Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-01195/USCOURTS-caDC-10-01195-0/pdf.json

Parties Involved:
John M.E. Saad
Petitioner
Securities and Exchange Commission
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 9, 2013 Decided June 11, 2013

No. 10-1195

JOHN M.E. SAAD,

PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION,

RESPONDENT

On Petition for Review of an Order of 

the Securities & Exchange Commission

Steven N. Berk argued the cause for petitioner. With him 

on the briefs was Matthew J. Bonness. Michael S. Gulland

entered an appearance.

Christopher Paik, Special Counsel, Securities and 

Exchange Commission, argued the cause for respondent. With 

him on the brief were Michael A. Conley, Deputy General 

Counsel, and John W. Avery, Deputy Solicitor.

Before: HENDERSON and ROGERS, Circuit Judges, and 

EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: This case involves a 

disciplinary action brought against John M.E. Saad by the 

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Financial Industry Regulatory Authority, Inc. (“FINRA”), 

which is the successor to the National Association of 

Securities Dealers (“NASD”). From January 2000 to October 

2006, Saad was a regional director in the Atlanta, Georgia,

office of Penn Mutual Life Insurance Company (“Penn 

Mutual”). He was also registered with Penn Mutual’s brokerdealer affiliate, Hornor, Townsend & Kent, Inc. (“HTK”), 

which is a FINRA-member firm. In September 2007, FINRA 

filed a complaint with its Office of Hearing Officers charging 

that, in July 2006, Saad had violated FINRA rules by 

submitting false expense reports for reimbursement for 

nonexistent business travel and for a fraudulently purchased 

cellular telephone. After a hearing, the Hearing Panel found 

that Saad had violated NASD Conduct Rule 2110 and 

sanctioned him with a permanent bar against his association 

with a member firm in any capacity. This sanction was 

affirmed by FINRA’s National Adjudicatory Counsel 

(“NAC”) and by the U.S. Securities and Exchange 

Commission (“SEC” or “Commission”). 

In his petition for review to this court, Saad does not 

contest his culpability, but instead argues only that the SEC 

abused its discretion in upholding the lifetime bar. In 

reviewing a disciplinary sanction imposed by FINRA, the 

SEC must determine whether, with “due regard for the public 

interest and the protection of investors,” that sanction “is 

excessive or oppressive.” 15 U.S.C. § 78s(e)(2). As part of 

that review, the SEC must carefully consider whether there 

are any aggravating or mitigating factors that are relevant to 

the agency’s determination of an appropriate sanction. See 

PAZ Sec., Inc. v. SEC, 494 F.3d 1059, 1065 (D.C. Cir. 2007)

(“PAZ I”). This review is particularly important when the 

respondent faces a lifetime bar, which is “the securities 

industry equivalent of capital punishment.” Id.

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Saad has consistently advanced a number of mitigating 

factors that he claims should militate against a lifetime bar. 

The SEC addressed several of these factors and chose not to 

credit them. However, the agency plainly ignored two 

important considerations: (1) the extreme personal and 

professional stress that Saad was under at the time of his 

transgressions; and (2) the fact that Saad’s misconduct 

resulted in his termination before FINRA initiated 

disciplinary proceedings. The latter consideration is 

particularly significant because it is specifically listed in 

FINRA’s Sanction Guidelines as a potential mitigating factor. 

SANCTION GUIDELINES 7 (2011) available at

http://www.finra.org. In light of this record, we agree with 

Saad that the SEC abused its discretion in failing to 

adequately address all of the potentially mitigating factors that 

the agency should have considered when it determined the

appropriate sanction. We take no position on the proper

outcome of this case. That is for the SEC to consider in the 

first instance, after it has assessed all potentially mitigating 

factors that might militate against a lifetime bar. We therefore 

remand to the SEC for further consideration of its sanction in 

light of this opinion. 

