sanction and the points cause issues on the other hand obviously i'm happy to discuss any thing or wants to discuss with respect to one or two issues it seems to me the i want to begin with the internal controls component of this case because  least from my perspective the most baffling part of the as he sees an internal controls are exactly as they say they are controls that are can constructed internally within the corporation and for every one of the appraisals that was involved these in this dispute there were three levels of control there was first the initial origination and then there was the creation of the fast one fourteen templates that was those were done by different people and then there was the controller who was again a separate individual who evaluated every single one of those time place and makes a judgment as to there as to the size of the reserves that have been taken and then finally there's a full separate committee of eleven members of the corporation who evaluate every single one of them and again all evaluating exactly the same thing is has they have they in fact adequately reduce the reserves in order to recognize that the value of those properties as declined at the value of the collateral has declined i don't know what more the commission could have asked us to do because those were all aimed directly at solving the problem and it was a problem that o t s had recognized was a problem accepted as having been fully satisfied and taken care of in june of two thousand and eight and so from our perspective there's simply no evidence of of what it is that we that we did wrong with respect to dealing with internal controls the second and that  shoots of what i perceive as sort of the next least justifiable argument which is the only irony appraisals and that to me at least is the clearest illustration of the commission looking in ignored these they they recognized the proposals came in they took him into account and they put him into the accounting for the oath for the first quarter of zero nine a standard operating procedure and not even the commission's expert was prepared to testify that the zero nine appraisals would have affected the zero eight audit itself and the and the report itself that would have to be restated and our experts categorically said no there would be no basis for that and again to me the commission simply  saying well they might have been able to do more well again i don't think that's a basis on which you deprive somebody of his professional livelihood and then the last element of the of the one hundred two findings would be obviously a triple  l analysis itself and there it seems to me the real problem is that the commission has adopted a completely new standard applied after the fact eight years after the fact and again you have put yourself in the context of oh great is the great recession property values are plummeting in a lot of different ways it's a crisis the commission not out of the goodness of his heart but the commission sends out guidance specifically in that period of time that says don't be taking the market into and setting appraisal based on these distressed sales in the market too literally and the reason why they did that is because if you ended up actually marking to market everything based on those  distressed instead of a couple hundred banks fail and you would have a couple thousand banks failing during that period of time and they recognize that's not the appropriate response to some extent you don't have to live out the dislocations of two thousand and eight and see how it all plays out and what happens our guys are told exactly how they going to what their praises are how even when they're older appraisals why there are still valid bases they see that literally eighty million dollars has been reserved as a consequence of the fall in the market there is response there is communication that's what an audit is about an audit is not a guarantee that the final decision is going to be absolutely right the audit is designed to show that the company has done what it's supposed to do and what happened here obviously is the company did exactly the opposite of what it was supposed to do a company defrauded both of my both of our clients n k false information and on that basis very fact it was the false information they they had and they were giving us their assessment of the value of the properties of the collateral that were that were fundamentally different had a whole different set of assessments that they created off the books that significantly reduced those numbers and so as a consequence of that you know had they given us you know shown up showed us that those numbers were you know there had been much greater drops that would have been a different issue because we were looking at this as against the market itself trying to take into account the fact that you know supposed to deal with distressed sales and the court in the you know in the commission itself recognized that you know we took off thirty percent in nevada and the  market says about there in the in the schiller standard say about thirty percent in arizona it was as we did fifteen percent or thirteen percent it was sixty percent i mean audits are not perfect reserve ranges a reasonable guess what our client did in this particular context our clients that here is exactly i think what you would have asked for by any auditor behaving the way he did was to go down a public company i thought oh yes yes it's no i don't believe so and the other person who didn't testify was the controversy when remember the f c c had an agreement with the controller so if they had wanted to testify that somehow the auditors had not done their jobs in terms of dealing with the controller they could easily have called him to testify and they chose not to do that for whatever reason we asked actually for an adverse inference based on the fact that