2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-5-2006

SEC v. JW Barclay Co

Precedential or Non-Precedential: Precedential

Docket No. 04-3536

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 PRECEDENTIAL

IN THE UNITED STATES COURT

OF APPEALS

FOR THE THIRD CIRCUIT

________________

Case No: 04-3536

SECURITIES AND EXCHANGE COMMISSION

 v.

J.W. BARCLAY & CO., INC.;

JOHN A. BRUNO

 John A. Bruno,

 Appellant

________________

On Appeal from the United States

District Court

for the District of New Jersey

(Civ No. 02-3164)

District Judge: William H. Walls

________________

Argued December 14, 2005

Before: SMITH, BECKER, and GREENBERG, Circuit Judges

(Filed: April 5, 2006 )
2

________________

John A. Bruno

P.O. Box 3175

Sea Bright, NJ 07760

 Appellant, pro se

Edward M. Posner (Argued)

Drinker, Biddle & Reath

18th & Cherry Streets

One Logan Square

Philadelphia, PA 19103

Amicus curiae

Mark R. Pennington (Argued)

Angel Yang

Securities and Exchange 

Commission

100 F Street, N.E.

Washington, DC 20549

Counsel for appellee

_________________

OPINION OF THE COURT

_________________

SMITH, Circuit Judge.

This appeal arises out of a defunct broker-dealer’s unpaid

penalty for a securities law violation. The Securities and Exchange

Commission (“SEC”) filed an application with the District Court

seeking an order directing the broker-dealer to pay the penalty. In

addition, the SEC also sought a judgment that the former president of
 Section 17(a) provides in relevant part: 1

a) Rules and regulations

(1) Every national securities exchange, member

thereof, broker or dealer who transacts a business

in securities through the medium of any such

3

the company was jointly and severally liable for this unpaid penalty

and an order directing him to pay the penalty. Following discovery,

the District Court granted the SEC’s unopposed motion for summary

judgment and ordered the former president to pay the penalty.

Because we hold (1) that the Securities Exchange Act of 1934

(“Exchange Act”) provides for a control person’s joint and several

liability to the SEC for a debt in the amount of an unpaid SEC penalty

when that control person induced and was a culpable participant in

the controlled person’s failure to pay the penalty and (2) that the

District Court had jurisdiction in this case to grant an order directing

such a control person to fulfill this obligation, we will affirm the

judgment of the District Court.

I.

J.W. Barclay & Co., Inc. (“Barclay”) was a securities brokerdealer. Appellant John Bruno (“Bruno”) was one of the founders of

Barclay. Bruno owned 68 percent of Barclay, and he acted as

Barclay’s President from July of 1991 through at least February of

2003.

On October 20, 1998, the SEC instituted administrative

proceedings against Barclay, alleging violations of § 17(a) of the

Exchange Act and Rule 17-a-5 due to Barclay’s failure to timely file 1 2
member, registered securities association,

registered broker or dealer, registered municipal

securities dealer, registered securities information

processor, registered transfer agent, and registered

clearing agency and the Municipal Securities

Rulemaking Board shall make and keep for

prescribed periods such records, furnish such

copies thereof, and make and disseminate such

reports as the Commission, by rule, prescribes as

necessary or appropriate in the public interest, for

the protection of investors, or otherwise in

furtherance of the purposes of this chapter. . . .

15 U.S.C. § 78q(a).

 Rule 17-a-5 provides for the nature and form of reports 2

required by the SEC from broker-dealers. See 17 C.F.R. §

240.17a-5.

 See 17 C.F.R. § 240.17a-5(e)(5). 3

4

a Form BD-Y2K. Form BD-Y2K required a broker-dealer to supply

information about the broker-dealer’s Year 2000 preparedness.3

In February of 1999, an Administrative Law Judge (“ALJ”)

held a hearing on this matter. On August 2, 1999, the ALJ found that

Barclay had willfully violated § 17(a) and Rule 17a-5 and ordered

Barclay to pay a $50,000 civil penalty. Barclay appealed the ALJ’s

decision and the SEC heard oral argument on July 18, 2001. On

October 15, 2001, the SEC affirmed the ALJ’s finding that Barclay

had willfully violated § 17(a) and Rule 17a-5, but it reduced Barclay’s

civil penalty to $25,000 and directed Barclay to make payment on the
 Barclay was not, however, formally dissolved or placed into 4

bankruptcy.

