “verified petifion” which met all of

the requirements of its still secret procedure. Thereafter,

the S.E.C. issued four more ten-day suspension orders

without taking action on Respondent's request for an

administrative hearing. 29 Finally, in an obvious attempt to

place the S.E.C. in the most favorable position or to avoid

judicial review altogether without in any way voluntarily

curtailing the exercise of its suspension powers, the S.E.C.

denied Respondent's request for a hearing and suspended

trading for one more ten-day period. Under governing

principles set forth in Roe v. Wade, 410 U.S. 113, 125

(1973); Sibron v. New York, 392 U.S. 40, SO-S8 (1968) and

many other cases there can be no question that this case is

not moot,

Moreover, as the court of appeals noted, “the issue of

statutory construction and interpretation never became

moot and has been ruled upon in this review" (Pet. App.

17a). It is evident that the issue of statutory construction is

still not moot because by filing its petition for a writ of

certiorari the S.E.C. has indicated desire to return to its

practice of issuing consecutive ten-day suspension orders.

Although it says it will perhaps not issue future consecutive

orders suspending trading in Canadian Javelin Ltd., the

petition specifically requests this Court to vacate the order

of the court of appeals which ordered it to discontinue “‘its

adoption and use of successive ten-day suspension orders"

(Pet. App. 17a). Were this case truly moot, there would be

no need for the S.E.C. to make this request. The “public

interest in having the legality of the practices settled,

militates against a mootness conclusion." United States v.

20. Those four orders suspended trading for ten-day periods commencing

March 14, 1976, March 24, 1976, April 3, 1976 and April 13, 1976 respectively.

18

Stuart. 427 U.S. 539, 546 (1976). where this Court ex-

plained most of the cases cited in the petition and

reiterated the principle that a case does not become moot

“simply because the order attacked has expired. if the

underlying dispute between the parties is ‘capable of

repetition. yet evading review’ ."’ Respondent was a broker-

dealer registered with the S.E.C. until April 28, 1975 when

the S.E.C. revoked his broker-dealer registration. As a

registered broker-dealer. Respondent had occasion to deal

in many securities and it is not surprising that among the

941 securities in which the S.E.C. has suspended trading

were 28 securities in which Respondent had a financial

interest. As Respondent set forth in an affidavit filed with

the court of appeals in opposition to the S.E.C.’s motion in

that court to dismiss this case as moot, Respondent con-

tinues to own stock in nearly 400 publicly traded cor-

porations and in view of the S.E.C.'s proclivity for issuing

trading suspension orders, it is apparent that it is only a

question of time before the S.E.C. suspends trading in

another security so as to adversely affect Respondent. This

circumstance defeats the S.E.C.’s claim that Respondent

‘has not shown that he is likely to be adversely affected by

consecutive suspension orders in the future” (Pet. 12).

Moreover. as Respondent pointed out to the court of

appeals. in ordering Respondent's broker-dealer

registration revoked, an order which was affirmed in

another part of the decision of the court of appeals and

which is now the subject of a pending petition for a writ of

certiorari filed under No. 76-1547. the S.E.C. relied on a

finding by Judge Ward that Respondent had a net capital

deficiency of $4,383 on May 24. 1973. (See petition in No.

76-1547, Pet. App. 32a, n. 19 and S.E.C. v. Sloan. 9 F.

Supp. 99. 1001 (S.D.N.Y. 1974)). However, that com-

putation was based on a ruling by the S.E.C. dated June 8.

1973. which was applied retroactively by the S.E.C. staff in

19

computing Respondent's net capital. under which fails-to-

Sumner Se cunpandied cosusities could op tenger be counted

as an asset in computing net capital.““ Respondent had a

fail-to-deliver amounting to $11.000 in the stock of Triex

International Corp.. a security which the S.E.C.

from trading from December 15. 1972 until December 23.

for the trading suspension of Triex International Corp..

which exceeded ten days, or had the S.E.C. not applied its

declaring all successive ten-day trading suspension orders

-_———

eal

court of appeals invalidating the successive ten-day trading

suspension orders in question is not reversed.

In an attempt to narrow the terrain in order to make its

mootness argument seem more plausible, the S.E.C.

contends that Respondent can show that this case is not

moot only by demonstrating that he is likely to be adversely

affected by future consecutive trading suspension orders in

Canadian Javelin Ltd. The S.E.C. then asserts that “there

is no reason to believe that it will be necessary to suspend

trading again” in Canadian Javelin Ltd. (See Pet. 12). This

statement is false. As noted previously. on November 8.

1976 the S.E.C. instituted an action in the District Court

for the District of Columbia by filing a complaint which

alleged that Canadian Javelin Ltd. was delinquent in filing

its 10-K financial report with the S.E.C. That action was

instituted ten days before the decision of the court of

appeals of which the petition seeks review. Delinquency in

filing a 10-K report with the S.E.C. is by far the most

common reason given for a trading suspension order. For

example. on April 11, 1974 the S.E.C. simultaneously

suspended trading in securities of 48 companies and in

cach case the reason given for the wading suspension wes

the delinquency in a 10-K filing 25 On many subsequent

occasions a trading suspension has been ordered en masse

tor securities of numerous issuers which were delinquent in

filing their 10-K reports such as on April 22. 1976 when the

S.F.C. simultaneously suspended trading in 34 securities

for that reason.26

Indeed. in its final April 21. 1976 order continuing its

trading suspension. the S.E.C. gave as one of the reasons

tor the suspension the delinquency of Canadian Javelin

2S See Securities Exchange Act Release No. 10732, 4 SEC Docket 82 (April

ih. 1974).

%®» See Securities Exchange Act Release No | 2360.9 SEC Docket 48! (April

22. 1976).

