# Petition for Writ of Certiorari — Beggs v. Ellis > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385601_0053%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1962 - **Citation:** 368 U.S. 968 ## Text 2 ee Ee er IN THE Supreme Court of the United States OCTOBER TERM, 1961 No. 585 ™ > a N. Straus Organ & Co. TNe. and N. Sivs Onaan, Petitioners, V. — SECURITIES AND EXCHANGE COMMISSION, PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Harotp UNTERBERG, Attorney for Petitioners, 92 Broadway. New York 4. N.Y. UNTERBERG and UNTERBERG, ‘Davip UNTERBERG, ABBIE. GOLDSTEIN, Of Counsel, PAGI a shook bese cae ese ees esse 1 ie ea kd oa ay bo a a 4s aoe oe 68 = Er are an ee 3 a er Ae re > A SAS SD ae a ’ Reasons for Granting the Writ ................ 8 I a leg eo Gao ya's sas vs bs so eee | eli Saw eh the voeake nbc ee uk ens Opinion of the Court of Appeals .......... A-1 Findings and Opinion of the Seeurites and Exchange Commission .................. 13-1 Order of the Commission ................ B-13 Judgment of the Court of Appeals ........ (‘-1 TABLE OF CASES Angel v. Buallinton, 330 U.S. 188, 190-1 ........ 12 Bank of America Nat'l Trust & Sav. Ass'n Vv. Douglas, 105 F. 2d 100, 105 (C.A., D.C.) .... °° 14 C. A. B. v. Delta Air Lines, Inc., 367 U.S. 315, affg. 280 F. 2d 424 (C.A., 2d) ........ 8, 9, 10, 11 Columbia Research Corp. v. Schaffer, 256 F. 2d a eS) ee ee 15 Commissioner ¥. Sunnen, 333 U. S. 591, 597-601 12 Estevez v. Nabers, 219 F. 2d 321, 323 (C.A., 5th) 12 PAGE Frost v. Corporation Commission, 278 UL S.515 2.0 11 Gilligan, Will & Co. ve S. BE. C., 267 F. 2d 461 (CA. 2d), Cert. den. 361 ULS. 896 00.0000... 13 International Union, ete. vo Eagl-Picher Mining d& Smelting Co., 3825 U.S. 3855, 341 000 ee. 11 Jones Vv. Securities and Exchange Commission, ee ee Wee a i awe hee 9,10 Lowsville & NLR. Co. vy. Ohio Valley Tie Co., SN es eg oe eg a ee ee ee wy 12 Lubliner v. Board of Alcoholic Bev. Cout., 33 N. J. 428, 435, 165, Atl. 2d 163, 167 ........ 12 N.L.R.B. vy. Phelps, 138 F. Md) 562, 563 (CLA, |} ae pe eemtace aaath eat ee er rear ae 15 Owensboro VN. Cumberland Telephone Co., 230 SG Mh es Tae ee eect kh ek he 11 People ex rel. Finnegan v. McBride, 226 N.Y. 252 Se a an ec Ry OO cs ech eee ee shed ees 12 Smith Bros., Revocation of Certificate, 33 M,C. C. Sg RE et PO aS Pre TT eee Te ee 11 Sunshine Anthracite Coal Co. vy. Adkins, 310 U.S. —— N. Sims OrGan & Co., INc. and N. Sims Oncan, Petitioners, v. SECURITIES AND EXCHANGE COMMISSION. » — > hae nine FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOx THE SECOND CIRCUIT N. Sims Organ & Co., Inc. and N. Sims Organ pe- tition for a writ of certiorari to review the judgment of the United States Court of Appeals for the Second Circuit, entered in this case on September 19, 1961. Opinions Below The opinion of the Court of Appeals (Appendix A, infra, pp. A-1-8) is reported 295 F. 2d 7s. The opinion of the Securities and Exchange Com- mission, — SEC —, ix not vet reported (Appendix B,. infra, pp. B-1-14). Jurisdiction The judgment of the Court of Appeals was entered on September 19, 1961 (Appendix C, infra, pp. C-1-2). The jurisdiction of this Court is invoked under Sec- tion 25(a) of the Securities Exchange Act of 1934 and 28 U.S. C. 1254. / Questions Presented 1. Whether the Securities and Exchange Commis- sion, after hearing all the evidence in a denial pro- ceeding of a broker-dealer registration and permit- ting the registration to become effective, has the power, in a revocation proceeding commenced after the effective date, to revoke the broker-dealer regis- tration on the same evidence used in the abortive denml proceeding. 2. Was there a denial of fair hearing under the due process clause of the Constitution in that the Se- eurities and Exchang. Commission had prejudged the matter when it had published a release asserting that members of its staff have reported information tend- ing to show that the individual petitioner had violated anti-fraudulent provisions ? Statutes Involved Securities Exchange Act of 1934 (15 U.S.C. 780, 781) See. 15. (b) A broker or dealer may be rey istered for the purposes of this seetion by filing with the Commission an application for registration, which shall contain such information in such detail as to ” -such- broker or dealerjand any person directiy or indi- rectly controlling or controlled by, or under direct or indirect common control with, such broker or dealer, as the Commission may by rules and regulations re- quire as necessary or appropriate in’ the public incerest or for the protection of investors. Exeept as hereinafter provided, such registration shall become effective thirty days after the receipt of such appli- eation by the Commission or within such shorter period of time as the Commission may determine. * * * oa The Commission shall, after appropriate notice and opportunity for hearing, by order deny registration if it finds that such denial ix in the publie interest ** * Pending final determination whether any such registration shall be denied, the Commission may by order postpone the effective date of such registration for a period not to exceed fifteen days, but if, after appropriate notice and epportunity for hearing, it shall appear to the Commission to be necessary or approvriate in the public interest or for the protee- tion of investors to postpone the effective date of such registration until final determination, the Commission shall so order. Pending final determination whether any such registration shall be revoked, the Commuiis- sion shall by order suspend such registration if, after appropriate notice and opportunity for hearing, such suspension shall appear to the Commission to be nec- essary or appropriate in the public interest or for the protection of investors. See. 21. (a) The Commission may. in its disere- tion, make such. investigations as it deems necessary to determine whether any person has violated or is 4 about to violate any provision of this title or any rule or regulation thereunder, and may require or permit any person to file with it a statement in writing, under oath or otherwise as the Commission shall determine, as to all the facts and circumstances concerning the matter to be investigated. The Conmnission is author- ized, in its discretion, to publish information concern- ing any such violations, and to investigate any facts, conditions, practices, or matters which it may deem hecessary or proper to aid in the enforcement of the provisions of this title, in the prescribing of rales and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this title relates, Administrative Procedure Act (5 U.S.C. 1004) See. 5 (¢) Separation of Functions.