Kornman v. Securities & Exchange Commission

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 22, 2009 Decided January 15, 2010

No. 09-1074

GARY M. KORNMAN,
PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT

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

Barry S. Pollack argued the cause and filed the briefs
for petitioner. Jeffrey M. Karp entered an appearance.

Dominick V. Freda, Senior Counsel, Securities and
Exchange Commission, argued the cause for respondent. With
him on the brief was David M. Becker, General Counsel, Jacob
H. Stillman, Solicitor, and Randall W. Quinn, Assistant General
Counsel. William K. Shirey II, Counsel, entered an appearance.
 2

Before: ROGERS, GARLAND and KAVANAUGH, Circuit
Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge: The Securities and Exchange
Commission permanently barred Gary M. Kornman from
association with any broker, dealer, or investment adviser
pursuant to section 15(b) of the Securities and Exchange Act of
1934 and section 203(f) of the Investment Advisers Act of 1940.
Kornman challenges the Commission’s decision to bar his
association as an investment adviser on two principal grounds:
first, there was not substantial evidence in the record to support
the finding that he was an investment adviser at the time of the
“alleged misconduct,” and, second, the Commission abused its
discretion by giving inadequate consideration to mitigating
factors and to whether lesser sanctions would serve the public
interest. The court’s review of the Commission’s remedial
decisions is deferential, see Horning v. SEC, 570 F.3d 337, 343
(D.C. Cir. 2009), and we deny the petition.

I.

In December 2006, Kornman was indicted in the Northern
District of Texas, on two counts of securities fraud involving
alleged insider trading, one count of providing false statements
to the Commission, and one count of obstruction of justice. He
entered a plea to one count of making a false statement in
violation of 18 U.S.C. § 1001, for which he could have been
sentenced to five years’ imprisonment, followed by three years’
supervised release, and ordered to pay a $250,000 fine, to make
restitution, and to pay any costs of incarceration and
supervision. As part of his plea agreement Kornman stipulated
in a Factual Resume that during a telephone conversation with
Commission investigators on October 29, 2003, he falsely stated
 3

that he did not know who possessed trading authority over the
brokerage account for a hedge fund through which he conducted
trading activity in publicly traded stock. He further stipulated
that he “knew that he personally possessed [that] authority.”
Factual Resume 2. His stipulation continued: “In addition, the
defendant made the statement intentionally, knowing that it was
false. Further, the statement was material. Finally, the
defendant made the false statement for the purpose of
misleading the Securities and Exchange Commission in its
investigation into his trading activity.” Id.

On July 11, 2007, the district court sentenced Kornman to
two years’ supervised probation and ordered him to pay a fine
of $143,465, the amount the government claimed was unjust
enrichment from insider trading, along with a $100 special
assessment. The district court dismissed the remaining counts
upon motion of the United States.

On July 30, 2007, the Commission instituted administrative
proceedings based on three allegations by the Division of
Enforcement (“Division”).1 In response, Kornman admitted: he

1
The Division alleged:

A. From May 1992 to October 2006, Kornman
owned Heritage Securities Corporation, a registered
broker-dealer. In addition, Kornman individually held
Series 6 and 63 securities licenses and was a
registered representative of Heritage Securities
Corporation. He also controlled a limited liability
company that served as an investment adviser to two
Kornman-controlled hedge funds. Kornman, 63 years
old, is a resident of Dallas, Texas.

B. On April 9, 2007, Kornman pled guilty to one
count of making a false statement to the SEC in
 4

owned an ownership interest in Heritage Security Corporation
and was a registered representative of it; he held Series 6 and 63
securities licenses; and he controlled a limited liability company
and had participated in trades for “two hedge-type funds.”
Answer to Corrected Order Instituting Administrative
Proceedings ¶ 6. He also admitted pleading guilty to making “a
single false statement,” and that “a factual resume accompanied
his plea agreement, the content of which speaks for itself.” Id.

connection with its investigation into his trades in
MiniMed common stock, in violation of Title 18
United States Code, Section 1001. Kornman entered
his guilty plea before the United States District Court
for the Northern District of Texas, in United States v.
Gary M. Kornman, Crim. No. 3:05-CR-0298-P. On
July 11, 2007, a judgment of conviction in the
criminal case was entered against Kornman. He was
sentenced to two years of supervised probation and
ordered to pay $ 143,465.

C. The criminal count to which Kornman pled
guilty alleged that Kornman stated falsely to the
[Commission] that he did not know who possessed
trading authority over the brokerage account for a
hedge fund through which he conducted trading in
MiniMed stock in February 2001. In the factual
resume accompanying the plea agreement, Kornman
admitted that: the statement was false; he knew that
he personally possessed trading authority over the
brokerage account; he made the statement
intentionally, knowing that it was both false and
material to the [Commission]’s investigation; and he
made the false and material statement for the purpose
of misleading the [Commission] in its investigation
into his MiniMed trading activity.

Order Instituting Administrative Proceedings 1–2.
 5

at ¶ 8. He denied, however, “any implication that his statement
to [the Commission] attorneys [during the October 29, 2003
telephone call] interfered with their investigation or otherwise
affected any investor.” Id. Additionally, he argued that
mitigating factors required rejection in whole or in part of the
request for relief and raised various affirmative defenses,
including double jeopardy.

