Siegel v. Securities & Exchange Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 14, 2009 Decided January 12, 2010

No. 08-1379

MICHAEL FREDERICK SIEGEL,
PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT

On Petition for Review of an Order
of the Securities & Exchange Commission

George C. Freeman, III argued the cause for petitioner.
With him on the briefs was Meredith A. Cunningham.
Rada Lynn Potts, Senior Litigation Counsel, Securities and
Exchange Commission, argued the cause for respondent. With
her on the brief were David M. Becker, General Counsel, and
Jacob H. Stillman, Solicitor.
Before: GARLAND, Circuit Judge, and EDWARDS and
RANDOLPH, Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: This case involves a
disciplinary action brought by the National Association of
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Securities Dealers (“NASD”)* against Michael Frederick Siegel
(“Siegel”). From October 1997 to June 1999, Siegel worked as
a registered, general securities representative with Rauscher
Pierce Refsnes, Inc. (“Rauscher”), a NASD member firm. In
2002, NASD’s Department of Enforcement filed a complaint
with NASD’s Office of Hearing Officers (“OHO”) charging
that, during his tenure with Rauscher, Siegel violated NASD
Conduct Rules when four of his clients – Linda and Huntington
Downer (“the Downers”) and Dorothy and Barry Landry (“the
Landrys”) – invested in World Environmental Technologies,
Inc. (“World ET”), a speculative, start-up company in search of
financing. World ET eventually failed and the Downers and
Landrys lost their investments. In its complaint, the Department
of Enforcement alleged that Siegel violated NASD Conduct
Rules 3040 and 2110 when he “sold away,” i.e., engaged in
private securities transactions on behalf of his clients without
providing prior written notice to Rauscher, and NASD Conduct
Rules 2310 and 2110 when he recommended World ET to his
clients without having any reasonable grounds for believing that
his recommendations were suitable.
After a hearing, an OHO panel found that Siegel had
engaged in the violations alleged. The panel imposed a
six-month suspension and a $20,000 fine for the Rules
3040/2110 violations, and a six-month suspension and a $10,000
fine for the Rules 2310/2110 violations. The panel declined to
impose restitution and the suspensions were to be served

*
NASD was a national association of securities broker-dealers registered
with the Securities and Exchange Commission (“SEC”) under § 15A of the
Exchange Act, 15 U.S.C. § 78o-3. In 2007, NASD changed its name to
Financial Industry Regulatory Authority, Inc. (“FINRA”). See Securities
Exchange Act Release No. 56,146 (July 26, 2007), 2007 SEC LEXIS 1641,
at *9; see also In re Michael Frederick Siegel, Exchange Act Release No.
58,737 (Oct. 6, 2008), 2008 SEC LEXIS 2459, at *2 n.1, reprinted in 2 Joint
Appendix (“J.A.”) 678 n.1. Because the disciplinary action against Siegel
was initiated in 2002, this opinion refers to “NASD,” not “FINRA.”
 3

concurrently. See Dep’t of Enforcement v. Michael Frederick
Siegel, No. C05020055 (Apr. 19, 2004) (“Initial OHO
Decision”), reprinted in 2 J.A. 463-79. The matter was appealed
to NASD’s National Adjudicatory Council (“NAC”). Following
a remand to the OHO panel, see In re Michael Frederick Siegel,
No. C05020055 (July 26, 2005) (“Initial NAC Decision”),
reprinted in 2 J.A. 482-87, NAC affirmed the panel’s initial
findings, with two modifications. NAC ordered Siegel to serve
his suspensions consecutively and ordered Siegel to pay
restitution in the amounts of $300,300 to the Downers and
$100,000 to the Landrys. See In re Michael Frederick Siegel,
No. C05020055 (May 11, 2007) (“Second NAC Decision”),
reprinted in 2 J.A. 497-521; In re Michael Frederick Siegel, No.
C05020055 (Dec. 4, 2007) (“NAC Supplemental Decision”),
reprinted in 2 J.A. 642-58. Siegel appealed to the SEC, which
affirmed NAC’s decision on all counts. In re Michael
Frederick Siegel, Exchange Act Release No. 58,737 (Oct. 6,
2008) (“SEC Decision”), 2008 SEC LEXIS 2459, at *1-*58,
reprinted in 2 J.A. 677-701.
In his petition for review to this court, Siegel’s principal
argument is that, because the SEC failed to properly assess the
“cause” of the losses suffered by the Landrys and Downers, the
agency’s decision to uphold NASD’s awards of restitution was
an abuse of discretion. We agree. NASD General Principle No.
5, which the SEC purported to apply in this case, describes
restitution as a “traditional remedy used to restore the status quo
ante where a victim otherwise would unjustly suffer loss”; and
it states that restitution may be ordered when a party “has
suffered a quantifiable loss as a result of a respondent’s
misconduct.” General Principle No. 5, FINRA Sanction
Guidelines at 4 (“Principle 5”). The SEC completely failed to
articulate any meaningful standards governing the level of
causation required under Principle 5.
 4

This case involves wealthy and sophisticated customers
who were under no press of time to decide whether to invest;
customers who invested specifically in furtherance of a desire to
speculate; and a broker who did not profit from his wrongdoing
and who has been fined and suspended for his violations. There
is nothing in the SEC’s decision to indicate why, in these
circumstances, awards of restitution are appropriate under
Principle 5. Indeed, the SEC’s decision is incomprehensible
insofar as it attempts to amplify any meaningful causal
connection between Siegel’s putative bad acts and the Downers’
and Landrys’ losses. And the SEC has cited no precedent, and
we have found none, supporting restitution in a case of this sort.
The SEC’s judgment is fatally flawed for two reasons: First, the
SEC’s judgment is not supported by reasoned decisionmaking.
Second, the SEC cites to no controlling precedent that includes
reasoned decisionmaking supporting restitution under Principle
5 in a case of this sort. We therefore vacate the restitution order.
We reject Siegel’s remaining challenges. Substantial
evidence supports the SEC’s findings that Siegel violated
NASD’s rules barring selling away and unsuitable
recommendations. And the SEC did not abuse its discretion in
imposing fines and consecutive six-month suspensions for
Siegel’s separate violations of Rules 3040/2110 and Rules
2310/2110.
I. BACKGROUND
A. Siegel’s Involvement in World ET
Siegel has worked as a registered general securities
representative since 1981. From October 24, 1997 to June 16,
1999, he was associated with Rauscher, a NASD member firm.
In early 1997, before Siegel joined Rauscher, he had several
conversations with representatives of World ET, where he
learned of the company’s burgeoning efforts to offer
antibacterial services to the poultry and swine industries. World
 5

