SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 39180 / October 1, 1997 Admin. Proc. File No. 3-8305 ____________________________________________ : In the Matter of : : MEYER BLINDER : ____________________________________________: OPINION OF THE COMMISSION BROKER-DEALER PROCEEDING Grounds for Remedial Action Conviction Injunction Practice and Procedure Collateral Bar President of a registered broker-dealer was convicted of violating the prospectus delivery and antifraud requirements of the federal securities laws and the federal anti-racketeering laws. He further was permanently enjoined from violations and aiding and abetting violations of the antifraud, antimanipulation, and recordkeeping provisions of the federal securities laws. Held, it is in the public interest to bar respondent from association with a broker, dealer, municipal securities dealer, investment adviser, investment company, or a member of a national securities exchange or registered securities association. APPEARANCES: John F. Winston, for Meyer Blinder, and Meyer Blinder, pro se. Stephen J. Crimmins and M. Catherine Cottam, for the Commission's Division of Enforcement. Appeal filed: January 31, 1995 Last brief filed: July 25, 1995 I. Our Division of Enforcement ("Division") appeals from the decision of an administrative law judge barring Meyer Blinder permanently from association with any broker or dealer but declining to bar Blinder from other securities activities. <(1)> Blinder was the president of Blinder, Robinson & Co., Inc. ("Blinder Robinson"), a broker-dealer formerly registered with this Commission pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"). <(2)> The law judge found that Blinder had been convicted of violating Sections 5(b)(2) and 17(a) of the Securities Act of 1933 ("Securities Act") and 18 U.S.C. Sections 1962(c) and 1962(d) of the Racketeer Influenced and Corrupt Organizations Act in connection with manipulative offerings of securities. <(3)> The law judge also found that Blinder had been permanently enjoined from violations of Sections 10(b), 15(c)(1), and 17(a) of the Exchange Act and Rules 10b-5, 10b-6, 15c1-2, 15c1-6, 15c1-8, and 17a-3 thereunder, and from aiding and abetting violations of Section 17(a) of the Securities Act and Sections 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5, 10b-6, 15c1-2, and 15c1-8 thereunder, in connection with transactions in twelve separate securities. Blinder and the holding company for Blinder Robinson were also required to disgorge more than $24 million in illegal profits. <(4)> Our findings are based on an independent review of the record, except with respect to those findings below not challenged on appeal. II. Section 15(b)(6) of the Exchange Act authorizes this Commission to institute a proceeding if, among other things, a respondent is convicted of a crime that arises out of the conduct of a broker or dealer or is enjoined from "engaging in or continuing any conduct or practice . . . in connection with the purchase or sale of any security." If we find that a person <(1)> Meyer Blinder, Initial Decision No. 60 (Jan. 17, 1995), 58 SEC Docket 1828. The law judge also barred Blinder from association with a member of a national securities exchange or registered securities association. Blinder has not appealed from the law judge's decision. <(2)> Blinder Robinson was registered with this Commission from 1970 until May 1992. In July 1990, Blinder Robinson was placed in liquidation proceedings pursuant to the Securities Investor Protection Act of 1970. <(3)> See United States v. Blinder, CR-S-90-38-LDG-LRL (D. Nev. July 10, 1992), aff'd, 10 F.3d 1468 (9th Cir. 1993). On August 31, 1992, Blinder was fined $100,000 and sentenced to 46 months in prison. Blinder was released from prison in November 1995, subject to three years of supervised release. During that period, Blinder is "restricted from engaging in employment, consulting or any association with any stock brokerage or stock brokerage business and shall comply with any and all Securities and Exchange Commission injunctions, as required by law. . . ." <(4)> See SEC v. Blinder, Robinson & Co., C.A. No. 90-4534 (RK) (E.D. Pa. Aug. 21, 1992). ======END OF PAGE 2====== associated with a broker-dealer is the subject of any of these actions, we may impose sanctions on that person. <(5)> In 1992, Blinder was both convicted of felonies involving his conduct in the securities industry and enjoined from violating the federal securities laws. The conduct underlying these matters was egregious and occurred over a long period of time, causing serious harm to investors and the securities markets. Blinder's criminal conviction arose from his transactions in the securities of two "blind pool" corporations. <(6)> Blinder entered into an agreement with two other persons, who would create and secretly control the blind pool corporations. Blinder Robinson obtained control of substantially all of the securities of these corporations. The firm conducted offerings for these securities but failed to provide the investors with prospectuses. The United States Court of Appeals for the Ninth Circuit observed that Blinder's secret agreement to obtain control of these securities gave Blinder Robinson "unlimited access to the securities of [these] corporations [and] effectively created a rigged market." <(7)> Blinder was thus able to profit from unknowing customers "through riskless transactions and arbitrarily established prices." <(8)> At Blinder's sentencing, the United States District Court Judge for the District of Nevada observed that Blinder was "deeply involved" in the unlawful conduct and "clearly understood what was happening and participated in the process." The 1992 injunction arose out of allegations that Blinder had violated and aided and abetted violations of the antifraud, antimanipulation, and recordkeeping provisions of the securities laws in transactions involving <(5)> In determining whether a particular sanction is in the public interest, we consider: the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of defendant's assurances against future violations, defendant's recognition of the wrongful nature of his conduct, and the likelihood that defendant's occupation will present opportunities for future violations. Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). <(6)> A "blind pool" is a corporation without current operations that is organized to evaluate and effectuate acquisitions and mergers with other companies that are as yet unidentified. See, e.g., Robert A. Amato, 51 S.E.C. 316, 317 n.5 (1993), aff'd, 18 F.3d 1281 (5th Cir. 1994), cert. denied, 115 S.Ct. 316 (1995). <(7)> United States v. Blinder, 10 F.3d at 1471. <(8)> Id. ======END OF PAGE 3====== twelve separate securities. Blinder has violated the securities laws on several other occasions as well. <(9)> Moreover, Blinder has repeatedly failed to recognize the gravity of his conduct or to abjure any future violations. Although Blinder concedes that the decisions that form the underlying statutory basis for his bar were "final" decisions, he continues to contend that these decisions lack any "basis in fact." <(10)> The law judge properly dismissed this argument, noting that the doctrine of collateral estoppel as well as Commission case law preclude Blinder's attacks in this proceeding on the validity of either the criminal conviction or the permanent injunction issued against him. <(11)> We concur with the law judge's conclusion that severe sanctions here are necessary to deter Blinder and others from duplicating his activities in the securities industry and to protect the public. The record contains evidence of Blinder's various charitable activities. We agree with the law judge that these acts do not mitigate his misconduct in the circumstances presented here. We also share the law judge's view that Blinder's threats of violence against certain government officials weigh in favor of severe sanctions against Blinder. The District Court Judge who presided in the criminal case found that Blinder had made threats and maintained a "hit list" of enemies, which included Commission staff and Federal prosecutors, and that Blinder had discussed on numerous occasions having other government officials killed. The law judge noted that the District Court Judge concluded that Blinder had attained "great power, economic and otherwise" through his illegal acts. <(9)> See SEC v. Blinder, Robinson & Co., Inc., 542 F. Supp. 468 (D. Colo. 1982), aff'd, [1983-1984 Transfer Binder] Fed. Sec. L. Rep. 99,491 (10th Cir. 1983), cert. denied, 469 U.S. 1108 (1984) (injunction against Blinder ordered because he "orchestrated" and supervised fraudulent misrepresentations and omissions); Meyer Blinder, 50 S.E.C. 1215 (1992) (sustaining a decision of the National Association of Securities Dealers, Inc. finding that Blinder charged customers excessive and fraudulent markups). <(10)> Blinder also complains that lack of funds prevents him from adequately defending himself and from proving the existence of an alleged Commission conspiracy to deprive him of his civil rights. Although Blinder appeared pro se at the hearing before the law judge, counsel filed post-hearing briefs on Blinder's behalf and represents Blinder in this appeal. In any event, respondents in broker-dealer proceedings do not have either a constitutional or a statutory right to the assistance of counsel. See, e.g., Elliott v. SEC, 36 F.3d 86, 88 (11th Cir. 1994); Feeney v. SEC, 564 F.2d 260, 262 (8th Cir. 1977), cert. denied, 435 U.S. 969 (1978); Boruski v. SEC, 340 F.2d 991, 992 (2d Cir.), cert. denied, 381 U.S. 943, 944 (1965). <(11)> See generally, Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 326 n.5 (1979). ======END OF PAGE 4====== As discussed above, the law judge barred Blinder from association with a broker, a dealer, or a member of a national securities exchange or registered securities association. We believe that this sanction is clearly in the public interest, and Blinder has not appealed it. III. The Division, in its appeal, challenges only the law judge's denial of a bar also prohibiting Blinder's association with a municipal securities dealer, investment adviser, or investment company, a so-called "collateral bar." The initial question presented here is whether we have the authority under Section 15(b)(6) of the Exchange Act to bar Blinder from securities activities other than those associated with a broker-dealer. <(12)> Based on that section and other related statutory provisions governing the admission and exclusion of certain securities professionals from other aspects of the securities business, relevant legislative history, and the animating purposes of the securities laws, we conclude that we have such authority. Moreover, our recognition of such authority is both necessary and appropriate to enable us to fulfill our statutory duties to protect investors and markets and to avoid what would otherwise be a regulatory gap that we believe Congress did not intend to exist. A. We start with the statute itself. <(13)> Section 15(b)(6)(A) of the Exchange Act authorizes this Commission, if we determine that a person who is or was associated, or is seeking to become associated, with a broker-dealer has committed certain enumerated acts, to: censure, place limitations on the activities or functions of such person, or suspend for a period not exceeding 12 months, or bar such person from being associated with a broker or dealer . . . <(12)> This proceeding is the first instance in which we have considered this issue directly in a contested proceeding. In Dan King Brainard, 47 S.E.C. 991, 1001 (1983), we noted that there was no basis for the law judge's determination to bar Brainard from association with a municipal securities dealer, but we were writing before the 1987 amendments added the "place limitations on" language to Section 15B of the Exchange Act. See infra text accompanying n.22. Subsequently, in an unpublished order in Cranford Delano Newell, Admin. Proc. File No. 3-6174 (Aug. 19, 1988) (order denying motion to vacate or modify prior order), we stated that the "authority under Section 203(f) [of the Investment Advisers Act of 1940] to 'place limitations on [Newell's] activities' enables us to prohibit his entry into collateral areas under our jurisdiction." However, because the issue directly before us was whether to vacate an order to which Newell had agreed six years earlier, we did not resolve the broader legal issue raised by that proceeding. <(13)> See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 200-01 (1976). ======END OF PAGE 5====== if the Commission finds, on the record after notice and opportunity for a hearing, that such censure, placing of limitations, suspension, or bar is in the public interest . . . . <(14)> Prior to 1975, we had the power under Section 15(b) only to impose censures, suspensions, and bars from association with a broker-dealer. In 1975, Congress added the "place limitations" provision to give us additional flexibility to impose sanctions. We have used this power to craft remedies that have been more narrow (e.g., suspension from supervisory activities with a broker-dealer) or more