Wonsover v. Securities & Exchange Commission

                  United States Court of Appeals

               for the district of columbia circuit

       Argued January 21, 2000     Decided March 14, 2000 

                           No. 99-1167

                         Jacob Wonsover, 
                            Petitioner

                                v.

               Securities and Exchange Commission, 
                            Respondent

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

     Adam D. Cole argued the cause for the petitioner.  Martin 
E. Karlinsky, James W. Perkins and Frank C. Razzano were 
on brief for the petitioner.

     Randall W. Quinn, Assistant General Counsel, Securities 
and Exchange Commission, argued the cause for the respon-
dent.  Jacob H. Stillman, Solicitor, David M. Becker, Deputy 
General Counsel, and Nathan A. Forrester, Attorney, Securi-
ties and Exchange Commission, were on the brief for the 

respondent.  Rada L. Potts, Attorney, Securities and Ex-
change Commission, entered an appearance.

     Before:  Sentelle, Henderson and Rogers, Circuit Judges.

     Opinion for the court filed by Circuit Judge Henderson.

     Karen LeCraft Henderson, Circuit Judge:

     Jacob Wonsover petitions for review of the Security and 
Exchange Commission's (Commission) Order Imposing Re-
medial Sanction and the accompanying Opinion of the Com-
mission (collectively, Sanction Order) suspending him "from 
association with any broker or dealer for a period of six 
months" and ordering him to cease and desist from commit-
ting or causing violations of sections 5(a) and 5(c) of the 
Securities Act of 1933, 15 U.S.C. ss 77e(a), 77e(c) (1933 Act).  
Joint Appendix (JA) 1, 2.  Wonsover sold shares of Gil-Med 
Industries, Inc. (Gil-Med) which he knew were not registered 
and whose sale therefore violated the 1933 Act absent an 
exemption from its registration requirements.  Finding that 
no exemption applied, the Commission determined that Wons-
over violated sections 5(a) and 5(c).  The Commission also 
determined that Wonsover's inquiry into the sources of the 
shares was inadequate under the circumstances and that his 
violations were therefore "willful" under section 15(b)(4) of 
the Securities Exchange Act of 1934, 15 U.S.C. s 78o(b)(4) 
(Exchange Act), which authorized his suspension.

     While he argues his sales of unregistered securities were 
exempt from the 1933 Act's prohibition, Wonsover primarily 
disputes the Commission's finding of willfulness, contending 
his inquiry regarding the unregistered shares was adequate 
to preclude such a finding.  Wonsover also argues that the 
sanction is draconian and that the public interest would be 
better served by reducing it to a censure.  He requests that 
we vacate the Commission's Sanction Order or, in the alterna-
tive, reduce the sanction to censure.

     Substantial evidence supports the Commission's conclusion 
that Wonsover acted without adequate inquiry under the 
circumstances, in violation of sections 5(a) and 5(c) of the 1933 
Act, and we hold that the Commission did not err in deter-

mining that the violations were willful.  The sanction was not 
the maximum the Commission could have imposed and we 
defer to the Commission's discretionary determination.  Ac-
cordingly, we deny Wonsover's petition for review.

                                I.

     Wonsover began his career in the securities industry in 
1981.  Approximately five years later he met Shimon Gibori, 
the founder and CEO of Gil-Med.  Gil-Med made an initial 
public offering in early 1998, registering with the Commission 
1,050,000 shares (of 4,605,686 outstanding) for sale to the 
public.  This, the only stock Gil-Med registered, was traded 
publicly on the NASDAQ System.  On the whole, the stock 
did not have much activity;  its market was "thin."  JA 841, 
1103-06.  Henry Vogel, a behavioral therapist and Gibori 
associate who invested in and promoted Gil-Med, sold shares 
to his friends, associates and patients during 1988 and 1989.  
Informed of the difficulty shareholders were having in selling 
the stock, Gibori and Vogel directed them to certain broker-
age firms for help.  The shareholders found less than com-
plete success and Gibori ultimately referred them to Wons-
over, who was working at Paine Webber, Inc.