The Division moved for summary disposition pursuant to
Rule 250 of the Commission’s Rules of Practice, 17 C.F.R.
§ 201.250. It attached eleven exhibits to the motion relating to
Kornman’s business associations and his criminal conviction.2

2
The eleven exhibits were:

Exhibit 1: Heritage Securities Corporation registration,
granted May 29, 1992, on file in the State of Delaware October 18,
2006.
Exhibit 2: Certificate of Limited Partnership of Heritage
Capital Partners, I, L.P., filed October 6, 1998, listing Heritage
Advisory Group, L.L.C. as the general partner of Capital Partners I,
and Delaware Certificate of Good Standing for Heritage Capital
Partners, I, L.P., filed June 9, 2005.
Exhibit 3: Certificate of Limited Partnership of Heritage
Capital Opportunities Fund I, L.P., filed September 13, 1999, listing
Heritage Advisory Group as the general partner of the Fund, and
Certificate of Good Standing for Heritage Capital Opportunities Fund
I, L.P., filed June 9, 2005.
Exhibit 4: Deposition of Gary M. Kornman before the
American Arbitration Association of Dallas, Texas, January 29, 2004.
Exhibit 5: Declaration of Cory D. Childs, August 30, 2007.
Exhibit 5A: Heritage Capital Partners I, L.P. Private Offering
Memorandum for Offering of Limited Partnership Interests ($250,000
Minimum Investment) of October 6, 1998, listing Heritage Advisory
Group as the general partner managing Capital Partners I.
Exhibit 5B: Heritage Capital Opportunities Fund I, L.P.
Private Offering Memorandum for Offering of Limited Partnership
 6

Citing Commission precedent that summary disposition was
well suited to proceedings based on a respondent’s criminal
conviction,3 particularly in light of Commission precedent “not
permit[ting] criminal convictions to be collaterally attacked in
its administrative proceedings,” Jose P. Zollino, Release No.
308, 2006 WL 507940 at *3 (Mar. 2, 2006), the Division argued
that a permanent bar on association should be imposed in light
of Kornman’s admissions of his association with the Heritage
Security Corporation, a broker-dealer, and of his control of
Heritage Advisory Group, a limited liability company that
managed “two hedge-type funds,” and the evidence the hedge
funds were in good standing through at least June 9, 2005. The

Interests ($250,000 Minimum Investment) of October 17, 1999, listing
Heritage Advisory Group as general partner managing the Fund.
Exhibit 6: Indictment and superceding indictments filed in the
United States District Court for the Northern District of Texas, Dallas
Division, December 20, 2006.
Exhibit 7: Plea Agreement, filed April 9, 2007.
Exhibit 8: Judgment of conviction, filed July 13, 2007.
Exhibit 9: Factual Resume, filed with Plea Agreement on
April 9, 2007.
Exhibit 10: Transcript of sentencing hearing of July 11, 2007.
Exhibit 11: Testimony of Cory D. Childs at Commission
hearing on March 9, 2004.
3
The Division cited: John S. Brownson, Release No. 46,161,
77 SEC Docket 3097, 2002 WL 1438186 at *2 (July 3, 2002), pet.
denied, Brownson v. SEC, 66 Fed. Appx. 687 (9th Cir. 2003); Richard
P. Capillari and Thomas J. Connolly, Release No. 237, 81 SEC
Docket 633, 2003 WL 22250402 at *2 (Sept. 30, 2003); see Adoption
of Amendments to the Rules of Practice and Related Provisions,
Release No. 52846, 86 SEC Docket 1931, 2005 WL 3199273 at *3
(Apr. 21, 2005) (noting that motions for summary disposition are often
made where a respondent has been criminally convicted or an
injunction has been entered and the conviction or injunction provides
the basis for an administrative order against the respondent).
 7

Division argued that the only reasonable conclusion to be drawn
from the evidence was that Kornman continued to act as a
broker-dealer through the Heritage Security Corporation and as
an investment adviser, for compensation, through his association
with the Heritage Advisory Group at the time of the October 29,
2003 telephone conversation with Commission investigators
when he falsely denied knowing who managed one of the hedge
fund portfolios. Consistent with the factors set forth in
Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), the
Division argued that in view of his conviction it was in the
public interest to impose a permanent bar.

Kornman filed an opposition. He argued that he had a
statutory right to a hearing and that discovery was necessary
regarding the conduct of the Commission staff involved in the
October 29, 2003 telephone call.4 He asserted that he was no
longer associated with a broker or dealer at the time of his 2007
conviction and that he was no longer acting as or associated with
an investment adviser for compensation at the time of the
telephone conversation. He also argued, in view of evidence in
mitigation, that the Division had failed to show that no lesser
sanction than a permanent bar would satisfy the public interest.
Kornman attached various documents to his opposition,
including a partial transcript of the October 29, 2003 telephone

4
Kornman sought discovery of documents and other evidence
reflecting whether the Commission attorneys who participated in the
October 29, 2003 telephone call: (1) knew that he was represented by
counsel in pending matters, (2) were working with criminal
investigators at the time of the call, and (3) had the information they
were requesting from him during the telephone call. He also sought
discovery on “when and how government attorneys became aware that
at least one witness on whom the government relied coached any
witnesses against [] Kornman,” and the attorneys’ notes “from the
telephone conversation.” Opp’n to Mot. for Summ. Disposition 10.
 8

call and letters attesting to his good character.5 He also attached
his affidavit admitting the underlying conduct, expressing regret
for his conduct, accepting “full responsibility for the misconduct
during the telephone call,” and promising “not [to] repeat
anything of the sort in the future,” Kornman Aff. ¶¶ 8–15. The
Division responded that Kornman’s requests for discovery to
present mitigating circumstances were irrelevant and sought to
relitigate facts previously established in the criminal record, and
that his ethical attacks on the Commission investigators were
baseless and inaccurate, as evidenced in the complete transcript
of the telephone call, which the Division attached as Exhibit 12.6

