Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-08-01188/USCOURTS-caDC-08-01188-0/pdf.json

Parties Involved:
Joseph Mizrachi
Petitioner
PAZ Securities, Inc.
Petitioner
Securities and Exchange Commission
Respondent

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 12, 2008 Decided May 29, 2009 

No. 08-1188 

PAZ SECURITIES, INC. AND JOSEPH MIZRACHI, 

PETITIONERS

v. 

SECURITIES AND EXCHANGE COMMISSION, 

RESPONDENT

On Petition for Review of an Order 

of the Securities & Exchange Commission 

David Clarke Jr. argued the cause and filed the briefs for 

petitioners. 

Rada Lynn Potts, Senior Litigation Counsel, Securities & 

Exchange Commission, argued the cause for respondent. 

With her on the brief were Brian G. Cartwright, General 

Counsel, Andrew N. Vollmer, Deputy General Counsel, Jacob 

H. Stillman, Solicitor, and Michael A. Conley, Senior Special 

Counsel. 

Before: GINSBURG and KAVANAUGH, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge. 

Opinion for the Court filed by Circuit Judge GINSBURG. 

USCA Case #08-1188 Document #1182849 Filed: 05/29/2009 Page 1 of 7
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GINSBURG, Circuit Judge: PAZ Securities, Inc. and its 

president, Joseph Mizrachi, petition for review of an order of 

the Securities and Exchange Commission sustaining sanctions 

imposed upon them by the National Association of Securities 

Dealers (NASD).*

 Because the Commission did not abuse its 

discretion, we deny the petition. 

I. Background 

The facts underlying the petition are detailed in our 

earlier opinion and we review them only briefly here. For a 

more complete account, see PAZ Sec., Inc. v. SEC, 494 F.3d 

1059, 1061-63 (2007) (PAZ I). 

The NASD repeatedly requested information from PAZ 

and, having received no response, filed a complaint alleging 

Mizrachi and PAZ violated NASD Conduct Rule 2110 and 

NASD Procedural Rule 8210. Mizrachi filed no answer and 

the NASD issued a default judgment expelling PAZ and 

barring Mizrachi from ever associating with a NASD 

member. The petitioners appealed to the Commission, which 

sustained the sanctions over the objection they were 

“excessive or oppressive” and therefore subject to remission 

under 15 U.S.C. § 78s(e)(2). 

We reversed and remanded. 494 F.3d at 1061. We held 

the Commission had abused its discretion in two ways. First, 

it had mischaracterized, and therefore failed properly to 

address, the petitioners’ arguments regarding mitigation. Id.

 

*

 The NASD and the New York Stock Exchange have since merged 

their member regulation functions into one self-regulatory 

organization, the Financial Industry Regulatory Authority 

(FINRA). See Exchange Act Release No. 56,145, 72 Fed. Reg. 

42,169 (2007). 

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at 1065. Second, it had not identified “any remedial — as 

opposed to punitive — purpose for the sanctions.” Id. at 

1061. On remand, the Commission again sustained the 

sanctions and the petitioners again seek review. 

II. Analysis 

We review for abuse of discretion a decision of the 

Commission regarding sanctions imposed by the NASD. 

Stoiber v. SEC, 161 F.3d 745, 753 (D.C. Cir. 1998). 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.” Am. Power & Light Co. v. SEC, 329 

U.S. 90, 112-13 (1946). 

The petitioners first contend the Commission violated the 

letter and the spirit of this court’s mandate by giving 

insufficient weight to the factors they raised in mitigation. In 

PAZ I, we directed the Commission to consider on remand 

whether the sanctions were excessive in light of three 

arguments: that the petitioners’ failure to respond “(1) was of 

no potential monetary benefit to them and (2) did not result in 

any injury to the investing public, and that (3) the information 

requested did not relate to injurious conduct or conduct of 

potential monetary benefit to them.” 494 F.3d at 1065. The 

petitioners argue the Commission gave “short shrift” to those 

factors, but we conclude the Commission reasonably decided 

no mitigation was warranted. 

The Commission pointed out that a violation of 

Procedural Rule 8210 would rarely, in itself, result in direct 

injury to a customer or direct monetary gain for a violator. 

PAZ Sec., Inc., Exchange Act Release No. 57,656, 2008 SEC 

LEXIS 820 at *17 (PAZ II). It determined that failure to 

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respond is nevertheless a significant harm to the selfregulatory system because it “undermines NASD’s ability to 

detect misconduct”; therefore the lack of direct harm to 

customers or benefit to violators does not mitigate a Rule 

8210 violation. Id. at *17-18. The Commission further held 

that, contrary to the petitioners’ argument, the requested 

information did relate to potentially injurious conduct because 

the responses could have revealed improper expense sharing 

and unreported securities transactions. Id. at *18-19. 

We hold the Commission did not abuse its discretion in 

determining the lack of direct harm or benefit does not 

mitigate a complete failure to respond in violation of 

Procedural Rule 8210. See Stoiber, 161 F.3d at 753 (“We 

will not lightly disturb the findings of an agency in its area of 

expertise. ... [T]he Commission is better equipped to judge 

[the significance of certain violations] than this Court.”) 

(quoting Seaton v. SEC, 670 F.2d 309, 311 (D.C. Cir. 1982)). 