     Between August 1989 and October 1990 Wonsover opened 
accounts for nineteen purported Gil-Med shareholders whose 
names were supplied to him by Gibori.1  Some of the share-
holders did not exist while others no longer owned the Gil-
Med shares held (and later sold) in their names.2  Wonsover 
sold a total of 924,000 shares of unregistered Gil-Med stock.  
In light of the applicable statute of limitations, the Commis-
sion focused on the sale of 665,000 shares for seven of the 
nineteen shareholders because the sales occurred within five 
years of the Commission's institution of proceedings against 

__________
     1 Counsel for petitioner conceded at oral argument that Wonsover 
had personally met none of the shareholders, with the possible 
exception of Vogel.

     2 Gibori and Vogel had earlier bought shares back from certain 
investors who had experienced difficulty selling them.

Wonsover.3  Sales from the seven shareholders' accounts 
generated more than $300,000 in proceeds.

     Wonsover understood that the clients held "restricted" Gil-
Med stock.4  The sale of restricted stock generally is forbid-
den by 15 U.S.C. s 77e.  Wonsover, however, asserts that the 
sales were covered by the exemption found in section 4(4) of 
the 1933 Act, 15 U.S.C. s 77d(4),5 or at least that he reason-
ably believed they were covered by the exemption.6  He 
directed all potential sales of Gil-Med shares through Paine 
Webber's Restricted Stock Department (RSD) for clearance 
and contends that this, along with some less substantial 
efforts, constituted adequate inquiry into the restricted na-

__________
     3 In this opinion we refer to facts surrounding the sales of Gil-
Med shares without distinguishing the seven shareholders from the 
remaining twelve.  The information available to Wonsover regard-
ing sales and accounts for the twelve Gil-Med shareholders whose 
accounts are not included among the seven accounts at issue is 
relevant to his culpability for activity involving the seven Gil-Med 
accounts the Commission reviewed inasmuch as they shed light 
either on Wonsover's knowledge of and investigation into the back-
ground of the unregistered shares or on his sale of the shares 
without knowing of their background or adequately investigating it.

     4 "[R]estricted" stock is defined as "[s]ecurities acquired directly 
or indirectly from the issuer, or from an affiliate of the issuer, in a 
transaction or chain of transactions not involving any public offer-
ing."  17 C.F.R. s 230.144(a)(3)(i).

     5 This section exempts "brokers' transactions executed upon cus-
tomers' orders on any exchange or in the over-the-counter market 
but not the solicitation of such orders."  15 U.S.C. s 77d(4).  The 
exempted "brokers' transactions" are further defined in the Com-
mission's regulations and the portion Wonsover relies on covers 
"transactions by a broker in which such broker ...  [a]fter reason-
able inquiry is not aware of circumstances indicating that the 
person for whose account the securities are sold is an underwriter 
with respect to the securities or that the transaction is a part of a 
distribution of securities of the issuer."  17 C.F.R. s 230.144(g)(3).

     6 Wonsover no longer argues that the transactions were covered 
under various other exemptions, as he did before the Commission, 
see JA 10-17.

ture of the stock.  The referral to the RSD notwithstanding, 
Wonsover did not show during the administrative proceedings 
that he had acquired adequate background information on the 
Gil-Med stock.  Specifically, he could not produce investment 
executive worksheets for any of the nineteen account-holders.  
The worksheets, which he and other Paine Webber brokers 
ordinarily complete when requesting clearance from the RSD, 
reflect how and when the shareholders acquired the shares at 
issue.  Nevertheless, he claims the RSD contacted Gil-Med's 
transfer agent, its lawyers and its auditors and ultimately 
approved every sale of Gil-Med stock.  Wonsover also cites 
written confirmation he received from Gil-Med's transfer 
agent and attorneys that the sales were legitimate.  He 
claims to have been duped by Vogel pretending to be one of 
the listed, fictitious customers (Haim Cheap).  In fact, Wons-
over relies on how elaborate and effective Gibori and Vogel's 
ruse was7 in arguing that his actions were not willful viola-
tions of the 1933 Act.