21

Ltd. “with respect to the filing of tts 10-K report™ (See Pet.

App. 23a). From this it is obvious that the reason that the

S.E.C. did not re-suspend trading in Canadian Javelin Ld.

on or about November 8. 1976. the date it filed the com-

plaint alleging a delinquency by Canadian Javelin Ltd. in

its 10-K filing. and the reason that trading in Canadian

Javelin Ltd. is not suspended at the present time is that it

the S.E.C. were to institute a new series of ten-day

suspension orders it would demonstrate the invalidity of its

mootness argument as well as violate the order of the court

of appeals.

As noted previously. on September 26. 1975 the S.E.C

argued before the court of appeals that the case was moot

even though there was in effect a then current series of

consecutive ten-day orders suspending trading in Canadian

Javelin Ltd. In the prior petition for review, the S.E.C.

“suggested” to the court of appeals that the controversy

was moot when the trading suspension lapsed and shortly

thereafter the controversy arose again because the S.E.C.

instituted a new series of trading suspension orders. The

fact that once before the S.E.C. said this case was moot

only to have the underlying dispute between the parties

arise again demonstrates that under this Court's decision in

Nebraska Press Association v. Stuart, supra, and other

cases this case is not moot.

This case is not moot for yet another reason. As noted

previously, trading in Canadian Javelin Ltd. has not been

permitted to resume as a result of the S.E.C.'s application

of Rule 1Sc2-11, which places restrictions on the resump-

tion of quotations in a security which has not been quoted

for three consecutive business days. One of the principal

effects of this rule is that any time trading in a security is

suspended for a period of ten days or more. it can no longer

be legally quoted by registered broker-dealers until all

financial reporting requirements are met to the satisfaction

of the S.E.C. It is sufficiently clear in view of the

of the suit in the District Court for the District of Columbia

that at no time in the reasonably forseeable future will the

financial reports filed by Canadian Javelin Ltd. be

satisfactory to the S.E.C. Since the S.E.C., by virtue of its

authority to regulate ‘national quotations mediums” such

as the pink sheets published by the National Quotation

Bureau Inc., has the procedural mechanism available to

prevent any security from being quoted, it is clear that the

S.E.C. is in a position to prevent trading in Canadian

Javelin Ltd. from ever resuming by virtue of its application

of Rule 1Sc2-11 which only applies to securities which have

not been actively quoted for three consecutive days. Since

Canadian Javelin Ltd. was actively quoted up until the time

of the S.E.C.'s April 29, 1975S trading suspension and since

the trading suspension was the only reason that Canadian

Javelin Ltd. ceased to be actively quoted, it follows that if a

court were to declare all of the 37 trading suspension orders

to have been invalid, the S.E.C. would be required to

permit quotations and trading in Canadian Javelin Ltd. to

resume not withstanding Rule 1Sc2-11. It is noteworthy

that a memorandum dated October 17, 1975, which the

S.E.C. included in the record in support of one of its

trading suspension orders, states: “The S.E.C. staff also

plans to further discuss with the Amex a long-term solution

to the continuous CJV problem.”

Perhaps at the time of this memorandum the S.E.C.

already had in mind the procedure which it now uses to

prevent trading in Canadian Javelin Ltd., without the

necessity of issuing formal trading suspension orders,

through a surprising application of Rule 1Sc2-11. In any

event, it is apparent that there is no merit to the S.E.C.'s

argument that the court of appeals should have declared

this case to be moot.

The other principal point advanced by the S.E.C. has

little more to recommend it. This concerns the S.E.C.'s

claim that Congress “acquiesced” to the S.E.C.'s

assumption of the power to suspend trading for periods of

longer than ten days. However, “an agency may not

bootstrap itself into an area in which it has no jurisdiction

by repeatedly violating its statutory mandate.” Federal

Maritime Commission v. Seatrain Lines, Inc., 411 U.S.

726, 74S (1973). “|Ajdministrative practice does not avail

to overcome a statute so plain in its commands as to leave

nothing for construction."’ Norwegian Nitrogen Products

Company v. United States, 288 U.S. 294, 315 (1933).

‘Administrative construction over a long period of time is

an available tool for judicial interpretation only when the

Statutory terms are doubtful or ambiguous.” United States

v. Southern Ute Indians, 402 U.S. 159, 173 n. 8 (1971);

Estate of Stanford v. Commissioner, 308 U.S. 39, 52

(1939); Norwegian Nitrogen Products v. United States,

supra.

In order to create the impression that Congress, by

enacting a statute which gives the S.E.C. the authority to

suspend trading in a security “for a period not exceeding

ten days’, actually intended to give the S.E.C. the

discretionary authority to suspend trading for an indefinite

time period, the petition misrepresents several of the

committee reports which it cites. For example, page 9 of

the petition cites H.R. Rep. No. 1418, 88th Cong., 2d Sess.

24 (1964). However, the only reference to trading

suspensions which can be found there states:

“Section 6(c) of the bill would further amend

section 1Sic) of the act by adding a new paragraph

(S). which would provide the Commission with

authority summarily to suspend over-the-counter

24

trading in any security (except an exempted

security) for a period not exceeding 10 days.

Registered brokers and dealers would be

prohibited from trading in any such security

during the period or periods of suspension, and

other brokers and dealers would be prohibited

from making use of the mails or of any means or

instrumentality of interstate commerce to trade in

such security during such period.”

There is nothing in this paragraph which supports the

view that even the members of Congress who familiarized

themselves with this committee report and voted for

passage of the 1964 amendment to the Securities Exchange

Act, intended to give the $.E.C. the authority to suspend

trading in a security for as long as it felt inclined to do so.