ET representatives advised Siegel that the company was seeking
to acquire the formula for a product called “Nok-Out” that could
kill 99% of bacteria, fungi, and viruses on contact. In December
1997, World ET purchased the formula via a promissory note.
Siegel subsequently agreed to join World ET’s board, to
serve as a consultant to the company, and to help it raise the
capital necessary to go public. On November 24, 1997, Siegel
submitted a written request to Rauscher’s compliance
department for approval to sit on World ET’s board. The
department approved Siegel’s request, but noted that Siegel
would “not be able to effect transactions in securities of [World
ET]” if the company went public. Inter-Office Memorandum
from Jill Ivancevich, Compliance Department, Rauscher Pierce
Refsnes, Inc., to Michael Siegel (Nov. 24, 1997), reprinted in 1
J.A. 283.
B. Siegel’s Involvement with the Downers and the Landrys
Siegel began managing investments for Huntington and
Linda Downer in 1993. Huntington Downer was a prominent
state legislator and former law firm partner, with experience in
state budget and finance matters. Huntington Downer also had
previously invested in speculative oil and gas ventures. The
combined net worth of the Downers was between $1.5 million
and $2 million. When Siegel joined Rauscher, the Downers
transferred their holdings to a Rauscher account. Over time, the
couple afforded Siegel significant discretion over their funds,
providing him “complete authority” to do “what he wanted.” Tr.
of Hearing (Oct. 8-10, 2003), reprinted in 1 J.A. 49-50. The
Downers acknowledged that they were “happy” with Siegel’s
representation. Id. at 50.
Siegel visited the Downers at their home in early 1997. The
purpose of the meeting, according to Siegel, was to “bring them
up to date” on the state of their investments. Id. at 188. The
parties discussed personal matters, including Huntington
 6

Downer’s interest in running for governor and Siegel’s new
radio show on investing. They also discussed World ET,
Siegel’s application to serve on the company’s board, and the
Nok-Out product. Siegel gave the Downers a Nok-Out sample
to use on their cat’s litter box. At some point during this
meeting, Huntington Downer expressed an interest in investing
with World ET. Siegel advised the Downers that they could not
invest until the company went public, but Huntington Downer
pressed Siegel to contact the company and inquire about
investment opportunities. Siegel subsequently spoke with
World ET representatives, who informed him that the Downers
could invest $300,000 in World IEQ Technologies, Inc. (“World
IEQ”), a purported subsidiary of World ET. Siegel relayed this
information to the Downers, who asked Siegel to obtain the
documentation necessary for them to invest.
On November 24, 1997, Siegel visited the Downers again,
this time bringing documents related to the proposed World IEQ
investment. The paperwork included a “Subscription
Agreement” and a “Subscriber Prospective Offeree
Questionnaire.” Siegel did not review these documents prior to
delivering them. As he later testified, had he done so, he would
have seen that the offering documents were deficient. Both
documents referenced an investment in a debenture, which is an
unsecured bond. Neither document, however, included any
information on interest rates or repayment terms. Moreover, the
two documents were inconsistent in the limited investment
information they provided. Huntington Downer promptly
signed and returned the documents, but Siegel still declined to
review the paperwork. He did, however, fax the documents to
World ET. Later, on December 1, 1997, Siegel transferred
$300,300 from the Downers’ Rauscher account to a World IEQ
bank account after receiving written authorization from the
Downers to do so.
 7

Within two weeks, World ET contacted Siegel to notify him
that the World IEQ investment was no longer viable and that the
Downers could receive a refund of their initial investment or
transfer it to World ET. When Siegel relayed this information
to his clients, Huntington Downer sought Siegel’s advice on
how to proceed. In response to this inquiry, Siegel told Downer:
“I would rather be in the mother company if I had a choice.” Id.
at 251. The Downers subsequently opted to invest in World ET.
They never received or signed any new documentation
concerning the investment.
* * *
In November 1997, Dorothy and Barry Landry opened an
account with Siegel at Rauscher. The Landrys had recently sold
Ms. Landry’s business and were looking to invest. They
provided Siegel with $1 million in funds and afforded him
significant independent investment discretion. In late 1997,
Siegel met with the Landrys to complete the paperwork
necessary to open their Rauscher account. At that meeting,
Siegel raised the possibility of investing in World ET as
“something [the Landrys] might be interested in” and that they
should “take a look at.” Id. at 123. The Landrys expressed
interest, which Siegel relayed to World ET. Officials at World
ET then sent along documentation for the Landrys to sign.
Siegel delivered the offering documents to the Landrys, but he
did not review them. As with the Downers, the documentation
was deficient. The papers included a subscription agreement
that described the purchase of one debenture “unit” at $100,000,
but contained no maturity date for the debenture and no interest
rate. World Environmental Technologies, Inc., Subscription
Agreement, reprinted in 1 J.A. 313-15.
On Siegel’s advice, the Landrys held onto the documents to
review them over the next few months before making a final
investment decision. On February 5, 1998, the Landrys directed
Siegel to transfer $100,000 from their Rauscher account to their
 8

joint bank account. Six days later, the Landrys gave the signed
documents and a $100,000 check to Siegel, who sent both to
World ET. World ET negotiated the check, but the Landrys
never received any documentation confirming their investment.
World ET was never approved to be publicly traded. The
company made its last payment on the Nok-Out promissory note
in October 1998. On August 28, 2002, World ET lost its rights
to Nok-Out. On February 13, 2004, the Texas Secretary of State
revoked World ET’s corporate charter.
Siegel’s direct involvement with World ET included signing
a resolution authorizing its acquisition of Nok-Out; loaning the
company $22,000 on January 14, 1998; entering into an
employment agreement on January 27, 1998 to raise a minimum
of $15 million for World ET in exchange for cash and company
shares; and making an additional loan to the company of
$20,166.01 on March 6, 1998. Neither Siegel, the Downers, nor
the Landrys ever received any payment from World ET.
C. Disciplinary Proceedings Against Siegel
Broker-dealers who trade in securities are subject to the
regulations covering national securities associations. During the
events relevant to this case, NASD was a registered national
securities association and acted pursuant to quasi-governmental
authority to oversee the activities of its members and associated
persons. As we explained in National Ass’n of Securities
Dealers, Inc. v. SEC, 431 F.3d 803 (D.C. Cir. 2005):
Two provisions of the Exchange Act define NASD’s
quasi-governmental authority to adjudicate actions against
members who are accused of unethical or illegal securities
practices and the Commission’s oversight of that authority.
These are §§ 15A and 19. Section 15A, 15 U.S.C. § 78o-3,
lays out the specific duties of a registered national securities
association. It sets out disciplinary functions which NASD,
as a registered national securities association, must
 9