I. Background

A. Regulatory Overview

FINRA is an association of securities broker-dealers 

registered with the Commission pursuant to Section 15A(a) of 

the Securities Exchange Act of 1934. 15 U.S.C. § 78o-3(a). It 

is a self-regulatory organization empowered to adopt rules 

governing the conduct of its members and of persons 

associated with its members, such as Saad. FINRA enforces 

compliance with the Securities Exchange Act, SEC 

regulations, and FINRA’s own rules. See id. § 78o-3(b)(2). 

FINRA does so by bringing disciplinary proceedings to 

adjudicate violations, which are subject to review by the 

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Commission. FINRA brought such a proceeding against Saad

based on his conduct in 2006 and 2007.

During 2006 and much of 2007, Saad’s activities as a 

securities dealer were subject to regulation by the NASD.

However, by the time Saad’s disciplinary proceeding was 

formally initiated in September 2007, the SEC had approved 

the consolidation of NASD with certain functions of the New 

York Stock Exchange to create a new self-regulatory 

organization: FINRA. Thus, while Saad’s misconduct 

occurred prior to the creation of FINRA, FINRA’s 

Department of Enforcement with the FINRA Office of 

Hearing Officers initiated proceedings against Saad. 

Generally, the references to NASD and FINRA are 

interchangeable throughout this opinion. The charge against 

Saad was for a violation of NASD Conduct Rule 2110, which 

requires that members “observe high standards of commercial 

honor and just and equitable principles of trade.” See John

M.E. Saad, S.E.C. Release No. 62178, 2010 WL 2111287, at 

*4 (May 26, 2010). NASD Conduct Rule 2110 is comparable 

to the current, superseding FINRA Conduct Rule 2010. See

NASD TO FINRA CONVERSION CHART SPREADSHEET, 

available at http://www.finra.org. In sanctioning Saad, 

FINRA and the SEC applied the FINRA Sanction Guidelines, 

as opposed to the predecessor NASD Sanction Guidelines. 

See Saad, 2010 WL 2111287, at *4. 

B. Facts

The facts in this case are undisputed. Br. of Pet’r at 17. 

At the relevant time, Saad was employed by Penn Mutual and 

registered with its broker-dealer affiliate HTK, a FINRAmember firm. Saad was registered as an investment company 

products and variable contracts limited representative, a 

general securities representative, and a general securities 

principal. 

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This case centers on Saad’s submission of several false 

expense claims to his employer and Saad’s subsequent 

attempts to conceal his misconduct. In July 2006, when a 

scheduled business trip from his home base in Atlanta to 

Memphis, Tennessee, was cancelled, instead of staying home, 

Saad checked into an Atlanta hotel for two days. He later 

submitted to his employer a false expense report claiming 

expenses for air travel to Memphis and a two-day hotel stay in 

that city. Saad forged an airline travel receipt and a Memphis 

hotel receipt and attached those receipts to his expense report. 

Saad also submitted another false expense claim, unrelated to 

the fictional Memphis trip. He claimed an expense for the 

replacement of his business cellular telephone when in fact he 

had not replaced his own telephone but rather had purchased a 

telephone for an insurance agent who was employed at 

another firm. Saad testified at the disciplinary hearing that his 

employer probably would not have approved his purchase of a 

cell phone if he had submitted an accurate expense claim. See 

Saad, 2010 WL 2111287, at *2.

At his disciplinary hearing, Saad also explained that this 

conduct occurred during a period when he was under a great 

deal of professional and personal stress. Toward the end of 

2005, Saad’s sales declined and he virtually halted business 

travel, which was considered a significant aspect of his 

professional responsibilities. In June 2006, Saad’s superiors at 

Penn Mutual issued a production warning to him and 

admonished him to increase his sales of Penn Mutual 

products. During this same time period, Saad and his wife 

were caring for one-year old twins, one of whom had 

undergone surgery and was frequently hospitalized for a 

significant stomach disorder.

Saad’s false travel expense report was discovered by the 

Atlanta office administrator, who noticed that Saad had 

attached to the report an unaltered receipt for four drinks 

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purchased at an Atlanta hotel lounge on the same day when, 

according to the expense report, Saad was supposed to be in 

Memphis. When the office administrator questioned him 

about the receipt for the drinks, Saad withdrew the receipt and 

threw it away. The office administrator retrieved the receipt 

from the trash and submitted it to Penn Mutual’s home office, 

thus alerting Saad’s employer to the falsity of the travel 

expense report. In September 2006, Saad was discharged by

both Penn Mutual and HTK for his misdeeds.

