Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-01134/USCOURTS-caDC-14-01134-0/pdf.json

Parties Involved:
Donald L. Koch
Petitioner
Koch Asset Management, LLC
Petitioner
Securities and Exchange Commission
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 20, 2015 Decided July 14, 2015

No. 14-1134

DONALD L. KOCH AND KOCH ASSET MANAGEMENT, LLC,

PETITIONERS

v.

SECURITIES AND EXCHANGE COMMISSION,

RESPONDENT

On Petition for Review of an Order of

the Securities & Exchange Commission

Thomas O. Gorman argued the cause for the petitioners.

Dominick V. Freda, Senior Litigation Counsel, Securities 

and Exchange Commission, argued the cause for the 

respondent. Michael A. Conley, Deputy General Counsel, 

John W. Avery, Deputy Solicitor, and Theodore J. Weiman, 

Senior Counsel, were with him on brief.

Before: HENDERSON and MILLETT, Circuit Judges, and 

GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge HENDERSON.

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KAREN LECRAFT HENDERSON, Circuit Judge:

The main purpose of the stock market is to make fools of as 

many men as possible.

— Bernard M. Baruch

As an investment adviser, Donald Koch purchased stock 

from three small banks and made trades to increase the price of 

those shares immediately before the daily close of the stock 

market. This piqued the market-manipulation antennae of the 

Securities and Exchange Commission (SEC or Commission). 

The SEC investigated Koch and his company, Koch Asset 

Management (KAM), and eventually charged them both with 

marking the close. Marking the close is investor argot for 

buying or selling stock as the trading day ends to artificially

inflate the stock’s value. See Black v. Finantra Capital, Inc., 

418 F.3d 203, 206 (2d Cir. 2005). The SEC found that Koch

and KAM repeatedly marked the close and sanctioned them

accordingly. Although we agree with the Commission’s order

in large part, one of the SEC’s sanctions is impermissibly 

retroactive and requires us to grant the petition in part and

vacate the order in part.

I. BACKGROUND

A. SECURITIES LEGISLATION

The Securities and Exchange Act of 1934 (Exchange Act)

“was intended principally to protect investors against 

manipulation of stock prices through regulation of transactions 

upon securities exchanges.” Ernst & Ernst v. Hochfelder, 425 

U.S. 185, 195 (1976). To accomplish this goal, the Exchange 

Act makes it unlawful for “any person,” in connection with the 

purchase or sale of securities, “[t]o use or employ . . . any 

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manipulative or deceptive device or contrivance in 

contravention of [SEC] rules.” 15 U.S.C. § 78j(b). The 

Commission’s regulations, in turn, make it unlawful for “any 

person,” in connection with the purchase or sale of securities, 

“[t]o employ any device, scheme, or artifice to defraud” or 

“[t]o engage in any act, practice, or course of business which 

operates or would operate as a fraud or deceit upon any 

person.” 17 C.F.R. § 240.10b–5(a), (c).

The Investment Advisers Act of 1940 (Advisers Act) 

proscribes nearly identical conduct. The Act makes it 

unlawful for “any investment adviser” to “employ any device, 

scheme, or artifice to defraud any client or prospective client” 

or to “engage in any act, practice, or course of business which 

is fraudulent, deceptive, or manipulative.” 15 U.S.C. § 80b–

6(1), (4). To implement these prohibitions, the SEC requires 

investment advisers to “[a]dopt and implement written policies 

and procedures reasonably designed to prevent violation[s]” of 

the Advisers Act. 17 C.F.R. § 275.206(4)–7(a). 

Like the crash in 1929, the wreckage wrought by the Great 

Recession of 2008 produced calls for reform, ultimately 

resulting in the Dodd–Frank Wall Street Reform and 

Consumer Protection Act (Dodd–Frank Act), Pub. L. No. 

111-203, 124 Stat. 1376 (2010). Before the Dodd–Frank Act, 

the SEC could bar individuals who violated either the 

Exchange Act or the Advisers Act from associating with 

various people in the securities world, including stock brokers, 

dealers and investment advisers. See 15 U.S.C. 