they are control over the person with whom they say we did not discuss exactly what was going on here i mean that is a central element of independence independent evaluation with an internal trolls and are in our judgment that it could be allowed to perform without the benefit of fraud it would have been a complete control is it is a part of the problem here it seems to me that that you starve the general proposition that the auditors have the the right to rely upon representations by management and that fraud is not necessarily the first thing that they're looking for in an  but in this case you hand the prior examination which they say the internal asset reviews on satisfactory as a classification is an attic where even used the word management is exceptionally poor credit administrations in the apt i mean i think there were i mean part of the problem is there were so many red flags going into this audit that that that seems to be where they're saying we should have done more maybe but but again i o t s gave him a special he even though it reflecting their at their best judgment as to the value of the collateral they actually lied to us but it was not unreasonable to say under those circumstances but they reacted to what o t s was doing and in a somewhat in a seemingly sensible way and then and then we did exactly what you would normally do evaluate it and say it's ok it's within a range of reasons it's not there's no single answer in this context as an exercise of judgment and the commission shouldn't be in the business of punishing auditors simply for their exercise of judgment and if they make a mistake like to reserve if the court can get past both of those you also would have to confront what was on the punitive point we have made the challenge well i mean at that point courts always have the obligation to determine if they have jurisdiction do we have to agree to we have to address the appointments because it should before we get to anything else if the court were to vacate the liability order in its entirety the court does not have to reach the point was if you were to sustain liability and should remain against our two clients the court would have to reach the point was position because this case was tried before and one constitutional officer so the court can avoid the pointless cause question only by vacating the liability term which is the right answer by the way that's a good way to resolve the  but if the court gets the sanctions point you also have to reach the point on punitive we have made this point over and over again is the shorthand commission two to one commissioner people who are in dissent said it was punitive we challenged it on appeal as punitive and what does the the arthur lipper case the more carthy case the past one case in the steadman case all say that the imposition of a lifetime bar in a negligence case is punitive because it is how probably disproportionate to the conduct the commission has no substantive response to those cases in these circumstances where there is only negligence where there was considerable regulatory uncertainty at the time and as evidenced by the two thousand and eight guidance where there is no likelihood of the recurrence of the  world shattering financial crisis and fraud committed by management and where there is no materiality and just looking to go to your question about investor loss because the commission failed to prove that the conduct of our clients had any material effect on the financial statements there was no causal effect to any investor loss from the parent company from the closure of this bank you know there is not a case of this but what this is the only case the commission ever brought against any auditor arising out of financial crisis and this is the case they chose to bring where they where the executives were defrauding the auditor who went to jail under indictments that charged them with the fraud in the auditors in our clients they did anything wrong they certainly didn't warrant getting their licenses yanked from life but that is what the commission is going to stand up next  they do is recite the conclusions without reciting any facts that support them for example they say negligence and negligence auditor and negligent auditor can affect the commission's processes as much as an intentional order inconsistent with your other hope that the of the appointments cause argument seems to be i thought your brief was inconsistent in arguing well they don't really have any independence but then when they board does exercise in the pan as you say to some credence and by the way the reason that we think that they are officers in the first place is they are making the credibility determinations they are viewing the witnesses from the government from the from the respondent and making the decision in the first instance with sanctions  just as a fact finding is entitled to substantial deference in a commission appeal and in this court a credibility based sanction also is that's the holding of the hand the case and here that the l g a made that determination and the commission is entitled under the to make that determination the first place because she only got to the sanction after receiving evidence hearing witnesses ruling on motions conducting a trial and issuing an initial decision sanctions all of which the supreme court  city is what makes in the context of a federal adjudicator an officer and as the tenth circuit said in the band of your case which involves the f c c they'll j s it was one hundred percent on point with this case every supreme court presides over the trial who has the ability to kick people out of the courtroom compel their appearance hear the evidence take evidence out rule it in shape the administrative record that then come to this court for substantial evidence review is on par according to commission with a file clerk or a gardener or a window