5
The other documents were: Martindale-Hubbell profiles of
the Commission investigators; the State of Texas Rules of Disciplinary
Procedure on restrictions on lawyers’ communication with parties; a
document indicating that a lawyer in Pennsylvania had received only
a one-year disbarment upon conviction of 18 U.S.C. § 1001 for failing
to disclose to the Commission during an investigation; and a segment
from a district court opinion granting Kornman limited discovery in
the civil enforcement proceeding then pending against him in the
Northern District of Texas. Also attached were a call log entry and
handwritten notes regarding a government witness and one of
Kornman’s former co-workers; a declaration of Philip Asquith, who
did business with MiniMed, which was a subject of the insider trading
investigation; and a newspaper article about a lawsuit against Jack
Pratt, a government witness, regarding his business dealings with
Hollywood Casino, which was also a subject of the insider trading
investigation.
6
At the beginning of the telephone call the Commission
investigators offered Kornman the opportunity to confer with counsel
before they asked him any questions or he continued to speak with
them. (Ex. 12 at 5–6.). The transcript also indicates Kornman was
aware that he could refuse at any time to continue speaking with the
investigators. (Ex. 12 at 20, 25, 27–28).
 9

An administrative law judge (“ALJ”) granted the Division’s
motion for summary disposition and permanently barred
Kornman from association with any broker-dealer or investment
adviser, based on his 2007 conviction for violating 18 U.S.C.
§ 1001. Gary M. Kornman, Release No. 335, 91 SEC Docket
2234 (Oct. 9, 2007) (“Initial Decision”). The ALJ found the
evidence showed that Kornman was associated with Heritage
Securities Corporation, a registered broker-dealer from 1992 to
October 2006, and that he was associated with the Heritage
Advisory Group, a limited liability company that was the
general partner of two hedge funds — Heritage Capital Partners
I, L.P. and Heritage Capital Opportunities Fund I, L.P. (See
supra note 2, Exs. 5A at 10, 17 & 5B at 10, 17.) The ALJ also
found that the hedge funds’ respective 1998 and 1999 private
offering memoranda included provisions for payment of fees for
managing the hedge funds’ portfolios. (See id., Exs. 5A at
18–19, 5B at 18–19.) Further, the ALJ found that the
certificates by the Secretary of the State of Delaware showed the
hedge funds were still in existence as of June 2005. (See id.,
Exs. 2 & 3.) The ALJ noted: “Kornman does not take issue with
this material fact. In fact, he avoids doing so by stating
obliquely, ‘Nothing in the record suggests that trades of Heritage
Advisory Services in the open market did not cease before the
telephone call at issue.’ Opposition at 19.” Initial Decision at
5 n.3. The ALJ rejected Kornman’s legal defenses, including
double jeopardy, and concluded that a permanent bar was
required because “Kornman’s conviction involved dishonesty
and opportunities for dishonesty recur constantly in the
securities industry.” Id. at 9.

Kornman petitioned for review by the Commission on
several grounds, including: (1) he had been denied his statutory
right to a hearing because the ALJ had failed to take as true all
the facts in his pleadings, specifically his vow not to repeat his
misconduct; (2) the ALJ had failed “to review the sufficiency of
 10

evidence supposedly reflecting that, at the time of the October
29, 2003, telephone call at issue, Mr. Kornman or any entity
with which he was associated was actually ‘for compensation
engage[ing] [sic] in the business of advising others’ regarding
securities investments,” Pet. for Review at 3–4; and (3) a
permanent bar was inappropriate in view of the evidence in
mitigation, including that this was a solitary blemish on his
business activities over three decades. The Division opposed the
petition and attached the twelve exhibits that were before the
ALJ.

Upon “independent review” of the disputed record
evidence, the Commission concluded it was in the public interest
to permanently bar Kornman from association with any broker,
dealer, or investment adviser. Gary M. Kornman, Release No.
2840 at 1–2, 25, 2009 WL 367635 (Feb. 13, 2009)(“Decision”).
The Commission affirmed that under section 15(b)(6)(A) of the
Exchange Act and section 203(f) of the Advisers Act, the
relevant date for purposes of its jurisdiction with regard to “the
time of the alleged misconduct” was “October 29, 2003, the day
on which [Kornman] provided his false statement to
Commission investigators.” Id. at 9. The Commission found
there was undisputed evidence of Kornman’s status as a broker-
dealer and investment adviser, by virtue of his association with
the Heritage Advisory Group, when he made the false statement,
and thus it had jurisdiction to sanction him upon determining it
was in the public interest to do so. The Commission noted that
“[t]he record, including private offering memoranda from the
[h]edge [f]unds, reflects that [the] Heritage Advisory [Group]
served as the general partner to the [h]edge [f]unds, managing
their investment portfolios and earning fees and other
compensation for such services.” Id. at 6–7. Referencing the
hedge funds’ quarterly and annual fees that Kornman received
for managing their portfolios, the Commission observed, in
responding to Kornman’s challenge to the sufficiency of the
 11

evidence that the Heritage Advisory Group was an investment
adviser for compensation on October 28, 2003:

Kornman provides no evidence for his claim that the
[h]edge [f]unds ceased operating or receiving these
fees by October 2003. To the contrary, certificates
from Delaware’s Secretary of State show that the
Hedge Funds remained active and in good standing in
that State through at least June 9, 2005, and that
Heritage Advisory [Group] remained manager of the
[h]edge [f]unds as their general partner.