perform. . . . 15 U.S.C. § 78o-3(b)(6). Where NASD
members have allegedly violated either association rules or
federal securities law, NASD has the authority to consider
disciplinary action in the first instance. See 15 U.S.C.
§ 78o-3(b)(7). If NASD proceeds against a member, it
must provide a minimum level of process, including notice
of the specific charges and an opportunity to be heard, as
well as a statement of subsequent findings. See 15 U.S.C.
§ 78o-3(h). Fair disciplinary procedures are a prerequisite
for registration of a national securities association. 15
U.S.C. § 78o-3(b)(8).
Given the statutory requirements of § 15A, NASD . . .
established an elaborate adjudicative arm to address
disciplinary actions. . . . Where a complaint has been filed
against members for violations of federal securities laws,
the adjudication may take place before a NASD Hearing
Panel [in NASD’s Office of Hearing Officers]. . . . As
noted above, Hearing Panel [i.e., OHO panel] decisions
may be appealed to NAC, or they may be reviewed by NAC
on its own initiative. . . .
Section 19, 15 U.S.C. § 78s, sets out the Commission’s
supervisory duties over all “self-regulatory organizations.”
NASD is a “self-regulatory organization” by virtue of the
fact that it is a “registered securities association” under
§ 15A. See 15 U.S.C. § 78c(a)(26) (definition of
“self-regulatory organization”). With respect to
adjudications, the Commission’s oversight begins with the
obligation of self-regulatory organizations to notify the
Commission of any final disciplinary sanction imposed on
a member or associated person. 15 U.S.C. § 78s(d)(1). The
statute also provides the Commission with plenary review
powers. 15 U.S.C. § 78s(e). Once notified, the
Commission may, on its own motion or on the application
of any person aggrieved by the association’s action, review
 10

NASD’s disciplinary action. 15 U.S.C. § 78s(d)(2). . . .
Section 19(e) authorizes the Commission to make an
independent determination as to whether the violations
found by the association occurred, and to change NASD’s
sanctions in whatever ways it deems appropriate. See 15
U.S.C. § 78s(e). The Commission may base its
determination on the record compiled by the association,
but it is not limited to that record and may adduce
additional evidence.
Id. at 805-06.
On November 26, 2002, NASD’s Department of
Enforcement filed a complaint with NASD’s OHO. The
complaint alleged that Siegel violated NASD Conduct Rules
3040 and 2110 when he “sold away,” i.e., engaged in private
securities transactions on behalf of his clients without providing
prior written notice to Rauscher, and NASD Conduct Rules
2310 and 2110 when he recommended World ET to his clients
without having any reasonable grounds for believing that his
recommendations were suitable. Complaint ¶¶ 1-31, In re
Michael Frederick Siegel, No. C05020055 (Nov. 25, 2002),
reprinted in 1 J.A. 20-27.
Rule 3040 states:
Prior to participating in any private securities transaction, an
associated person shall provide written notice to the member
with which he is associated describing in detail the proposed
transaction and the person’s proposed role therein and
stating whether he has received or may receive selling
compensation in connection with the transaction . . . .
NASD Conduct Rule 3040, NASD Manual 3040(b). A
“[p]rivate securities transaction” is defined as “any securities
transaction outside the regular course or scope of an associated
person’s employment with a member.” Id. 3040(e)(1).
 11

Rule 2310 states:
In recommending to a customer the purchase, sale or
exchange of any security, a member shall have reasonable
grounds for believing that the recommendation is suitable
for such customer upon the basis of the facts, if any,
disclosed by such customer as to his other security holdings
and as to his financial situation and needs.
NASD Conduct Rule 2310, NASD Manual 2310(a). As noted
above, Siegel acknowledged that he did not review the offering
documents before conveying the materials to the Downers and
the Landrys.
Rule 2110 states:
A member, in the conduct of his business, shall observe high
standards of commercial honor and just and equitable
principles of trade.
NASD Conduct Rule 2110, NASD Manual 2110. “It is well
settled that a violation of a . . . NASD rule or regulation also
constitutes a violation of Conduct Rule 2110.” SEC Decision,
2008 SEC LEXIS 2459, at *20 n.13, 2 J.A. 685 (citing In re
Stephen J. Gluckman, Exchange Act Release No. 41,628 (July
20, 1999), 1999 SEC LEXIS 1395, at *22-*23).
After an initial hearing, the OHO panel found that Siegel
violated Rule 2310, Rule 3040, and Rule 2110. Initial OHO
Decision, 2 J.A. 463-79. The panel imposed sanctions, including
a $20,000 fine with a six-month suspension for “selling away”
(Rules 3040 and 2110), and a $10,000 fine with a separate six-
month suspension for making unsuitable recommendations to the
Downers and Landrys (Rules 2310 and 2110). Id. at J.A. 479.
The panel allowed Siegel to serve his two suspensions
concurrently and did not order him to pay restitution to the
customers. Justifying the latter decision, the panel noted that the
Downers and the Landrys were “relatively sophisticated persons,
 12

who voluntarily chose to invest in a risky enterprise”; that
“Siegel earned nothing from the transactions and lost his own
money”; and that the customers were separately pursuing
arbitration to recoup their losses. Id. at 478.
Siegel appealed to NAC. After initially remanding the case
to the OHO panel to make certain credibility determinations and
factual findings, see Initial NAC Decision, 2 J.A. 482-87, NAC
affirmed the panel’s initial findings with two modifications. See
Second NAC Decision, 2 J.A. 497-521. First, NAC ordered
Siegel to serve his suspensions consecutively rather than
concurrently. Id. at 516-17. Second, NAC ordered Siegel to pay
restitution in the amounts of $300,300 to the Downers and
$100,000 to the Landrys, less any value the customers received
from selling their securities, any residual value in the securities
that the customers had not sold, and any restitution that the
customers had recovered through other avenues. Id. at 519-20.
The case was then referred to a NAC subcommittee to determine
whether the restitution amounts should be reduced. See id. After
receiving a recommendation from the subcommittee, NAC
concluded that no offsets were required and ordered Siegel to
pay 100% restitution to the victims – $300,300 to the Downers
and $100,000 to the Landrys. See NAC Supplemental Decision,
2 J.A. 642-58.
Siegel appealed to the SEC, which affirmed NAC’s liability
and sanction determinations. SEC Decision, 2008 SEC LEXIS
2459, at *1-*58. On the Rule 2310 violation, the SEC grounded
its analysis on the view that “‘a broker may violate the suitability
rule if he fails so fundamentally to comprehend the consequences
of his own recommendation that such recommendation is
unsuitable for any investor, regardless of’” individual
characteristics. Id. at *28, 2 J.A. 689 (quoting In re F.J.
Kaufman & Co., Exchange Act Release No. 27,535 (Dec. 13,
1989), 1989 SEC LEXIS 2376, at *11). As noted above, Siegel
acknowledged that he did not review the offering documents that
 13