C. Proceedings Below

Approximately two months after Saad was terminated, 

NASD investigators questioned him about the reasons for his 

discharge and his false expense reports. During this 

investigation, Saad repeatedly attempted to mislead NASD by 

providing investigators with false information. In a November 

2006 email, Saad told NASD that the expenses claimed on the 

fabricated trip report were “for a business trip that had yet to 

occur,” although in fact the expenses were for a trip that had 

been cancelled and had not been rescheduled. Saad, 2010 WL 

2111287, at *3. In April 2007, Saad misrepresented to a 

FINRA examiner that he did not know the person for whom 

he had purchased a cell phone. Id. And in testimony delivered 

in May 2007, Saad contended that he could not recall whether 

he had purchased a plane ticket for the July 2006 trip to 

Memphis. John M. Saad, Compl. No. 2006006705601, 9

(NAC Oct. 6, 2009) (“NAC Decision”), reprinted in Deferred 

Joint Appendix (“D.A.”) 206, 214.

FINRA brought a disciplinary proceeding against Saad in 

September 2007, alleging “Conversion of Funds” in violation 

of NASD Conduct Rule 2110. A disciplinary hearing before a 

FINRA Hearing Panel was held in April 2008. The Hearing 

Panel found that Saad had deliberately deceived his employer 

both with regard to the travel report and the cell phone 

purchase; that this deception constituted conversion of his 

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employer’s funds; and that this misconduct violated NASD

Conduct Rule 2110. The Hearing Panel assessed costs against 

Saad and imposed a permanent bar against his association 

with a member firm in any capacity, noting that “according to 

the FINRA Sanction Guidelines, a bar is standard for 

conversion regardless of the amount converted.” John M.E. 

Saad, Compl. No. 2006006705601, 8 (Office of Hr’g Officers

Aug. 19, 2008), reprinted in D.A. 189, 196. 

Saad appealed to the NAC, which affirmed the Hearing 

Panel. However, the NAC characterized Saad’s actions as 

“misappropriation” of his employer’s funds, not “conversion.”

The NAC found that there were no mitigating factors and that 

there were a number of aggravating factors, including “the 

intentional and ongoing nature of Saad’s misconduct, Saad’s 

efforts to deceive HTK and Penn Mutual, [and] Saad’s initial 

instinct to conceal the extent of his actions from state and 

FINRA examiners.” NAC Decision at 10, reprinted in D.A. 

215. Because there is no specific sanction guideline for 

misappropriation, the NAC applied the guideline for 

conversion or improper use of funds and found that a 

permanent bar was an appropriate sanction.

On its review, the Commission agreed that Saad, by 

intentionally falsifying receipts, submitting a fraudulent 

expense report, and accepting reimbursement to which he was 

not entitled, had misappropriated his employer’s funds in 

violation of NASD Conduct Rule 2110. The Commission 

found that Saad’s dishonesty with his employer “reflect[ed] 

negatively on both Saad’s ability to comply with regulatory 

requirements and his ability to handle other people’s money.” 

Saad, 2010 WL 2111287, at *5. The Commission also

rejected Saad’s claims that the sanction against him, a 

permanent bar, was improper because (a) there were 

inconsistencies between the sanction here and FINRA 

sanctions in other cases; (b) FINRA had employed the wrong 

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sanction guideline; (c) there were mitigating circumstances; 

and (d) the sanction was unduly punitive rather than remedial 

in nature. Instead, the Commission found that the sanction 

was appropriate because it was not “excessive or oppressive.” 

15 U.S.C. § 78s(e)(2).

With regard to the contention that there were 

inconsistencies between the sanction here and the sanctions

applied in other cases, the Commission stated that “[i]t is well 

established . . . that the appropriateness of a sanction depends 

on the facts and circumstances of each particular case and 

cannot be precisely determined by comparison with action 

taken in other proceedings.” Saad, 2010 WL 2111287, at *6. 