broad (e.g., a collateral bar from activities in other securities professions) than a suspension or bar from association with a broker-dealer. Section 15(b)(6) does not explicitly state that, in an administrative proceeding brought pursuant to that section, we can impose a bar from association with entities regulated under another securities statute. Nor does Section 15(b)(6) prohibit such a sanction. Rather, Section 15(b)(6) simply provides that we may "place limitations on the activities or functions" of persons who have committed certain acts. We believe that this "place limitations" language is broad enough by its terms to permit the imposition of a collateral bar. There are other provisions of the federal securities laws which, in tandem with Section 15(b)(6), allow us to prevent a person who has been barred from association with a broker-dealer from subsequent entry into another securities profession. For example, Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") authorizes this Commission, after a hearing and a finding that such action is in the public interest, to deny or otherwise limit the association with an investment adviser of a person who has wilfully violated the Exchange Act. Interpreting the "place limitations" provision of Section 15(b)(6) to authorize a collateral bar permits us, in appropriate circumstances, to collapse into one proceeding what could otherwise take place in multiple proceedings. <(15)> B. Construing Section 15(b)(6) to allow the imposition of a collateral bar is also in accord with Congressional intent. In 1987, Congress amended Section 15B of the Exchange Act, which governs associated persons of municipal securities dealers, to add the "place limitations" language found in Section 15(b) of the Exchange Act. Contemporaneous legislative history indicates that Congress added the "place limitations" provision to Section 15B to conform that section's sanctioning powers to those applicable to "persons associated with other dealers and brokers and investment <(14)> The "place limitations" provision appears in other provisions of the securities laws, including Section 15B(c)(4) of the Exchange Act and Section 203(f) of the Investment Advisers Act of 1940. <(15)> Requiring a two-step procedure may be more costly for both this Commission and respondents. ======END OF PAGE 6====== advisers." <(16)> The accompanying legislative history further recognizes that the "place limitations" authority allows flexibility in fashioning "sanctions that fit the offense and situation presented." Congress concluded that we could use this authority: to suspend the operation of a single branch office, rather than an entire firm, where misconduct was localized; or to confine an offending employee to nonsupervisory positions where an outright bar or suspension is unnecessary; or to bar persons formerly associated with broker-dealers from entering other securities professions where they might continue to perpetrate frauds upon unsuspecting investors. <(17)> The views expressed by Congress in 1987 were contemporaneous with the addition of the "place limitations" language in Section 15B of the Exchange Act. We recognize that the "place limitations" provision in Section 15(b)(6) was added several years before this Congressional statement. We also are mindful that the Supreme Court has stated that post hoc legislative history is not dispositive of Congress' intent at the time that a statute is enacted. <(18)> However, because the 1987 legislative history accompanying the amendment to Section 15B construes the identical "place limitations" provision found in Section 15(b)(6) and because Congress indicated that the amendment to Section 15B was designed to conform that section's sanctioning authority to our authority under Section 15(b)(6), we conclude that the 1987 legislative history may properly inform our conclusions here. C. Permitting imposition of a collateral bar pursuant to the "place limitations" provision also furthers the purposes underlying the securities laws. The Supreme Court has observed that the securities laws "should be construed 'not technically and restrictively but flexibly to effectuate [their] remedial purposes.'" <(19)> It has long been recognized that, where Congress has entrusted an agency with the selection of the means of achieving statutory policy, "'the relation of remedy to policy is peculiarly a matter for administrative competence,'" so long as the choice is not unwarranted by law or without justification in fact. <(20)> <(16)> S. Rep. No. 105, 100th Cong., 1st Sess. 25 (1987), reprinted in 1987 U.S.C.C.A.N. 2088, 2113. <(17)> Id. (emphasis added). <(18)> See, e.g., Central Bank of Denver, N.A. v. First Interstate Bank, 511 U.S. 164, 185-86 (1994) (citing Public Employees Retirement System v. Betts, 429 U.S. 158, 168 (1989)). <(19)> Herman & MacLean v. Huddleston, 459 U.S. 375, 386-87 (1983) (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963) (brackets in original)). <(20)> Butz v. Glover Livestock Commission Co., 411 U.S. 182, 185-86 (1973) (quoting American Power Co. v. SEC, 329 U.S. 90, 112 (1946)). ======END OF PAGE 7====== In fulfilling our responsibilities under the federal securities laws, we consider the full range of our statutory authority in crafting sanctions necessary to effectuate this purpose. <(21)> The Supreme Court recently reiterated that the securities laws should be interpreted broadly in a manner that is consistent with the statutory language and furthers the purposes of the statutes. In United States v. O'Hagan, the Supreme Court, in upholding the misappropriation theory of insider trading, found that theory was "well-tuned to an animating purpose of the Exchange Act: to insure honest securities markets and thereby promote investor confidence." <(22)> The Court observed that it made "scant sense" to suggest that O'Hagan should be liable only if he had misappropriated nonpublic information from the target, but not the bidder. <(23)> The Court concluded, "The text of [Section 10(b)] requires no such result." <(24)> We believe that it would make "scant sense" to exclude Blinder from some portions of the securities industry, but not from others. The Supreme Court has also recognized that there is great public interest in maintaining high standards in "every facet of the securities industry." <(25)> There can be no question that misconduct in one aspect of the securities business may be probative of lack of fitness and should, in appropriate cases, affect eligibility to participate in other aspects of that business. At times, a respondent restricted from