washer all of whom have important functions in our federal system but they are not making decisions that affect people's lives putting that he way their livelihoods for what the supreme court trial the supreme court has never held that a federal judge adjudicator is not an officer as makes sense we submit that one who sits in judgment under the laws of the united states is necessarily essentially fundamentally them as officers so we submit for that reason in addition to sanctions here and the liability must be again to recap easiest way to resolve the whole thing is to throw it out never should have been brought in first place and the should not survive the sanction is to be of the securities and exchange commission and i will be addressing the appointment because as you know in the case of the first i'd like to start with some of the representations that have been made about the function and duties of the algae is within the commission administrative proceedings nothing that the algaes to do by and the commission or third party elders cannot issue orders that have their own force in fact and they do not impose sanctions only the commission does that the commission reviews every decision by a l j where any party asks for the commission's review and even in cases where no review is sought the commission retains the right to review and it issues finality orders in every case it is those finality orders the orders of the commission that imposed sanctions but that the date on which anything since will take a fact the a l j is are not exercising significant  are not constitutional officers instead they are agency employees who are exercising duties within limits carefully prescribe by congress and the commission in the seventy years since congress enacted a p a until this recent no one had suggested otherwise and i would like to address the contention that the supreme court has some sort of rule that anybody exercising adjudicative of the word in any respect in the government is an inferior officer simply not the case the supreme court has never considered whether it ministered to god judges are inferior officers exercising significant authority and us we argue they are not under the tons of force and buck we look at the commission's organic statute this is seventy one it's the general delegation statute that applies to the commission and they provide that the commission can delegate any number of it of its functions to administrative law judge it as a an individual commissioner or any other employee of the commission and in any case where the commission exercises its authority to delegate the function under  your honor when a district court acts that is very different than an active in it and ministry of law judge a district court is acting in its own name its orders have immediate force in effect the district court can issue contempt sanctions which has no counterpart in what the administrative law for their supper i respectfully disagree and i would urge the court to look at the commission's regulations which we've cited in our in our brief the commissioner view of a l j decision even evident to me decisions is very much unlike this court review of the district courts evidently decision the commission may hear evidence of self and they hear from witnesses and may take new evidence even if a party the parties evidence is excluded such as a work by an administrative law judge that evidence is still part of the record the party can make up proffer the commission consider can consider that evidence and it is not simply as it would be if this court were reviewing an evidentiary decision that the commission would say well we  commission erred by failing to defer sufficiently to the ale g s finding in this case but the commission exercises de novo review and that means it takes a look at a new look at the entire record and here the commission disagreed with  the sanctions determination it is its own opinion its own sanctions are terminations and the a l j is it playing exactly the wall that congress in vision which is to provide an independent baseline women's cause is about political accountability and the commission ultimately is accountable for every and that's one of the reasons we know that the ale shares of our employees are not officers because the commission can keep decision making for itself now as again going back to practice but now you can set up a process for a point that ends with  avoid by setting be able to use up as civil service employees and not political constitutional officers was to avoid them being indebted in some respect to the agency heads so that you could get the independent baseline decision from a civil service employee against which you could argue to the commission to operate at all information must have some measure of reliability and for that to happen investors need to know that public financial statements have been subjected to the rigors of independent and objective investigation and analysis and in this case substantial evidence supports the commission's findings the position or scale in their professional responsibilities seems to me that the key piece of evidence in this case is what you're on or just a lawyer  identified in october two thousand and everything that we're talking about today it said that management is exceptionally poor and breached their fiduciary duty safety and let me just tell you jump ahead to what bothers me about this because gauge the seriousness  what was being on the well i mean if you want to i would i would sort of think that you would want to avoid having authors be judged by hindsight but if you want to go down that route your honor i would point the court to the office of inspector records of one hundred twenty million dollar loan and the story a one hundred twenty million dollar loss and that leads to the collapse of the bank so you know again i think that the fortune be judging or you