he conveyed to the Downers and the Landrys. The Commission
focused on the flaws in those documents and on Siegel’s
concession that the deficiencies in the documents rendered an
investment in World IEQ and World ET unsuitable for any
investor. Id. at *31, 2 J.A. 690. The Commission rested on these
grounds, explicitly declining to address “whether World ET was
suitable for the Downers and the Landrys based upon their
personal situations.” Id. at *31 n.26, 2 J.A. 690.
On appeal to this court, Siegel contests his liability for
having made a “recommendation” to the Downers, as well as
each of the sanctions imposed by the SEC.
II. ANALYSIS
A. Standard of Review
The question of whether Siegel “recommended” an
investment to the Downers under Rule 2310 is a “facts and
circumstances” inquiry. SEC Decision, 2008 SEC LEXIS 2459,
at *21, 2 J.A. 686 (internal quotation marks and citation
omitted). The SEC’s findings of fact are reviewed under the
“very deferential” substantial evidence standard, see Dolphin &
Bradbury, Inc. v. SEC, 512 F.3d 634, 639 (D.C. Cir. 2008)
(internal quotation marks and citation omitted), and are
conclusive if “a reasonable mind might accept [the] evidentiary
record as adequate” to support the agency’s conclusions. Id.
(internal quotation marks and citation omitted); see also 15
U.S.C. § 78y(a)(4). Under this standard, the reviewing court
must consider all relevant evidence; however, the court “‘may
not find substantial evidence merely on the basis of evidence
which in and of itself justified [the agency’s decision], without
taking into account contradictory evidence or evidence from
which conflicting inferences could be drawn.’” Morall v. DEA,
412 F.3d 165, 177 (D.C. Cir. 2005) (quoting Lakeland Bus Lines,
Inc. v. NLRB, 347 F.3d 955, 962 (D.C. Cir. 2003) (internal
quotation marks and citation omitted)). The reviewing court may
 14

not substitute its own judgment for the agency’s “choice between
two fairly conflicting views,” even if that court “would
justifiably have made a different choice had the matter been
before it de novo.” See Universal Camera Corp. v. NLRB, 340
U.S. 474, 488 (1951).
The SEC reviews sanctions imposed by the NASD to
determine whether they “impose[] any burden on competition not
necessary or appropriate” or are “excessive or oppressive.” 15
U.S.C. § 78s(e)(2); see also PAZ Sec., Inc. v. SEC, 494 F.3d
1059, 1065-66 (D.C. Cir. 2007) (“PAZ I”). This court reviews
the SEC’s conclusions regarding sanctions to determine whether
those conclusions are arbitrary, capricious, or an abuse of
discretion. See PAZ Sec., Inc. v. SEC, 566 F.3d 1172, 1174
(D.C. Cir. 2009) (“PAZ II”). “The agency’s choice of remedy is
‘peculiarly a matter for administrative competence,’ and we will
reverse it ‘only if the remedy chosen is unwarranted in law or is
without justification in fact.’” Id. (quoting Am. Power & Light
Co. v. SEC, 329 U.S. 90, 112-13 (1946)).
B. Siegel’s Liability for Violating Rule 2310 with Respect to
the Downers
In conducting its inquiry into whether Siegel recommended
World ET investments to the Downers within the meaning of
Conduct Rule 2310, the SEC properly considered the “‘content,
context, and presentation’” of Siegel’s communications, and
whether, as an objective matter, Siegel’s communication
“‘reasonably could have been viewed as a call to action’ and
‘reasonably would influence an investor to trade a particular
security or group of securities.’” SEC Decision, 2008 SEC
LEXIS 2459, at *21, 2 J.A. 686 (quoting NASD Notice to
Members, 01-23 (Apr. 2001), 2001 NASD LEXIS 28, at *8-*9,
*19). In concluding that Siegel “recommended” World ET to the
Downers, the SEC focused on a number of “main factors.” Id.
at *22, 2 J.A. 686. These factors included the close relationship
between the Downers and Siegel, the Downers’ reliance on
 15

Siegel for investment advice, the nature of the specific
conversations between the Downers and Siegel regarding
investments in World ET, and Siegel’s initiation of conversations
concerning World ET with the Downers. Id. at *21-*22, 2 J.A.
686-87. On the basis of this evidence, the SEC concluded that
Siegel’s “conduct constitute[d] a recommendation because it was
a ‘call to action’ that reasonably influenced the Downers . . . to
invest in World ET.” Id. at *24, 2 J.A. 687.
We have little doubt that the SEC’s conclusion is supported
by substantial evidence. Siegel contends that he specifically
discouraged the Downers from investing and only acted as an
intermediary with World ET at Huntington Downer’s insistence.
Pet. Br. at 49-50. The SEC noted, however, that “Siegel
admit[ted] that he could have refused” this request. SEC
Decision, 2008 SEC LEXIS 2459, at *23, 2 J.A. 686. Siegel also
contends that he declined to review the offering documents that
he gave to the Downers in an attempt to avoid violating Rule
3040’s prohibition against engaging in a private securities
transaction without providing written notice to Rauscher, and
Rule 2310’s prohibition against unsuitable recommendations,
and communicated as much to the Downers. See Pet. Br. at 51-
52. But this explanation does not speak to the question of
whether Siegel’s communications with the Downers could be
perceived by a reasonable person in the Downers’ position as a
“suggestion to invest” in World ET and, thus, raise the specter of
a violation of Rule 2310.
More importantly, as the SEC found, following his initial
conversations with the Downers, Siegel “encourag[ed the
Downers] to invest in World ET after learning they could not
invest” in the subsidiary company, World IEQ. SEC Decision,
2008 SEC LEXIS 2459, at *25, 2 J.A. 687. As the agency notes,
“[a]fter Siegel informed the Downers that it was no longer
possible to invest in World IEQ, he advised them to invest in
World ET rather than receive a refund on their World IEQ
 16