§ 78o(b)(4)(F) (2006) (Exchange Act violator may be barred 

from “associat[ing] with a broker or dealer”); id. § 80b–3(f) 

(2006) (Advisers Act violator may be barred from 

“associat[ing] with an investment adviser”). The Dodd–Frank

Act expanded this power. Now, the Commission may also bar 

violators from associating with municipal advisors or 

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“nationally recognized statistical rating organizations” (rating 

organizations). See Dodd–Frank Act § 925(a). The SEC’s

enlarged authority created remedies that were “not previously 

available under the securities laws” before the Dodd–Frank 

Act. John W. Lawton, Advisers Act Release No. 3513, 2012 

WL 6208750, at *5 (Dec. 13, 2012).

B. THE FACTS

Koch founded KAM in 1992 and was its sole investment 

adviser, owner and principal. Koch’s investment strategy was 

to buy stock from small community banks as long-term 

investments. KAM used Huntleigh Securities Corporation, a 

registered broker-dealer, to execute trades and maintain client 

accounts. Although Catherine Marshall was Huntleigh’s 

agent assigned to handle KAM’s, and Koch’s, business, Koch 

contacted a trader at Huntleigh’s trading desk directly when he 

wanted to make a trade. As of September 2009, Koch’s 

contact at Huntleigh’s trading desk was Jeffrey Christanell.

In the wake of the 2008 market crash, Koch’s clients 

became increasingly worried that their investments would 

decline in value. Around the same time, Huntleigh began 

allowing account holders, like Koch’s clients, to access their 

account information online. This frustrated Koch because he 

wanted his clients to get investment information from him, not 

a website. He also worried that his clients would be 

concerned if their online account information suggested that 

their accounts were underperforming. To ensure that his 

clients’ accounts appeared to retain their value, Koch allegedly

marked the close between September and December 2009 for 

three small bank stocks: High Country Bancorp, Inc.; Cheviot 

Financial Institution; and Carver Bancorp, Inc.

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Koch’s conduct aroused suspicions. A New York Stock 

Exchange Arca investigator sent a letter to Huntleigh to 

Marshall’s attention regarding Koch’s trading. The letter 

specifically asked Huntleigh to provide information on its 

policies and procedures for preventing traders from marking 

the close. After receiving the letter, Marshall asked Koch

whether he had marked the close. Koch denied the allegations 

and said, among other things, that he was simply trying to get 

rid of some excess cash in a client’s account. Huntleigh

evidently did not buy this explanation, as it subsequently fired 

Christanell for violating its trading policies and terminated its 

relationship with KAM.

The SEC then launched an investigation into Koch’s 

trading activity. In April 2011, it instituted proceedings

against KAM and Koch, charging both as primary violators 

under the Exchange Act, the Advisers Act and their respective

implementing regulations. A hearing before an administrative 

law judge (ALJ) followed. The ALJ found that Koch illegally 

marked the close for High Country stock on September 30 and 

December 31, and for Cheviot and Carver stock on December 

31. The ALJ also found that Koch violated the Advisers Act 

regulations by failing to follow KAM’s policies and 

procedures designed to prevent Advisers Act violations. 

Koch and KAM appealed the ALJ’s decision to the 

Commission.

The Commission affirmed the ALJ’s decision in a 37-page

opinion. It reviewed a series of telephone conversations, 

emails and other information related to Koch’s trading activity. 

It found “compelling” evidence that Koch intended to 

manipulate the trading price for all three bank stocks by 

marking the close on September 30 and December 31. 

Donald Koch & Koch Asset Management, LLC, Exchange Act 

Release No. 72179, 2014 WL 1998524, at *10 (May 16, 2014) 

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(Order). It also determined that the expert testimony Koch 

presented to the ALJ was unreliable and that Koch’s innocent

explanations for his trading activity failed to hold water. The 

Commission ultimately issued five remedial orders to enforce 

its decision; the one principally relevant here is its order 

barring Koch from associating with “any investment adviser, 

broker, dealer, municipal securities dealer, municipal advisor, 

transfer agent, or nationally recognized statistical rating 

organization.” Id. at *25. Koch timely petitioned this Court

for review. We have jurisdiction pursuant to 15 U.S.C. 