Id. at 9–10 (internal quotations omitted). Addressing the factors
set forth in Steadman, 603 F.2d. at 1140, while noting that its
inquiry is “a flexible one, and no one factor is dispositive,”
Decision at 10, the Commission concluded:

The conduct underlying Kornman’s conviction
was egregious. His conviction was for making a
material false statement to a federal official, and he
admitted he did so intentionally and for the purpose of
misleading our investigation. As we have stated: “The
securities industry presents a great many opportunities
for abuse and overreaching, and depends very heavily
on the integrity of its participants.” Indeed, the
importance of honesty for a securities professional is
so paramount that we have barred individuals even
when the conviction was based on dishonest conduct
unrelated to securities transactions or securities
business. Here, the egregiousness of Kornman’s
dishonest behavior is compounded because he made
his false statement to Commission staff during an
ongoing investigation into possible insider trading
violations. Providing information to investigators is
important to the effectiveness of the regulatory system,
 12

and the information provided must be truthful. We
have consistently held that deliberate deception of
regulatory authorities justifies the severest of sanctions.

Id. at 10–11(internal citations omitted). The Commission also
noted his conduct exhibited “a high degree of scienter,” id. at 11,
referencing his stipulation in the Factual Resume accompanying
his plea. The Commission rejected Kornman’s other legal
challenges and found inapposite the cases he cited in urging that
only a censure should be imposed. Kornman petitions for
review.

II.

Kornman’s contentions about his right to a hearing and the
lack of substantial evidence to support the Commission’s finding
that he was an “investment adviser” at the time of the “alleged
misconduct” present two issues of statutory interpretation. We
address them first, before turning to his challenge to the
sufficiency of the record evidence before the Commission.

Section 203(f) of the Investment Advisers Act limits the
jurisdiction for the Commission to issue sanctions related to a
party’s future association as an “investment adviser.” It
provides, in relevant part:

The Commission, by order, shall censure or place
limitations on the activities of any person associated,
seeking to become associated, or, at the time of the
alleged misconduct, associated or seeking to become
associated with an investment adviser, or suspend for
a period not exceeding twelve months or bar any such
person from being associated with an investment
adviser, if the Commission finds, on the record after
notice and opportunity for hearing, that such censure,
 13

placing of limitations, suspension, or bar is in the
public interest . . . .

15 U.S.C. § 80b-3(f)(emphasis added). An “investment adviser”
is defined as

any person who, for compensation, engages in the
business of advising others, either directly or through
publications or writings, as to the value of securities or
as to the advisability of investing in, purchasing, or
selling securities, or who, for compensation and as part
of a regular business, issues or promulgates analyses or
reports concerning securities . . . .

Id. § 80b-2(a)(11).

A.
The Commission’s interpretation of its authorizing statutes
is entitled to deference under the familiar two-pronged test set
forth in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837 (1984). Where Congress has made its intent clear,
that is the end of the matter, but if the statute is ambiguous, the
court must determine whether the agency’s interpretation is
permissible. Id. at 842–843; see also SEC v. Zandford, 535 U.S.
813, 819–20 (2002). Similarly, the court will defer to an
agency’s reasonable interpretation of its regulations. See Auer
v. Robbins, 519 U.S. 452, 461 (1997).

1. The Commission interpreted the phrase “on the record
after notice and opportunity for hearing” in section 203(f) of the
Advisers Act, 15 U.S.C. § 80b-3(f), to allow summary
proceedings. Decision at 17–18. This is at least a “permissible
construction of the statute.” Chevron, 467 U.S. at 843. Rule
250 of the Commission’s Rules of Practice provides for
summary disposition in the absence of a genuine issue of
 14

material fact. Under Rule 250, a motion for summary
disposition may be granted where there is “no genuine issue
with regard to any material fact and the party making the motion
is entitled to a summary disposition as a matter of law.” 17
C.F.R. § 201.250(b). The Rule also provides that “[t]he facts of
the pleadings of the party against whom the motion is made
shall be taken as true, except as modified by stipulations or
admissions made by that party, by uncontested affidavits, or by
facts officially noted.” Id. § 201.250(a). Further, the hearing
officer “shall deny or defer the motion” if “it appears that a
party, for good cause shown, cannot present by affidavit prior to
hearing facts essential to justify opposition to the motion.” Id.
§ 201.250(b). The Commission modeled Rule 250 on Rule 56
of the Federal Rules of Civil Procedure. See Jeffrey L. Gibson,
Rel. No. 57266, 92 SEC Docket 2104 at 2112 n. 26 (Feb. 4,
2008).

The plain text of section 80b-3(f) requires the “opportunity
for hearing” without defining the word “hearing.” The
Commission’s rule reflects a well-established distinction
between a hearing on the pleadings and an evidentiary hearing
at which witnesses testify and are subject to cross-examination.
See, e.g., Costle v. Pac. Legal Found., 445 U.S. 198, 213–14
(1980); United States v. Storer Broad. Co., 351 U.S. 192, 202,
205 (1956) . For example, in Weinberger v. Hynson, Westcott
& Dunning, Inc., 412 U.S. 609, 621 (1973), the Supreme Court
construed text virtually identical to the Advisers Act in
concluding that the phrase “notice and opportunity for hearing
to the applicant” did not always require an evidentiary hearing
because “[w]e cannot impute to Congress the design of
requiring, nor does due process demand, a hearing when it
appears conclusively from the applicant’s ‘pleadings’ that the
application cannot succeed.” Although this court has not
previously decided whether the Advisers Act requires an
evidentiary hearing in all cases, Seghers v. SEC, 548 F.3d 129,
 15

133–34 (D.C. Cir. 2008), it has interpreted similar language in
the Food Drug and Cosmetic Act, 21 U.S.C. § 355(e)(3), not to
require an evidentiary hearing where there is “no genuine and
substantial issue of fact that requires a hearing.” John D.
Copanos & Sons, Inc. v. Food & Drug Admin., 854 F.2d 510,
518 (D.C. Cir. 1988); see also Crestview Parke Care Ctr. v.
Thompson, 373 F.3d 743, 750 (6th Cir. 2004); Puerto Rico
Aqueduct & Sewer Auth. v. EPA, 35 F.3d 600, 606 (1st Cir.
1994), cert. denied, 115 S. Ct. 1096 (1995); 1 RICHARD J.
PIERCE, JR., ADMINISTRATIVE LAW TREATISE § 8.3, pp. 542–43
(4th ed. 2002).