investment, stating that he ‘would rather be in the mother
company if [he] had a choice.’” Id. at *23, 2 J.A. 686. Siegel
provides no explanation for how this statement can be interpreted
as anything other than a suggestion to invest in World ET. This
interaction alone is sufficient to sustain the SEC’s finding that
Siegel recommended an investment.
C. Mitigating Factors
Siegel contends that the SEC failed to appropriately consider
certain mitigating factors prior to imposing sanctions. His
arguments are unpersuasive and warrant little attention here. The
Government’s brief on behalf of the SEC more than ably
addresses this issue:
Siegel argues that NASD’s sanctions are
“inappropriate” in light of allegedly mitigating factors “the
SEC largely brushed aside.” . . . [T]he Commission properly
found that a number of Siegel’s claims of mitigation were
not supported in the record. The remaining claims fall into
two categories: (1) those that could not be mitigating – even
if they were present in the record; and (2) those that,
although mitigating and present in the record, are
outweighed by aggravating factors. . . .
In the first category of claims are those that the
Commission refused to credit because doing so would turn
ignorance of regulatory requirements into excuses for
misconduct or reward [for] simply complying with such
requirements. Thus, for example, the Commission refused
to excuse Siegel’s Rule 3040 violations based on his
purported “misunderstanding” of the rule. As the
Commission held, that claim is “especially not mitigating
because of [Siegel’s] seventeen years of experience as an
associated person . . . and the fact that he has been active as
a registered investment advisor, authored a book on
 17

investment advice, and served as a local media expert on
financial topics.”
In addition, the Commission refused to consider
mitigating Siegel’s assertions that he: had no disciplinary
history; cooperated in NASD’s investigation; never
performed any act pursuant to the World ET employment
agreement; did not attempt to create the impression that
Rauscher sanctioned his activities; and did not recruit other
registered individuals to sell World ET securities. Siegel
also asserts as mitigating that World ET securities have not
been found to involve a violation of the securities laws or
rules. While these are factors listed in the guidelines as
either general considerations applicable to all sanction
determinations . . . or violation-specific considerations . . .
not every consideration listed in the guidelines has the
potential to be mitigating . . . .
Thus, as the Commission explained, the presence of any
of the factors listed above could justify an increase in
sanctions, but their absence is not mitigating “because an
associated person should not be rewarded for acting in
compliance with the securities laws and with his duties as a
securities professional.” . . .
Finally, Siegel does point to a number of factors that the
Commission concluded had some mitigating impact: that
his acts of misconduct were neither numerous nor made over
an extended period of time; that a small number of
customers were involved; that those customers were
sophisticated; and that he disclosed that he was seeking an
appointment to World ET’s board. The Commission
concluded, however, that the mitigating impact of these
factors was outweighed by aggravating factors, particularly
Siegel’s reckless failure to take any steps to inform himself
about the securities he recommended to his clients.
 18

Gov’t Br. at 35-37 (internal citations omitted).
The Government’s discussion of this issue needs no
amplification. It is sufficient to say that, on the record here, the
SEC reasonably addressed mitigating and aggravating
circumstances in considering sanctions. We reject Siegel’s
arguments to the contrary.
D. Concurrent Versus Consecutive Suspensions
This case represents the first time that the SEC has
“addressed whether the imposition of consecutive – as opposed
to concurrent – suspensions is excessive or oppressive.” SEC
Decision, 2008 SEC LEXIS 2459, at *46, 2 J.A. 696. As an
initial matter, it is important to remember that the agency “may
impose sanctions for a remedial purpose, but not for
punishment.” McCurdy v. SEC, 396 F.3d 1258, 1264 (D.C. Cir.
2005). Thus, the SEC must “review the sanction imposed by the
NASD with ‘due regard for the public interest and the protection
of investors,’” PAZ I, 494 F.3d at 1065 (quoting 15 U.S.C.
§ 78s(e)(2)), and ensure that it “serve[s] a remedial purpose, as
required by” the Exchange Act. Id. at 1061; see also 15 U.S.C.
§ 78s(e)(2). To justify a sanction as remedial, the agency “‘must
do more than say, in effect, petitioners are bad and must be
punished.’” PAZ I, 494 F.3d at 1064 (quoting Blinder, Robinson
& Co. v. SEC, 837 F.2d 1099, 1113 (D.C. Cir. 1988)). The
agency must, “at the least[,] . . . give ‘[s]ome explanation
addressing the nature of the violation and the mitigating factors
presented in the record.’” Id. at 1064-65 (quoting McCarthy v.
SEC, 406 F.3d 179, 189-90 (2d Cir. 2005)). However, beyond
“mak[ing] the necessary ‘findings regarding the protective
interests to be served’ by expulsion,” the agency need not “state
why a lesser sanction would be insufficient.” PAZ II, 566 F.3d
at 1175-76 (quoting McCarthy, 406 F.3d at 189).
As the SEC noted, NASD’s NAC concluded that “because
. . . selling away and suitability violations involve different kinds
 19

of misconduct and raise separate and serious regulatory
concerns,” consecutive suspensions would “specifically
discourage all types of additional misconduct at issue.” See SEC
Decision, 2008 SEC LEXIS 2459, at *44-*45, 2 J.A. 695-96
(internal quotation marks and citation omitted). The SEC
“agree[d] with NASD that Siegel’s violations are different in
nature and raise separate public interest concerns.” Id. at *46, 2
J.A. 696. Thus, the SEC imposed consecutive suspensions not
to punish Siegel, but rather to protect the public from two
fundamentally different types of harms.
As the agency noted, “[t]he purpose of NASD Conduct Rule
3040 is to protect ‘investors from unsupervised sales and
securities firms from exposure to loss and litigation from
transactions by associated persons outside the scope of their
employment.’” Id. (quoting In re Chris Dinh Hartley, Exchange
Act Release No. 50,031 (July 16, 2004), 2004 SEC LEXIS 1507,
at *13 n.17). The SEC thus found that Siegel’s suspension for
the Rule 3040 violation “will protect the public interest by
discouraging Siegel and others from selling away and from
undermining the protections in place at firms.” Id. The purpose
of NASD Rule 2310, on the other hand, is “to protect customers
from potentially abusive sales practices by ensuring that a
registered representative has reasonable grounds for believing
that his recommendation is suitable.” Id. The SEC accordingly
found that the separate suspension for the Rule 2310 violations
“will protect the public interest by encouraging Siegel and others
to take the steps necessary to determine that recommendations
that they make to their customers are suitable while also
deterring them from putting their own interests ahead of those of
their customers.” Id. at *46-*47, 2 J.A. 696-97. Given the
deference due to the SEC, we cannot say that the agency abused
its discretion in finding that consecutive, six-month suspensions
were not excessive or oppressive.
 20