§§ 78y(a), 80b–13(a).

II. ANALYSIS

Our standard of review is familiar: The Commission’s 

findings of fact “if supported by substantial evidence” are 

“conclusive.” Id. §§ 78y(a)(4), 80b–13(a). Substantial 

evidence “does not mean a large or considerable amount of 

evidence, but rather such relevant evidence as a reasonable 

mind might accept as adequate to support a conclusion.” 

Pierce v. Underwood, 487 U.S. 552, 565 (1988) (quotation 

marks omitted). The Commission’s “other conclusions may 

be set aside only if arbitrary, capricious, an abuse of discretion, 

or otherwise not in accordance with law.” Graham v. SEC,

222 F.3d 994, 999–1000 (D.C. Cir. 2000) (citing 5 U.S.C. 

§ 706(2)(A)) (quotation marks omitted). Additionally, we

“accord great deference to the SEC’s remedial decisions” and 

will not disturb them unless they are “unwarranted in law or 

without justification in fact.” Horning v. SEC, 570 F.3d 337, 

343 (D.C. Cir. 2009) (alterations omitted).

Koch presses three arguments on appeal. First, he argues 

that the SEC’s factual findings were not supported by 

substantial evidence and that its legal conclusions misread the 

governing statutes. Second, he claims that the Commission 

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erred in charging Koch as a primary violator under both the 

Exchange Act and the Advisers Act. And third, he contends

that the Commission’s order barring him from associating with 

municipal advisors or rating organizations is impermissibly 

retroactive. We take each argument in turn.

A. APPLICATION OF LAW & SUFFICIENCY OF EVIDENCE

Koch’s primary argument on appeal is that the 

Commission’s decision applied the wrong legal standard and is 

not supported by substantial evidence. We think the contrary 

is true: The Commission applied the correct standard and 

properly concluded that there is ample evidence Koch 

manipulated the market by marking the close.

As explained, the Exchange Act and the Advisers Act

prohibit fraudulent and manipulative conduct. 

Market-manipulative behavior is “intentional or willful 

conduct designed to deceive or defraud investors by 

controlling or artificially affecting the price of securities.” 

Ernst & Ernst, 425 U.S. at 199. Under Commission 

precedent, a charge of marking the close consists of two 

elements: (1) “conduct evidencing a scheme to mark the 

close—i.e., trading at or near the close of the market so as to 

influence the price of a security”; and (2) “scienter, defined as a 

mental state embracing intent to deceive, manipulate, or 

defraud.” Order, 2014 WL 1998524, at *9 & n.97 (collecting 

cases).1

 1 Liability under the Advisers Act can also be premised on 

negligence. See SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 

1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 

180, 195 (1963)). Because neither party claims the Commission’s 

decision turned on negligence, we assess Koch’s manipulative 

intent.

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The Commission relied on the following evidence to 

conclude that Koch marked the close for High Country stock 

on September 30 and December 31, 2009. On September 30, 

KAM purchased nearly 2,000 shares of High Country stock, 

“the vast majority in the last four minutes of trading.” Id. at 

*9. These were the only trades that day involving High 

Country and they pushed the stock’s closing price to $23.50

per share. Tellingly, High Country stock never traded above 

$20 again in 2009.

In addition, Koch emailed Christanell on September 30

and told him to “move last [High Country] trade right before 

3pm up to as near $25 as possible without appearing 

manipulative.” Id. at *10 (emphasis added). Koch attempts

to downplay this smoking gun by arguing that he only meant to 

tell Christanell to not “place large orders that could disturb the 

[stock’s] price.” Pet’r’s Br. 41. Yet, as the Commission 

rightly noted, “Koch’s instruction contains no information at 

all about the size of incremental purchases that Christanell 

should make.” Order, 2014 WL 1998524, at *10. And if 

Koch were in fact concerned only with the size of the 

purchases, it made little sense to include a gratuitous warning 

to avoid appearing manipulative. His professed lawful intent 

is also contradicted by Christanell’s testimony (which the SEC 

credited) that Christanell placed last-minute bids for High 

Country “to get the price up to where Koch asked him to get 

it.” Id. (alterations omitted). In short, Koch’s explanation is 

implausible. 