The Commission also reasonably determined the requested 

information related to potentially injurious conduct. In sum, 

the Commission complied with our mandate, which did not 

prejudge whether the factors raised by the petitioners were 

necessarily mitigating. 

The petitioners next argue the Commission abused its 

discretion by determining the sanctions imposed by the 

NASD were remedial. As we noted in PAZ I, a sanction may 

be used to protect investors but not to punish a regulated 

person or firm. 494 F.3d at 1065. We directed the 

Commission to “explain why imposing the most severe, and 

therefore apparently punitive sanction is, in fact, remedial.” 

Id. at 1066. The petitioners contend the Commission’s 

explanation is inadequate because the agency failed to 

consider the factors outlined in Steadman v. SEC, 603 F.2d 

1126, 1140 (5th Cir. 1979), aff’d on other grounds, 450 U.S. 

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91 (1981),*

 or to say why no lesser sanctions would suffice to 

protect investors. We disagree. 

We cited Steadman in PAZ I for the proposition that the 

Commission must be “particularly careful to address 

potentially mitigating factors” when it affirms an order to 

expel a firm from the NASD. 494 F.3d at 1065. We did not, 

however, direct the Commission to follow the Steadman 

analysis in every case. Although the factors listed in 

Steadman will often be relevant — and the Commission did 

consider several of them without adverting eo nomine to 

Steadman — we do not require the Commission to explain 

itself by reference to “some mechanical formula.” Blinder, 

Robinson & Co. v. SEC, 837 F.2d 1099, 1113 (D.C. Cir. 

1988) (“Commission’s broad discretion in fashioning 

sanctions in the public interest cannot be strictly cabined 

according to some mechanical formula”).** 

Here, the Commission made the necessary “findings 

regarding the protective interests to be served” by expulsion. 

 

*

 Those factors are: “the egregiousness of the defendant’s actions, 

the isolated or recurrent nature of the infraction, the degree of 

scienter involved, the sincerity of the defendant’s assurances 

against future violations, the defendant’s recognition of the 

wrongful nature of his conduct, and the likelihood that the 

defendant’s occupation will present opportunities for future 

violations.” 603 F.2d at 1140. 

** The petitioners err in suggesting this court embraced Steadman in 

Blinder, Robinson & Co. We noted Steadman “erected a daunting 

standard to justify permanent exclusion from the securities 

industry” but pointed out that “the crafting of an appropriate 

remedy is peculiarly within the province of an expert agency.” 837 

F.2d at 1111. We did not resolve the question now before the court 

but rather remanded the case because the Commission had failed to 

admit evidence regarding a salient point. Id. at 1112. 

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See McCarthy v. SEC, 406 F.3d 179, 189 (2d Cir. 2005). The 

Commission first explained the harm to investors when a 

member firm fails to respond to a request for information. 

PAZ II, 2008 SEC LEXIS 820 at *10-13. The Commission 

then found Mizrachi posed “a clear risk of future misconduct” 

because of his “cavalier disregard” for his obligation to 

provide information, particularly while traveling, and his 

business would often take him abroad in the future. Id. at 

*28-29. Thus, the Commission reasonably determined the 

sanctions were necessary to protect investors. 

Furthermore, the petitioners err in arguing the 

Commission must, in order to justify expulsion as remedial, 

state why a lesser sanction would be insufficient. We require 

the Commission to explain its reasoning in order to ensure it 

reviewed the sanction with “due regard for the public interest 

and the protection of investors.” 15 U.S.C. § 78s(e)(2). We 

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.” Id. Accordingly, we will not require the 

Commission to choose the least onerous of the sanctions 

meeting those requirements. See O’Leary v. SEC, 424 F.2d 

908, 912 (D.C. Cir. 1970) (“While these [mitigating] factors 

might have warranted a lighter sanction [than debarment], 

they did not require one”) (quoting Tager v. SEC, 344 F.2d 5, 

8 (2d Cir. 1965)); McCarthy, 406 F.3d at 188 (noting the 

Exchange Act authorizes expulsion “as a means of protecting 

investors, if ... necessary or appropriate to that end”) (quoting 

Wright v. SEC, 112 F.2d 89, 94 (2d Cir. 1940)). 

 In support of their position, the petitioners point to our 

statement in PAZ I that the Commission must show “why less 

severe action would not serve to protect investors.” 494 F.3d 

at 1065 (quoting Steadman, 603 F.2d at 1137). The court in 

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Steadman recognized, however, that it was limited to deciding 

whether the Commission had made “an allowable judgment in 

its choice of the remedy,” 603 F.2d at 1139 (quoting Jacob 

Siegel Co. v. FTC, 327 U.S. 608, 612 (1946)), and we quoted 

Steadman only for the well-established rule that an agency 

must adequately explain its decisions, see PAZ I, 494 F.3d at 

1065; see also Rizek v. SEC, 215 F.3d 157, 161 (1st Cir. 

2000) (explaining Steadman says “no more than ... that 

agencies must sufficiently articulate the grounds of their 

decisions”). As discussed above, the Commission here gave 

adequate reasons for holding the sanctions are warranted to 

protect investors. We require no more. 

 

III. Conclusion 

In sum, the Commission reasonably explained why the 

sanctions are remedial and are not excessive or oppressive. 

The petition for review is therefore denied. 

So ordered. 

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