     Early in the administrative proceedings Wonsover freely 
admitted (but would later recant) that he made no inquiry 
into how or when the Gil-Med shareholders acquired their 
stock.  See, e.g., JA 836, 846-48.  Instead, he passed the duty 
of inquiry to Paine Webber's RSD and lawyers.  See JA 836.  
The Commission demonstrates that several "red flags" should 
have alerted Wonsover to the fact that Gibori in fact con-
trolled the unregistered shares Wonsover was selling and, 
therefore, no exemption was available.8  Those red flags 
include Gibori's exercise of an unusual amount of control over 
the nineteen accounts.  He delivered account documentation, 
picked up proceeds checks and held trading authorization for 
at least two accounts.  Some purported shareholders resided 

__________
     7 A separate civil action left Gibori permanently enjoined from 
serving as an officer or director of a public company.  Vogel 
resolved the Commission's charges through settlement.  See JA 5 
n.7.

     8 The Commission concluded that Gibori, as the founder and CEO 
of Gil-Med who controlled the Gil-Med accounts, was in effect an 
underwriter, making the exemption inapplicable.  See supra note 5.

overseas.  Fourteen of the nineteen listed Gil-Med headquar-
ters as their official address and many listed Gil-Med's 
telephone number too.  Despite the foreign mailing addresses 
of three account holders, Wonsover heeded Gibori's instruc-
tions and directed their checks to Gil-Med and their corre-
spondence to Gil-Med to Gibori's attention.  Similarly, many 
of the accounts contained suspicious information.  Some ac-
count forms represented U.S. citizenship while corresponding 
W-8 forms certified foreign citizenship.  Several had identical 
personal addresses in Tel Aviv and identical bank references.  
Some of the stock certificates forged by Gibori and Vogel, 
which the Commission believes were amateurishly forged, 
listed only a surname that, in one instance, was misspelled.

     In addition to their relation to Gibori, the shareholders also 
had an affiliation with Gil-Med.  Some used Gil-Med head-
quarters as their personal mailing address and some even 
identified their occupation as sales representatives for Gil-
Med.  Another red flag was that the nineteen shareholders, 
collectively, sought to sell a substantial block of Gil-Med 
(924,000 shares, nearly equaling the entire public float of 
1,050,000), a stock Wonsover knew was not widely traded.  
The Commission also notes that the S-18 registration state-
ment of the 1998 offering reflected no ownership by any of 
the nineteen shareholders and thus directly contradicted 
Wonsover's stated belief that those shareholders acquired 
their shares in 1986 or 1987 in private placements.  See JA 
1179-80.  The last red flag the Commission identifies was the 
difficulty in clearing the sales with the Gil-Med transfer 
agent and the RSD, a difficulty Wonsover was aware of and 
which he had not encountered in gaining approval for sale of 
properly exempt, restricted stock in the past.  In response to 
the RSD's hesitation, he made repeated telephone calls to 
push for its approval, including falsely claiming the sharehold-
ers were poor and needed the money immediately.  See JA 
982.

     In a detailed opinion, the Commission affirmed the adminis-
trative law judge's (ALJ) conclusion that Wonsover violated 

sections 5(a) and 5(c) of the 1933 Act, 15 U.S.C. s 77e,9 and 
that the violations were willful under section 15(b)(4) of the 
Exchange Act, 15 U.S.C. s 78o(b)(4),10 which grants the Com-

__________
     9 s 77e. Prohibitions relating to interstate commerce and the 
mails

     (a) Sale or delivery after sale of unregistered securities
     
          [Section 5(a)] Unless a registration statement is in effect as 
     to a security, it shall be unlawful for any person, directly or 
     indirectly--
     
          (1) to make use of any means or instruments of transporta-
     tion or communication in interstate commerce or of the mails to 
     sell such security through the use or medium of any prospectus 
     or otherwise;  or
     
          (2) to carry or cause to be carried through the mails or in 
     interstate commerce, by any means or instruments of transpor-
     tation, any such security for the purpose of sale or for delivery 
     after sale.
               . . . 
          (c) Necessity of filing registration statement
     
          [Section 5(c)] It shall be unlawful for any person, directly or 
     indirectly, to make use of any means or instruments of trans-
     portation or communication in interstate commerce or of the 
     mails to offer to sell or offer to buy through the use or medium 
     of any prospectus or otherwise any security, unless a registra-
     tion statement has been filed as to such security, or while the 
     registration statement is the subject of a refusal order or stop 
     order or (prior to the effective date of the registration state-
     ment) any public proceeding or examination under section 77h 
     of this title.
     