acting in one professional capacity may continue securities-related misconduct in another professional capacity. In such instances, a collateral bar may be necessary to obtain effective relief in the public interest. D. Our conclusion that the "place limitations" provision permits the imposition of a collateral bar precludes the creation of a serious regulatory gap. A person, such as Blinder, who has committed fraud and has been barred by us from associating with a broker-dealer, may lawfully act as an investment adviser, pursuant to several exemptions, without registering with us or even notifying us. A person may, with certain additional restrictions, serve as an adviser to fifteen or fewer <(21)> SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 350-51 (1943) (stating that "courts will construe the details of an action in conformity with its dominating general purpose . . . " in rejecting the argument that certain instruments were not securities under general rules of statutory construction). <(22)> No. 96-842, 1997 WL 345229 (U.S.) at 10 (Sup. Ct. June 25, 1997). <(23)> Id. <(24)> Id. <(25)> U.S. v. Naftalin, 441 U.S. 768, 775 (1979) (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U.S. at 186-87)). ======END OF PAGE 8====== clients. <(26)> Because the statute does not require a person to register in such circumstances, we cannot protect investors and otherwise effectuate the purposes of the securities laws merely by waiting until an application for registration as an investment adviser is filed, and then instituting a proceeding to determine whether that activity would be in the public interest, in light of the broker-dealer bar. The result is quite different if a person is subject to a Commission- imposed bar from investment adviser activity. If we brought a proceeding under the Advisers Act against an investment adviser, we could bar that person from acting as an investment adviser. <(27)> In our view, that bar extends to the full range of activities that fall within the statutory definition of investment adviser. <(28)> Thus, a bar from <(26)> Section 203(b) exempts certain persons from such registration, including any investment adviser that, during the preceding twelve months, had fifteen or fewer clients and neither holds itself out to the public as an investment adviser nor advises an investment company. A person also may act as an adviser to an unlimited number of clients so long as he is subject to regulation by the state in which he has his principal place of business and has less than $25 million in assets under management. Section 203A(a)(1) of the Advisers Act provides that no investment adviser meeting these requirements that does not advise an investment company shall register with us under Section 203 of the Advisers Act. We understand that no state has a provision barring state registration as an investment adviser on the basis that the person is subject to an order by us barring the individual from association with a broker-dealer. <(27)> We have not yet resolved the question of whether an administrative proceeding to bar a person from serving as an investment adviser may be brought against a person who is currently an investment adviser that is exempt from registration. We have currently pending before us a case that raises the issue of whether the Commission can proceed under Sections 203(e) and (f) of the Advisers Act against a person who, at the time of the events at issue, was an unregistered investment adviser and one of its associated persons or whether the scope of those provisions is limited to registered investment advisers. Victor Teicher, Admin. Proc. File No. 3-8394. We do not resolve that issue here. <(28)> Section 202(a)(11) of the Advisers Act defines an investment adviser generally as any person who, for compensation or profit, gives advice about the value of securities or the advisability of investing or effecting transactions in securities. (continued...) ======END OF PAGE 9====== acting as an investment adviser would prevent advisory activities by either registered or unregistered investment advisers. <(29)> The ability to impose a bar from investment adviser activity in a broker-dealer proceeding permits this Commission in the public interest to prohibit persons such as Blinder from acting as an investment adviser under an exemption from registration. Without the ability to impose a collateral bar, persons subject to a broker-dealer bar pursuant to Section 15(b)(6) would face no immediate restriction from acting as an investment adviser in an unregistered capacity because we would not have notice of their proposed actions. The practical effect of a determination that this Commission cannot impose a collateral bar on persons such as Blinder would be to require this agency's Division of Enforcement continuously to monitor persons who have been barred by us from association with broker-dealers, in order to detect whether they are operating in another capacity that is contrary to the public interest. If we cannot prevent such persons from associating prospectively with a person who falls within the statutory definition of an investment adviser, our only alternative as to malefactors such as Blinder is to wait until we catch them defrauding a client. Typically, this occurs only after substantial harm has occurred. Such a process would hardly promote either investor protection or regulatory efficiency. We do not believe that Congress intended any interpretation of the securities statutes that could lead to such a bizarre result. <(30)> As we have discussed above, the "place limitations" provision was designed to give us flexibility in imposing sanctions. Moreover, courts assume that Congress did not intend to create regulatory gaps, <(31)> and we believe that it is in the public interest to construe the statute in order to prevent that result. E. Commissioner Hunt's dissent suggests that the provisions in each of the securities statutes that give us the authority to deny an individual entry into a particular category of securities activity are exclusive and <(28)>(...continued) Compare John Kilpatrick, 48 S.E.C. 481, 487 (1986) (noting that Section 15(b)(6) of the Exchange Act is not limited to registered broker-dealers although other sections of the Exchange Act contain that limitation). <(29)> See, e.g., Pub. L. No. 86-750, Sec. 8, 74 Stat. 855, 887 (1960); S. Rep. No. 1760, 86th Cong., 2d Sess. 7-8 (1960) (explicitly amending Section 206 to cover all investment advisers, not simply those registered with this Commission). <(30)> See Central Bank of Denver, N.A. v. First Interstate