Likewise, on December 31, KAM purchased 3,200 shares 

of High Country stock “all within the last five minutes of 

trading.” Id. This pushed the High Country closing price to 

$19.50 on December 31, even though every other trade of High 

Country stock that day was priced no higher than $17.50. 

This evidence of marking the close is again buttressed by 

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Koch’s emails to Christanell. On December 28, Koch 

directed Christanell “to buy High Country 30 minutes to an 

hour before the close of market for the year” and explained that 

he wanted “to get a closing price for High Country in the 20–25 

[dollar] range, but certainly above 20.” Id. (alterations 

omitted). Koch’s intent could not have been plainer: buy 

stock right before trading closes in order to drive up the price.

In other words, mark the close.

Moreover, a series of recorded phone calls between Koch 

and Christanell on December 31 reinforces Koch’s intent. 

Koch told Christanell that “my parameters for High Country

are—if you need 5,000 shares, do whatever you have to do—I 

need to get it above 20, you know, 20 to 25, I’m happy.” Id. at 

*11 (emphasis added; alterations omitted). Koch also 

instructed Christanell to “just create prints,” which Christanell 

testified he understood to mean “get the stock price up for the 

last trade of the day.” Id. (quotation marks omitted). When 

Christanell failed to get the price high enough before the 

market closed, he apologized to Koch and said, “I know you 

wanted it higher and I tried.” Id.

As with the High Country stock, there is abundant 

evidence to support the Commission’s conclusion that Koch 

marked the close for Cheviot and Carver stock on December 

31. Christanell, at Koch’s direction, engaged in a flurry of 

trades for Cheviot stock only minutes before the market closed 

on December 31. As the Commission explained:

Christanell placed orders for several thousand shares 

of Cheviot in the final three minutes of trading. 

KAM’s last execution from these orders was a 

purchase of 200 shares at a price of $7.99 just seven 

seconds before 3 p.m., Central time, but a later 

non-KAM trade for Cheviot set the closing price for 

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the stock at $7.39. At nine seconds after 3 p.m., 

Christanell placed another KAM order for additional 

Cheviot shares, which almost immediately resulted in 

three executions—two at $8.00 and one at $8.19. 

These final three trades, however, came after the 

official close of the market and therefore none of 

them set the closing price.

Id. This burst of trading cannot be explained by anything 

other than intent to mark the close. True, Christanell’s final 

three trades ultimately failed to set the closing price. But 

successful market manipulation is not equivalent to intent to 

manipulate the market. See Markowski v. SEC, 274 F.3d 525, 

529 (D.C. Cir. 2001) (“Just because a manipulator loses money 

doesn’t mean he wasn’t trying [to manipulate].”). And 

intent—not success—is all that must accompany manipulative 

conduct to prove a violation of the Exchange Act and its 

implementing regulations. See id. (the Congress has 

“determin[ed] that ‘manipulation’ can be illegal solely because 

of the actor’s purpose” (emphasis added)); accord Kuehnert v. 

Texstar Corp., 412 F.2d 700, 704 (5th Cir. 1969) (“The 

statutory phrase ‘any manipulative or deceptive device,’ seems 

broad enough to encompass conduct irrespective of its 

outcome.” (emphasis added; citation omitted)).

Additionally, phone calls between Koch and Christanell 

on December 31 confirm Koch’s intent to mark the close on 

Cheviot stock. Early in the day, Christanell told Koch that the 

“bid-ask spread for Cheviot was $7.20 to $7.48.” Order, 2014 

WL 1998524, at *12. After learning this, Koch told 

Christanell to “move it to above 8—8, 8 and a quarter by the 

end of the day.” Id. (quotation marks omitted). Koch 

thought the move would be easy because Cheviot stock “trades 

so little [and] I think you’ll be able to get it up pretty fast.” Id. 