Likewise, the Commission declined to credit Saad’s argument 

that FINRA applied the wrong provisions of its Sanction 

Guidelines, noting, inter alia, that the Guidelines “merely 

provide a starting point in the determination of remedial 

sanctions.” Id.

The Commission also rejected Saad’s claim that there 

existed circumstances sufficient to mitigate Saad’s 

misconduct, noting that the Hearing Panel and the NAC had 

addressed and specifically rejected many of Saad’s mitigation 

claims, including the claims that his misconduct was a onetime lapse in judgment, that he had an otherwise clean 

disciplinary history, and that his wrongdoing did not involve 

customer funds or securities. See Saad, 2010 WL 2111287, at 

*7. With respect to the allegedly “aberrant” nature of Saad’s 

conduct, the SEC explained that its focus was less on the short 

time period during which the expense reports were submitted, 

than on Saad’s “ongoing and intentional charade in support of 

which he fabricated documents.” Id. The SEC referred to the 

NAC decision, which recounts Saad’s conduct in submitting 

the expense reports in July 2006 and then repeatedly 

misleading investigators over the course of several months. 

Id. (citing NAC Decision at 9, reprinted in D.A. 214).

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The SEC refused to be swayed by Saad’s years of honest

service because, the SEC explained, “an otherwise clean 

disciplinary history [is] not mitigating.” Id. (citing Daniel D. 

Manoff, S.E.C. Release No. 46708, 2002 WL 31769236, at *5 

(Oct. 23, 2002)). The SEC also referenced the NAC’s 

discussion of this factor, which explained that a violator 

“should not be rewarded because he may have previously 

acted appropriately as a registered person.” Id. (citing D.A. 

213).

The SEC additionally declined to credit Saad’s argument 

that his conduct did not affect customers. The SEC relied on 

FINRA’s conclusion that “[a]lthough Saad’s wrongdoing in 

this instance did not involve customer funds or securities,

Saad’s willingness to lie . . . and obtain funds to which he was 

not entitled indicates a troubling disregard for fundamental 

ethical principles which, on other occasions, may manifest 

itself in a customer-related or securities-related transaction.” 

Id. The SEC decision then cited cases in which the 

Commission rejected assertions by respondents who sought 

mitigation because their wrongful conduct had not directly 

targeted customers. See id. at *7 n.30 (collecting cases).

The Commission further found that the sanction imposed 

had a remedial purpose that served the public interest. The 

Commission explained that a lifetime bar was warranted to 

protect customers from any future misconduct by Saad. See 

id. at *7-8. The Commission believed that Saad’s conduct 

“raises serious doubts about his fitness to work in the 

securities industry, a business that is rife with opportunities 

for abuse.” Id. at *8. His actions “reveal a willingness to 

construct false documents and then lie about them,” all of 

which “suggests that his continued participation in the 

securities industry poses an unwarranted risk to the investing 

public.” Id. The SEC also believed that his behavior, 

particularly his repeated efforts to conceal his misconduct, 

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“provides no assurance he will not repeat his violations.” Id.

The Commission also briefly explained that Saad’s 

punishment was intended “as a deterrent to others in the 

securities industry who might engage in similar misconduct.” 

Id.

II. Analysis

A. Standard of Review

“The SEC reviews sanctions imposed by the NASD to 

determine whether they ‘impose[] any burden on competition 

not necessary or appropriate’ or are ‘excessive or 

oppressive.’” Siegel v. SEC, 592 F.3d 147, 155 (D.C. Cir. 

2010) (quoting 15 U.S.C. § 78s(e)(2)); see also PAZ I, 494 

F.3d at 1065-66. “This court reviews the SEC’s conclusions 

regarding sanctions to determine whether those conclusions 

are arbitrary, capricious, or an abuse of discretion.” Siegel, 

592 F.3d at 155; see also PAZ Sec., Inc. v. SEC, 566 F.3d 

1172, 1174 (D.C. Cir. 2009) (“PAZ II”). “The agency’s 

choice of remedy is peculiarly a matter for administrative 

competence, and we will reverse it only if the remedy chosen 

is unwarranted in law or is without justification in fact.” 