Bank, 511 U.S. 164, 188 (1994) (noting that policy considerations "may help to show that adherence to the text and structure would lead to a result 'so bizarre' that Congress could not have intended it."). <(31)> SEC v. Fehn, 97 F.3d 1276, 1286 (9th Cir. 1996), petition for cert. filed, No. 96-1883 (May 22, 1997). ======END OF PAGE 10====== do not permit imposition of a collateral bar. We respectfully disagree. In our view, there is nothing on the face of these "entry" provisions that dictates this perspective. Rather, the provisions may co-exist comfortably with the "place limitations" provision in a manner that furthers the underlying purposes of the securities laws. Exclusivity of a remedy is not presumed. <(32)> In some cases, we may determine not to impose a collateral bar, and provisions authorizing us to consider a subsequent request to reenter the securities industry in another capacity may become relevant. In other instances, such as this one, based on the facts and circumstances of a particular case we may determine to impose a collateral bar at the time of the initial proceeding. <(33)> We also believe that the "place limitations" provision does not, as the dissent suggests, make superfluous the authority to suspend or bar a person from association with a broker-dealer. The intent of the "place limitations" provision was to expand our authority in fashioning sanctions, not to supplant existing authority. The provision properly should be read as supplementing the already existing provisions of Section 15(b)(6) by allowing us, in addition to suspending or barring someone from association with a broker-dealer, among other things, to bar that person from operating in other securities capacities as well. IV. Having concluded that we have the authority to impose a collateral bar, we turn to the question of whether a collateral bar should be imposed in this case. Collateral bars should be used in cases where it is contrary to the public interest to allow someone to serve in any capacity in the securities industry. In determining whether to impose a collateral bar, we consider foremost whether the misconduct is of the type that, by its nature, "flows across" various securities professions and poses a risk of harm to the investing public in any such profession. We also consider whether the egregiousness of the respondent's misconduct demonstrates the need for a comprehensive response in order to protect the public. <(32)> See, e.g., Varity Corporation v. Howe, 116 S.Ct. 1065, 1076-77 (1996) (finding that the availability of damages and equitable relief for breach of fiduciary duties under ERISA do not preclude a suit for equitable relief "to enforce any provision of" ERISA). See also Bennett v. Spear, 117 S.Ct. 1154, 1167 (1997) (noting that the availability of a citizen suit under the Endangered Species Act would not preclude review of action by the Secretary under the Administrative Procedure Act). <(33)> Even if the "place limitations" provision were found to result in some overlap in the remedies available to us, that result would be neither "unusual nor unfortunate." Herman & MacLean v. Huddleston, 459 U.S. at 383-84 (recognizing that there is an overlap of express and implied remedies in private actions under the Exchange Act). To the contrary, the Supreme Court has permitted "overlap" between Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act. See United States v. Naftalin, 441 U.S. at 775. ======END OF PAGE 11====== Given the nature and scope of Blinder's misconduct, we find it appropriate to impose a collateral bar on him. Blinder repeatedly violated the federal securities laws and, in the process, caused great harm to investors. He was convicted of securities fraud and racketeering and was made subject to a civil injunction entered against him. Among other things, Blinder used Blinder Robinson to orchestrate major frauds and manipulations, as well as registration, disclosure, and pricing violations. He lashed out -- both figuratively and literally -- against those who sought to bring him to justice. His schemes resulted in substantial enrichment to Blinder at the expense of the investing public. The record also suggests that Blinder made attempts to move funds overseas to foreign business operations. The sum of Blinder's actions, and his fundamental lack of appreciation of the seriousness of his misconduct, persuade us that it is likely that Blinder will continue, if allowed, to commit further securities law violations. Put in the simplest terms: Blinder engaged in egregious conduct that reflects on his fitness to work in the securities industry generally, and he should be sanctioned to the fullest extent permitted under the federal securities laws. In imposing a collateral bar on Blinder, we send a clear message that egregious behavior will not be tolerated and that misconduct in ======END OF PAGE 12====== one area of the securities business may, in appropriate circumstances, lay the foundation for exclusion "from every facet of the securities industry." <(34)> An appropriate order will issue. <(35)> By the Commission (Chairman LEVITT and Commissioners WALLMAN and JOHNSON); Commissioner HUNT concurring in part and dissenting in part. Jonathan G. Katz Secretary Commissioner HUNT, concurring in part and dissenting in part: If the Commission had the legal authority to impose a "collateral" -- that is, an industry-wide -- bar on any individual, then Mr. Blinder would be a proverbial poster-boy for that sanction. Mr. Blinder repeatedly violated the federal securities laws and, in the process, caused great harm to investors. He was convicted of securities fraud and was made subject to a civil injunction entered against him. He lashed out -- both figuratively and literally -- against those who sought to bring him to justice. And he still seems to lack any appreciation of the wrongfulness of his conduct. Put in the simplest terms: he did many bad things that touch on his fitness to work in the securities industry, and he should be punished to the maximum extent allowed under the federal securities laws. But that is mere rhetoric. The starting point for what the Commission decides today is not, after all, whether Mr. Blinder deserves to be barred from the securities industry. He does. Rather, the starting point is whether, in a proceeding brought solely under Section 15(b)(6)(A) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Commission has the legal authority to bar or suspend Mr. Blinder from association in those areas of the securities industry in which he has not participated or sought participation. We