When Christanell was unable to set the closing price at $8.00, 

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Koch expressed disappointment but told Christanell, “Okay, 

you did the best you can.” Id. 

Koch’s trading of Carver stock on December 31 followed 

the same path. KAM purchased 200 shares of Carver stock, 

the last of them “one-and-a-half minutes before the market 

closed.” Id. The evidence before the Commission indicated 

that KAM’s 200-share purchase was the only time that Carver 

stock traded that day. In a give-and-take that by now sounds

familiar, Christanell informed Koch on December 31 that the 

spread for Carver stock was $8.10 to $9.05. Koch then told 

Christanell to “at the end of the day . . . pop that one [i.e., 

Carver]—to 9.05, if you have to.” Id. at 13 (alterations in 

original). When Christanell proposed buying 300 shares of 

Carver stock at $9.05 a share, Koch said, “That’s perfect. Just 

make sure you get a print.” Id. (Recall, Christanell testified 

that getting a “print” means getting a stock’s price up for the 

last trade of the day, supra p. 9.) Before the ALJ, Christanell 

testified that he purchased Carver stock on December 31 

because “[Koch] wanted it to close at $9.05.” Id. (alterations 

omitted).

In the face of this strong evidence that Koch marked the 

close, Koch claims that the Commission committed three 

specific errors. We are not convinced. 

First, Koch claims that the Commission failed to find he 

had the intent to deceive or manipulate the market. We are 

puzzled by this claim because the Commission’s order 

repeatedly made such findings. See id. at *10 (email is 

“compelling direct evidence of [Koch’s] intent to mark the 

close of High Country stock on September 30, 2009”); id. 

(certain emails “offer strong support for [Koch’s] intent to 

mark the close of High Country stock on December 31, 2009”); 

id. at *11 (“The recorded telephone conversations between 

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Koch and Christanell on December 31, 2009, bolster the 

already strong evidence of intent.”); id. at *12 (“[T]elephone 

conversations are persuasive direct evidence of [Koch’s] intent 

to mark the close of Cheviot stock on December 31, 2009.”); 

id. at *13 (“We find further that [Koch] acted with scienter in 

[his] purchase of Carver stock in the final minutes of the 

trading day on December 31, 2009.”). 

Koch repackages his argument by asserting that the SEC

presumed manipulative intent based solely on the fact that he

raised each stock’s price. Not true. As discussed, supra pp. 

8–11, the Commission examined trading data, emails and 

phone calls on September 30 and December 31 to determine 

whether Koch intended to mark the close. The Commission’s

exhaustive review of the record refutes the notion that it 

applied any conclusive presumption. In fact, the Commission 

even acknowledged that “some of the trading at issue here, 

standing alone, [could be seen] as consistent with legitimate 

attempts to obtain illiquid stocks.” Order, 2014 WL 1998524,

at *16. The Commission’s acknowledgment that some of 

Koch’s trades appeared legitimate “standing alone” highlights 

that it applied no conclusive presumption to his case. 

Second, Koch claims that the Commission ignored 

evidence that he wanted “the most favorable terms [i.e., prices] 

reasonably available” for the stocks—“best execution,” in 

industry-speak. Newton v. Merrill, Lynch, Pierce, Fenner & 

Smith, Inc., 135 F.3d 266, 270 (3d Cir. 1998). As the 

Commission noted, Christanell did testify that he thought the 

trades “represented best execution.” Order, 2014 WL 

1998524, at *18 n.189 (quotation marks omitted). But the 

Commission also pointed out that this testimony “cannot be 

squared fully with [Christanell’s] testimony that these trades 

were different from typical trading because they did not 

involve trying to purchase [stocks] at the best price we can.” 

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Id. (quotation marks and alteration omitted). Moreover, 

Christanell’s understanding of best execution cannot override 

the abundant direct and circumstantial evidence of Koch’s 

manipulative intent. See supra pp. 8–11. The trading data, 

emails and recorded phone conversations demonstrate that 

Koch intended to raise the price of securities before the market 

closed—an intent that is inconsistent with a desire to seek best 

execution.2

Third, Koch claims he could not be liable under the 

Exchange Act and the Advisers Act unless the Commission 

found that his trades had a “market impact.” Pet’r’s Br. 46. 