5

penalty within thirty days (“Order”).

The SEC sent copies of the Order to Barclay’s attorney of

record, and Barclay’s outside counsel notified Bruno that Barclay

owed payment of the $25,000 penalty to the SEC. Barclay did not

appeal the Order, but the company also did not pay the penalty within

thirty days, or at any time thereafter.

In the meantime, Barclay had ceased operation as a brokerdealer on December 27, 2000, because it was in violation of the

SEC’s net capital requirements. At the end of 2000, Barclay’s

liabilities were greater than its assets. During 2001, while the ALJ’s 4

decision was on appeal to the SEC, Bruno caused Barclay to

concentrate its remaining assets, a total of more than $145,000, into

Barclay’s bank account. Bruno then caused Barclay to issue a check

to himself in the amount of $90,000 and a check to another employee

for $43,700. Bruno then continued to cause Barclay to place its

deposits into this account and to issue checks from this account,

primarily to pay legal fees. Even after the SEC issued the Order

directing Barclay to pay the $25,000 penalty within thirty days, Bruno

did not cause Barclay to use any of its funds to pay any part of the

$25,000 penalty.

On July 1, 2002, the SEC filed an application with the District

Court pursuant to § 21(e) of the Exchange Act, 15 U.S.C. § 78u(e)
 Section 21(e) provides: 5

Upon application of the Commission the district

courts of the United States and the United States

courts of any territory or other place subject to the

jurisdiction of the United States shall have

jurisdiction to issue writs of mandamus,

injunctions, and orders commanding (1) any

person to comply with the provisions of this

chapter, the rules, regulations, and orders

thereunder, the rules of a national securities

exchange or registered securities association of

which such person is a member or person

associated with a member, the rules of a

registered clearing agency in which such person is

a participant, the rules of the Public Company

Accounting Oversight Board, of which such

person is a registered public accounting firm or a

person associated with such a firm, the rules of

the Municipal Securities Rulemaking Board, or

any undertaking contained in a registration

statement as provided in subsection (d) of section

78o of this title . . . .

15 U.S.C. § 78u(e).

6

(“Application”). In Count I of the Application, the SEC alleged that 5

Barclay had not paid its civil penalty as ordered by the SEC and

requested an order commandingBarclay to pay the penalty. In Count

II of the Application, the SEC alleged that Bruno had “knowingly

failed to cause Barclay to comply with the Commission’s Order,”

argued that Bruno was jointly and severally liable for Barclay’s
 Section 20(a) provides: 6

(a) Joint and several liability; good faith

defenseEvery person who, directly or indirectly,

controls any person liable under any provision of

this chapter or of any rule or regulation thereunder

shall also be liable jointly and severally with and

to the same extent as such controlled person to

any person to whom such controlled person is

liable, unless the controlling person acted in good

faith and did not directly or indirectly induce the

act or acts constituting the violation or cause of

action.

15 U.S.C. § 78t(a).

7

unpaid penalty “by virtue of his status as a control person under

Section 20(a) of the Exchange Act,” and requested an order 6

commanding Bruno to pay the penalty.

Barclay did not make an appearance before the District Court

and final judgment by default was entered against Barclay. On

September 9, 2002, Bruno filed a pro se answer and motion to

dismiss, arguing that there was “no basis for bringing this action”

against him because the Order was not issued against him, he was not

named in the Order, and he was not a party in the proceeding before

the SEC in which the Order was issued. The SEC moved to strike

Bruno’s answer and Bruno filed a response to this motion, which the

District Court treated as an amended answer and motion to dismiss

under Rule 12(b)(6).

In his Second Defense within his response to the SEC’s

motion to strike, Bruno argued that he was “not liable for a debt

incurred by Barclay” and that to obtain an order against him the SEC

“would have to bring a separate action or proceeding against him.”