do not. <(1)> The plain meaning of Section 15(b)(6)(A) indicates that the <(34)> United States v. Naftalin, 441 U.S. at 775. <(35)> All of the contentions advanced by the parties have been considered. They are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. <(1)> While this is a matter of first impression for the Commission, our administrative law judges generally do not impose industry-wide bars requested pursuant to Section 15(b)(6)(A) on the ground that there is no legal authority to do so. See, e.g., James A. Sehn and Samuel O. Forson, Admin. Proc. File No. 3-8234, Initial Decision No. 99, 1996 SEC LEXIS 3132 (Nov. 4, 1996) (continued...) ======END OF PAGE 13====== <(1)>(...continued) (noting that the industry-wide bar sought by the Commission's staff against Mr. Forson was beyond the authority cited -- Sections 15(b) and 19(h) of the Exchange Act -- Administrative Law Judge McEwen refused to issue such a bar and, instead, barred Forson from association with a broker-dealer, despite finding that Forson's conduct evidenced a degree of scienter "close to malice" and that Forson likely would continue to work in the securities industry after his prison term expired); James Robert Voigtsberger and Peter Chase Advisors, Inc., Admin. Proc. File No. 3-8476, Initial Decision No. 64, 1995 SEC LEXIS 1094 (May 3, 1995) (stating that the "sanction is as broad as possible under" the authority cited by the staff -- Sections 15(b) and 19(h) of the Exchange Act and similarly drafted Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") -- Chief Administrative Law Judge Murray refused to issue the industry-wide bar urged by the staff and, instead, barred Mr. Voigtsberger from association with a broker- dealer or investment adviser, despite his 12-year scheme to defraud clients, and his conviction on 15 mail fraud counts and 33-month prison sentence for that conduct); Martin B. Sloate, Admin. Proc. File No. 3- 8232, Initial Decision No. 50, 1994 SEC LEXIS 1682 (June 6, 1994) (Administrative Law Judge Lawrence refused the staff's request to bar Mr. Sloate from association with an investment adviser or investment company, finding that "such action cannot be taken in a proceeding under Section 15(b)(6)"); Ray H. Kobayashi, Admin. Proc. File No. 3-7977, Initial Decision No. 39, 1993 SEC LEXIS 3125 (Nov. 5, 1993) (Administrative Law Judge Regensteiner refused similar request with respect to Mr. Kobayashi, finding that "such action cannot be taken in a proceeding under Section 15(b)(6)"); see also Ira William Scott, Admin. Proc. File No. 3-9105, Initial Decision No. 116, 1997 SEC LEXIS 1841 (Sept. 9, 1997) (Chief Administrative Law Judge Murray refused the staff's request to impose an industry-wide bar against Mr. Scott in a matter involving only Section 203(f) of the Advisers Act, finding that any bars other than one from association with an investment adviser are "measures ... beyond those authorized by Section 203(f)," even though the chief law judge noted that "it is almost certain that Mr. Scott will commit future violations of the securities laws if he is allowed to participate in the securities industry in the future" and, that, "Mr. Scott's conduct, beliefs, and attitude indicate that it is in the public interest to impose the most severe sanction permissible under the statute with the objective of preventing him from ever participating in the securities industry"; but see, Richard H. Morrow, Admin. Proc. File No. 3-8304, (continued...) ======END OF PAGE 14====== Commission's jurisdiction extends to barring Mr. Blinder from the business he already had entered or one he sought to enter. We should impose those sanctions against him. I would bar him permanently from association with a broker or dealer, but I can not impose an industry-wide bar. Current statutory framework: what it does not provide. No federal securities law statute explicitly permits the Commission, in an administrative proceeding brought pursuant to that statute, to impose a bar from association with entities regulated under another federal securities law statute. Section 15(b)(6)(A) of the Exchange Act, for example, authorizes the Commission to: censure, place limitations on the activities or functions of such person, or suspend for a period not exceeding 12 months, or bar such person from being associated with a broker or dealer, or from participating in an offering of penny stock, if the Commission finds, on the record after notice and opportunity for a hearing, that such censure, placing of limitations, suspension, or bar is in the public interest . . . . (emphasis added). While the section provides the Commission with significant sanctioning authority, there can be no dispute that it does not expressly authorize the Commission to seek or impose industry-wide bars. The majority therefore relies upon an expansive interpretation of the Commission's Section 15(b)(6)(A) authority to "place limitations on the activities or functions" to collaterally bar Mr. Blinder. Notably, the majority does not look to the "bar such person" language in Section 15(b)(6)(A) for its authority, presumably because that language is modified immediately thereafter by the words "from being associated with a broker or dealer." The majority apparently believes that "from being associated with a broker or dealer" modifies only the single word "bar" and the phrase "suspend for a period not exceeding 12 months," and is inapplicable to the other enumerated sanctions. But such a reading of the section means that "place limitations on the activities or functions" may have the same meaning as "bar," except that the former vague statutory language may encompass a more severe type of bar than the latter express statutory language. The majority thus reads the four enumerated sanctions in the relevant portion of Section 15(b)(6)(A) this way: <(1)>(...continued) Initial Decision No. 70, 1995 SEC LEXIS 1935 (July 25, 1995) (Administrative Law Judge Kolko ordered an industry-wide 60-day suspension without discussion) (currently on appeal to the Commission); Suzanne L. Cook, Admin. Proc. File No. 3-8294, Initial Decision No. 63, 1995 SEC LEXIS 1038 (Apr. 27, 1995) (Administrative Law Judge Kuhlmann ordered an industry- wide three-year bar with a right to reapply without discussion) (the proceeding, however, was dismissed by the Commission on appeal because the record did not support findings of liability). ======END OF PAGE 15====== 1. "censure"; 2. "place limitations on the activities or functions" -- (a) permanent bar, bar of some other duration, or 1-year or lesser suspension -- each from all