     15 U.S.C. s 77e.
     
     10 Section 78o, entitled "Registration and regulation of brokers 
and dealers," reads in pertinent part as follows:

          (b) Manner of registration of brokers and dealers
               . . .
               (4) The Commission, by order, shall censure, place limita-
     tions on the activities, functions, or operations of, suspend for a 
     period not exceeding twelve months, or revoke the registration 
     of any broker or dealer if it finds, on the record after notice 
     and opportunity for hearing, that such censure, placing of 
     
mission authority to suspend brokers for willful violations of 
the 1933 Act.  The Commission suspended Wonsover "from 
association with any broker or dealer for a period of six 
months" and, pursuant to 15 U.S.C. s 77h-1, ordered him to 
cease and desist from committing or causing violations of 
sections 5(a) and 5(c) of the 1933 Act.  See JA 1, 2.

                               II.

     We review the Commission's findings of fact for substantial 
evidence.  See Steadman v. SEC, 450 U.S. 91, 97 n.12 (1981) 
("Commission findings of fact are conclusive for a reviewing 
court 'if supported by substantial evidence.' ") (quoting 15 
U.S.C. ss 78y, 80a-42, and 80b-13);  15 U.S.C. s 77i ("The 
finding of the Commission as to the facts, if supported by 
evidence, shall be conclusive.");  see also Steadman, 450 U.S. 
at 96 (securities laws provide scope of judicial review of 
Commission disciplinary proceedings).  As for the Commis-
sion's conclusions of law, we apply the standards set forth in 
the Administrative Procedure Act (APA) and "will set aside 
[its] legal conclusions only if 'arbitrary, capricious, an abuse 
of discretion, or otherwise not in accordance with law,' 5 
U.S.C. s 706(2)(A)." Proffitt v. FDIC, ___ F.3d ___, 2000 WL 
19129, *3 (D.C. Cir. 2000).  Our review of the Commission's 
sanction is limited both by the APA and Supreme Court 
precedent.  See Norinsberg Corp. v. Department of Agric., 47 
F.3d 1224, 1227 (D.C. Cir.), cert. denied, 516 U.S. 974 (1995).  
The APA limits our inquiry to whether the Commission's 
sanction was "arbitrary, capricious, an abuse of discretion, or 
otherwise not in accordance with law," 5 U.S.C. s 706(2)(A);  
see Norinsberg Corp., 47 F.3d at 1227-28, and the Supreme 

__________
     limitations, suspension, or revocation is in the public interest 
     and that such broker or dealer, whether prior or subsequent to 
     becoming such, or any person associated with such broker or 
     dealer, whether prior or subsequent to becoming so associat-
     ed--
     
          . . .
     
          (D) has willfully violated any provision of the Securities Act 
     of 1933....  
     
Court has told us not to disturb the Commission's choice of 
sanction unless it is either "unwarranted in law or ...  
without justification in fact."  Id. at 1228 (quoting Butz v. 
Glover Livestock Comm'n Co., 411 U.S. 182, 185-86 (1973) 
(ellipsis in original) (quoting American Power & Light Co. v. 
SEC, 329 U.S. 90, 112-13 (1946)));  accord Pharaon v. Board 
of Governors of Fed. Reserve Sys., 135 F.3d 148, 155 (D.C. 
Cir. 1998);  Bluestone Energy Design, Inc. v. FERC, 74 F.3d 
1288, 1294 (D.C. Cir. 1996).  "The main point is that a court 
should not second-guess the judgment of the Commission in 
connection with the imposition of sanctions, unless the [Com-
mission] has acted contrary to law, without basis in fact or in 
abuse of discretion."  Svalberg v. SEC, 876 F.2d 181, 185 
(D.C. Cir. 1989).

