# Opposition — Securities & Exchange Commission v. Sloan

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition
- **Published:** January 1, 1978
- **Citation:** 436 U.S. 103

## Text

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1852%3A3. Public record. Not legal advice.