Koch’s only authority for this proposition is Santa Fe 

Industries, Inc. v. Green, 430 U.S. 462, 476 (1977). But Santa

Fe says nothing of the sort. All the Court said was that 

“manipulation” is a “term of art” that refers to practices 

“intended to mislead investors by artificially affecting market 

activity.” Id. The Court did not, by this language, require the

SEC to prove actual market impact, as opposed to intent to 

affect the market, before finding liability for manipulative 

trading practices. Had the Court wished to impose such a 

requirement, it would have said so clearly. Nevertheless, 

assuming arguendo that Santa Fe imposes a market impact 

requirement, it is met here. The entire premise of marking the

close is to increase a share’s price to an “artificially high level.” 

Black, 418 F.3d at 206. That is consistent with the Court’s 

 2

 Koch’s opening brief also claims that the Commission ignored 

contradictory evidence from three witnesses regarding best 

execution. Although Koch identifies the three witnesses by name, 

he does not identify the pages in the record where the contradictory 

testimony for two of them can be found. And while he explains 

what he thinks is the contradictory evidence presented by the third 

witness, Professor Jarrell, we agree with the Commission that his 

testimony is flawed. See Order, 2014 WL 1998524, at *16–17.

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definition of manipulation in Santa Fe, i.e., a practice designed 

to “artificially affect[] market activity.” 430 U.S. at 476. 

Accordingly, because there is substantial evidence that Koch 

marked the close, there is also substantial evidence that he 

“artificially affect[ed] market activity.” Id.; see also Order, 

2014 WL 1998524, at *9–12 (explaining the inflated prices 

Koch achieved on September 30 and December 31).

Much of Koch’s brief simply takes issue with how the 

Commission interpreted the evidence before it. The SEC saw 

a manipulative scheme to mark the close; Koch professes it 

was an honest attempt to deal with a small and illiquid market. 

We need not pick between these competing narratives. 

Although Koch urges us to read the record differently, we may 

not “supplant the agency’s findings merely by identifying 

alternative findings that could be supported by substantial 

evidence.” Arkansas v. Oklahoma, 503 U.S. 91, 113 (1992). 

As we have remarked many times before, an agency’s 

conclusion “may be supported by substantial evidence even 

though a plausible alternative interpretation of the evidence 

would support a contrary view.” Robinson v. NTSB, 28 F.3d 

210, 215 (D.C. Cir. 1994); see also Domestic Sec. v. SEC, 333 

F.3d 239, 249 (D.C. Cir. 2003) (“[T]he resolution of 

conflicting evidence is for the Commission, not the court.”). 

Consequently, it is the “rare” case in which we conclude that

an agency’s decision is not supported by substantial evidence. 

Rossello ex rel. Rossello v. Astrue, 529 F.3d 1181, 1185 (D.C. 

Cir. 2008); see also id. (“Substantial-evidence review is highly 

deferential to the agency fact-finder.”). This case is not one of 

them. 

We conclude that the Commission applied the correct 

legal standard and that there is substantial evidence to support

its decision. 

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B. KOCH QUA PRIMARY VIOLATOR 

Koch next argues that he could not be charged as a primary 

violator under either the Exchange Act or the Advisers Act. 

His argument is premised on Janus Capital Group, Inc. v. First 

Derivative Traders, 131 S. Ct. 2296 (2011), and the text of the 

Advisers Act. He misreads both.

In Janus, the question before the Court was what 

individual or entity could be liable for “mak[ing] any untrue 

statement of a material fact” in violation of the Exchange Act 

regulations. 131 S. Ct. at 2301. It held that “the maker of a 

statement is the person or entity with ultimate authority over 

the statement” and not “[o]ne who prepares or publishes a 

statement on behalf of another.” Id. at 2302. Janus does not 

apply here, however, because Koch was not charged with 

making a statement. Rather, he was charged with marking the 

close, which is not a statement but “a form of market 

manipulation.” Order, 2014 WL 1998524, at *1. In other 

words, Koch violated the securities laws not because of what 

he said but because of what he did. Koch improperly 

conflates those who make statements (at issue in Janus) with

those who employ manipulative practices (at issue here). Cf.

Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, 

N.A., 511 U.S. 164, 191 (1994) (“Any person or entity, 

including a lawyer, accountant, or bank, who employs a 

manipulative device or makes a material misstatement (or 

omission) . . . may be liable as a primary violator.” (emphasis 

added)). For this reason, Janus is inapplicable if the alleged 

Exchange Act violations turn not on statements but on

manipulative conduct. See SEC v. Monterosso, 756 F.3d 

1326, 1334 (11th Cir. 2014) (per curiam) (“Janus has no 

bearing” because “[t]he case against [appellants] did not rely 

on their ‘making’ false statements, but instead concerned their 

commission of deceptive acts”).

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Koch’s argument regarding the Advisers Act’s text is also

flawed. He claims that only advisers who are registered with 

the SEC can be primary violators under the Advisers Act. 

Because KAM, not Koch, is the only adviser registered with 

the SEC, he maintains that he cannot be a primary violator 

under the Advisers Act. The Advisers Act, however, draws 

no such distinction. That Act makes it unlawful for “any

investment adviser” to “employ any device, scheme, or artifice 

to defraud any client or prospective client” or to “engage in any 

act, practice, or course of business which is fraudulent, 

deceptive, or manipulative.” 15 U.S.C. § 80b–6(1), (4)

(emphasis added). The Advisers Act, in turn, defines 

investment adviser as “any person who, for compensation, 

engages in the business of advising others . . . as to the value of 

securities or as to the advisability of investing in, purchasing, 

or selling securities,” subject to exceptions not relevant here. 

Id. § 80b–2(a)(11) (emphasis added). The definition of 

investment adviser does not include whether one is registered

or not with the SEC. Hence, Koch could be primarily liable 

for violating the Advisers Act irrespective of registration with 

the Commission. See United States v. Onsa, 523 F. App’x 63, 

65 (2d Cir. 2013) (“[T]he structure of the [Advisers] Act 

demonstrates that individuals need not register, or even be

required to register, in order to be an ‘investment adviser’

within the meaning of the Act.”). 

Accordingly, we hold that Koch was properly charged as a 

primary violator under both the Exchange Act and the Advisers 

Act.

C. APPLICABILITY OF DODD–FRANK ACT

Koch’s final argument is that the Commission could not 

use the remedial provisions of the 2010 Dodd–Frank Act to 

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punish him for conduct that took place in 2009. Doing so, he 

claims, is impermissibly retroactive. We agree that the 

Commission impermissibly applied the Dodd–Frank Act 

retroactively by barring Koch from associating with municipal 

advisors and rating organizations.

3

“[T]he presumption against retroactive legislation is 

deeply rooted in our jurisprudence, and embodies a legal 

doctrine centuries older than our Republic.” Landgraf, 511 

U.S. at 265. It generally requires “that the legal effect of 

conduct should ordinarily be assessed under the law that 

existed when the conduct took place.” Id. But retroactive 

legislation is not per se unlawful. Indeed, “[r]etroactivity 

provisions often serve entirely benign and legitimate 

purposes.” Id. at 267–68. Absent a constitutional violation, 

“the potential unfairness of retroactive civil legislation is not a 

sufficient reason for a court to fail to give a statute its intended 

scope.” Id. at 267. Nevertheless, to lessen the inherent 

unfairness of retroactive application, courts do not enforce a 

statute retroactively unless the “Congress first make[s] its 

intention clear.” Id. at 268. Our first task, then, is to 

 3 Koch also argues that applying the Dodd–Frank Act to him is 

impermissibly retroactive because it changed the Commission’s 

procedures for imposing sanctions. It is true that under the Act, the 

SEC may bar Koch from associating with all industries in the 

securities market in one proceeding, whereas before the Act the 

Commission had to initiate “follow-on proceeding[s]” for separate 

industries in the securities market. See Lawton, 2012 WL 6208750, 

at *5. This change in procedure, however, does not give rise to 

retroactivity concerns. See Landgraf v. USI Film Prods., 511 U.S. 