know the co that's proper for the commission to judge its interest conduct at the time without reference to sort of what happens later but if you want to go down that route we're on very strong ground how can you base a permanent ban on practice on their own nine appraisals when they were taken into consideration in the first quarter of all mine and isn't that just an auditor judgment whether i have to go back and restate the two thousand and eight as if i mean by within a order we are not suspending you we are permanently banned and you're right in that i think it's more accurate your honor to think of it as an indefinite ban because when the commission includes in the didn't you use the word lifetime didn't you in the order of i don't believe i think of the order says of the position of the permanently denied the privilege of appearing or practicing for the commission but i guess the point i want to convey is when the commission says that there is a right to apply for reinstatement and provides a term of years after when that may happen that performs a very important  because if you look at what has happened in this case if someone is subject to a true let's call it a permanent ban what happens is it's very difficult for people to come back from that i'm aware of two cases where the sever ha in contrast where there's a ban but there's a right to apply for reinstatement the commission does grant applications for reinstatement i'm not aware of any order denying an application for enslavement at such a circumstance but you know maybe this is too simple an analogy but i don't and i don't know about every jurisdiction but in a lot of jurisdictions and i don't mind if an attorney is disbarred they can come in after certain number of  ask to be reinstated and show they want to continue legal education but still you're just bar i mean you carry that stigma with you for the rest of your life and this is seems to me is the equivalent it's a it's a lifetime ban with with opportunity to command it and maybe they'll want you back and maybe they won't maybe they'll take three years that's what the defense dissents as it's not three years and maybe six years because they may take three years to do how long does it take to get one of the se did i could answer the question if you like me to go outside the record and i've spoken with the folks who process these applications and there's basically a two stage process first an applicant would reach out to the office of the chief accountant not that of the commission and they would submit an application with appropriate documentation that process typically takes in the neighborhood of several months then the chief accountant him or herself will make a recommendation to the commission and the commission then has to evaluate typically historically going back in the mine one of the cases that process has taken anywhere from several weeks to several months there may be cases there may well be some cases where it's taken longer but i don't think that this case is really the proper vehicle to debate the reinstatement process the petitioners haven't applied currency if they apply for reinstatement and they that has it has not taken the commission that long to process these applications in the past if it does we'll rest assured you'll hear about it and then you will have a record to evaluate it and the commission the said that when it consider applications for in statement what it's trying to do is make a judgment as to whether the auditor is presently fit to practice before the commission it is similar your honor i think to the bar reinstatement process and and if the record at the time shows that the record doesn't support a commission decision to deny reinstatement will be back here and that would be proper for the court to review to see it seems to me that the commission's three or four make of that very pro and you know i think there's sort of an intuitive appeal to that but ultimately the legal question for the court is whether it was a gross abuse of discretion for the commission to order the sanction that it did and with respect to the ale j s analysis in particular i understand the petitioners lie the l g is bottom line but please do look at that analysis and what you'll see is if this very rote formulaic recitation of factors four years in the case of negligence nonetheless ends up at six months and a year and there's no explanation of why the hell she is for why they l g is rejecting the division's request but ultimately in the case law even  second circuit recognizes this it's the commission's job to make the appropriate sanctions determination that's what it is if we agree with them to send however that this is a punitive sanction is of improper then report that with respect to a true well management addressed our concerns during the quarter ended june thirtieth two thousand and eight or so there were red flags and management responded to those red flags and if you look at page fifteen of our opening brief we go through the actions taken by the bank in response to o t s creating new layers of review additional analyses of that collateral and and creating stronger internal controls and at the end of the day i don't hear my friend on how this might say anything about the internal controls in this particular case it seems to me clear that there is no basis for a finding of a rule in the to violation in this run mine case candidly matters the supreme court afraid to get it seventy four no three said that is quote not relevant it's also not true if you read the commission's clawson decision they do in fact for the on the sanctions your honor we are all licensed professionals we all know the difference between a suspension and a ball this is a bar keeps the only justification offered by the commission and footnote eighty four for imposing a bar rather than a suspension is quote unquote it's usual actus wrong or if it's