Siegel contends that the SEC erred in focusing on his prior
bad acts instead of on the current threat he poses to the investing
public. Some cases have suggested that undue focus on past
actions may raise doubts about the propriety of a sanction. See,
e.g., Johnson v. SEC, 87 F.3d 484, 490 (D.C. Cir. 1996). There
is no rigid rule on this, however, because “[i]t is difficult to
imagine how any suspension, remedial or not, could be based on
anything but past actions.” McCurdy, 396 F.3d at 1264.
Siegel also argues that, in imposing consecutive
suspensions, the agency improperly relied on general deterrence,
which is “essentially a rationale for punishment, not for
remediation.” PAZ I, 494 F.3d at 1066. We do not agree that the
SEC erred in this way. This is not a case in which the SEC
offered “no other rationale whatsoever” beyond general
deterrence. Id. Furthermore, “‘general deterrence . . . may be
considered as part of the overall remedial inquiry.’” Id. (quoting
McCarthy, 406 F.3d at 189); see also McCarthy, 406 F.3d at 189
(“[T]he SEC has expressly adopted deterrence, both specific and
general, as a component in analyzing the remedial efficacy of
sanctions.”).
Finally, Siegel contends that his lack of a disciplinary record
subsequent to the events of this case undermines the remedial
efficacy of the suspensions. This argument was not raised before
the agency, so we decline to consider it here. See 15 U.S.C.
§ 78y(c)(1).
In sum, we hold that the SEC did not abuse its discretion in
upholding the consecutive suspensions imposed by NAC.
E. Restitution
As noted above, Siegel’s principal argument to this court is
that, because the SEC failed to properly assess the “cause” of the
losses suffered by the Landrys and Downers, the agency’s
decision to uphold NASD’s awards of restitution was an abuse
of discretion. There is merit to this claim.
 21

In ordering Siegel to pay restitution in excess of $400,000,
in addition to paying fines and serving consecutive suspensions,
both the NASD’s NAC and the SEC relied on Principle 5 in
NASD’s Sanction Guidelines. See Second NAC Decision, 2 J.A.
518-19; SEC Decision, 2008 SEC LEXIS 2459, at *48-*52, 2
J.A. 697-99. Principle 5 states, in relevant part:
Where appropriate to remediate misconduct, Adjudicators
should order restitution and/or rescission. Restitution is a
traditional remedy used to restore the status quo ante where
a victim otherwise would unjustly suffer loss. Adjudicators
may determine that restitution is an appropriate sanction
where necessary to remediate misconduct. Adjudicators
may order restitution when an identifiable person, member
firm[,] or other party has suffered a quantifiable loss as a
result of a respondent’s misconduct, particularly where a
respondent has benefitted from the misconduct.
Adjudicators should calculate orders of restitution based on
the actual amount of the loss sustained by a person . . . as
demonstrated by the evidence. Orders of restitution may
exceed the amount of the respondent’s ill-gotten gain.
Restitution orders must include a description of the
Adjudicator’s method of calculation.
Principle 5, at 4 (emphasis added).
Counsel for both parties before this court agreed that, under
Principle 5, the SEC must demonstrate a causal connection
between a broker’s misconduct and any loss at issue. In other
words, Siegel cannot be made to pay restitution to the Downers
or the Landrys unless the SEC shows that Siegel’s misdeeds
caused their investment losses. What is unclear, however, is the
level of causation that is required before the agency may impose
restitution.
There are several ways in which to construe the causation
requirement of Principle 5. One possibility would be to find that
 22

Principle 5 requires nothing more than loose, “but for” causation.
Under this standard, the agency would be required to determine
whether a loss would not have occurred but for the broker’s
misconduct. As we noted in Kilburn v. Socialist People’s Libyan
Arab Jamahiriya, 376 F.3d 1123 (D.C. Cir. 2004), “but for”
causation is an unwieldy concept:
“But for” causation may be restrictive in some
circumstances . . . . See PROSSER & KEETON ON THE LAW OF
TORTS 66-67 (5th ed. 1984). Often, however, it is viewed as
an expansive theory. See, e.g., Pryor v. American President
Lines, 520 F.2d 974, 978 n.4 (4th Cir. 1975) (describing
“but for” causation as a potentially “limitless” standard
under which “Eve’s trespass caused all our woe” (citing 2
HARPER & JAMES, THE LAW OF TORTS 1108 (1956))); see
generally PROSSER & KEETON, at 266 (noting that the
breadth of “but for” causation may depend on whether it is
employed as a rule of inclusion or exclusion).
Id. at 1127 n.2. Recognizing that “but for” causation may indeed
be “limitless” in assessing whether restitution is due for broker-
dealer violations, the SEC’s counsel conceded at oral argument
that Principle 5 requires more than a showing of “but for”
causation in order to justify restitution.
Another possibility is “proximate causation,” which is
normally understood to require a direct relation between conduct
alleged and injury asserted. See, e.g., Holmes v. Sec. Investor
Prot. Corp., 503 U.S. 258, 268-69 (1992). It is noteworthy that,
in its decision ordering Siegel to pay restitution, NAC appears to
assume the applicability of “proximate cause” as the test required
by Principle 5. See Second NAC Decision, 2 J.A. 519 (inquiring
whether “Siegel’s violative conduct ever ceased to be the
proximate cause of the customers’ losses”).
Yet another possibility is a “substantial factor” test of
causation. This test is sometimes applied when a contested loss
 23

has “been brought about by two or more concurrent causes.”
Daniels v. Hadley Mem’l Hosp., 566 F.2d 749, 757 (D.C. Cir.
1977). Under such a test, the agency would be required to show
that a broker’s violation of NASD rules was a “‘substantial
factor’ in bringing about the harm” to his clients. Id.
Last but not least is “loss causation,” best exemplified by the
court’s decision in Bastian v. Petren Resources Corp., 892 F.2d
680 (7th Cir. 1990). In Bastian, the plaintiffs invested $600,000
in oil and gas limited partnerships promoted by the defendants.
The plaintiffs, who were fully intent on investing in oil and gas
companies, alleged that without the defendants’
misrepresentations and misleading omissions, they would not
have made these particular investments, which were “worthless”
by 1984 because the entire oil and gas market collapsed in the
early 1980s. Id. at 682, 684-85. The court noted:
The plaintiffs alleged that they invested in the
defendants’ limited partnerships because of the defendants’
misrepresentations, and that their investment was wiped out.
But they suggest no reason why the investment was wiped
out. They have alleged the cause of their entering into the
transaction in which they lost money but not the cause of the
transaction’s turning out to be a losing one. . . .
....
If the plaintiffs would have lost their investment
regardless of the fraud, any award of damages to them
would be a windfall. . . .
Id. at 684-85. The court in Bastian held that plaintiffs had not
sufficiently pled loss causation because they “were not told that
oil and gas partnerships are risk-free. They knew they were
assuming a risk that oil prices might drop unexpectedly. . . . [and
were] unwilling to try to prove that anything beyond the
materializing of that risk caused their loss.” Id. at 686.
 24