activity as a securities professional (an industry-wide bar); or (b) permanent bar, bar of some other duration, or 1-year or lesser suspension -- each from association with a broker or dealer, or (c) any other limitation; 3. "suspend for a period not exceeding 12 months" (one year or lesser suspension from association with a broker or dealer); or 4. "bar" (permanent bar, or bar of more than one year's duration, from association with a broker or dealer). I am not comfortable with that reading of the section. It certainly would have been a bizarre way for Congress to draft the section if its members actually had taken pen to paper and done so: the least severe possible sanction (censure) is first, the most severe possible sanction (permanent industry-wide bar) is next, and then two "intermediate" sanctions follow. Under such a reading, the two intermediate sanctions are not just afterthoughts -- they are superfluous. <(2)> The Commission would not need express authority in Section 15(b)(6)(A) to suspend an individual for one year or less from just the broker-dealer industry, or to permanently bar him or her from association with just a broker-dealer, if the Commission could use the "place limitations on" language to bar that person from association in each and every capacity as a securities professional, including as a broker-dealer. To the contrary, I believe that the plain meaning of the relevant language in Section 15(b)(6)(A) provides for a sliding scale of escalating punishment. Thus, I believe that the relevant language in the section reads: 1. "censure" (the least severe sanction); 2. "place limitations on the activities or functions" (among many other things, increased supervision or restrictions on certain trading); 3. "suspend for a period not exceeding 12 months" (one year or lesser suspension from association with a broker or dealer); <(2)> See Arcadia, Ohio v. Ohio Power Company, 498 U.S. 73, 79 (1990) (cautioning against any statutory construction that would render a "listing of specific subject matters" in a statute meaningless). ======END OF PAGE 16====== 4. "bar" (permanent bar, or bar of more than one year's duration, from association with a broker or dealer -- the most severe sanction). In addition, I do not believe that the Commission should look to post hoc legislative history for much support in this area. I am skeptical as to the relevance of any legislative history six Congresses after-the-fact, and even more so when that history is written for an entirely different section of the Exchange Act (Section 15B), a section governing only municipal securities dealers. <(3)> Current statutory framework: what it does provide. With the exception of what might be called the "unregistered investment adviser gap" -- discussed in the majority's opinion and which I address below -- the Commission's lack of legal authority to impose industry-wide bars does not mean that there is a large overall "gap" in the current statutory framework. While there are gaps, they can be crossed with very little effort. As a preliminary matter, as a result of his criminal conviction and the injunction issued against him, Mr. Blinder became ineligible to serve as employee, officer, director, member of an advisory board, investment adviser, or depositor of any registered investment company, or principal underwriter for such a company, pursuant to Section 9(a) of the Investment Company Act of 1940 (the "Investment Company Act"). He became subject to those "collateral" sanctions automatically by statute, without any right to a hearing, but with a right under Section 9(c) of the Investment Company Act to apply to the Commission for an exemption from Section 9(a). Next (and probably more apropos to Mr. Blinder), the Exchange Act, the Investment Company Act, and the Advisers Act each provide that, once a person is found to have violated a provision of one of these statutes, the Commission has authority subsequently to deny that person's entry into a new securities field. <(4)> Similarly, if an individual is enjoined from violating the securities laws or from acting in a particular capacity as a securities professional, the Commission may prohibit that person from acting in another capacity. <(5)> <(3)> Cf. Central Bank of Denver, N.A. v. First Interstate Bank, 511 U.S. 164, 185-86 (1994) ("we have observed on more than one occasion that the interpretation given by one Congress (or a committee or Member thereof) to an earlier statute is of little assistance in discerning the meaning of that statute") (citing, Public Employees Retirement System v. Betts, 492 U.S. 158, 168 (1989)). <(4)> For example, Section 203(f) of the Advisers Act allows the Commission to deny or otherwise limit a person's association with an investment adviser if he or she has been found to have wilfully violated the Exchange Act. <(5)> See, e.g., Section 15(b)(4)(C) of the Exchange Act. ======END OF PAGE 17====== In other words, even if the Commission "only" barred Mr. Blinder from association with a broker-dealer in accordance with Section 15(b)(6)(A) of the Exchange Act, the Commission still would have explicit statutory authority to deny his subsequent entry into other securities fields or capacities. The Commission simply must wait until the time that Mr. Blinder applies for reentry into another securities field, and then reject that application. The majority suggests that these grants of express statutory authority actually strengthen its position. With great respect for my colleagues, I believe these express grants significantly weaken that position, for Congress not only knew how to expressly provide collateral sanctions where it found them appropriate (Section 9(a) of the Investment Company Act), but Congress also expressly spoke to the processes the Commission must follow to keep bad actors out of other areas of the securities industry. While Congress's two-step approach may be less-efficient than the one-step procedure the Commission sanctions today, <(6)> it nevertheless is the approach expressly selected by Congress, and we should follow it. The majority offers the "unregistered investment adviser gap" as support for its holding. I share the majority's concern with respect to that regulatory gap. But the statutory language of Section 15(b)(6)(A) simply is too clear from my perspective, and I do not believe it appropriate to let this policy concern trump clear statutory direction. Moreover, even if the statutory language was not so clear, I still would have reservations about heavy reliance on this policy concern as support for the proposition that the Commission