For these reasons, Kornman’s contention that the plain
language requires an evidentiary hearing in all cases is not
supportable. In promulgating Rule 250 the Commission
explained that summary disposition would be available in
disciplinary cases, although noting that such cases “are likely to
be less common” than in regulatory proceedings because
“[t]ypically, enforcement and disciplinary proceedings that
reach litigation involve genuine disagreement between the
parties as to material facts.” Rules of Practice, 60 Fed. Reg.
32738-01, 32,767 (Jun. 23, 1995). However, in later amending
Rule 250, the Commission acknowledged that in practice
“[m]otions for summary dispositions are often made in cases
where a respondent has been criminally convicted.” Adoption
of Amendments to Rules of Practice, 70 Fed. Reg. 72566-01,
72567 (Dec. 5, 2005). For example, in John S. Brownson,
Release No. 46,161, 77 SEC Docket 3097, 2002 WL 1438186
at *2 (July 3, 2002), pet. denied, Brownson v. SEC, 66 Fed.
Appx. 687 (9th Cir. 2003), the Commission had stated that
“[s]ummary disposition is particularly appropriate where, as
here, a respondent has pled guilty to securities fraud.” See also
supra note 3. Presumably this is so because in most instances
the criminal proceeding has resolved the central issue
concerning the nature of the “alleged misconduct” and only the
 16

question of the appropriate sanction remains. For certain types
of criminal conduct, the Commission has warned that only
“extraordinary mitigating circumstances” are likely to affect its
determination of the sanction required in the public interest.
Brownson, 77 SEC Docket 3097, 2002 WL 1438186 at *2.

Kornman cannot successfully deny that he was afforded the
“opportunity for hearing.” The Commission informed him in
writing of the allegations against him, and he filed a written
response to the allegations. He also had the opportunity to
challenge the arguments and evidence proffered by the Division
in moving for summary disposition pursuant to Rule 250, and he
did so by filing an opposition and attaching documents.
Kornman does not suggest he was denied an opportunity to set
forth all of his evidence, challenges, and defenses in his
pleadings before the ALJ’s Initial Decision and the
Commission’s subsequent Decision. Because the Commission
proceedings against Kornman were based on the record in his
criminal case that disposed of the central issue regarding the
nature of his “alleged misconduct” for administrative
enforcement purposes, a summary proceeding was appropriate
under Commission precedent.7 See, e.g., Brownson, 77 SEC
Docket 3097, 2002 WL 1438186 at *2; Capillari, 81 SEC
Docket 633, 2003 WL 22250402 at *2.

7
The Commission ordered additional briefing “regarding the
impact of Kornman’s conviction of a felony involving the violation of
chapter 47 of title 18 of the United States Code on the Commission’s
authority to institute this proceeding.” Order Directing the Filing of
Additional Briefs 1 (Apr. 24, 2008). The Division responded, citing
section 15(b)(4)(B)(iv) of the Exchange Act of 1934 and section
230(e)(2)(D) of the Advisers Act, that a conviction of fraud was
unnecessary because a violation of 18 U.S.C. § 1001 falls within
Chapter 47 where the misconduct arises out of the conduct of the
business of a broker-dealer or investment adviser. Kornman does not
challenge this legal conclusion.
 17

2. The Commission interpreted the phrase “at the time of
the alleged misconduct” in section 203(f) of the Advisers’ Act,
15 U.S.C. § 80b-3(f), to refer not to Kornman’s 2007 conviction,
as Kornman urged, but to his false statement to Commission
investigators during the October 29, 2003 telephone call on
which his conviction under 18 U.S.C § 1001 was based.
Decision at 9. This interpretation reflects the plain text of the
statute, id. at 9 & n.22, and is, in any event, reasonable even if
the text is ambiguous, cf. Teicher v. SEC, 177 F.3d 1016, 1021
(D.C. Cir 1999). The Commission noted that section 80b-3(f)
refers to the “alleged misconduct,” not the “alleged event” as
Kornman’s interpretation implied. Decision at 9. The
Commission also relied on legislative history indicating that
Congress had enacted the current text to make clear its original
intent that misconduct during a past association as well as during
a present occasion subjects a person to administrative
proceedings and sanctions under the Exchange and Advisers
Acts. Id. at 9 n.23 (citing S. Rep. No. 100–105, at 2111
(1987)).8 The Commission pointed to its precedent explaining
that to hold otherwise “would allow persons who violate the law
while employed in the securities business to avoid
administrative sanctions simply by leaving the business.” John
Kilpatrick, Release No. 23251, 35 SEC Docket 914, 1986 WL
626187 at * 5 (May 19, 1986).

The Commission properly relied on the ordinary meaning
of alleged “misconduct,” which refers to allegedly “unlawful or

8
The Senate Report states that amending the statute to read
“at the time of the alleged misconduct” in Exchange Act section
15(b)(6) and Advisers Act section 203(f) was meant to “make clear
Congress’ original intent that misconduct during a past association . . .
as well as during a present . . . association, subjects a person to
administrative proceedings and sanctions.” S. Rep. No. 100–105, at
2111 (emphasis in original).
 18

improper behavior,” Black’s Law Dictionary 1013 (7th ed.
1999). See Limtiaco v. Comacho, 549 U.S. 483, 488-89 (2007);
cf. Gonzales v. Oregon, 546 U.S. 243, 274 (2006). So too, it
could properly rely on the legislative history, see Chevron, 467
U.S. at 843 n.9, 845, and on its own precedent interpreting
congressional intent.