Siegel, 592 F.3d at 155. Nevertheless, this court is bound to 

reverse an administrative action if the agency has “entirely 

failed to consider an important aspect of the problem” or has 

“offered an explanation for its decision that runs counter to 

the evidence before the agency.” Motor Vehicle Mfrs. Ass’n of 

U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 

(1983); see also Allentown Mack Sales & Serv., Inc. v. NLRB, 

522 U.S. 359, 374-75 (1998) (discussing the importance of 

“reasoned decisionmaking” in the review of agency 

adjudications).

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B. The Sanction Guidelines

Saad argues that the SEC erred when it sustained a 

lifetime bar from the securities industry predicated on an

application of the wrong FINRA sanction guideline. FINRA’s 

most recent Sanction Guidelines were issued in 2006 “for use 

by the various bodies adjudicating disciplinary decisions . . . 

in determining appropriate remedial sanctions.” SANCTION 

GUIDELINES 1 (2011), available at http://www.finra.org. The 

Guidelines include specific provisions covering conversion or 

improper use of funds or securities and for forgery and/or 

falsification of records. The former contains two prongs: one 

for conversion, which advises adjudicators to “[b]ar the 

respondent regardless of amount converted,” and one for 

improper use, which advises them to “[c]onsider a bar.” Id. at 

36. The guideline for forgery and/or falsification advises 

adjudicators to “consider” a bar in “egregious cases.” Id. at 

37.

Saad claims that the SEC improperly applied the 

guideline for conversion or improper use, rather than the 

guideline for forgery and/or falsification. Saad contends that 

the SEC’s reliance on the guideline for conversion or 

improper use was inappropriate for two reasons. First he 

argues that, because the SEC found him guilty of 

misappropriation, the guideline’s conversion prong was 

inapposite. Second, he argues that the guideline’s improper 

use prong applies only to the misuse of customer funds, not an

employer’s funds. Therefore, Saad continues, the Commission 

should have considered only the guideline for forgery and/or 

falsification, pursuant to which a lifetime bar would be 

inappropriate. Saad’s arguments are unpersuasive. 

The SEC did not err when it upheld a sanction pursuant 

to the guideline for conversion or improper use. The FINRA 

Sanction Guidelines do not purport to “prescribe fixed 

sanctions for particular violations.” Id. at 1. “Rather, they 

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provide direction for Adjudicators in imposing sanctions 

consistently and fairly.” Id. The Guidelines do not enumerate 

sanctions for every conceivable securities-industry violation; 

they merely address sanctions for “some typical securitiesindustry violations.” Id. The SEC’s decision correctly notes 

that the Guidelines “are not intended to be absolute” and, 

“[f]or violations that are not addressed specifically, 

Adjudicators are encouraged to look to the guidelines for 

analogous violations.” Saad, 2010 WL 2111287, at *6

(quoting SANCTION GUIDELINES 1). The SEC reasonably 

concluded that “misappropriation is doubtless analogous to 

conversion.” Br. of SEC at 19. Because the Guidelines do not 

list a particular sanction for misappropriation, it was not 

arbitrary and capricious for the Commission to analogize to 

the guideline’s conversion prong in this way. This is wholly 

consistent with the SEC’s repeatedly stated view that the 

Guidelines do not specify required sanctions but “merely 

provide a ‘starting point’ in the determination of remedial 

sanctions.” Saad, 2010 WL 2111287, at *6 & n.23 (quoting 

Hattier, Sandford & Reynoir, S.E.C. Release No. 39543, 1998 

WL 7454, at *4 n.17 (Jan. 13, 1998)), aff’d, 163 F.3d 1356 

(5th Cir. 1998).