Siegel argued to the SEC and to this court that “loss
causation” is the level of causation that is required before the
agency may impose restitution pursuant to Principle 5. Siegel
points out that the Downers and the Landrys purposefully
intended to pursue speculative investments in World ET.
According to Siegel, the customers lost their investments
because of World ET’s failure, not because of Siegel’s failure to
review the deficient offering documents. In response to Siegel’s
insistence that principles of “loss causation” should be followed
in this case, the SEC rejected the reasoning of Bastian as
inapposite, because that case involved “a private action for
damages under the antifraud provisions of the federal securities
laws where ‘loss causation’ was an element of the claim.” SEC
Decision, 2008 SEC LEXIS 2459, at *49, 2 J.A. 697.
We do not mean to suggest that the foregoing tests of
causation are always clear or mutually exclusive. They are not.
Nor do we mean to suggest that we have exhausted all possible
tests of causation in pondering the meaning of Principle 5. And
we certainly do not mean to suggest that we know which test of
causation offers that best construction of Principle 5. We do not.
What we do mean to show, however, is that – apart from strict
liability and limitless notions of “but for” causation – there are
a number of ways in which Principle 5 might be construed. This
responsibility belongs to the SEC, not this court. Unfortunately,
the SEC has offered virtually nothing to explain the applicable
test of causation under Principle 5.
As noted above, Principle 5 sets forth a causation
requirement in the following terms: “Adjudicators may order
restitution when an identifiable person, member firm[,] or other
party has suffered a quantifiable loss as a result of a
respondent’s misconduct . . . .” Principle 5, at 4 (emphasis
added). In footnote 55 of its opinion, the SEC offered the
following explanation of this causation requirement:
 25

In requiring that a loss be a result rather than the result of a
respondent’s misconduct, we acknowledge that other factors
may bear upon the loss and that any determination as to the
propriety of restitution will be based on an analysis of all the
relevant facts and circumstances.
SEC Decision, 2008 SEC LEXIS 2459, at *51 n.55, 2 J.A. 698
(underscoring in original). “[T]his explanation is nonsense, and
the two [phrases] together are not even compatibly nonsensical.”
Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 376
(1998). Whether a loss is the sole result or one of many results
of a broker’s misconduct is irrelevant to the causation issue
raised by Siegel. Moreover, the second part of footnote 55 does
not even reflect an acknowledgment by the Commission that
Principle 5 requires some meaningful causal connection between
a broker’s misconduct and the losses suffered by his clients.
Rather, in footnote 55, the Commission does no more than assert
that it will decide whether to impose restitution on the basis of
“an analysis of all the relevant facts and circumstances.” SEC
Decision, 2008 SEC LEXIS 2459, at *51 n.55, 2 J.A. 698. This
explanation tells neither the reviewing court nor the regulated
parties anything about (1) the degree of causal connection that
the Commission will require between proven misconduct and a
loss before imposing 100% restitution, or (2) how the
Commission intends to measure the substantiality of that
connection. This is entirely unacceptable. As the Court noted in
Allentown Mack, “[n]ot only must an agency’s decreed result be
within the scope of its lawful authority, but the process by which
it reaches that result must be logical and rational.” 522 U.S. at
374.
The SEC based its decision on the proposition that “as
between Siegel’s customers, who were placed in unsuitable
investments and Siegel, who recommended them, equity requires
Siegel, as the person responsible for the losses, to bear the
burden and to return the customers to the position occupied prior
 26

to the unsuitable recommendations.” SEC Decision, 2008 SEC
LEXIS 2459, at *50, 2 J.A. 698. The agency’s own analysis,
however, makes clear that the unsuitability of the
recommendations stemmed not from a level of risk associated
with the investments that the customers were otherwise unwilling
to bear, but rather from the terms of the investment offering
documents, which were deficient. Tellingly, there is nothing in
the SEC decision demonstrating that the customers’ losses came
“as a result of” these document deficiencies. Indeed, had the
investment paperwork that Siegel provided to his clients not been
deficient, the Downers and the Landrys still would have suffered
the same losses once World ET failed. Moreover, in resting its
analysis on the deficient offering documents, the SEC declined
to address “whether World ET was suitable for the Downers and
the Landrys based upon their personal situations.” Id. at *31
n.26, 2 J.A. 690.
In failing to articulate a comprehensible principle governing
the level of causation required by Principle 5, the SEC decision
borders on whimsical or rests on notions of strict liability. In
either event, the decision offers no reasonable construction of
the causation requirement under Principle 5. This is far short of
reasoned decisionmaking. As the Supreme Court has explained,
the “evil of a decision” of this sort is that it “prevent[s] both
consistent application of the law by subordinate agency
personnel . . . and effective review of the law by the courts.”
Allentown Mack, 522 U.S. at 375. The SEC’s decision in this
case clearly fails for want of reasoned decisionmaking.
***
Although not supported by reasoned decisionmaking, the
SEC’s judgment on restitution arguably might survive review if
supported by controlling precedent that included reasoned
decisionmaking. However, the SEC has cited no such
precedent, and we have found none, supporting restitution under
Principle 5 in a case of this sort.
 27

As noted above, this case involves wealthy and
sophisticated customers who were not pressed to decide whether
to invest; customers who invested in furtherance of their specific
desires to speculate in a high risk venture; and a broker who did
not profit from his wrongdoing and who has been fined and
suspended for his violations. The SEC has never ordered
restitution in a situation such as this. Indeed, all of the cases
cited by the SEC indicate that restitution has been ordered only
in situations in which causation is clear, i.e., there has been proof
that the amount charged in restitution is closely and inextricably
tied to the amount lost as a result of the broker’s wrongdoing.
During oral argument, SEC counsel was asked to cite the
case that best supports the SEC position in this case. Counsel
cited In re Dane S. Faber, Exchange Act Release No. 49,216
(Feb. 10, 2004), 2004 SEC LEXIS 277, a decision not relied
upon by the SEC. The case involved restitution sanctions in a
situation in which the agency found fraudulent and unsuitable
recommendations in violation of SEC Rule 10b-5 and NASD
rules. The agency found that the broker-dealer had
“recommended that a financially inexperienced customer of
modest means preparing for retirement invest nearly all of her
portfolio (which constituted more than two-thirds of her total
liquid assets) in a single speculative security despite her
instructions that she wanted conservative investments.” Id. at
*28 (emphasis added). Faber obviously gives no support to the
SEC’s judgment in this case.
The SEC decision cites to three cases: In re Toney L. Reed,
Exchange Act Release No. 33,676 (Feb. 24, 1994), 1994 SEC
LEXIS 507 (“Reed I”); In re Toney L. Reed, Exchange Act
Release No. 34-37,572 (Aug. 14, 1996), 1996 SEC LEXIS 2208
(“Reed II”); and In re David J. Dambro, Exchange Act Release
No. 32,487 (June 18, 1993), 1993 SEC LEXIS 1521. These
cases do not support the SEC’s judgment in this case.
 28