     Wonsover contends that the Commission applied the incor-
rect standard in determining willfulness and, in any event, his 
conduct was not willful under either standard.11  He focuses 
on the ALJ's articulation of the willfulness standard:  "It is 
well-settled that a finding of willfulness under [section 
15(b)(4) of] the Exchange Act does not require an intent to 
violate, but merely an intent to do the act which constitutes 
the violation."  JA 85.  In his opening brief, Wonsover ar-
gued that the government must prove he acted with knowl-
edge that his conduct was unlawful, see Brief of Petitioner at 
21, but he subsequently changed the standard to reckless 
disregard.  See Reply Brief at 3-9.  While the Commission 
did not endorse the ALJ's standard, it expressly affirmed his 
decision under either formulation of willfulness, to wit:  inten-
tional commission of the act constituting the violation or 

__________
     11 Although also arguing that the transactions were exempt under 
section 4(4) of the 1933 Act, 15 U.S.C. s 77d(4), Wonsover does not 
dispute that the accounts and sales involved a statutory underwrit-
er, a factor which ordinarily forecloses the exemption.  See 17 
C.F.R. s 230.144(g).  Rather, he claims he was ignorant of that fact 
at the time of the transactions despite what he contends was 
reasonable inquiry.  If his contention were to hold, the exemption 
might be available to him.  See id. s 230.144(g)(3).  Our resolution 
of this issue, therefore, turns on whether Wonsover's inquiry was 
reasonable under the circumstances.

knowledge of (or reckless disregard of) the fact that his 
conduct violated the law.  See JA 17-21.

     Wonsover argues that to find willfulness where the actor 
had no knowledge that his conduct was unlawful would extin-
guish the higher degree of culpability the willfulness require-
ment establishes in what Wonsover calls a two-tiered system 
of broker liability exposing only willful violators to the more 
severe sanctions of censure and suspension.  In other words, 
he claims the Commission applied a standard rendering the 
Congress' use of "willfully" meaningless instead of a standard 
requiring proof of the actor's knowledge that his conduct 
violated the law or, at a minimum, that he acted in reckless 
disregard of the law.  Most of the cases Wonsover relies on, 
however, apply to statutory schemes different from the 1933 
Act and the Exchange Act, see Brief of Petitioner at 21-22 
(citing, for example, Bryan v. United States, 524 U.S. 184 
(1998) (statute prohibiting unlicensed dealing in firearms);  
Ratzlaf v. United States, 510 U.S. 135 (1994) (antistructuring 
laws for domestic banks);  TransWorld Airlines, Inc. v. Thur-
ston, 469 U.S. 111, 129 (1984) (ADEA)), and several involve 
criminal prosecutions, see id. (citing, for example, Cheek v. 
United States, 498 U.S. 192, 201 (1991) (income tax evasion)).  
See generally United States v. O'Hagan, 139 F.3d 641, 647 
(8th Cir. 1998) (distinguishing Ratzlaf and Cheek from securi-
ties cases).  Wonsover does cite a Supreme Court opinion, as 
well as the Eighth Circuit's opinion on remand, interpreting 
section 10(b) of the Exchange Act.  See, e.g., Brief of Petition-
er at 22-23 (citing United States v. O'Hagan, 521 U.S. 642 
(1997), on remand 139 F.3d 641 (8th Cir. 1998)).  The Su-
preme Court rejected by implication Wonsover's assertion 
that one must know of the relevant legal requirement for his 
act to willfully violate that requirement.  See O'Hagan, 521 
U.S. at 665-66 (discussing "two sturdy safeguards Congress 
has provided regarding scienter" first, that "Government 
must prove that a person 'willfully' violated the provision" and 
second (and independently), that "defendant may not be 
imprisoned for violating Rule 10b-5 if he proves that he had 
no knowledge of the rule") (emphasis added).  On remand the 
Eighth Circuit followed suit:  "Courts that have interpreted 

'willfully' in s 32 [of the Exchange Act] have reached the 
same conclusion that we reach in this case:  'willfully' simply 
requires the intentional doing of the wrongful acts--no knowl-
edge of the rule or regulation is required."  See O'Hagan, 139 
F.3d at 647.