What the S.E.C. ultimately relies upon is not a statement

by any Congressman or House Committee that the S.E.C.

should be given this authority but a letter from the S.E.C.

itself which was incorporated in the record of the hearings

before a House subcommittee and which stated (Hearings

on Investor Protection Before the Subcommittee of the

House Committee Intrastate and Foreign Commerce, 88th

in which fraudulent or manipulative

the issuer or other persons have ie

security of a fair and orderly market, or where

—_ corporate event makes informed trading

mpossible and provides opportunities for the

deception of investors. Trading would be resumed

- = tee no ye and dissemination

material to informed investmen

decision were achieved. ;

Under section 1%a)(4), the Commission

. has

issued more than one suspension when, upon

reexamination at the end of the 10-day period, it

has determined that another suspension is

necessary. At the same time the Commission has

recognized that suspension of trading in a security

Cong.. Ist Sess. 218-219 (1963)):

“2. Summary suspension of trading in over-the-

counter securities. —

The bill would amend further section 1 Sic) of the

act by adding a new paragraph (S), which would

provide the Commission with authority summarily

to suspend over-the-counter trading in any security

(except an exempted security) for periods of 10

days. Broker-dealers would be prohibited from

trading in any such security during the period or

periods of suspension. This provision would be a

counterpart to section 1%a)(4). The Commission

could invoke this suspension power in those cases

All that the above paragraph really sa

Congress gives the S.E.C. the power eh a hd

over-the-counter securities, the S.E.C. will exercise that

power with restraint. This statement must be considered in

light of the fact that. by the time of the passage of the 1964

amendment, the suspension power had been exercised on

relatively few occasions. From 1934 to 1961. the S.E.C.

suspended trading on a total of only 17 occasions. II Loss

Securities Regulation 852 (24 ed. 1961). Professor Loss

reports that by 1969 “the Commission on more than a

hundred occasions has exercised its summary power to

suspend trading” including 10 in 1965, 13 in 1966. 28 in

1967, and 29 in the first nine months of 1968. V Loss.

Securities Regulation 2814, 2816 (1969 Supp.). From these

figures it appears that the S.E.C. may have exercised the

suspension power as few as 21 times during the thirty-year

period preceding the 1964 amendment to the Securities

Exchange Act. suspending altogether fewer securities than

it suspended on a single day a number of times from 1974

to the present.27

The S.E.C.’s contention that the above quoted

paragraph. cited in the petition, which is but a small part

of a lengthy letver drafted by the S.E.C. itself and which

was inserted in the record of a voluminous subcommittee

hearing. demonstrates that Congress intended to give the

S.E.C. unlimited trading suspension power, strains

credulity. Similarly, the S.E.C.’s claim that the Senate

acceeded to the S.E.C.'s assumption of the power to

suspend trading in a security for an indefinite time period

is weakened by the fact that the petition quotes a Senate

report out of context. The paragraph from which the

petition quotes states in full (S. Rep. No. 379, 88th Cong..

Ist Sess. 66-67 (1963)):

“The Commission has consistently construed

section 1%a)(4) as permitting it to issue more than

one suspension if, upon reexamination at the end

of the 10-day period. it determines that another

suspension is necessary. The committee accepts

this interpretation. At the same time the com-

mittee recognizes that suspension of trading in a

security is a drastic step and that prolonged

suspension of trading may impose considerable

27

hardship on stockholders. The comm

thevefane expects Ghat the Commlesion of aman

this power with restraint and will proceed with all

diligence to develop the necessary facts in order

that anv suspension can be terminated as soon as

authority... was ever enacted” for the S.E.C.'s

assumption of the power to suspend in '

for a period exceeding ten days 4 a0 The

S.E.C. Professor Loss, quoting the Chairman of

the

S.E.C.. states (II Loss. Securities Regulation, supra

BSS (2d ed. 1961)): =

“ “Lately, this grant of power (§1%a)(4)| has

beun waed to heop tn ofloct « suepention of trdine

express authority for such action is contained in

Section 1%a)(4).’ In at least one of the most recent

of the seven cases in which suspension orders

accompanied the institution of delisting

proceedings. the suspension order is quite bare of

The S.E.C. does not and cannot claim that in 1934

when Congress originally gave the S.E.C. the power to

suspend trading in a security for a period “not exceeding

ten days.”’ it intended to authorize the S.E.C. to continue a

trading suspension for a more lengthy time period. There is

little legislative history on this provision of the 1934 Act

because it was not included in the earlier drafts of the bill.

However, it is plainly apparent that when Congress in

unambiguous terms gave the S.E.C. the power to suspend

trading in a security “for a period not exceeding 10 days,”

it meant exactly that. Moreover, the petition is silent with

regard to the legislative history of the 197S amendments to

the Securities Exchange Act and says nothing about Senate

Report No. 94-75 which criticized the $.E.C.'s exercise of

its then existing trading suspension power. The court of

appeals relied upon this report in reaching its conclusion

that Congress did not and does not intend to give the

S.E.C. the authority to suspend in a security for a period

exceeding 10 days (See Pet. App. 13a). Indeed, it is clear

that if the S.E.C. believed that Congress desires that it have

the authority to suspend trading in a security for a period

exceeding 10 days. it would no doubt have already asked

Congress to enact appropriate amendments to the statute

during the ten months which have passed since the decision

of the court of appeals.