—The same ofticers who preside at the reception of evidence pur- suant to section 7 shall make the recommended deci- sion or initial decision required by seciuon 8 except where such officers become unavailable to the agency. Save to the extent required for the disposition of ex parte matters as authorized by law. no such officer shall consult any person or party on any fact in issue unless Upon notice and opportunity for all parties to participate; nor shall such officer be responsible to or subject to the supervision or direction of any officer, echiplovee, or agent engaged in the performance of investigative or prosecuting functions for any agency. No officer, employee, or agent engaged in the per- formance of investigative or prosecuting functions for any ageney in any case shall, in that or a factually related case, participate or advise in the decision, reconmnended decision, or agency review pursuant to mY section 8 except as witness or counsel in publie pro- ceedings. This subsection shall not apply in deter- mining applications for initial licenses or to proceed- ings involving the validity or appleation of rates, facilities, or practices of public utilities or carriers ; nor shall it be applicable in any manner to the agency or any member or members of the body comprising the agency. Statement J. H. Lederer Co., Inc. had been registered with the SEC as a broker-dealer. Its registration was revoked on December 28, 1958. Organ, the individual peti- tioner, was a salesman employed by Lederer in 1958, during which period Lederer had) sold) Continental Mining stock. The petitioner was xof named. the cause for this revocation, althongh it is customary, where an individual salesman has violated any provi- sion of the Securities Law, resulting in the revocation of his employee registration, to name such salesman as the cause—this, despite the fact that the Staff of the SEC had full knowledge of the facts. N. Sims Organ & Co., Inc., the corporate petitioner (hereinafter called “Organ & Co.""), was organized in January 1959. Its application fur registration as a broker-dealer was received by the SEC on October 19, 1959. On November 17, 1959, the SEC instituted a proceeding to determine whether Organ, while em- ployed by Lederer, had violated certain provisions of the Federal Securities Acts. ate In the SEC’s Daily News Digest of November 23 6 1959, a release was entitled ‘*Fravp CHARGED To N. Sims OrGan Co.’’, and recited: **The SEC has issued an order under the Securi- ties Exchange Act of 1934 postponing the effec- tive date of registration of N. Sims Organ & Co., Inc. * * * as a broker-dealer, and ordering a hearing on whether such registration should be denied * * *, The order of the Commission asserts that members of its staff have reported information obtained as a result of an investiga- tion which tends to show that * * *" Organ had violated certain statutes. Of course, Organ & Co. had not even been in exist- ence when the claimed vielations occurred. At the hearing (R. 30a-3la), appropriate exception was taken. The SEC postponed the effective date of Organ & Co.’s application for fifteen days, to December 21, 1959, and directed a hearing to determine whether the effective date of registration should be further post- poved pending denial proceedings (R. 16a-18a). The hearing was held on December 2, 1959, but the SEC did not reach a determination on this question prior to the date on which the application became ef- fective by lapse of time on December 22, 1959. At no time did the Staff of the SEC apply fcv, nor did the Commission issue, an order postponing the effective date of the registration, to await the recommended decision and final determination of the Commission, as provided for in Section 15(b) of the Securities Ex- change Act of 1934. | 7 On December 22, 1959, Organ & Co. became a duly registered broker-dealer. On January 28, 1960, the SEC dismissed the denial proceeding on the ground that it had become moot. Of course, the registration had become **effective’’ on December 22, 1959, by force of the statute (R. 20a), and that part of the order dismissing the proceeding as “*moot’’ neither added to nor subtracted from the fact that the registration was effective. 4 The order of January 28, 1960 (R. 19a-22a) insti- tuted a revocation proceeding which was heard on March 28, 1960, before the same Examiner who heard the denial proceeding. The staff of the SEC. stipu- jated that it would rely on the same orgl testimony which was before the Examiner on the’ denial pro- ceeding (R. 54a). The Examiner held for the petitioners on the merits, rejecting the staff*s evidence as insufficient in law and in fact (R. 24a-29a ; 60a-62a ). The SEC reversed the Hearing Examiner's Recom- mended Decision (R. 22a-29a) and made an order re- voking Organ & Co.’s registration as a broker-dealer in securities, and recited that Organ was the cause of the revocation (App. p. B-14). The SEC and the court below relied heavily on the fact that Organ did not take the stand to deny certain hearsay evidence (App. pp. A-5, B-8). Organ was called to the stand by the Staff; he was available for questioning, but the Staff did not see fit to interrogate him as to the dis- puted issues (R.50a-52a). The Court of Appeals for the Second Circuit affirmed. On the issue of the effect 8 of the denial proceeding on the revocation proceeding, it held (App. pp. A-7-8) that ‘tthe dismissal of a case because it is meot does not lay a basis for the applica- tion of the dogtrine of res judicata,” It is slicctind that the court below gave no effect to the clear wording of the statute that the registration became ‘‘effective’’ on December 22, 1959, irrespeec- tive of whether the SEC had made an order dismissing the proceeding as moot or not. Subsequent to the argument, but before the opinion was handed down, this Court on June 12, 1961, decided C. A. B. vy. Delta Air Lines, Inc., 367 U. S. 316. Pe- titioners urged that the cited case is coutrolling. Pe- titioners contend that Delta controls the case at bar, even though the court below attempted to distinguish it. REASONS FOR GRANTING THE WRIT I. The court below, we submit, has misconstrued perti- nent sections of the Securities Exchange Act of 1934, and has misapplied controlling decisions of this Court dealing with parallel problems in administrative law. Thus, it has approved the action of the SEC in exceed- ing the authority granted to it by Congress with refer- ence to revocation of broker-dealer registrations. Congress has always been aware of the propensity of administrative bodies to defer action on license appli- eations. In broker-dealer registrations, it evolved an equitable procedure whereby a ‘tregistration shall be- 9 come effective thirty days after the receipt of such application’; and if ‘tit shall appear to the Conmmis- sion to be necessary or appropriate in the publie inter- est or for the protection of investors to postpone the effective date of such registration until final determi- nation, the Commission shall so order”. We believe that the decision of the court below is contrary to the decisions of this Court in C. A. B. v. Delta Lines, Inc., 367 U.S. 316, and in Uuited States v. Sea Train Lines, 329 U.S. 424. Delta was an affirmance of the decision of the See- ond Circuit in 280 F.2d 43. This Court granted the Government's petition for certiorari on the question of whether an administrative body, once it has entered an order permitting a certificate to become effective, is Without power to modify the certificate on a petition for reconsideration. In that case, the petition for reconsideration was filed prior to the effective date; in the case at bar, the broker-dealer registration had be- come effective before the revocation proceeding was commenced, The opinion by the Chief Justice analyzes the con- flict between two opposing policies—finality on the one hand and the right result on the other, Ultimately, it is Congress who must show which path is to be fol- lowed. While the statute applicable to each adminis- trative body is ‘tenacted in an attempt to tailor the ageney's discretion to the particular problems in the area’’, vet, the use of similar language and similar pro- cedures often give aid in settling the basie principles involved. Congress was concerned with the possibility that an application might be pigeonholed forever. In the related area of the