United States Securities and Exchange Commission v. Glen T. Vittor

BLACK, Circuit Judge,

concurring in part and dissenting in part:

I concur with the court’s interpretation of 15 U.S.C. § 78u(e). I respectfully disagree, however, with the court’s interpretation of 15 U.S.C. § 78u(f) (§ 21(f)).1 The language of § 21(f) does not limit its applicability to independent actions by the SEC to enforce the rules of a SRO where the SRO has failed to enforce its own rules. Rather, it applies to “any action [brought by the SEC] pursuant to subsection (d) or (e) of this section against any person for violation of, or to command compliance with, the rules of a self-regulatory organization .... ” 15 U.S.C. § 78u(f) (emphasis added). While it may be true that § 21(e) acknowledges a distinction between independent SEC actions to enforce the rules of a SRO and SEC actions to enforce a previous SEC order, § 21(f) can apply to either type of action. As long as the purpose of the SEC action to enforce a previous SEC order is to command compliance with the rules of a SRO, § 21(f) limits the SEC’s ability to bring the action in federal court.

In this case, the SEC’s prior order upheld the NASD’s disciplinary judgments against Vittor and instructed Vittor to comply with the penalties imposed. Vittor failed to do so. The SEC brought the instant action to command compliance with its order. By seeking enforcement of its order, the SEC sought to command Vittor to comply with the rules of the NASD. This is precisely the type of SEC action limited by § 21®. The district court should have permitted the SEC’s action only if the SEC satisfied the requirements of § 21(f), either by demonstrating the NASD was unable or unwilling to take appropriate action against Vittor, or by demonstrating SEC intervention was necessary or appropriate in the public interest or for the protection of investors. I would remand this case for further consideration *937of whether the SEC satisfied either of these requirements.

Furthermore, reading § 21(f) to apply to SEC actions to enforce previous SEC orders promotes consistency within the statutory scheme of § 21. To illustrate this, we need look no further than the facts of this case. Had Vittor not appealed the NASD’s judgment, the SEC would not have had an opportunity to issue an order compelling him to comply with the NASD’s decision. Had the SEC not issued an order, § 21(f) would clearly limit the SEC’s ability to bring an independent action against Vittor to enforce the NASD’s rules. By interpreting § 21(f) only to apply to independent SEC actions, we create an incentive not to appeal a disciplinary decision by the NASD to the SEC, or, at the very least, we toss NASD members subjected to discipline on the horns of a dilemma.2 If we, on the other hand, apply § 21(f) to SEC actions to enforce SEC orders, NASD members could seek relief within the statutory scheme without immediately subjecting themselves to federal court jurisdiction. The NASD, the SEC, and the courts would be compelled to treat NASD members consistently.

The court’s decision not only reads a distinction into § 21(f) that is not in the statutory text, but it also creates a statutory scheme that treats NASD members inconsistently depending on whether they choose to appeal a NASD disciplinary judgment to the SEC. I therefore respectfully dissent from the court’s interpretation of § 21(f).

. We have found no cases in which an appellate court has considered the applicability of § 21(f) to SEC actions to enforce orders affirming a SRO’s disciplinary judgment. In fact, not until 1998 did any appellate court rule on the SEC's ability to invoke federal jurisdiction under § 21(e) to enforce a SEC order. See Lang v. French, 154 F.3d 217 (5th Cir.1998) (finding the SEC had the authority under § 21(e) to seek enforcement of an order, but not addressing the effect of § 21(f) on the SEC’s action). This was over 20 years after the enactment of § 21(f) and the relevant portions of § 21(e). See Securities Acts Amendments of 1975, Pub.L. No. 94-29, § 17, 89 Stat. 154 (1975).

. The enforcement mechanisms available to the NASD are limited. The NASD can internally enforce certain disciplinary judgments, such as suspensions or revocations of NASD memberships, but it has no means by which to enforce a monetary fine or restitution order like the one entered against Vittor. Only the courts are capable of enforcing such an order. This is the crux of the dilemma. Under the court’s interpretation of § 21(f), Vittor must choose between (1) declining to appeal the NASD judgment entered against him, but forcing the SEC to satisfy the requirements of § 21(f) to seek enforcement of the judgment in federal court, or (2) appealing the negative judgment to the SEC, but permitting the SEC to seek judicial enforcement of the NASD judgment without satisfying the requirements of§ 21(0.