The Reed cases involved a broker-dealer whose company
charged excessive markups to his customers when selling
securities. The NASD ordered Reed, the president and general
securities principal of a securities firm, to pay restitution to
customers to cover the value of the excessive markups in the sale
of securities. Reed contested restitution on the grounds that he
could not be ordered to “disgorge” profits that NASD had not
proved he actually possessed, an argument the agency rejected.
The SEC’s decision in the Reed cases surely does not support its
decision in this case. Reed compares restitution with
disgorgement, but it does not speak to the causation part of the
restitution inquiry. While Reed clarifies that “an order for
restitution can seek to restore the customer’s position by
returning the amount by which the customer was deprived,” the
SEC also makes it clear that restitution is appropriate only
insofar as “equity would demand that the wrongdoer, rather than
the customer, bear the loss.” Reed I, 1994 SEC LEXIS 507, at
*13. The losses suffered by Reed’s clients were attributable
solely to Reed’s impermissible price markups. As the SEC
noted, “it is equitable to require [Reed] to compensate those he
injured by his pricing determinations” because Reed was the
president and a significant owner of the firm and was also “the
individual who was involved actively in both the purchase of the
stock for the Firm and the resale of that stock to the Firm’s
customers at excessive prices.” Reed II, 1996 SEC LEXIS 2208,
at *4. The agency also noted that Reed had notice of this
potential outcome, because the NASD Guidelines specify that in
a markup case, “consideration should be given to requiring
restitution to customers of the excess amount of the markup.” Id.
The SEC’s decision in Dambro is similarly inapposite. In
that case, a broker-dealer used an aggressive, “cold call”
approach to contact an elderly retiree, and in that single call
recommended the purchase of 670,000 shares of a highly
speculative stock. The retiree had a net worth of about $400,000
and an annual income of around $50,000. The SEC noted that,
 29

“[d]espite the high level of risk to which [the retiree’s] $10,000
would be subject, Dambro made only a cursory inquiry into
whether such an undertaking accorded with [the retiree’s]
objectives.” Dambro, 1993 SEC LEXIS 1521, at *7. The
agency also agreed with NASD that “the sale of a highly
speculative security which had exhibited little evidence of profit
potential to a person of advanced age is inherently suspect.” Id.
at *11 (internal quotation marks and citation omitted).
The situation faced by the Downers and the Landrys bears
little resemblance to the scenarios in these cases. In the Reed
cases, the customers’ losses were the direct result of
impermissible markups, and restitution was imposed against the
president and general securities principal of the firm. In Dambro
and Faber, the losses resulted from speculative, high-risk
investments that were pressed on customers for whom such
investments obviously were inappropriate. In this case, the
losses resulted when World ET – a high risk, start-up company
– failed. But the unsuitability of Siegel’s recommendations
stemmed from inadequate documentation, not the nature of the
company itself. The SEC did not find that World ET was
unsuitable for the Downers and the Landrys based upon their
personal situations.
Moreover, the Downers and the Landrys themselves bear
little resemblance to the victims in the cases cited by the SEC.
There is no evidence that the customers in the Reed cases
knowingly put themselves in a position to be swindled by a
broker who charged excessive markups. In Dambro, the
customer lost money in a highly speculative investment that was
pressed upon him by an aggressive broker who made no
assessment of the customer’s risk tolerance. In Faber, the
speculative investment was recommended despite the customer’s
explicit aversion to risk. By comparison, the Downers were
looking to speculate and obviously understood they could lose
their money if World ET failed. Indeed, Huntington Downer
 30

indicated that he was aware of the speculative nature of his
investment; and he conceded that he had “not heard of
investments paying” at the rate suggested by Siegel for the
World ET and World IEQ investments “unless all of the sudden
you hit it lucky.” NASD Arbitration Tr. (Apr. 14, 2004),
reprinted in 2 J.A. 600. The Landrys testified that Siegel “did
not pressure them to invest.” SEC Decision, 2008 SEC LEXIS
2459, at *12, 2 J.A. 682. And Dorothy Landry acknowledged
that, in her mind, the World ET investment “was just as much of
a gamble as if I had taken it to the gulf coast and put it down on
a slot machine”; she added that, “if I was to take 10 percent of
my money and go to the casino, I would have just as much
chance of bringing some home as I’m going to have as I give it
to this thing.” NASD Arbitration Tr. (Apr. 13, 2004), reprinted
in 2 J.A 603. In response to these damning admissions, the SEC
merely says, “[e]ven where a customer seeks to engage in a
highly speculative investment, a registered representative has a
duty to refrain from making unsuitable recommendations.” SEC
Decision, 2008 SEC LEXIS 2459, at *53, 2 J.A. 699. While that
may be true, it speaks only to the question of liability; it does not
relieve the agency of its obligation to show a meaningful causal
relationship between the amount ordered to be paid in
“restitution” (as distinguished from fines) and sanctionable
wrongdoing.
In this case, sophisticated investors willingly sought to
invest their money in a highly speculative venture involving a
start-up company that eventually failed. The SEC has cited no
controlling precedent that includes reasoned decisionmaking
supporting restitution under Principle 5 in a case of this sort. We
therefore vacate the restitution order. The SEC’s failure to
coherently analyze the extent to which the losses were truly a
result of Siegel’s misconduct is an abuse of discretion.
 31

III. CONCLUSION
The petition for review is denied in part and granted in part.
We deny Siegel’s challenges to the SEC’s finding that he
violated Rule 2310 with respect to his dealings with the
Downers. We also deny Siegel’s challenges to the fines and
consecutive suspensions imposed by NAC and upheld by the
SEC in connection with his violations of Rules 3040, 2310, and
2110. We grant Siegel’s petition for review challenging the SEC
order upholding NAC’s imposition of restitution. For the
reasons given in this opinion, we find that the SEC’s judgment
awarding full restitution was neither adequately explained in its
decision nor supported by agency precedent. We therefore
vacate the restitution order. The case is remanded to the agency
for a prompt disposition of this matter consistent with this
opinion.