issuance of securities, Jones Vv. ; 10 Securities and Exchange Commission, 298 U.S. 1, 18, this Court has defined the word *‘effective’’ as connot- ing ‘‘completeness of operative force and freedom to act’. Congress has given the SEC an arsenal of reme- dies to postpone the effective date, but the onus and burden are on the SEC to take these steps. This is especially true when a denial proceeding has actually been commenced. Then, it is incumbent upon the SEC to finish what it starts. This is not the case where no denial proceedings had ever been com- menced ; nor is this a case where a revocation proceed- ing had been commenced on evidence that had come to the SEC’s attention after the broker-dealer registra- tion had become effective. In the situation at bar, the evidence was not only in the SEC's file, but was used in the denial proceeding, and subsequently used as the ouly evidence in the revocation proceeding. It is evident that the ** power the [SEC asked] for in this case seems nothing more or less than the power to do indirectly what it cannot do directly’’. Delta, at page 328. ‘*All we hold is that if the [SEC] wishes to do so, it must proceed in the manner authorized by statute. * * * if it feels uncertain about the decision prior to its effective date, it may postpone the effective date until all decisions have been resolved; * * *". Delta, at page 329. “Indeed, with all these weapons at its hand, it is difficult to follow the argument that the [SEC] should be allowed to improvise on the powers granted by Congress in order to preserve ad- ministrative flexibility’. Delta, at page 330. Decvia relied heavily on United States vo Sea Train Lines, 329 U.S. 424, aftirming 64 F. Supp. 156. The 11 lower court's opinion (that of a three judge statutory court), relying upon the Fifth Amendment, was cited with approval in Delta at page 332. Circuit Judge Biggs (p. 160) cites Frost v. Cor- poration Commission, 208 U.S. 515, and Owcus- boro V. Cumberland Telephone Co, 230 U.S. 98, for the proposition that a certificate allowed to become ef- fective was a franchise because it granted rights to engage in business of a publie nature and was thus protected by the Constitution. He, ax well as this Court. in affirming, cited Smith Bros., Revocation of Certificate, 33 M,C. C, 465, 472, to the effect that once a certificate becomes effective, the administrative body or the courts are without power to cancel, That case has been cited with approval by this Court: several times, and was cited by the Second Cireuit in Delta, Judge Biggs also relies on the decision of this Court in International Union, cle. v. Bagle-Pichor Mining & Smelting Co., 325 US. 335, 541, where it was said: ** Administrative flexibility and judicial certainty are not contradictory ; there must be an end to dis- putes which arise between administrative bodies and those over whom they have jurisdiction.” Even if thix ease is viewed in the aspect of res judicata (or more accurately estoppel by judgment ) we submit that the doctrine has been tortured bhe- yond reality. Of course, Res Judicata is applicable in administra- tive law. See Tobias, Administrative Reconsideration, YS NOY. ULL. Rev. 1262, cited at p. 321, and Davis, Res Judicata in Administrative Law, 25 Texas L. Rev. 199, cited at p. 327 of Delta, The former, at p. 1272, IZ quotes with approval from People er rel. Finnegan Vv. McBride, 226 N. Y. 252, 259, 123 N. E. 374, 376. See also the opinion in Lubliner vy. Board of Alcoholic Bev. Cont., 33. N. J. 428, 435, 165 Atl. 2d 163, 167 (1960), and Griswold, Res Judicata in Federal Tar Cases, 46 Yale L. J. 1320, 1326. Soundly considered cases by this Court hold that the principles of Res Judicata apply in administrative law. Tait v. Western Maryland R. Co., 289 U.S. 620, 623-4; Sunshine Anthracite Coal. Co, vy. Adkins, 310 U.S. 381, 403; Louisville & N. RB. Co. v. Ohio Valley Tie Co., 242 U.S. 288; Commissioner v. Sunnen, 333 U.S. 591, 597-601; United States v. Int. Bldg. Co., 345 U.S. 502, 504-5. See also 2 Davis, Administrative Law Treatise, Chapt. 18, pp. 545, et seq. Res Judicata is often difficult to apply. In Esterez v. Nabers, 219 F. 2d 321, 323 (C. A.. 5th), the test was laid down as to whether the two proceedings are merely the same and not the question of whether the tirst was ‘ton the merits’. In Angel v. Bullinton, 330 U.S. 183, 190-1, it was held that it was a misconcep- tion to assume that the doctrine does not come into operation after the first court had not passed on the **merits in the sense of the ultimate substantive issues of a litigation’. Adjudication declining te reach these ultimate issues bars a second attempt to reach them again. The situation at bar is one example of a situation where the administrative process reaches a palpably bad resiit with terrific consequences to the citizen in- volved. Organ had worked all his life in the securities business. He has no other occupation. After having been a salesman all these vears, he decided to form his 13 own firm. On the questionable testimony of a hard- of-hearing, disgruntled customer (R. 37a) of a for- mer employer (Lederer), not only has petitioner's firm, Organ & Co., been put out of business, but Organ himself, because he is called a ‘teause™ of the revoca- tion, is unable to be employed in any eapacity by any broker-dealer licensed by the SEC. Vis-a-vis him and his government, such a result should not be condoned, Under the principle sustained by the Court below, a broker-dealer revocation proceeding could be com- menced years after his registration had become effee- tive on grounds known from the beginning and inves- tigated by the SEC. If this can he so, a lawyer could he disbarred for matters that had been thoroughly aired by the Character Committee before his admis- sion. No citizen should be subject to such peril. We say that the Constitution and Congress never intended these consequences, The question of whether the SEC is acting fairly by participating in pre-.earing releases is squarely raised in this case. The point was raised in Gilligan, Will d& Co. Vv. S. E. C., 267 F. 2d 461, 468 (2d Cir., 1959), cert. den. 361 U.S. 896. The Court of Appeals affirmed because petitioners had failed to assert the defect of pre-judg- ment before the SEC. It was held to be a waiver under Section 25(a) of the Securities Exchange Act of 1934. Inthe ease at bar (R. 30a-31a), there was no Walver. 14 The Court below cogently remarked: ‘But we do not think the notice was a very good kind of notice for a government body to issue’? (App. p. A-7). Administrative agencies have a propensity to try their cases in newspapers. They publicize complaints, but do not give equivalent publicity to ultimate dis- missals by the administrative bodies themselves or by the courts. Some years ago a prime offender was the Federal Trade Commission. Its practice was the sub- ject of editorials and correspondence in the New York Times. The difficulty is that once the financial community, close-knit and sensitive as it is, is directly advised through administrative release that its Staff has ad- vised the SEC of a possible violation, tentative though it may be, the damage is done. This is particularly true of a broker-dealer application for registration. The business is doomed before it is launched, even though ultimately the complaint is dismissed. The use of publicity by the SEC to effectuate its policies is well know. While, under Section 21(a) of the Securities Exchange Act, the SEC has discre- tionary power to publicize violations, it should only be used to effectuate the ends for which it was author- ized, Bank of America Nat'l Trust & Sav. Ass'n v. Doug- las, 105 F. 2d 100, 105 (C.A., Dist. Col.), in dealing with this problem, noted that ‘tsuch a power might easily be made an instrument of oppression.”’ It was - suggested that ‘pre-trial publication of evidence— labeled as believed to be true—oughit, we think, to be avoided, especially as emanating from the tribunal es charged with the judicial responsibility of weighing it and assuring the accused a fair hearing”’. Section 5 of the Administrative Procedure Act was expressly designed to maintain separation of prosecu- tor and judge in administrative proceedings. Section 4(¢) expressly prohibits any officer, agent or employee engaged in investigative or prosecuting functions to participate or advise in the decision. Won Yang Sung Vv. McGrath, 339 U.S. 33; Columbia Research Corp. v. Schaffer, 256 F. 2d 677, 680 (2d Cir, 1958). While agency heads are exempt, by the very nature of administrative agencies, they should follow the un- derlying policy. We submit the decision below conflicts with the ra- tionale in United States or rel. Accardi v. Shaugh- nessy, 347 U.S. 260, 266-8, where it was held that a new trial was required if petitioner could prove that the Board of Lnmigration Appeals was influenced by a published list of undesirable aliens. The opportunity to have an impartial and objective hearing is of the essence of the administrative as well as the judicial process. NV.L.RB. v. Phelps, 136 F. 2d 962, 563 (Sth Cir.). No statute or regulation is re- quired to give this right, since it is inherent in due process, The whole basis of the Administrative Pro- cedure Act, with its detailed attempts to formulate fair procedure in administrative hearings, is seriously un- dermined when agency heads act in such a way that the slightest suspicion of irregularity taints the pro- ceedings. It is unrealistic to think that the Commis- sioners can completely divorce themselves from the in- vestigative function as to remain open-minded wheir 16 they review the record, especially when they are not bound by the Examiner's findings. This case gives this Court an opportunity to estab- lish the principle that the Commissioners word pre- hearing releases so as to avoid what appears to be pub- lic pronouncement of judgment before the actual trial of the matter. In that way, unfavorable implications and irreparable damage can be avoided. Conclusion The decision below raises important questions of ad- ministrative procedure which bear directly upon the powers of the agencies generally, and more particu- larly of the Securities and Exchange Commission, and op the constitutional rights of those dealing with agencies, Ve believe the decision is in error and conflicts with the views expressed by this Court and by other courts of appeals. The petition for certiorari should be granted. 7 Respectfully submitted, Hanrotpy UNTERBERG, Attorney for Petitioners. UNTERPERG and UNTERBERG, Davip UNTERBERG, ABBIE GOLDSTEIN, Of Counsel, App. A-1 Appendix A 293 F.2d 78 UNITED STATES COURT OF APPEALS For THE SECOND Cinevir No. 407—Orctober Terms. 1960. (Argued June 7, 1961 Decided Jiily 24. 1961.) Docket No, 26876 N. SIMS OnGan & Co., INc. and N. Sims Onagan, Petitioners, -—V~/.— SECURITIES AND EXCHANGE COMMISSION, Respoudeut. ,efore;: Luaparp. Chicf Judge, and (OODRICH*® and Frenpiy. Cireait Judycs. Petition to review an order of the Securities and Ex- change Commission, 15 U.S.C. AL 878 (Ca). revoking wroker-dealer registration and listing individual ap- pellant as a cause. Affirmed, Davi Ferner, Assistant General Counsel Se- curities and Exchange Conunission Wash- ington, D.C. (Walter P. North, General Counsel, and John A. Dudley, Attorney Securities and Exchange Conmuteission, Washington, D. ©. on the brief), for appellec, * Of the Third Circuit. sitting by designation. Ap). A-2 Davin Untersernc. New York, N.Y. (Unterberg and Unterberg, New York, N.Y.. on the brief), for appellant, ——— dioopRricH, Circeail Judge: This is a petition to review an order of the Seeuri- ties and Exchange Commission which revoked Organ & Cows registration with the Commission as a broker and dealer in securities and recites that Organ is the — ‘ause of the revocation. The review is sought under Section 20(a) of the Sceurities (xchange Act of 1934, Ib UL S.C. AL S78¥ (a). The background of the case may be summarized as follows : J. H. Lederer Co. Inc. had been registered with the Commission as a broker and dealer. Its registration was revoked on December 28, 1958, for violation of fraud provisions of the statute. Organ was a sales- man emploved by Lederer in 1958, a period during which Lederer was conducting a selling campaign of stock of a company named Continental Mining Ex- ploration, Ltd. Organ & Co. was organized in January, 1959, and its application for registration as a broker and dealer was received by the Commission on Octo- ber 19, 1959. The Commission instituted proceedings to determine whether Organ, while employed by Led- erer, had violated fraud provisions of the federal secur- ities acts. The Commission postponed the effective date of Organ & Co.'s application for 15 days and directed a hearing to determine whether the effective date of registration should be further postponed pend- ing denial proceedings. The hearing was held. but the Commission did not reach a determination on this question prior to the date on which the application ———— App. A-3 hecame effeetive by lapse of time.’ The Commission, on January 28th, dismissed the denial proceeding on the ground that it had become moot and in the same order instituted a revocation proceeding Which resulted in the revocation order under review here. The record developed in the preliminary hearing on postponement Was Incorporated into the record of the revocation pro- ceeding. Petitioners make four points. The first point is that the Commission's order is not supported by substantial evidence, Chieth concerned in the consideration of this objection is the (Ceormais- sion’s ¢laim that certain representations made over the telephone and which were fraudulent? were mide PSection 15(b) of the Securities Exchange Act of 1934) pro- vides, In part: “(bi A broker or dealer may be registered for the pur- poses of this section by filing with the Commission an application for registration. * * © Except as hereinafter provided, such registration shall become effective thirty days after the receipt of such application by the Commission or Within such shorter period of time as the Comanission mays determine.”") 15 U.S.C. AL $70 Cho, =Section 17(a) of the Securities Act of 1933 > provides: (a) It shall be unlawful for any person in the sale of any securities by the use of any means or instruments of transportation or communication ino interstate commerce or by the use of the mails, directly or indirectly — (1) to employ any device, scheme, or artifice to de- fraud, or (2) to obtain money or property by means of anv untrue statement of a material fact or any omission te state a material fact necessary in order to make the state- ments made, in the iight of the circumstances under which they were made, not misleading. or (3) to engage in any transaction, practice, or eourse of business which operates or would operate as a fraud or deveit upon the purchaser.”" 