Kornman’s contention that after his conviction his
misconduct was no longer “alleged misconduct” is
“nonsensical.” Resp’t Br. 15. It would mean no conviction that
establishes the central issues regarding the “alleged misconduct”
as violations of law would ever satisfy the statutory text. Yet,
as the Commission noted, Congress has authorized the
Commission to discipline persons who have been convicted of
crimes that suggest a lack of fitness to remain in the securities
industry. Decision at 5 & n. 11 and 6 n. 13; see 15 U.S.C.
§ 80b-3(e)(3)(A); § 80b-3(f). The misconduct thus remains
“alleged” for purposes of the Commission’s enforcement
proceedings even after a criminal conviction based on the same
underlying conduct. Kornman’s contrary interpretation would
undermine Congress’ intent to ensure that past associations are
subject to Commission authority.

B.
Turning to Kornman’s challenge to the sufficiency of the
evidence, the court not only “must uphold [the Commission’s]
[legal] determinations unless they are arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law,”
Horning, 570 F.3d at 343 (internal quotations omitted), but it
must also treat the Commission’s findings of fact as final if they
are supported by substantial evidence in the record, id.
“Substantial evidence is more than a mere scintilla. It means
such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.” Consolidated Edison Co. v.
 19

NLRB, 305 U.S. 197, 229 (1938); see Steadman v. SEC, 450
U.S. 91, 101 n.21 (1981).

The Commission’s finding that on October 29, 2003,
Kornman was associated with an “investment adviser” as the
organizer of the Heritage Advisory Group, L.L.C., which
managed the portfolios of two hedge funds, is supported by
substantial evidence in the record. In responding to the
Division’s allegations, Kornman admitted that he controlled a
limited liability company and had traded for “two hedge-type
funds.” In opposing summary disposition, he proffered no
evidence to contradict either his admissions or the Division’s
evidence. The undisputed record evidence before the
Commission showed that Kornman organized the Heritage
Advisory Group as a limited liability company, which served as
the general partner of the two hedge funds, (see supra note 2,
Exs. 2, 3, 5A & 5B) and according to official state records, the
two hedge funds remained in good standing at least through June
2005, (see id. Exs. 2 & 3) a status in part dependent upon the
funds having paid any state taxes that were due, DEL. CODE
ANN. tit. 6, § 17-203 (2009). The hedge funds’ private offering
memoranda required the payment of quarterly and annual fees
for management of the funds’ portfolios. (See supra note 2, Exs.
5A at 18–19 & 5B at 18–19.) Cory D. Childs, a former
employee of the Heritage Advisory Group, provided sworn
statements describing how Kornman managed the portfolios of
the two hedge funds at least until June 2003 when Childs left his
job. (See id., Exs. 5 and 11.)

It is true, as Kornman points out, that there was no record
evidence that either of the hedge funds were still engaged in
trading in October 2003. But under Rule 250, which the
Commission modeled on Federal Rule of Civil Procedure 56, the
burden on the Division was to proffer evidence to demonstrate
why summary disposition was appropriate. To do so the
 20

Division did not have to proffer evidence of actual trades in
October 2003 if the evidence proffered sufficed to raise a
reasonable inference that Kornman continued, for compensation,
to manage the funds’ portfolios. Cf. Celotex v. Catrett, 477 U.S.
317, 322-23 (1986); FED. R. CIV. P. 56(c)(2). The hedge funds’
private offering memoranda did not establish a trading schedule.
(See supra note 2, Exs.5A & 5B.) The absence of trading around
the time of the October 29, 2003 telephone call would,
moreover, be consistent with Childs’ deposition about how
Kornman managed the hedge funds’ portfolios: Kornman would
call Childs from time to time to make trades for “whichever
[fund] had the money at the time”; there was no set schedule for
trading. Ex. 11 at 23–24, supra note 2. Because the evidence
proffered by the Division sufficed to support the reasonable
inference that the hedge funds remained active until at least June
2005, the burden under Rule 250, as under Civil Rule 56, shifted
to Kornman to proffer evidence that trading had ceased before
the October 29, 2003 telephone call. Cf. Anderson v. Liberty
Lobby, Inc. 477 U.S. 242, 252 (1986); FED. R. CIV. P. 56(e)(2).

Contrary to Kornman’s contention on brief, there was no
record evidence that the Heritage Advisory Group ceased to
function for compensation as an investment adviser for the two
hedge funds after June 2003. Childs described Kornman’s
active involvement in managing their portfolios during Childs’
employment, which began in March 2000 and ended in June
2003. (See supra note 2, Ex. 11 at 19.) Nothing in Childs’
sworn statements, or other evidence before the Commission,
suggested that Childs’ leaving his job was related to the end of
Kornman’s active management of the hedge funds’ portfolios.
Instead, Childs’ sworn statements indicated that when he left to
pursue other interests, he was leaving an ongoing trading
operation managed by Kornman. The state certificates showing
that the hedge funds remained in good standing as of June 2005
supported the inference from Childs’ sworn statements that
 21

trading continued and Kornman continued in his role as the
Heritage Advisory Group manager of the funds’ portfolios. (See
id., Exs. 2, 3, 5A & 5B.) In addition, Kornman did not deny the
ongoing existence of the two hedge funds in his response to the
Division’s allegations. Similarly, in his affidavit submitted in
opposing the Division’s Rule 250 motion he did not state that
the hedge funds ceased paying him management fees prior to
October 29, 2003 or that the funds had ceased to trade by then.
The record of the criminal proceedings also did not indicate that
he was no longer associated with the Heritage Advisory Group
or did not provide, for compensation, investment advice to the
hedge funds in October 2003. (See id., Exs. 7, 9, 10.) Indeed,
Kornman’s sworn deposition in 2004 confirmed that at least one
of the funds was still in existence — “One of those [funds] has
assets and one is — is basically nothing,” Ex. 4 at 23, supra
note 2, and did not state the funds had ceased trading by October
2003. At most, Kornman’s unsworn statement during the
October 29, 2003 telephone call indicated that Heritage Capital
Partners I, L.P. was not in business, but he did not mention,
much less resolve, the status of Heritage Capital Opportunities
Fund I, L.P. (See id., Ex. 12 at 7.)