has the authority to seek or to impose industry-wide bars. Assuming that the unregistered investment advisers gap was, in fact, an unintended and/or an unfortunate consequence of the new National Securities Markets Improvements Act ("NSMIA"), it would not be perceived as the first such consequence of that Act; and, considering NSMIA's scope, it probably won't be perceived as the last. <(7)> As a general matter, I believe that "fixes" of legislative consequences, even those arguably unintended and unfortunate, are best left to Congress. I feel even more strongly about this here, since the <(6)> Unfortunately, Congress's two-step approach may be more costly for the Commission and for respondents/applicants. <(7)> For example, in Staff Legal Bulletin No. 3, dated July 25, 1997, the Commission's Division of Corporation Finance expressed the staff's view that new Section 18 of the Securities Act of 1933, as included in NSMIA, preempts the scope of the current Section 3(a)(10) exemption for transactions involving "covered securities" approved by governmental entities. I agree with the staff's interpretation of new section 18. Nevertheless, some issuers contend that because such preemption was (in their respective views) an unintended and unfortunate consequence of NSMIA, that preemption may be, and should be, corrected by Commission action. ======END OF PAGE 18====== legislative change occurred so recently. The legislative "anomaly" highlighted by the majority occurred in 1996; of course, the Commission has been insisting upon, and litigating for, industry-wide bars long before NSMIA's enactment. * * * Two important issues remain. Effect on the Commission's Enforcement Program. In administrative litigation, the Commission has been seeking industry-wide bars and suspensions with greater frequency over the last few years, but without much success (see n. 1). In this context, while the Commission approves the authorization and institution of an administrative proceeding, the preliminary charging decision as to how broad the sought after sanction should be -- whether to seek an industry-wide bar or suspension (as opposed to a bar or suspension from association with a broker-dealer) -- rests with the Commission's staff. In the context of settlements and consents, the staff routinely seeks, and the Commission routinely approves, settlements of administrative proceedings containing industry-wide bars and suspensions, thereby creating a discrepancy between litigated and settled proceedings. In my 19 months at the Commission, I do not believe that I have considered a single "time- out" settlement offer that was not collateral in nature (no matter whether the offer was of a bar permanent in nature, or a suspension of just one month). <(8)> The majority opinion notes that the imposition of industry-wide bars should not be granted "routinely," <(9)> and "should be limited to cases involving misconduct that renders someone unfit to serve in any capacity in the securities industry." In determining whether particular misconduct renders someone so unfit, the majority cites as only one of several factors whether that misconduct was egregious. Frankly, if I thought we had the authority to impose industry-wide bars, I would have had the egregiousness of the conduct as the determinative factor. After all, the federal securities laws already provide that misconduct by someone under one statute justifies the Commission to take subsequent steps to deny that person's entry into other securities fields, so the majority's chief inquiry seems merely to codify that notion in another way. Nevertheless, I hope that the majority's <(8)> This policy apparently was urged and endorsed by previous Commissions. It created a disincentive to settle, as individuals generally could expect that they would not receive industry-wide bars or suspensions if they took their cases before our administrative law judges. The majority's decision today, of course, may obviate this particular concern. <(9)> I understand this language to mean that industry-wide bars should not be granted "routinely" in either litigated or settled contexts. ======END OF PAGE 19====== approach proves workable and does not result in the routine imposition of industry-wide bars. It is my view that in order to ensure that industry-wide bars do not become "routine," the Commission first must not insist upon them in all settled cases. Second, since the Commission can not be involved in the decision of whether to seek an industry-wide bar in a particular litigated administrative proceeding (because of prejudgment concerns), the Commission instead must survey charging decisions at regular intervals, so as to determine how often, and under what circumstances, industry-wide bars are being sought in litigated proceedings. Although the preliminary charging decision as to how broad a sanction should be properly rests with the Commission's staff, I will vote against any future recommended administrative proceedings to the extent that it is apparent that the purpose of the proceeding is to seek an industry-wide bar or suspension. Further and until recently, I voted for settlement offers including industry-wide bars or suspensions, save for those I rejected for other reasons. I leave for another day the question of whether it is legally appropriate to accept industry-wide bars or suspensions by consent if the Commission does not have the legal authority to seek them in litigation. As an equitable matter, however, that question may be even more difficult. Legislative "Fix." In my view, Commission authority to seek or to impose industry-wide bars and suspensions definitely would be in the public interest. Mr. Blinder deserves to be barred from the securities industry. We should urge Congress to give us that authority expressly, whether it is under the rubric of seeking a "clarification" of the Commission's existing authority or by seeking "new" authority. ======END OF PAGE 20====== UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 39180 / October 1, 1997 Admin. Proc. File No. 3-8305 _________________________________________________ : In the Matter of : : MEYER BLINDER : _________________________________________________: ORDER IMPOSING REMEDIAL SANCTION On the basis of the Commission's opinion issued this day, it is ORDERED that Meyer Blinder be, and he hereby is, barred from association with a broker, dealer, municipal securities dealer, investment adviser, or investment company, or with a member of a national securities exchange or registered securities association. By the Commission. Jonathan G. Katz Secretary