15 UL S.C. AL S77q (ay. Section 10 of the Securities Exchange Act of 1934 provides. in part. “Tt shall be unlawful for any person, directly or indirectly, App. A-4 by Organ. There were two of these telephone conver- sations going to the same prospective customer. ‘The ealler identified himself as Organ. The recipient, who subsequently bought stock? did not know Organ but identified the caller’s voice as the same on the two oceasions. Although this evidence might not be enough by itself to justify a conelusion that Organ was the ealler, there was considerably more. The written confirmations of the sale received by the purehaser bore the initials **N. O.’* which were Or- gan’s initials and Hallen, the purchaser, cancelled one vf his purehases by notice addressed to Lederer marked to the attention of Organ. Further, Hallen Was given a telephone number to eall in order to get in touch with the salesman who identified himself as Organ, and this telephone number was used by Organ in ealling other customers. The trial examiner did not think that this was enough to identify Organ as the ealler on the telephone; the Commission thought otherwise. It is the Commission’s responsibility to by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— ss 8 ¢ ‘*(b) To use or employ, in connection with the purehase or ‘sale of any security registered on a national securities exchange or any security not so registered, any manipula- tive or deceptive device or contrivance in contravention of such rules and regulations as the Commission may pre- seribe as necessary or appropriate in the public interest or for the protection of investors.”” 15 U.S. C. A. $78). The purchaser cancelied the first sale and testified that he personally followed the market activity of the stock not relying on the salesman’s statements. The Commission is quite correct in its conclusion that reliance is not an element of the violation eharged. 15 U.S. C. A. S877q (a), 78j. See Hughes vo SEC, 174 F. 2d 969, 973-4 (D.C. Cir, 1949). App. A-) decide the question and the fact that it differed with the examiner dees not matter. The Commission pointed out correctly that this is a non-eriminal case and that Organ’s failure to testify is significant. He did rot deny the evidence just: re- cited and the accepted rale is that failure to explain facets and cireumstanees warrants the inference that his testimony would have been adverse.? We agree with the Comission that the faetors cure sufficient to establish Organ as the maker of the eoi- miuinication.® The second point is that the proceedings fell under the prineiples set out in Jencks vo United States, 303 U.S. 657 (1957). 4 Section 15 of the Securities Exchange Act of 1934 provides, in part: **The Commission shall, after appropriate notice and op- portunity for hearing, by order deny registration to or revoke the registration of any broker or dealer if it finds that such denial or revovation is in the publie interest and that (1) such broker or dealer whether prior or subsequent to becom- ing such, * * * has willfully violated any provision of the Securities Aet of 1933, or of this chapter, or of any rule or regulation thereunder.”’ 15 U.S. C. A. §7aso. See Pierce v. SEC, 239 F. 2d 160, 162-3 (9th Cir, 196). Cf. FCC .. Allentown Broadcasting Corp., 349 US. 359, 864 (1955). The only significant difference between the examiner's Recom- mended Decision and the Findings and Opinion of the Commis- sion is the ultimate conclusion to be attached to all of the evidence presented. The Commission is fully as eapable of drawing that conclusion as is the examiner. > Wigmore, Evidence $2589 (3d ed. 1940) ; MeCormick, Evidence $249 (1954). But see, U.S. ve Costello, 275 F.2d 355 (2d Cir. 1960), aff’d, 365 U.S. 265 (1961). 6 While rigid evidentiary rules are not to be applied to admini- _Strative agencies, FTC v. Cement Institute, 333 U.S. 683, 705-6 (1948). the evidence of surrounding circumstances in this case was sufficient to conclude that Organ was the caller even under the more stringent rutes applicable in criminal proceedings. See Jarvis v. United States, 9) FB. 2d 248 (Ast Cir). cert. denied, 202 U.S. 705 (1937). App. A-6 An investigator for the Commission interviewed Hallen and made notes for the purpose of preparing an affidavit to be signed by Hallen. He did prepare such an affidavit and destroyed the notes. Hallen did not see the notes which, it was testified, were simply to serve as cues for the preparation of the affidavits by the investigator. In the hearing Hallen was shown the affidavit to refresh his recollection. Petitioners’ counsel had opportunity before Hallen testified to read the affidavit, and it was in the hands of petition- ers’ counsel for cross-exami 1 of Hallen. There was no suggestion ese notes were destroyed with any intent to suppress evidence. See United States v. Thomas, 282 F. 2d 191 (2d Cir. 1960). There was no refusal by the Government to produce a statement within the meaning of the so-called * Jencks” statute. 18 U. S. C. 93000. The only state- ment that Hallen signed was shown to Organ’s coun- sel as stated above. There was no violation of any right of Organ involved here. Third, petitioners charge that the Commission's publication of the notice of the proceedings consti- tuted a prejudgment against them and was a denial of due process. This Court had oceasion to comment on this subject in Gilligan, Will & Co. v. SEC, 267 F. 2d 461 (2d Cir.), cert. denied 361 U.S. 896 (1959). It was there said: “Apart from 95 [of the Administrative Proce- dure Act] and the restrictions it may impose, the Commission's reputation for objectivity and im- partiality is opened to challenge by the adoption of a procedure from which a distinterested ob- server Inay conelude that it has in some measure adjudged the facts as well as the law of a par- oT] App. A-7 ticular case in advance of hearing it. There would appear to be no such conflict: between the Comniission’s duty to inform the publie and its duty to prosecute as would necessitate the use of press releases of the kind here questioned.” 267 F. 2d at 468-9. We reiterate that statement. It is not the business of this or any other court to write publicity notices for the Commission. But we think it should be borne in mind that when the body which is the investigator, the prosecutor and the judge starts a proceeding by saving that the order of the Commission asserts that members of its staff have reported information tend- ing to show that Organ has violated anti-fraudulent provisions, it creates an impression whieh could be interpreted as tending to indicate that the Commiis- sion had already made up its mind. We do not think the Commission intended such a result; we certainly do not indicate that due process of law was denied to the petitioners. But we do not think the notiee was a very good kind of notice for a government body to issue. Fourth, petitioners claim that res judicata operates to prevent the order under attack from being valid. They base this, of course, on the dismissal of the denial proceedings, but those proceedings did not de- cide anything. They were dismissed as moot because action of the Commission was not taken until the application for registration had become effective by lapse of time under the provisions of the statute? It is well settled that the dismissal of a case because it 7See note 1 supra. App. A-&8 is moot does not lay a basis for the application of the doctrine of res judicata The petitioners in a letter submitted after argument urge that CAB v. Delia Air Lines, Ine., 367 U.S. 316, decided June 12, 1961, is controlling here. We think not. In that case the Aeronautics Board allowed a certificate of convenience and necessity to beeome effective by lapse of time despite pending petitions for reconsideration of the award. Subsequently the Board imposed restrictions on the certificate without formal notice or hearing. The precise holding of the Supreme Court was that the statutory mandate of notice and hearing must be complied with before an existing certificate can be amended or modified. There was no discussion of or reliance upon the fact that the evidence on which the restrictions were based was hefore the Board when the certificate became effective by lapse of time. In the instant case after the cerfi- cate became effective by lapse of time the Commission instituted a revocation proceeding, as authorized by statute,® and conducted a hearing. The record devel- oped in the earlier proceeding was incorporated into the record of the revocation proceeding. Petitioners had full opportunity to rebut any damaging evidc nee before the Commission at the revocation hearing. That they failed successfully to do so does not in any way reflect any improper action by the Commission. The decision of the Commission will be affirmed. 