     Willfulness is usually understood to be contextual.  See 
Ratzlaf, 510 U.S. at 141 ("Willful ...  is a word of many 
meanings, and its construction [is] often ...  influenced by 
its context.") (internal quotation marks omitted) (quoting 
Spies v. United States, 317 U.S. 492, 497 (1943)).  In the 
context of the provision at issue here, we have rejected the 
knowledge and the reckless disregard standards and defined 
willfulness thus:

     It is only in very few criminal cases that "willful" means 
     done with a bad purpose.  Generally, it means no more 
     than that the person charged with the duty knows what 
     he is doing.  It does not mean that, in addition, he must 
     suppose that he is breaking the law.
     
Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949) (internal 
quotation marks omitted).  In Gearhart & Otis, Inc. v. SEC, 
348 F.2d 798 (D.C. Cir. 1965), we rejected the argument "that 
specific intent to violate the law is an essential element of the 
willfulness required to violate Section 15(b)" and noted that 
the argument "ha[d] been rejected by this court, by the 
Second Circuit, and by the Commission."  348 F.2d at 802-03.  
We further stated that "[i]t has been uniformly held that 
'willfully' in this context means intentionally committing the 
act which constitutes the violation" and rejected the conten-
tion that "the actor [must] also be aware that he is violating 
one of the Rules or Acts."  Id. at 803.

     In his reply brief and at oral argument, Wonsover seized on 
our discussion of "willful misconduct" and "reckless disre-
gard" in Saba v. Compagnie Nationale Air France, 78 F.3d 
664 (D.C. Cir. 1996), a decision interpreting the Warsaw 
Convention.  Wonsover contends that Saba, which discussed 
cases involving securities laws, demands application of a 
subjective recklessness standard, a standard more demanding 
than ordinary reckless disregard.  In Saba we acknowledged 

the two recklessness standards we have applied and distin-
guished the more demanding subjective standard from the 
one more akin to gross negligence:  "One meaning of reckless-
ness, then, is simply a linear extension of gross negligence, a 
palpable failure to meet the appropriate standard of care[, 
and the] second, as we have recognized in other contexts, is a 
legitimate substitution for intent to do the proscribed act 
because, if shown, it is a proxy for that forbidden intent."  78 
F.3d at 668 (citation omitted).  One of the "other contexts" 
the Saba court cited was the review of securities law viola-
tions.  Describing that standard, the court said that either 
the defendant must have known the risk of violation his action 
presented or his action posed a risk "so obvious [he] must 
have been aware of it."  Id. at 668-69 (quoting SEC v. 
Steadman, 967 F.2d 636, 641 (D.C. Cir. 1992) (reversing 
SEC's determination that appellants violated section 17(a)(1) 
of 1933 Act, section 10(b) and Rule 10b-5 under Exchange 
Act and section 206(1) of Investment Advisers Act)).  In 
other words, "if it can be shown that a defendant gazed upon 
a specific and obvious danger, a court can infer that the 
defendant was cognitively aware of the danger and therefore 
had the requisite subjective intent."  Id. at 669.

     Here, the Commission based its determination of willful-
ness on Wonsover's failure to conduct sufficient inquiry into 
the sources of the unregistered Gil-Med shares in the circum-
stances before him.  The Commission's regulations permit a 
broker's transaction if the broker "[a]fter reasonable inquiry 
is not aware of circumstances indicating that the person for 
whose account the securities are sold is an underwriter with 
respect to the securities or that the transaction is a part of a 
distribution of securities of the issuer."  17 C.F.R. s 230.144.  
An oft-quoted paragraph of a Commission release clarifies 
when a broker's inquiry can be considered reasonable:

     The amount of inquiry called for necessarily varies with 
     the circumstances of particular cases.  A dealer who is 
     offered a modest amount of a widely traded security by a 
     responsible customer, whose lack of relationship to the 
     issuer is well known to him, may ordinarily proceed with 
     
     considerable confidence.  On the other hand, when a 
     dealer is offered a substantial block of a little-known 
     security, either by persons who appear reluctant to dis-
     close exactly where the securities came from, or where 
     the surrounding circumstances raise a question as to 
     whether or not the ostensible sellers may be merely 
     intermediaries for controlling persons or statutory un-
     derwriters, then searching inquiry is called for.
     