The Commission, and the ALJ, noted that Kornman had
made assertions that the two hedge funds had ceased trading
prior to October 2003 but had proffered no evidence to support
his assertions. For example, he proffered neither certificates of
dissolution of the hedge funds nor evidence of cancellation of
the contractual fees, much less quarterly or annual statements
documenting the absence of any trades by the hedge funds.
Moreover, he never claimed that he would be unable to produce
documentation to show there was no trading activity by the
hedge funds in October 2003 until an evidentiary hearing was
held. See Rule 250(b). Given the record evidence, the
Commission could reasonably find that Kornman continued to
be associated with an entity that provided investment advice for
 22

compensation at the time he made a false statement to
Commission investigators on October 29, 2003.

Kornman’s contention, then, that he was entitled to an
evidentiary hearing even in the absence of evidence of a material
issue of disputed fact is flawed as a matter of statutory
interpretation, as is his interpretation of “at the time of the
alleged misconduct,” and reflects a misunderstanding of the
record evidence before the Commission. Although there may be
circumstances when the Commission would be required to hold
an evidentiary hearing even where there is a criminal conviction
involving a willful intent to mislead Commission investigators,
Kornman’s admissions and the undisputed record evidence
allowed the Commission to proceed pursuant to Rule 250.
Kornman, in turn, fails to show that there is not substantial
record evidence to support the Commission’s finding that he
was an “investment adviser” on October 29, 2003.

III.

“It is a fundamental principle . . . that where Congress has
entrusted an administrative agency with the responsibility of
selecting the means of achieving the statutory policy the relation
of remedy to policy is peculiarly a matter for administrative
competence.” Am. Power & Light Co. v. SEC, 329 U.S. 90, 112
(1946) (internal quotations omitted). Because of the
Commission’s “accumulated experience and knowledge[,] . . .
[i]ts judgment is entitled to the greatest weight. While
recognizing that the Commission’s discretion must square with
its responsibility, only if the remedy chosen is unwarranted in
law or is without justification in fact should a court attempt to
intervene.” Id. at 112–13; see also Horning, 570 F.3d at 343.
Moreover, the Commission is not required to follow any
mechanistic formula in determining an appropriate sanction.
Paz Sec., Inc. v SEC, 566 F.3d 1172, 1175 (D.C. Cir. 2009).
 23

The Commission concluded that “Kornman’s deliberate
attempt to deceive Commission investigators during an
investigation into insider trading indicates a lack of honesty and
integrity, as well as a fundamental unfitness to transact business
associated with a broker or dealer and to advise clients as a
fiduciary.” Decision at 12. Kornman contends the Commission
failed to appreciate that not every conviction involving
dishonesty requires a permanent bar. He maintains the
Commission imposed an automatic bar without “show[ing] with
particularity the facts and policies that support those sanctions
and why less severe action would not serve to protect
investors.” Pet’r’s Br. at 16 (citing Steadman, 603 F.2d at 1137)
(emphasis in original). He also faults the Commission for not
allowing him to present testimony at an evidentiary hearing to
rebut the assertion by the Division that a less severe sanction
would not protect the public. We conclude Kornman fails to
show either reversal or remand is required.

The Commission explained why, as a matter of policy,
Kornman’s particular misconduct warranted a bar: his
conviction indicated his dishonesty was egregious because he
admitted it was knowing and intentional, and, moreover, his
false statement was made in the course of the Commission’s
investigation of wrongdoing in the industry. The Commission
observed that “the importance of honesty for a securities
professional is so paramount that [the Commission has] barred
individuals even when the conviction was based on dishonest
conduct unrelated to securities transactions or securities
business.” Decision at 11.9 Further, the Commission noted it

9
The Commission cited as examples Ahmed Mohamed
Soliman, 52 S.E.C. 227, 230–31 (1995); Bruce Paul, 48 S.E.C. 126,
128–29 (1985); Benjamin Levy Sec., Inc., 46 S.E.C. 1145, 1146–47
(1978); cf. Paul K. Grassi, Jr., Exchange Act Rel. No. 52858 (Nov.
30, 2005), 86 S.E.C. 2494; Boleslaw Wolny, 53 SEC 590 (1998); see
 24

has “consistently held that deliberate deception of regulatory
authorities justifies the severest of sanctions.” Id.10 The
Commission acknowledged Kornman’s prior unblemished
business record, his regret about making the false statement, his
vow not to do so again, and even that he was personally
convinced he would not repeat his misconduct. However the
Commission emphasized that “[t]he securities industry presents
a great many opportunities for abuse and overreaching, and
depends very heavily on the integrity of its participants.” Id. at
10–11 (internal quotations omitted).