The petition also contends that the court of appeals

should have deferred to the S.E.C.'s construction of the

Securities Exchange Act. However, the “administrative

deference rule’ which forms the underpinnings of the

S.E.C.’s argument does not require a court to defer to an

administrative agency's expansive view of its own

jurisdiction. Otherwise, the courts would be virtually

powerless to curb the usurpation of authority by an agency

such as the S.E.C. The S.E.C. is known to almost in-

variably adopt the broadest possible view of the scope of

federal securities laws and its own jurisdiction and this

Court has rather consistently found the views of the S.E.C.

to be disentitled to deference particularly in areas such as

this one which have been generally reserved for judicial

resolution. See Piper v. Chris-Craft Industries, Inc.. 430

U.S. 1, 41 n. 27 (1977); Ernst & Ernst v. Hochfelder, 425

U.S. 185, 199 (1976); Foremost-McKesson v. Provident

Securities, 423 U.S. 232, 259-260 (1976). Moreover, the

fact emphasized in the petition that for 32 years prior to the

decision of the court of appeals the S.E.C. has engaged in

the practice of suspending trading in securities for periods

exceeding ten days does not benefit the S.E.C. because

“Congressional inaction frequently betokens unawareness,

preoccupation, or paralysis."’ Zuber v. Allen, 396 U.S. 168,

185-186. n. 21. 24 (1969).

The cases cited by the S.E.C. are not helpful to its

position. Both Red Lion Broadcasting Co. v. F.C.C., 395

U.S. 367, 381 (1969) and Udall v. Tallman, 380 U.S. 1, 16-

17 (1965) involved situations where this Court held that an

agency's interpretation of its own regulations was entitled

to judicial deference. In the latter case, this Court em-

phasized that there was ‘no statutory limitation involved.”

Id. at 17. In the instant case, the statute involved expressly

imposes a limitation by giving the S.E.C. the authority to

suspend trading ‘‘for a period not exceeding ten days."’ The

above cited cases do not stand for the proposition that the

S.E.C. can override that limitation on its authority simply

by ignoring it. In addition, the petition cites three cases

which it claims show that ‘where Congress has reenacted

or amended a statute without disapproving the agency's

construction, Congress may appropriately be considered to

have approved that construction as correct’ (Pet. 9-10).

However. the cases cited involve quite different situations.

Moreover. the decision of the court of appeals states that it

reviewed the legislative history of the 1975 amendments to

the Securities Exchange Act and concluded that

Congress

had in fact expressed disapproval of the S.E.C.'s proclivity

for suspending trading for periods longer than ten days and

accordingly had enacted §12(j) and §12(k) of the Securities

Exchange Act. which contain language different from that

found in the predecessor statute (Pet. App. 13a-1Sa). The

30

Petition does not address this point. Instead, it devotes its

discussion to the legislative history of the 1964 amendment

to the Securities Exchange Act (Pet. 8-9), which was

repealed in 1975.

For the foregoing reasons, it can be seen that the

arguments presented in the petition are meritless. It does

not follow, however, that the petition should be denied.

The situation presented here can be analogized to cases in

which this Court has allowed direct appeals from decisions

of three-judge district courts convened under 28 U.S.C.

§2282 (now repealed) granting injunctions against federal

officials or to cases in which this Court has entertained

appeals under 28 U.S.C. §1254(2) from decisions by a

court of appeals invalidating a law of the United States. Of

course, here S.E.C. has no right of appeal because the

court of appeals did not invalidate a law of the United

States and this case was not one tried by a three-judge

district court. However. the court of appeals did invalidate

the S.E.C.’s interpretation of a law of the United States,

thereby limiting the S.E.C.’s authority to act, and it en-

joined the S.E.C. by ordering it “to discontinue forthwith

its adoption and use of successive ten-day suspension

orders’’ (Pet. App. 17a). The rationale behind the statutory

authorization for direct appeals in certain cases and behind

the reasons this Court should dispose on the merits of the

contentions presented by the S.E.C., as frivolous as they

may be. is illustrated by the point made on page 31 of

Respondent's petition for a writ of certiorari from the same

decision of the court of appeals (See Sloan v. S.E.C., No.

7- 1547);

““|I}t should be pointed out that if this Court

decides not to review the decision of the court of

review of the decision of the court of appeals.”

The S.E.C. does not seem to agree with this view. It does

not agree that it has been enjoined and that it may never

again issue successive ten-day trading suspension orders. It

claims that the decision of the court of appeals has merely

“cast a substantial shadow over the Commission's right to

exercise its suspension powers"’ (Pet. 12, n. 8). Perhaps the

summary trading suspension orders. Three of these

memoranda are included as appendices to this petition.

Although the record was brief it was sufficient to

demonstrate that some of the claims which were presented

to the court of appeals and which are presented again to

this Court are fictitious. For example, the petition makes

the self-serving statements that “the Commission made a

series of separate determinations suspending trading’ and

“the Commission investigation . . . resulted in the filing of

the Civil Action, Securities & Exchange Commission v.

Doyle, et al.. Civ. Action No. 76-1882 (S.D.N.Y.)"" (Pet. 3-

4). The record casts considerable doubt on the accuracy of

these statements. For one thing. there is no indication that

the Commissioners themselves took any part in any of the

decisions to issue the summary suspension orders. The first

order is dated April 29, 1975 and is signed by the secretary

of the S.E.C.. George A. Fitzsimmons.28 However, the

“informational memorandum” which is included in the

record to demonstrate the justification for the trading

suspension is dated May 2, 1975, three days later, and is

addressed to the “the Commission” and from the “Division

of Enforcement”. This memorandum is included as Ap-

pendix L in the Petition in No. 76-1547. It bears the names

of three members of the S.E.C. staff. It is clear from this

that it was the S.E.C. staff that decided to order the

suspension of trading in Canadian Javelin Ltd. and it was

not until three days later that they got around to sending a

memorandum to the S.E.C. informing the Commissioners

of the reasons for which they took this action. There is no

28 The signatures of George A. Fitzsimmons on this and subsequent orders

of the S.E.C. suspending trading are identical to each other in every respect.

not signed at all. Apparently. the S.E.C. has corrected this situation by

mechanical means

May 2. 1975S memorandum plus a memorandum dated

i

i

,

7

i

of the following three trading suspensions consists solely of

memoranda dated May 30, 1975, June 16, 1975, and June

24. 1975 respectively. which are identical to the May 23.