Saad is similarly unpersuasive in his assertion that the

guideline’s improper use prong only applies to the misuse of

customer funds – and thus would not apply to Saad’s 

misconduct which involved claiming fraudulent 

reimbursements from his employer. The guideline for 

conversion and improper use refers to several FINRA and 

NASD rules, including FINRA Conduct Rule 2010 (the 

successor to NASD Conduct Rule 2110 at issue here). See

SANCTION GUIDELINES 36. Saad points out that, “[w]ith the 

exception of FINRA Rule 2010 . . . each of the referenced 

rules concerns the improper use of (and potentially the 

conversion of) customers’ funds or securities.” Br. of Pet’r at 

25. This assertion obviously does not advance Saad’s position

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because it acknowledges that FINRA Conduct Rule 2010 is 

not limited to misconduct relating to customer funds.

Although Saad’s briefing on this point is far from clear, he 

seems to make a sort of in pari materia argument that, in light 

of the other rules referenced, the SEC was required to import 

the “customers’ funds” limitation into FINRA Conduct Rule 

2010. The argument is patently flawed, and Saad cites no 

authority to support his claim. We therefore reject it.

Even if we were to accept Saad’s argument that the SEC 

should have applied the guideline for forgery and/or 

falsification, that error by itself would not require a reversal

or remand. The Commission reasonably concluded that 

“FINRA’s decision to impose a bar is consistent with either 

guideline.” Saad, 2010 WL 2111287, at *7. Indeed, both

guidelines suggest that FINRA at least consider a bar. See

SANCTION GUIDELINES 36-37. Saad objects because the 

guideline for conversion or improper use “emphasizes a 

permanent bar, while the sanction guideline for Forgery 

and/or Falsification emphasizes suspension.” Br. of Pet’r at 23 

(emphasis added). But the fact remains – as the SEC correctly 

noted – both guidelines expressly contemplate the possibility 

of a lifetime bar. Given the deference that we owe to SEC 

sanction decisions, see Siegel, 592 F.3d at 155, we decline to 

disturb the SEC’s decision on this basis. 

C. The Lifetime Bar

Saad also argues that the Commission abused its 

discretion when it affirmed FINRA’s imposition of a lifetime 

bar. He contends that the SEC failed to consider certain 

mitigating factors and to articulate a remedial rather than 

punitive purpose for the sanction. As a result, in Saad’s view, 

the SEC erred by upholding a sanction that was “excessive or 

oppressive.” 15 U.S.C. § 78s(e)(2). The Commission responds 

that it considered all of the necessary factors and reasonably 

concluded that a lifetime bar was appropriate under the 

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circumstances. For reasons described below, we agree with 

Saad that the Commission abused its discretion in failing to 

address several potentially mitigating factors. 

Under 15 U.S.C. § 78s(e)(2), the Commission reviews a 

disciplinary sanction imposed by FINRA to determine 

whether, “having due regard for the public interest and the 

protection of investors,” that sanction “is excessive or 

oppressive.” See also PAZ I, 494 F.3d at 1064 (SEC reviews

NASD sanctions de novo). In our review of SEC actions,

“[w]e do not limit the discretion of the Commission to choose 

an appropriate sanction so long as its choice meets the 

statutory requirements that a sanction be remedial and not 

‘excessive or oppressive.’” PAZ II, 566 F.3d at 1176. The 

SEC’s burden is to provide a convincing explanation of its 

rationale in light of the governing law. As we explained in 

PAZ I:

When evaluating whether a sanction imposed by 

[FINRA] is excessive or oppressive, as we have stated 

before, the Commission must do more than say, in effect, 

petitioners are bad and must be punished; at the least it 

must give some explanation addressing the nature of the 

violation and the mitigating factors presented in the 

record. The Commission must be particularly careful to 

address potentially mitigating factors before it affirms an 

order . . . barring an individual from associating with 

a[] . . . member firm – the securities industry equivalent 

of capital punishment.

494 F.3d at 1064-65 (citations omitted). 

Furthermore, the Commission may approve “expulsion 

not as a penalty but as a means of protecting investors . . . . 