Insofar as Kornman contends the Commission abused its
discretion by imposing an automatic bar because the ALJ found
that “a conviction involving dishonesty requires a bar,” Initial
Decision at 9, the Commission did not embrace this portion of
the ALJ’s analysis. Instead the Commission imposed the bar
only after considering the mitigating factors pursuant to an
analysis of the Steadman factors, 603 F.2d at 1140. Observing,
however, that Kornman’s mitigation arguments were
“essentially collateral attacks on his conviction,” Decision at 12,
the Commission ruled he was estopped from doing so because
the validity of Kornman’s plea was not at issue and he had
admitted the materiality of his false statement, a legal ruling
Kornman does not challenge.11 By pleading guilty to violating

also John F. Yakimczyk, 51 S.E.C. 56, 58 (1992); Joseph P. D’Angelo,
46 S.E.C. 736, 737 (1976), aff’d without opinion, 559 F.2d 1202 (2d
Cir. 1977).
10
As examples, the Commission cited Peter W. Schellenbach,
50 S.E.C. 798, 803 (1991), aff’d, 989 F.2d 907 (7th Cir. 1993); Rita
Delaney, 48 S.E.C. 886, 890 (1987); Walter B. Bull, Jr., 48 S.E.C.
113, 116–17 (1985).
11
Because Kornman has conceded he is estopped from
collaterally attacking the facts underlying his plea, we need not
 25

18 U.S.C. § 1001, Kornman admitted to “knowingly and
willfully -- (1) falsif[ying] . . . a material fact; (2) mak[ing] a[]
materially false . . . statement or representation” “in any matter
within the jurisdiction of the executive . . . branch of the
Government of the United States.” Id. § 1001(a). The
Commission concluded that because willfulness was not at
issue, the “exculpatory no” doctrine, see United States v.
Wiener, 96 F.3d 35, 37 (2d Cir. 1996), was inapplicable, noting
as well rejection of the doctrine in Brogan v. United States, 522
U.S. 398, 402–05 (1998); see also id. at 408–12 (Ginsburg, J.
concurring). It also could reasonably reject, in view of the
criminal record, Kornman’s attempts to minimize the gravity of
his false statement as trivial or dilatory in nature and his mental
state as less than intentional.

As to other mitigation arguments — that Kornman was 63
years old, winding down his professional career, and had no
prior criminal or disciplinary history — the Commission
explained they did not alleviate its concern that his occupation
presented opportunities for future misconduct. The Commission
was also unpersuaded that, as Kornman argued, neither the
Commission nor the public suffered any harm as a result of his
misconduct, given the importance of integrity to the regulatory
process. Neither, in the Commission’s view, did Kornman’s
substantial financial losses mitigate the gravity of his conduct,
particularly because the district court in sentencing him had
taken into account that a permanent bar would likely be sought
in the administrative hearings before the Commission.

On this record, Kornman cannot show either that the
Commission’s chosen remedy was unwarranted as a matter of
policy or without justification in fact, or that the Commission

address the question left open in Otherson v. Dep’t of Justice, 711
F.2d 267, 275 n.8, 277 n.11 (D.C. Cir. 1983).
 26

gave inadequate consideration to the evidence offered in
mitigation. Although having discretion to impose a lesser
sanction, “[t]he Commission is not obligated to make its
sanctions uniform,” and the court “will not compare this
sanction to those imposed in previous cases.” Geiger v. SEC,
363 F.3d 481, 488 (D.C. Cir. 2004) (citing Butz v. Glover
Livestock Comm’n Co., 411 U.S. 182, 186-87 (1973)). Because
Kornman presented no ground for an evidentiary hearing on
mitigation — for example, he did not proffer by affidavit or
other evidence that he had initiated prompt efforts to correct his
false statement or otherwise proffered evidence of conduct that
the Commission might have deemed “extraordinary mitigating
circumstances,” Brownson, 77 SEC Docket 3097, 2002 WL
1438186 at *2 — the Commission could reasonably conclude
that an evidentiary hearing on mitigation was unnecessary.

Kornman’s attempt to invoke double jeopardy concerns
misses the mark. The Supreme Court has long distinguished
between civil sanctions and a criminal penalty based on a
common underlying event. See Helvering v. Mitchell, 303 U.S.
391, 399 (1938). In Hudson v. United States, 522 U.S. 93
(1997), the Court held that the Double Jeopardy Clause does not
prohibit bringing a criminal prosecution against a person
debarred from the banking industry for the same misconduct
during a prior civil administrative proceeding. Id. at 97–99. So
too the reverse must be true as well. See DiCola v. Food and
Drug Admin., 77 F.3d 504, 505, 507-08 (D.C. Cir. 1996). By
authorizing the Commission to debar investment advisers to
protect the investing public, 15 U.S.C. § 80b-3(f), Congress
signaled its intent that the bar be civil, see Hudson, 522 U.S. at
103, and Kornman has not demonstrated by the “clearest proof”
that his sanction is “‘so punitive in form and effect as to render
[the sanction] criminal despite Congress’ intent to the
contrary,’” id. at 104 (quoting United States v. Ursery, 518 U.S.
267, 290 (1996)). The “‘revocation of a privilege voluntarily
 27

granted,’ such as a debarment, ‘is characteristically free of the
punitive criminal element.’” Id. at 104 (quoting Helvering, 303
U.S. at 399 & n.2). That it “will deter others from emulating
[the respondent’s] conduct . . . is insufficient to render a sanction
criminal, as deterrence ‘may serve civil as well as criminal
goals.’” Id. at 105 (quoting Ursery, 518 U.S. at 292); see also
DiCola, 77 F.3d at 508. As the Commission observed,
Kornman’s sanction is remedial in nature because it “is designed
to protect the public, and the sanction is not historically viewed
as punishment,” Decision at 22. Given the record in the
criminal proceeding, the Commission’s concern about allowing
Kornman to continue as an investment adviser was a legitimate
prophylactic remedy consistent with its statutory obligations.

Accordingly, we deny the petition for review.