1975 memorandum. the only difference being the date.

successive trading suspension orders. Each trading

suspension order is supported by a memorandum which is

usually identical to the memorandum supporting the

previous trading suspension order but which is sometimes

modified to include updated material. Even the updated

material imdicates that little active work was being done by

the S.F.C staff in pursuing the matters which brought

i

i

|

iF

34

concerning a dispute over control of Canadian Javelin Ltd.

which developed in early 1976 and which resulted in

litigation in Quebec Superior Court. This dispute had

nothing to do with any investigation being conducted by the

S.E.C. staff although it appears more than likely that this

dispute was fostered by stockholder dissatisfaction with

management resulting from the S.E.C.’s_ trading

suspension.

On the basis of the record, the court of appeals was in a

good position to reject the assertion of the S.E.C. that each

trading suspension order was issued “on the basis of an

independent determination made at the time that con-

tinued suspension was required in the public interest and

for the protection of investors” (Pet. App. 1la-12a). None

of the memoranda even so much as state that the public

interest or the protection of investors would be served by a

trading suspension. Rather. the memoranda indicate that

the trading suspension was being used as a negotiating

point in discussions between the S.E.C. staff and counsel

for Canadian Javelin Ltd. In other words, the S.E.C. staff

was offering to lift the trading suspension if management of

Canadian Javelin Ltd. would cooperate with the S.E.C. in

various ways. Since none of the officers of Canadian Javelin

Ltd. were residents of the United States. the S.E.C. did not

have available subpoena power or other means to coerce

testimony or the production of documents. Consequently,

the S.F.C. attempted to use its trading suspension power to

obtain leverage to secure the “cooperation” of officers

Canadian Javelin Ltd. The initial memoranda indicate that

the S.E.C. expressed a willingness to lift the suspension of

trading in Canadian Javelin Ltd. if the company would

issue “an appropriate press release.” Subsequent

memoranda state that the S.E.C. staff was requesting the

cooperation of officers of Canadian Javelin Ltd. including

John C. Dovle. its principal stockholder. and his son. who

was also an officer of Canadian Javelin Ltd.. and was

efforts by the S.E.C. staff to

asking them to agree to meet with and give sworn testimony

before members of the S.E.C. staff and to agree to waive

their Fifth Amendment rights and their rights to attorney

client privilege.29 The latter request appears to relate to an

S.E.C. rule. since declared unconstitutional in S.E.C. v.

Csapo, 533 F. 2d 7 (D.C. Cir. 1976), which authorized the

S.E.C. under certain circumstances to prohibit a person

testifying before it pursuant to an order of investigation

from appearing with counsel of his choice. Most of the

memoranda issued during mid-197S contain of

get officers of Canadian

various

|

:

;

i

to

, in

the record dated October 1, 1975, which is included as

Appendix C to this petition, states that the board of

Canadian Javelin Ltd. met in Costa Rica on September 28

and 29. 1975 and refused to waive any attorney-client

privilege and that neither the president of Canadian Javelin

Ltd. nor Doyle nor his son intended to meet with the S.E.C.

staff. Subsequent memoranda indicate that thereafter the

S.E.C.’s investigation ground to a halt.

Page 4 of the petition states that the S.E.C.’s in-

vestigation resulted in the filing of a suit entitled S.E.C. v.

Doyle. Dkt. No. 76-1882 (S.D.N.Y.). That statement is

29 In 1974 nm Newfoundland Doyle testified voluntarily before members of

the SEC staff Pursuant to the Freedom of Information Act, Respondent has

obtained from the SEC a transcript of this testimony and it shows that after

identifying humself. Doyle asserted the Fifth Amendment privilege to every

question asked. Papers filed in Doyle's behalf on August 24, 1977 in the

Southern District of New York in S.E.C. v. Doyle. % Civil 1882 (WCC), state

that Doyle is still amenable to testifying before the S.E.C.. as long as the

testimony ts taken in Panama (He is now a fugitive from justice in both the

Unmed States and Canada) However. he apparently intends again to assert the

Fifth Amendment prmilege

false. On March 8, 1976, a criminal information was

released in Canada containing 406 charges of wash-trading

in the shares of Canadian Javelin Ltd. by five individuals

including John C. Doyle. The civil suit cited by the S.E.C.

was filed on April 26. 1976 and the defendants were the five

individuals named in the criminal information plus four

corporations which they allegedly controlled. The

allegations in the S.F.C.’s complaint closely paralleled the

wash-trading charges in the criminal information.30

Canadian Javelin Ltd. was not named as a defendant in the

S.E.C.’s civil suit and there is no indication in the in-

formational memoranda supplied by the S.E.C. or

elsewhere that the allegations in the complaint were based

on anything other than the charges contained in the

criminal information released in Canada. It is true that

several of the memoranda in the record state that the filing

of the suit would be closely timed with the lifting of the

trading suspension. However. none of the memoranda state

that the suit was based upon information uncovered by the

S.E.C. during the course of its investigation. For that

matter. the term “‘wash-trading”’ is not to be found in any

of the memoranda supporting the trading suspensions nor

is it discussed in anv of the 10,000 pages of material

Respondent has obtained from the S.E.C. pursuant to the

Freedom of Information Act. Indeed, no specific illegal

conduct on the part of Canadian Javelin Ltd. or anyone else

is set forth in any of the memoranda dated prior to the

release on March 8. 1976 of the criminal information

bevond use of the words “manipulation” and

“manipulative activities."’ Moreover, upon filing suit the

S.E.C. promptly lost interest in the case. The S.E.C. made

no attempt to effectuate service of the summons and

complaint upon the defendants and the case lay dormant

until one vear later when the S.E.C. filed a motion for

W. The complaint is described in Litigetion Release No. 7371, 9 SEC Docket

538 (April 26. 1976).