8('f. Restatement, Judgments §69(2) and Comment ¢. It has also been held that the doctrine of estoppel is not available against the SEC. SEC vy. Culpepper, 270 F. 2d 24) (2d Cir. 1959); SEC v. Morgan, Lewis & Bockius, 209 F. 2d 44 (3d Cir. 1953). 9 See note 4 supra. App. B-1 Appendix B FINDINGS AND OPINION OF THE COMMISSION (Securities Exchange Act Release No. 6495) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. March 14, 1961 —> In the Matter of N. Sims Oncan & Co... TNxe. 400 East Park Street Long Beach, L. 1. New York File No. 8-7919 Securities Exchange Act of 1934 Sections 1o(b) and LoACh)(4) - = a Broker-DEALER REGISTRATION Grounds for Revocation of Registration Fraud in Offer and Sale of Securities Where president and principal stockholder of reg- istered broker-dealer. while salesman for another broker-dealer, made false and misleading statements in offer and sale of securities concerning, among other things, future market price, prospective earn- ings, and length of time his emplover had been in business, Weld under all the circumstances public interest requires revocation of registration, App. B-2 Estoppel P Where, in previous revocation proceeding against registered broker-dealer firm, Commission did not place a salesman's activities in issue, held, Commis- sion not estopped from doing so in subsequent revo- cation proceeding against another registered broker- dealer firm of which he is president and principal stockholder. Res Judicata Double Jeopardy Where Commission, after hearing on question whether effective date of application for broker- dealer registration should) be postponed pending tinal determination whether such registrati 1 should he denied, permitted registration to become effec- tive by lapse of time and dismissed denial proceed- ing ax moot, and thereafter instituted revocation proceeding based on same allegations as in denial proceeding, held, issues in prior proceeding were not determined on the merits and doctrine of res judicata is not applicable to revocation proceeding ; further held, double jeopardy not involved in insti- tution of revocation proceeding. APPEARANCES: John J. Devaney, Jr. and Bernard M. Krakower, of the New York Regional Office of the Commission, for the Division of Trading and Exchanges. David Unterberg and Abbie Goldstein, of Unterberg and Unterberg, for N. Sims Organ & Co., Ine. and N. Sims Organ. App. B-3 By Woopstpr, Commissioner : These are proceedings pursuant to Section 15()) of the Securities Exchange Act of 1934 (Exchange Act’) to determine whether the registration as a broker and dealer of N. Sims Organ & Co., Ine. (**reg- istrant’’) should be revoked, and whether, under See- tion IbA(b) (4) of the Exchange Act, N. Sims Organ, president, treasurer, a director and owner of 10°; or more of the stock of registrant. should be found to be a cause of an order of revocation if entered The order for proceedings alleges that between Feb- ruary and November 1958, Organ, while employed as a salesman by J. H. Lederer Co., Ine. (** Lederer (o.""), then a registered broker and dealer made cer- tain false and misleading statements in the offer and sale of stock of Continental Mining Exploration Ltd. (Continental) in willful violation of anti-fraud provisions of the Securities Act of 1933 (**Securities Act’) and the Exchange Act ! Section 15(b) of the Exchange Act, as here applicable, pro- vides that we shall revoke the registration of a broker or dealer if we find that it is in the public interest and that such broker or dealer or any officer, director, or controlling person of such broker or dealer, whether prior or subsequent to becoming such, has willfully violated any provision of that Act or of the Securities Act of 1933 or any rule or regulation thereunder. Under Section 15A(b) (4) of the Exchange Act. in the absence of our approval or direction, no broker or dealer may be admitted fo or continued in membership in a registered securities ASSOW la tion if the broker or dealer or any partner, officer, director or controlling or controlled person of such broker or dealer was a cause of an order of revocation which is-in effect. — 2We revoked the broker-dealer registration of Lederer Co. on December 28, 1958. 3x S.E.C. 794. 3 The anti-fraud provisions referred to are Section Iva) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 (17 CFR 240.10b-5) thereunder. The composite effect of these provisions, as applicable here, is to make unlawful the use of the mails or interstate facilities in connection with the offer or App. B-4 After appropriate notice, a hearing was held before a hearing examiner. Thereafter, our Division of Trading and Exchanges (**Division’’) filed proposed findings and a supporting brief, and registrant filed a brief. The hearing examiner submitted a recom- mended decision in which he found that fraudulent representations had been made by a salesman for Lederer & Co., but that the evidence did not establish that the salesman was Organ, and he recommended that the proceedings be dismissed. Exceptions were filed by the Division and by registrant. Our findings are based upon an independent review of the record. Registrant, a New York corporation organized in January 1959, became registered as a broker and dealer in December 1959. The evidence shows that a Mr. H received two long- distance telephone calls, in March and April 1958, from a salesman of Lederer Co. who identified himself as Organ and solicited the purchase of Continental stuck. This salesman represented that the = stock, which was selling for about $3.50 per share in March 1958, was a **fabulous’’ stock, was going to be a **tre- mendous money-maker,”’ was a “‘tremendous buy,”’ was going up ‘‘steadily,”’ should go up to $4 within a few days, and would reach $6 **shortly”’ or within 60 days, and that Lederer Co. had been in business 27 or 28 vears. Mr. H purchased 300 shares at $3.45 per share in March, and 1,000 shares at $3.65 per share in April 1958, and he received confirmations of the sales through the mails which did vot contain Organ’'s name, but bore a number followed by the letters **NO,”’ sale of any security by means of a device to defraud, an untrue or misleading statement of a material fact, or any act, practice ar course of business which operates or would operate as a fraud or deceit upon a customer, or by means of any other manipulative or fraudulent device. App. B-5 Which are the initials of Organ's first and