In his Fourth Defense, Bruno argued that the SEC could not assert

control person liability against him under § 20(a) “and hold him
8

responsible for the civil penalty against Barclay” because Bruno was

not a party to the proceedings before the SEC and no order was issued

against him.

The District Court then denied the SEC’s motion to strike.

The District Court also held that the Application stated a claim

against Bruno under § 20(a) and denied his motion to dismiss.

After the completion of discovery, the SEC filed a motion for

summary judgment which included a statement of undisputed facts.

Bruno did not oppose this motion for summary judgment and it was

decided without oral argument.

On July 28, 2004, the District Court granted the SEC’s motion

for summary judgment. The District Court held that “[t]he facts set

forth by the SEC in this unopposed motion for summary judgment

establish each of the elements required for the SEC to prevail on its

Section 20(a) action against Bruno.” Specifically, the District Court

declared that the undisputed facts established that: (1) Barclay was

subject to an SEC order requiring it to pay a $25,000 civil penalty; (2)

Barclay had failed to pay this penalty; (3) Bruno had the authority and

power to direct the payment of this penalty; and (4) Bruno caused

Barclay to pay himself and another employee funds from Barclay’s

bank accounts in 2001, which in turn caused Barclay’s failure to

comply with the Order because it was left with insufficient funds.

Applying § 20(a) to these undisputed facts, the District Court held

that “Bruno both induced and culpably participated in Barclay’s

failure to pay the civil penalty. Accordingly, Bruno, as a control

person, is jointly and severally liable for Barclay’s failure to pay the

civil penalty ordered by the SEC.”

Bruno’s pro se appeal of the District Court’s order granting

the SEC’s motion for summary judgment followed. On June 30,

2005, we appointed Edward M. Posner of the law firm Drinker,
 We thank Mr. Posner for composing an illuminating brief 7

and appearing before us to argue this matter. We further

commend Mr. Posner for the excellent manner in which he

conducted these services for the Court.

9

Biddle & Reath as amicus curiae. We asked the amicus to address 7

the question of “whether the SEC has standing to bring a claim

against a control person under Section 20(a) of the Exchange Act, 15

U.S.C. § 78t, in an enforcement action filed pursuant to Section 21(e)

of the Exchange Act, 15 U.S.C. § 78u(e),” citing the circuit split on

this issue in SEC v. Coffey, 493 F.2d 1304 (6th Cir. 1974), and SEC

v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996). The amicus

identified a third case addressing this issue, SEC v. Stringer, No. Civ.

02-1341-ST, 2003 WL 23538011 (D. Or. Sept. 3, 2003).

II.

A.

The District Court claimed original jurisdiction over the

SEC’s count against Bruno pursuant to 15 U.S.C. § 78u(e). We have

jurisdiction over the final judgment of the District Court pursuant to

28 U.S.C. § 1291. We review the District Court’s grant of summary

judgment de novo. See, e.g., A.M. v. Luzerne County Juvenile Det.

Ctr., 372 F.3d 572, 578 (3d Cir. 2004). Summary judgment is

appropriate if “the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law.” Fed. R. Civ. Pro.

56(c). Once the moving party meets this initial burden, the adverse

party “may not rest upon the mere allegations or denials of the

adverse party’s pleading, but the adverse party’s response, by

affidavits or as otherwise provided in this rule, must set forth specific

facts showing that there is a genuine issue for trial.” Fed. R. Civ. Pro.

56(e). “If the adverse party does not so respond, summary judgment,
10

if appropriate, shall be entered against the adverse party.” Id.

B.

The Supreme Court has explained that the federal securities

laws should be “construed ‘not technically and restrictively, but

flexibly to effectuate its remedial purposes.’” E.g., SEC v. Zanford,

535 U.S. 813, 819 (2002) (citing Affiliated Ute Citizens of Utah v.

United States, 406 U.S. 128, 151 (1972) (quoting SEC v. Capital

Gains Research Bureau, Inc., 375 U.S. 180, 186 (1963))).