37

extra-territorial service of process returnable April 8, 1977,

just two weeks prior to the date the instant petition for writ

of certiorari was originally due. It is apparent from the

timing of this motion that the belated attempt by the

S.E.C. to prosecute that case stems primarily from the

desire of the S.E.C. to buttress its position with respect to

the instant petition and to answer the point made by

Respondent to the court of appeals concerning the lack of

prosecution of the S.E.C.'s suit against Doyle.

The record of this case, consisting as it does of ex-

purgated memoranda of the type included in Appendix A,

B and C herein as well as Appendix L of the petition in No.

76-1547, does not come close to meeting the substantial

evidence test. This in itself should form sufficient basis for

vacating the trading suspension orders of the S.E.C., as the

court of appeals indicated in its earlier opinion, Sloan v.

S.E.C.. 527 F. 2d 11, 12 (2d Cir. 1975). Moreover, the

memoranda demonstrate that it was lack of cooperation by

Canadian Javelin Ltd. and its officers. not illegal conduct,

Javelin Ltd. and its officers which might be deemed to

VI The financial loss suffered by Respondent as a direct resuit of the trading

suspension and the hostility of the S.E.C. to Respondent's interests is

!

i

z

F

;

i

violate federal securities laws, these acts occurred outside

of the United States and hence were not illegal since under

the principles set forth in Section 18 of the Restatement

(Second) of the Foreign Relations Laws of the United

States (1965) (cf. Racaman v. Barish, 408 F. Supp. 1189,

1195 n. 3(E.D. Pa. 1975)) the federal securities laws do not

have extra-territorial application inasmuch as they embody

concepts unknown to the laws of all other nations (except in

some cases Canda) with “reasonably developed legal

systems.”

IV

In holding that by issuing a series of successive trading

suspension orders the $.E.C. violated statutory provisions,

the court of appeals stated (Pet. App. 14a-1Sa):

“It is not necessary to deal with this point as a

constitutional violation, because the procedures

adopted by the S.E.C. plainly transgressed the

statutory provisions.”

Thus, if this Court agrees with the arguments presented

by the S.F.C. regarding legislative intent, it must reach the

question of whether the successive ten-day trading

suspension orders violate the constitution. That question

has been presented in the instant response as well as in the

cross-petition in No. 76-1547.

It is submitted that the trading suspension which is the

subject of the instant petition, lasting as it did from April

29, 1975 until May 2, 1976, during which time neither

Respondent nor anyone else was accorded notice or the

opportunity for a hearing.22 plainly transgressed the

32 The Freedom of !nformation Act material obtained by Respondent

contains more than a hundred letters from stockholders of Canadian Javelin

Lid as well as members of Congress and others protesting one or more of the

trading suspensions Many of these letters were from attorneys who demanded

hearings None of these requests for a hearing were granted.

Constitution. The S.E.C. points to a procedure announced

on April 22, 1976 under which a person adversely affected

may petition the S.E.C. not to renew the suspension (Pet.

11, n. 6; Pet. App. 24a-26a). However, the promulgation of

that procedure merely gives lip service to the constitutional

right to a hearing. as the S.E.C.'s first and, to date, only

exercise of the procedure demonstrates (See Pet. App. 21a-

23a). The procedure requires the petitioner to “set forth

with particularity facts upon which petitioner relies" (Pet.

App. 25a). However. since the S.E.C. usually does not

reveal the reasons for its continued trading suspension, the

procedure shifts the burden of proof to the petitioner, who

must try to disprove the facts upon which the trading

suspension is based without knowing what those facts are.

In the instant case. as in most cases, the S.E.C. did not

reveal the reasons for its year-long trading suspension until

it issued Securities Exchange Act Release No. 12394, 9

S.E.C. Docket 509 (April 29, 1976), in which it announced

that the trading, suspension would be terminated. The oniy

clue provided by the S.E.C. prior to that tim? as to the

reasons for the trading suspension was a single sentence in

the release announcing the initial suspension which stated

that the suspension was ordered ‘‘pending dissemination of

information concerning regulatory action by Canadian

authorities."33 A copy of that release is included as Ap-

pendix D to this petition. In addition, the procedure states

that it may not be utilized by anyone who “shall fail to

cooperate” with the Commission (Pet. App. 25a). In the

instant case, the very reason for the trading suspension was

a determination by the S.E.C. staff that there had been a

failure to cooperate. Thus. the promulgation of the cited

procedure does not modify a situation rife with potential

tor abuse of constitutional rights. See Greene v. McElroy.

360 U.S. 474, 496-497 (1959).

W Canadian Javelin Lid stated in its annual report to stockholders that it

did not know the reason for the trading suspension.

40

It is submitted that the underlying statute, namely

§12(k) of the Securities Exchange Act, 15 U.S.C. §781(k),

is unconstitutional for at least three reasons. First, the

statute does not set forth standards to be observed by the

S.E.C. in its determination of when “the public interest

and the protection of investors so require” a trading

suspension. Due to this absence of standards, the statute

authorizing the S.E.C. summarily to suspend trading in a

security is an unconstitutional delegation of legislative

authority to an administrative agency.54 See National

Cable Television v. United States, 415 U.S. 336, 342

(1974). Second. a trading suspension does not serve suf-

ficiently important governmental interests as to justify the

severe deprivation of property interests which it entails

prior to notice and the opportunity for a hearing. Fuentes

v. Shevin, 407 U.S. 67, 90-93 (1972); Calero-Toledo v.