Distribution by Broker-Dealers of Unregistered Securities, 
Securities Act Rel. No. 33-4445 (Feb. 2, 1962).  The circum-
stances facing Wonsover did not involve a modest offer, a 
widely traded security or a customer with no relationship to 
the issuer.  Rather, the Gil-Med shareholders whose names 
Gibori gave Wonsover offered him a substantial block of a 
little-known and thinly traded security under circumstances 
raising questions not only as to whether the ostensible sellers 
may have been intermediaries for controlling persons or 
statutory underwriters but also whether they even existed.  
Clearly, a "searching inquiry" was called for.

     Wonsover failed to investigate the Gil-Med accounts de-
spite Gibori's unusual degree of control over the accounts, 
many of the shareholders' apparent affiliation with Gil-Med, 
the sheer amount of shares involved for a thinly traded stock 
(nearly equaling the public float), the inconsistent account 
documentation and his difficulty in securing RSD clearance.  
We conclude that substantial evidence supports the Commis-
sion's finding that Wonsover's inquiry was not reasonable 
under the circumstances and that the Commission did not err 
in determining that his resulting violations were willful under 
our traditional formulation of willfulness for the purpose of 
section 15(b) or even under the subjective recklessness stan-
dard Wonsover presses.12  Precedent will not suffer Wons-
over's argument that he justifiably relied on the clearance of 

__________
     12 Our decision upholding the Commission's finding of willfulness 
leaves Wonsover no room to argue that he conducted a reasonable 
inquiry (or was unaware of circumstances foreclosing the exemp-
tion) and that the sales were thus exempt under section 4(4) of the 
1933 Act.

sales by the RSD, the transfer agent and counsel.  See, e.g., 
O'Leary v. SEC, 424 F.2d 908, 912 (D.C. Cir. 1970) (reliance 
on advice of counsel potentially mitigating but not exculpato-
ry);  Sorrell v. SEC, 679 F.2d 1323, 1327 (D.C. Cir. 1982) 
(broker's reliance on counsel's advice did not excuse his own 
lack of investigation);  Stead v. SEC, 444 F.2d 713, 716 (10th 
Cir. 1971) ("The act of ...  calling the transfer agent is 
obviously not a sufficient inquiry.");  A.G. Becker Paribas 
Inc., 48 S.E.C. 118, 121 (1985) ("If a broker relies on others to 
make the inquiry called for in any particular circumstances, it 
does so at its peril.").  As Paine Webber's Rule 144 Manual 
cautioned, "[a]n investment executive ...  has the primary 
responsibility to prevent illegal sales of restricted or control 
stock."  Brief of Commission at 18.

     Wonsover's argument that the sanction should be reduced 
also fails.  The statute authorizing the Commission to sus-
pend Wonsover limits when and how the sanction can be 
imposed.  The Commission must "find[], on the record after 
notice and opportunity for hearing, that such ...  suspension 
...  is in the public interest."  15 U.S.C. s 78o(b)(4).  The 
Commission complied with the statute's directives and ex-
pressly considered, among other aggravating and mitigating 
factors, "the effect of Wonsover's misconduct on both the 
securities industry as a profession and on the investing 
public."  JA 24-25.  The sanction fell within the spectrum of 
the Commission's statutory authority, see 15 U.S.C. 
s 78o(b)(4);  s 77h-1, and choosing a point on that spectrum 
is a determination left to the Commission.  See O'Leary, 424 
F.2d at 912 ("[A]s to petitioners' protest that they 'were first 
offenders,' acting in accord with advice of counsel, and caus-
ing no injury to the investing public, we concur with Chief 
Judge Lumbard's statement in Tager v. SEC, 344 F.2d 5, 8 
(2d Cir. 1965):  'While these factors might have warranted a 
lighter sanction, they did not require one.' ").

     For the foregoing reasons, we conclude that substantial 
evidence supports the Commission's determination that 
Wonsover failed to conduct reasonable inquiry into the 
sources of the unregistered shares he sold and that his 
inadequate inquiry in the face of several "red flags" justified 

a finding of willfulness.  In addition, we find no abuse of 
discretion in the Commission's chosen sanction.  Accordingly, 
Wonsover's petition for review is

                                                          Denied.