244, 275 (1994) (“Because rules of procedure regulate secondary 

rather than primary conduct, the fact that a new procedural rule was 

instituted after the conduct giving rise to the suit does not make 

application of the rule at trial retroactive.”).

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determine “whether Congress has expressly prescribed the 

statute’s proper [temporal] reach.” Id. at 280. 

The provision of the Dodd–Frank Act permitting the 

Commission to bar an individual from associating with 

municipal advisors or rating organizations contains no mention 

of retroactive application. See Pub. L. No. 111-203, § 925(a). 

The closest the Act comes is its generic statement that 

“[e]xcept as otherwise specifically provided in this Act,” the 

Act’s provisions “shall take effect 1 day after the date of 

enactment.” Id. § 4. But this language says nothing about 

retroactivity. As the Court noted in Landgraf, “A statement 

that a statute will become effective on a certain date does not 

even arguably suggest that it has any application to conduct 

that occurred at an earlier date.” 511 U.S. at 257. Because 

the Dodd–Frank Act does not expressly authorize retroactive 

application, we must determine whether applying it to Koch 

“would impair rights [he] possessed when he acted, increase 

[his] liability for past conduct, or impose new duties with 

respect to transactions already completed.” Id. at 280.

At the time Koch engaged in manipulative conduct, that is, 

from September through December 2009, the SEC could not

bar an individual or entity from associating with municipal 

advisors or rating organizations. See Lawton, 2012 WL 

6208750, at *5 (noting those remedies “[were] not . . . available 

under the securities laws” before Dodd–Frank Act). The 

Commission’s decision to nevertheless apply the Act’s new 

penalty to Koch “attach[ed] a new disability to conduct over 

and done well before [its] enactment.” Vartelas v. Holder, 

132 S. Ct. 1479, 1487 (2012) (quotation marks omitted). 

Indeed, by including additional associations from which one 

could be barred, the Act enhanced the penalties for a violation 

of the securities laws. The result is the same even if we ask 

the slightly different question “whether the new provision 

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attaches new legal consequences to events completed before its 

enactment.” Landgraf, 511 U.S. at 270. Applying the Act to 

Koch “attache[d] new legal consequences” to his conduct by 

adding to the industries with which Koch may not associate. 

Id. The additional prohibitions are legally enforceable and 

thereby create new legal consequences for past conduct. 

Hence, applying the Dodd–Frank Act’s enhanced penalties to 

Koch is impermissibly retroactive. 

The SEC identifies two cases that purportedly suggest the 

Dodd–Frank Act is not impermissibly retroactive. See

Kansas v. Hendricks, 521 U.S. 346 (1997); Boniface v. DHS, 

613 F.3d 282 (D.C. Cir. 2010). Both cases, however, held that 

there was no retroactivity problem because each subsequently 

enacted provision created only an evidentiary presumption. 

Hendricks, 521 U.S. at 371 (“To the extent that past behavior is 

taken into account, it is used, as noted above, solely for 

evidentiary purposes.”); Boniface, 613 F.3d at 288 (regulation 

only creates “an evidentiary presumption that an applicant with 

a disqualifying conviction in his past poses a security threat in 

the present; the applicant may rebut that presumption through 

the waiver process” (quotation marks omitted)). Here, by 

contrast, Koch’s past conduct automatically triggered 

additional legal consequences, not existing at the time his 

conduct took place, that prevent him from associating with 

rating organizations or municipal advisors. 

Accordingly, we conclude that the Commission cannot 

apply the Dodd–Frank Act to bar Koch from associating with 

municipal advisors and rating organizations because such an 

application is impermissibly retroactive. This holding does 

not apply to the other securities industries with which Koch 

may not associate.

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* * *

For the foregoing reasons, the petition for review is 

granted in part and denied in part and the portion of the SEC 

order that is impermissibly retroactive as described herein is 

vacated.

So ordered.

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