Pearson Yacht Leasing Co., 416 U.S. 663, 679 (1974).

Even a ten-day suspension from high school without notice

or a hearing is unconstitutional. Goss v. Lopez, 419 U.S.

565, 579-584 (1975). Third, a trading suspen3ion by the

S.E.C. prohibits purchases and sales of securities which are

purely intrastate in character. Regulation of intrastate

securities transactions is beyond the reach of the commerce

clause of the Constitution. Therefore, the attempt through

the exercise of §12(k) of the Securities Exchange Act to

prohibit intrastate trading in a security such as Canadian

Javelin Ltd. is unconstitutional.

Mit should be noted that the decision as to whether a foreign corporation

should be prohibited from having its shares sold in the United States involves

foreign policy considerations which are within the exclusive province of the

President and Congress. Cf. Chicago & Southern Air Lines, inc. v. Waterman

Steamship Corp.. 333 U.S. 103, 109-110 (1948).

41

CONCLUSION

For all of the reasons set forth above, the petition for a

writ of certiorari should be granted and this Court should

affirm the order of the court of appeals to the extent that it

vacated a total of thirty-six consecutive ten-day suspension

orders.

Respectfully submitted,

SAMUEL H. SLOAN

1761 Eastburn Avenue, Apt. AS

Bronx, New York 10457

(212) 864-5770 or 299.2095

Dated: New York, New York

September 20. 1977

la

APPENDIX A—MEMORANDUM DATED JULY 1, 1975

FROM THE DIVISION OF ENFORCEMENT TO THE

COMMISSION

MEMORANDUM

File No.: HO-815

Date: July 1, 1975

TO: The Commission

FROM: The Division of Enforcement

RECOMMENDATION: -—i

ee

ee

ACTION REQUESTED BY:

NOVEL, UNIQUE OR COMPLEX ISSUES: None

This suspension began on April 29, 1975 in response to a

public announcement by the Royal Canadian Mounted

2a

tained b the RCMP Ga

NS eee in

Canada in 1975 which is the time period the staff's in-

vestigation is focusing on. The information gathered thus

far, including testimony and documentary evidence, shows

that brokers in Canada and the United States, assisted

directly or were in some way involved since January 1975 in

an attempt to manipulate Canadian Javelin’s stock.

The staff met with representatives of the AMEX on June

27, 1975 which is conducting its own inquiry and we are

further advised that they will continue their trading

suspension until the Commission is in a position to reveal

the extent of the manipulation and its participants.

Canadian Javelin is deemed by the AMEX to be a chronic

violator and thought is being given to a possible delisting of

the security.

A meeting was held on June 26, 1975 with special counsel

to the company who was requested to investigate several

transactions involving the company during the height of the

alleged manipulation. In addition, company counsel has

promised the staff that a meeting will be arranged with

John C. Doyle during the month of July. Mr. Doyle, a

fugitive from justice stemming from a securities conviction

in 1965, is the largest single shareholder and has controlled

the direction of Canadian Javelin since its inception. The

staff has traced Mr. Doyle’s telephone in Nassau to have

been frequently called by certain persons believed to have

been directly involved with wash trading during the

relevant period. Furthermore, company counsel has not yet

submitted an appropriate press release as was recently

promised. The staff hopes to conclude the investigation

shortly after it meets with Mr. Doyle.

Prepared by:

DPDoherty. Assistant Director (51246)

RGRyan. Branch Chief (51509)

H. Ammerman. Attorney (51476)

APPENDIX B—MEMORANDUM DATED APRIL 9,

1976 FROM THE OFFICE OF GENERAL COUNSEL TO

THE COMMISSION

MEMORANDUM

April 9, 1976

TO: The Commission

FROM: Office of the General Counsel

RE: The “petition’’ of Samuel H. Sloan that the Com-

mission “review all orders of the suspension of trading in

Canadian Javelin, Ltd. from November 29, 1973 to and

including such date as this petition may be decided." Mr.

Sloan demands that the Commission declare all of the

previous Canadian Javelin trading suspensions illegal and

that the Commission issue an order declaring that there

will be no further suspensions of trading in Canadian

Javelin Ltd.

RECOMMENDATION: Geamemeeeeweeeess

OTHER OFFICES AND DIVISIONS

CONSULTED: Division of Enforcement.

NOVEL. UNIQUE OR COMPLEX ISSUES

INVOLVED: This will be the initial use of the procedure

recently adopted by the Commission for handling ob-

jections to summary trading suspensions.

Background

As the Commission will recall the United States Court of

Appeals for the Second Circuit, in October, 1975, rejected

Mr. Sloan's attack on summary trading suspensions based

upon the Commission's representation that we would give a

person who claimed to be aggrieved by such a suspension

an opportunity to be heard (Sloan v. Securities and Ex-

change Commission, C.A. 2. No. 74-2457). The Court

indicated at that time that such a hearing should result in a

record which could later be reviewed on appeal if that

became necessary. As a result of that decision the Com-

mission recently indicated that it would issue a release

announcing the adoption of a procedure whereby a person

claiming to be adversely affected by a suspension could

petition the Commission not to renew such a suspension. !

The release is to state that such petitions “may not'be in the

form of a letter or other statement, should set forth with

particularity the facts upon which petitioner relies and

should be sworn to by the petitioner or an authorized of-

ficer of the petitioner.”