The purpose of the order [must be] remedial, not penal.” Id. at 

1065. If the Commission upholds a sanction as remedial, it 

must explain its reasoning in so doing; “as the circumstances 

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in a case suggesting that a sanction is excessive and 

inappropriately punitive become more evident, the 

Commission must provide a more detailed explanation linking 

the sanction imposed to those circumstances.” Id. at 1065-66.

That is not to say, however, that the Commission is under any 

obligation to explain why it found a lesser sanction 

inappropriate. See Siegel, 592 F.3d at 157 (“[B]eyond 

mak[ing] the necessary findings regarding the protective 

interests to be served by expulsion, the agency need not state 

why a lesser sanction would be insufficient.”).

After careful review of the record before us, we conclude 

that the case must be remanded for further consideration by 

the SEC. Remand is warranted because the decision of the 

Commission – as well as those of the FINRA Hearing Panel

and the NAC – ignores several potentially mitigating factors 

asserted by Saad and supported by evidence in the record. We 

have previously cautioned that the SEC “must be particularly 

careful to address potentially mitigating factors” before 

affirming a permanent bar. PAZ I, 494 F.3d at 1065. The SEC 

has failed to do so in this case. In particular, Saad correctly 

notes that FINRA and the SEC failed to consider that “Mr. 

Saad’s firm, HTK[,] disciplined him by terminating his 

employment in September of 2006, prior to regulatory 

detection.” Br. of Pet’r at 34; see also Reply Br. at 12-13. 

Under the FINRA Sanction Guidelines, number fourteen of 

the “Principal Considerations in Determining Sanctions” is 

“[w]hether the member firm with which an individual 

respondent is/was associated disciplined the respondent for 

the same misconduct at issue prior to regulatory detection.” 

SANCTION GUIDELINES 7. The SEC’s decision acknowledges

this argument: “[Saad] claims FINRA also failed to consider 

that HTK had fired him before FINRA detected his 

misconduct . . . .” Saad, 2010 WL 2111287, at *7. However, 

the SEC’s decision says nothing more regarding this issue,

nor do the decisions issued by the Hearing Panel and the 

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NAC. When questioned about this point at oral argument, 

SEC counsel mistakenly argued that the termination was 

“irrelevant” because it occurred after the violation. See Oral 

Arg. at 19:45 - 23:40. The Guidelines say otherwise.

Similarly, the SEC’s decision noted, but did not address, 

Saad’s argument that “he was under severe stress with a 

hospitalized infant and a stressful job environment.” Saad, 

2010 WL 2111287, at *7. The Guidelines do not expressly 

mention personal stress as a mitigating factor, but they are by 

their own terms “illustrative, not exhaustive; as appropriate, 

Adjudicators should consider case-specific factors in addition 

to those listed.” SANCTION GUIDELINES 6. 

In response to Saad’s argument that the SEC ignored 

these potentially mitigating factors, the Commission weakly 

responds that it “implicitly denied that they were [mitigating]

when it stated that it denied all arguments that were 

inconsistent with the views expressed in the decision.” Br. of 

SEC at 24. This contention is not an acceptable explanation 

for the SEC’s failure to provide “reasoned decisionmaking” in 

support of a lifetime bar. See Allentown Mack, 522 U.S. at 

374-75.

When we explained in PAZ I that the SEC “must be 

particularly careful to address potentially mitigating factors,” 

we meant that the Commission should carefully and 

thoughtfully address each potentially mitigating factor 

supported by the record. The Commission cannot use a 

blanket statement to disregard potentially mitigating factors –

especially those, like an employee’s termination, that are 

specifically enumerated in FINRA’s own Sanction 

Guidelines. Because the SEC failed to address potentially 

mitigating factors with support in the record, it abused its 

discretion by “fail[ing] to consider an important aspect of the 

problem.” See State Farm, 463 U.S. at 43. We must remand 

on that basis. 

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We take no position on the proper outcome of this case.

We leave it to the Commission in the first instance to fully 

address all potentially mitigating factors that might militate 

against a lifetime bar. 

III. Conclusion

The petition for review is granted. The case is remanded 

to the Commission for further consideration consistent with 

this opinion. 

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