last names. Mr. H cancelled his Mareh purchase by letter which he testified he believed he addressed to Organ‘s at- tention. During one of the telephone calls, the salesman gave Mr. H a telephone number in case he wished to eall, which number was different from the telephone number printed on the confirmations, and the record shows that a salesman named Organ, no first initial being given, used the telephone number given to Mr. Hin making long distance calls to other customers in behalf of Lederer Co, On the basis of the foregoing, the hearing examiner found that the representations made to Mr. He were materially false and misleading, but that, as urged by registrant, the identity of the salesman as N. Sims Organ had not been established by the evidence. We agree with the examiner that the representa- tions were fraudulent. Continental had suffered net losses of $82,664 in 1956 and 584.102 in 1957. This financial information was available to the salesman but he apparently made no effort to obtain it. In view of Continental's unfavorable financial condition, Which was not disclosed to Mr. H, we find that the optimistic statements concerning the prospects of the stock had no reasonable basix in fact. and accordingly were materially false and misleading.*4 Registrant asserts that the statements regarding the future in- crease in market price were merely * puffing.“” How- ever, even assuming that ** puffing’’ may be permissible in connection with the sale of merchandise other than #R. RB. Michaels & Co., Securities Exchange Act Release No. 6461 (February 6. 1961); Barnett & Co... Inc., Securities Exchange Act Release No. 6310, p. 4 (July 5. 1960): Leonard Burton Cor- poration, Securities Exchange Act Release No. 5978, p. 4 (June 4. 1959). App. B-6 securities, it is clear that statements in the offer and sale of securities which are materially false or mis- leading are proscribed by the securities laws. Regis- trant also contends that since Mr. H cancelled the first sale and thereafter personally foiiowed the market ac- tivity of Continental stock, his second purchase was not induced by the Lederer Co. salesman. However, under Section 17(a) of the Securities Act, false and misleading statements are unlawful in the offer as well as the sale of securities and in any event, reliance on such statements need not be shown to establish a violation under that section or Section 10(b) of the Exchange Act. Moreover, the statement that Lederer Co. had been in business for 27 or 28 years, when in fact it had been registered as a broker or dealer less than three years, was materially false.? We reject, however, the examiner's dnding that the evidence failed to establish that the salesman who made the fraudulent representations was N. Sims Organ. Registrant did not deny that Organ was the salesman involved, but argued that the testimony con- cerning that salesman’s statements over the telephone was hearsay and should have been excluded. However, as we said in A. G. Bellin Securities Corp.8 ** Admini- -trative agencies are not bound by the technical com- 3See First Maine Corporation, 38 S.E.C. 882, 639 (1959); Brereton, Rice & Co., Ine., 37 S.E.C. 618, 621 (1957). 6See Hughes v. S.E., 174 F. 2d 869, 973-74 (C_A.D.C. 1949) ; Speed vy. Transamerica Corp., 99 F. Supp. 808, 831 (D. Del. 1951). 7 We note in this connection that Joseph H. Lederer, who was Lederer Co.’s president and principal stockholder, had been in various types of securities activities since 1918. However, the salesman was referring to Lederer Co., not Lederer, and in any event the statement was at least materially misleading. 8 Securities Exchange Act Release No. 5966, p. 11 (May 12, 195% ,. App. B-7 mon law rules concerning the admission of hearsay evidence, and may make findings based on hearsay if corroborated by competent evidence."" Moreover, telephone conversations bave been admitted in judicial proceedings where there was some evidence, either direct or circumstantial, of the identity of the person Whose statements were in issue.® The test of suffi- ciency of circumstantial evidence is whether there are “facts in evidene which if wianswered would justify men or ordinary reason and fairness’? in finding in favor of the proponent of the evidence. The proof of identity, as of any other fact in proceedings of this nature, need only be by a preponderance of evidence or probability, that is, the evidence should be sufficient to persuade us that it is more probable that Organ was the salesman in question than that he was not.!! Thus, in Andrews y. U.S.," the evidence of the identity of the defendant as the person who had long-distance conversations with investors, during which allegedly fraudulent statements were made, consisted of. the record of the telephone company which showed that long-distance calls were placed and conversations had from defendant's office with the investors at about the times fixed in their testimony, and of receipts for 9 See Andrews vy. U. 8.,78 F. 2d 274. 275 (C.A. 10. 1935) : Jarvis v. UL 8., 90 F. 2d 243, 245 (CLA. 1, 1937), vert. denied 302 U.S. 705; Van Riper v. U. 8., 13 F. 2d 961, 968% (CLA. 2, 1926), cert denied sub nom. Ackerson v. U. S., 273 US. 702. 109 Wigmore, Evidence (3d Ed., 1949), See. 2494. MW Wright v. SE... 112 F. 2d 89, 94 (CLA. 2, 1940): Archer vy. S.EC., 133 F. 2d 795, 799 (CLA. &, 1943), cert. denied 319 U.S. 767. In calculating the probabiliti-s as applied to a question of identification, the odds against tie appearance of each of the several circumstances bearing ou the question of identity are multiplied, not merely added. MeCormick, Evidence (1954), See. 171, 319. 1278 F.2d at 275 App. B-8 money and correspondence subsequently passing be- tween them. The Court, holding that in order to ren- der testimony detailing a telephone conversation com- petent it is necessary to supply some evidence of the identity of the person with whom the conversation is alleged to have been had, concluded that the evidence produced supphed the required foundation for the introduction of the challenged testimony. The Court stated that ‘recognition of the voice is not necessary to such identity. Like any other ordinary fact, it may be established by direct evidence or by circumstances.’ The hearing examiner, in conciuding that the evi- dence was not sufficient to establish that Organ was the salesman who made the fraudulent representations, failed to take into account registrant’s failure to deny that the salesman in question was Organ. We consider such failure to be a factor of substantial significance, particularly in the present context in which Organ de- sires to retain a license to engage in business involving dealings with customers in the face of charges that he acted improperly with respect to Mr. H. In our opin- ion, such failure, together with the other circumstances bearing on the question of identity-including the fact that Organ was a salesman in the office of Lederer Co. during the period involved, that the salesman twice identified himself over the telephone as Organ, the let- 13 The failure of a party to testify, in a non-criminal ease, in explanation of suspicious facts and circur-stances peculiarily within his knowledge fairly warrants the inferenve that his testi- mony, if produced, would have been adverse. See Local 167 v. PoS., 297 ULS, 293, 298 (1934); Mammoth Oi Company v. U.S... 275 U.S. 13, 52-3 (1927); Kirby v. Tallmadge, 160 U.S. 379, 383 (1895) ; Daniel v. UL S., 234 F. 2d 102, 106 (CLA. 5, 1956) ; Meier v. Commissioner, 199 F, 2d 392, 396 (CLA. 8, 1952); 2 Wigmor, Evidence (1940), See. 289 In an action for rescission and damages brought by Mr. HL against Lederer Co., Lederer, Organ and another salesman, no denial was made to allegations by Mr. HI that sales to hin were made by Organ, App. 1-9 ters “NO” appeared on the contirmations, the notice of cancellation addressed to Organ to the best of Mr. IL’s recollection was followed by cancellation of. his transaction, and the same telephone number as was given to Mr. Hi by the salesman who identified himself as Organ was used by a Lederer Co. salesman named Organ in calling other customers-convinees us that N, Sims Organ was the salesman who made the fraudulent representations to Mr. H. We accordingly conclude that Organ willfully violated Section 17(a) of the Se- curities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Other Matters Registrant contends that since, in the revocation proceedings against Lederer Co., we did not place Or- gan’s activities in issue even though we assertedly were aware of them at that time, we are estopped in the instant proceedings frem finding any violations by him while employed by Lederer Co. However, it has heen held that the- doctrine of estoppel cannot be in- voked against us so as to prevent us from performing our statutory functions. and we accordingly reject registrant's contention. Registrant further contends that these proceedings should be dismissed on the ground that, on the basis of applicable principles of res judicata, the issues herein had already been decided on the merits in its favor in denial proceedings instituted by us pursuant to See- tion 15(b) of the Exchange Act in connection with registrant’s application for registration, by virtue of our permitting such application to become effective MW See SEC. y. Culpepper, 270 F.2d 241, 248 (CLA, 2. 1959): S.ELC. Vv. Morgan, Lewis & Bockius, 209 F. 2d 44, 49 (CLA, 3, 19533), App. B-10 after a hearing on the same issues and our dismissal of the denial proceedings as moot. The earlier proceedings, which were based on the same allegations as those in the instant proceedings, were instituted prior to the effective date of the appii- cation for registration in order to determine vot only whether registration should be denied but also whether the effective date of such registration should be post- poned until final determination upon the question of denial. We ordered that a hearing be held before a hearing examiner on the question whether, pursuant to Section 15(b) of the Exchange Act, it was necessary or appropriate in the public interest or for the pro- tection of investors to postpone the effective date of registration until final determination on the question of denial. We directed that the hearing examiner transmit the record to us, and stated that, after the parties had an opportunity to file proposed findings and briefs, we would issue our findings and opinion on the question of postponement. We further ordered that, if the effective date were postponed, a further hearing be held before the examiner on the question of denial of registration to applicant. A preliminary hearing was held before the examiner for the limited purpose of determining the question of postponement of the effective date of registration, but that question not having been determined by us prior to the effective date, the registration became effective by lapse of time. We accordingly dismissed the denial proceedings as moot, and instituted the instant revocation proceed- ings. Under Section 15(b) of the Exchange Act, registration be- comes effective 30 days after filine of the application, except that we may by order postpone the effective day for a period not ex- ceeding 15 days, and, after notice and opportunity for hearing, pending final determination whether registration shall be denied, App. B-11 It is clear that the merits of the allegations of will- ful violations were not invelved in the preliminary proceedings, but only the question whether it) was “necessary or appropriate in the publie miterest or for the protection of investors to postpone the effective date” of registration. By failing to issue an order of postponement, We pertuitted registration to beeome ef- fective, but we did not thereby detinitively find that wilful violations were or were not ‘eonmitted as charged. Nor have we made such detinitive findings in cases were we have postponed registration”® The will- ful violations we have found herein were not in issue in the postponement proceeding, and accordingly the principles of res judicata are inapplicable to the in- stant proceedings.! Registrant also argues that these proceedings vio- late the double jeopardy and due process provisions of the Constitution. However, as indicated above, no consideration of the merits of the issues as to the al- leged violations was reached until the instant revoca- tion proceedings and, in any event, the prohibition against double jeopardy relates to criminal proseeu- tions and does not apply to remedial proceedings under 1 See Irring Grubman, Securities Exchange Act Release No. 6385 (October 6.1960); Mo Paul Conant and Co., Inc... Securities Exchange Act Release No. 6118 (November 12, 1959). In eases Where we have suspended registration in the public interest pend- ing final determination of revocation proceedings under Section 15'b), we also do not make findings of willful violations . A. G. Bellm Securities Corp., Securities Exchange Act Release No. 5966 (May 18, 1959); Peerless-New York, Incorporated, Securities Ex- change Act Release No. 6193 (February 26, 1960); Biltmore Ne- curitics Corp., Securities Exchange Act Release No. 6394 (Ostober 11, 1960). 17 See Kelaghan v. Industrial Trust Co!, 211 F. 2d 134 (CLA. 1. 1954); Allegheny County. vo Maryland Casualty Co.. 146° F. 2d 655 (CLA. 3, 1944), cert. denied 325 U.S. 855; U.S. v. Erie Forge (o., 191 F. 2d 627. 629 (CLAL 4. 1951), cert. denied 343 US. W380; Restatement, Judgments, See. 69(2) (1942), App. J3-12 Section 15(b) of the Exchange Act.!® Registrant did not specify the basis for its contention that it was de- nied due process, but our examination of the record does not disclose any support for such contention. Public Interest In view of the willful violations we have found, we conclude that it is in the public interest to revoke reg- istrant’s registration, and we further conclude that Or- gan is a cause of such revocation. Rulings on Exceptions We have considered the recommended decision of the hearing examiner and the exceptions thereto, and to the extent such exceptions involve issues which are relevant and materia] to the decision in this case, we have by our Findings and Opinion herein already ruled upon them. We hereby expressly sustain such exceptions to the extent that they are in accord with the views set forth herein, and we expressly overrule them to the extent that they are inconsistent with such views. An appropriate order will issue. Chairman Gadsby and Commissioners Hastings and McCauley join in the above opinion. Attest: OrvaL L. Dt Bots Orval L. DuBois Secretary (Seal) 18See Helvering v. Mitchell, 303 U.S. 391, 398-99 (1938) ; Pierce v. S.EC., 239 F. 2d 160, 163 (C.A. 9. 1956); Wright v. S.EC., 112 F. 2d 89, 94 (C.A. 2, 1940). App. B-13 ORDER REVOKING BROKER-DEALER REGISTRATION UNITED States oF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Mareh 14, 1961 In the Matter of N. SIMs Oncan & Co. INc. 460 East Park Street Long Beach, L. 1. New York File No. 8-7919 Securities Exchange Act of 1934— Sections 15(b) and 1A(h) (4)