Facts

On or about March 15, 1976, Mr. Sloam served the

Commission with a document entitled “VERIFIED

PETITION.FOR REVIEW”? (a copy of which is attached)

and an affidavit in support thereof. In his “petition” Mr.

| See Attachment A to memorandum of this Office and the Dividon of

Enforcement. dated March ||. 1976. a copy of which Attachment s appended

hereto

2 This petrtton wes filed in accordance with a staff imstruction to Mr Sloan.

since he had previously attempted to obtain review by filing a copy of

volurmnous briett and unsworn allegations he had filed im various court

proceedings

Sloan asks the Commission to review all of the suspensions

of trading in Canadian Javelin, Ltd. securities from

November 29. 1973. up to and including the date this

petition may be decided. He further demands a hearing

and a declaration that all suspensions of trading in

Canadian Javelin have been illegal. He finally demands

that the Commission issue an order declaring that there

will be no further suspensions of trading in Canadian

Javelin. In the affidavit attached to the petition Mr. Sloan

alleges. among other things. that Section 12(k) only

permits the Commission to suspend trading for a ten-day

iod and that the renewal of suspensions violates that

Statutory provision. Mr. Sloan then purports to make an

analysis of the market conditions in the stock of Canadian

Javelin at the times the Commission instituted various

i

iH

DFerber-51170

MJStewart-51224

FBW ade-51 286

ATTACHMENTS:

1) Draft notice of suspension of trading and denial of

2) Draft letter to Mr. Sloan.

3) Attachment A memorandum dated March 11, 1976.

4) Verified Petition for Review.

5) Mr. Sloan's affidavit in support of his petition.

APPENDIX C—MEMORANDUM DATED OCTOBER

1,1975 FROM THE DIVISION OF ENFORCEMENT TO

THE COMMISSION

MEMORANDUM

FILE NO.: HO-815

DATE October 1, 1975

TO: The Commission

FROM: Division of Enforcement

RE: Canadian Javelin Limited (“CJV"’)

DATE FILED:

AMENDED:

SUBJECT:

RECOMMENDATION: eugupeeesesuseueuseuqesssaess

ngnnesremeqeennensseuremees

ey

ACTION REQUESTED BY:

NOVEL, UNIQUE OR COMPLEX ISSUES: None

The securities of CJV were initially suspended on April 29,

1975 in response to a public announcement by the Royal

Canadian Mounted Police (“RCMP”) that it was in-

vestigating an alleged manipulation of Canadian Javelin’s

common stock on Canadian stock exchanges and the

American Stock Exchange (“‘AMEX"’).

The investigation to date has revealed that from the

commencement of trading on January 27, 1975 until the

Commission's tradiiiing suspension on April 29, 1975

CJV’s stock has been continually manipulated on the

AMEX as well as several Canadian stock exchanges. The

manipulation appears to involve Americans, Canadians

and Panamanians. It also appears that John C. Doyle

(“Doyle”). CJV’s founder, former chairman of the

executive committee and currently a director has been

behind the mamipulation.

The staff has requested a meeting with the president of

CIV. Doyle. director of CIV. Doyle's son, a vice president

of CIV. Canadian counsel for CJV and the partner in

charge of CJV's independent auditor.

Canadian counsel for CJV has informed the staff that

approval of the board of directors is necessary in order for

the president of CJV and its counsel to testify before the

Commission and to furnish information concerning certain

sensitive areas involving corporate activities. He also

recently advised that on September 28 and 29, 1975 the

board met in Costa Rica and authorized CJV counsel to

furnish information to the staff; however, the board

refused to waive any attorney-client privilege. With respect

to our meeting with the President of CJV and the Doyles,

counsel advised the staff that neither the president nor the

Doyles intend to meet with the Commission's staff. The

staff intends to pursue every available recourse to compel

the testimony of these witnesses. We have also been advised

that a Panamanian attorney, under CJV direction, has

prepared a report of investigation concerning the

manipulation which will be forwarded to the staff.

RJRyan (51469)

LLevine (51468)

HAmmerman (51476)

10a

APPENDIX D—SECURITIES EXCHANGE ACT

RELEASE NO. 11383 (APRIL 29, 1975)

SECURITIES EXCHANGE ACT OF 1934

Release No. 11383/April 29, 1975

The Securities and Exchange Commission announced the

suspension of trading in all securities of Canadian Javelin

Limited pursuant to Sections 15ic)(5) and 19(a)(4) of the

Securities Exchange Act of 1934 for the ten-day period

commencing at 3:45 p.m. (EDT), April 29, 1975 and

continuing through midnight (EDT), May 8, 1975.

The Commission instituted the suspension pending

dissemination of information concerning regulatory action

by Canadian authorities.

The Commission cautions broker-dealers, sharcholders

and prospective purchasers that they should consider

carefully the foregoing information along with all other

currently available information and any information

subsequently issued by the company.

Furthermore, brokers and dealers should be alert to the

fact that, pursuant to Rule 1Sc2-11 under the Exchange

Act. at the termination of the suspension, no quotation

may be entered unless and until they have strictly complied

with all of the provisions of said rule. If any broker or

dealer has any questions as to whether or not he has

complied with said rule, he should not enter any quotation

but immediately contact the staff of the Securities and

Exchange Commission, Division of —nforcement in

Washington, D.C. If any broker or dealer is uncertain as to

what is required by Rule 1Sc2-11. he should refrain from

entering quotations relating to the securities in question

until such time as he has familiarized himself with said rule

and is certain that all of its provisions have been met. If any

broker or dealer enters any quotation which is in violation

of said rule, the Commission will consider the need for

prompt enforcement action.