Nonetheless, “[t]he broad remedial goals of the [securities laws] are

insufficient justification for interpreting a specific provision ‘more

broadly than its language and the statutory scheme reasonably

permit.’” Pinter v. Dahl, 486 U.S. 622, 653 (1988) (citing Touche

Ross & Co. v. Redington, 442 U.S. 560, 578 (1979) (quoting SEC v.

Sloan, 436 U.S. 103, 116 (1978))); see also Aaron v. SEC, 446 U.S.

680, 695 (1980); Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d

682, 690 n.11 (3d Cir. 1991).

Accordingly, citing the remedial purposes of the Exchange

Act, the Supreme Court has found implied private causes of action

arising under § 14(a) of the 1934 Act, see J.I. Case Co. v. Borak, 377

U.S. 426, 429-34 (1964), and § 10(b) of the 1934 Act, see

Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 13 n.9

(1971). The Court in Touche Ross, however, declined to find a

general implied private right of action for violations of the Act arising

out of § 27 of the 1934 Act, which grants to the federal district courts

exclusive jurisdiction over violations of the Act and suits to enforce

any liability or duty created by the Act or rules thereunder. See 442

U.S. at 576-78. The Court reasoned that “[t]he source of plaintiffs’

rights must be found, if at all, in the substantive provisions of the

1934 Act which they seek to enforce, not in the jurisdictional

provision.” Id. at 577. 

The Court also has held that “the scope of liability created by
11

a particular section of the [securities laws] must rest primarily on the

language of that section.” Pinter, 486 U.S. at 653; see also Central

Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511

U.S. 164, 173-78 (1994) (holding that a private plaintiff could not

bring an aiding and abetting suit under § 10(b) because the text of §

10(b) did not reach aiding and abetting); Ballay, 925 F.2d at 687-89

(holding that the text of § 12(2) of the 1933 Act did not create a cause

of action for an oral misrepresentation in the secondary market).

Similarly, the Court has looked primarily to the specific language of

the relevant provisions when deriving the scienter requirements for

actions arising under those provisions. See Aaron, 446 U.S. at 689-97

(construing § 17(a)(1), § 17(a)(2), and § 17(a)(3) of the 1933 Act and

§ 10(b) of the 1934 Act); Ernst & Ernst v. Hochfelder, 425 U.S. 185,

197-201 (1976) (construing § 10(b)). Nonetheless, the Court has also

cited the remedial purposes of the securities laws when defining

specific terms. See generally Landreth Timber Co. v. Landreth, 471

U.S. 681 (1985) (construing the term “security” under the 1933 and

1934 Acts); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 444-49

(1976) (construing the term “material fact” under Rule 14a-9).

Finally, citing the remedial purposes of the securities laws, the

Court has held that the existence of an express private action under

one provision of the securities laws does not preclude the existence

of an overlapping implied private cause of action under another

provision where the two provisions address “different types of

wrongdoing.” See Herman &MacLean v. Huddleston, 459 U.S. 375,

381-87 (1983) (holding that an express remedy under § 11 of the

1933 Act for misleading registration statements did not preclude an

overlapping implied private cause of action for fraudulent

misrepresentation under § 10(b) of the 1934 Act). The Court in

Huddleston reasoned that this “cumulative construction of the

securities laws . . . furthers their broad remedial purposes.” Id. at

386. The Court also noted that if defrauded purchasers of securities

could rely only on § 11, they would have no recourse against certain

individuals who could not be reached under § 11, “even if the
 In addition, Bruno must have controlled Barclay within the 8

meaning of § 20(a). See 15 U.S.C. § 78t(a). Further, Bruno

must have directly or indirectly induced the act or acts

constituting the violation or cause of action giving rise to the

controlled person’s liability. See id. Finally, Bruno must have

been a “culpable participant” in the “act or acts constituting the

violation or cause of action.” See Rochez Bros. v. Rhoades, 527

F.2d 880, 889-90 (3d Cir. 1975). These issues are not before us

on this appeal, but we note that the undisputed facts set forth by

the SEC in its unopposed motion for summary judgment

established that Bruno had the authority and ability to direct

Barclay to pay the penalty. Accordingly, the District Court

correctly held that Bruno controlled Barclay within the meaning

of § 20(a). Similarly, the undisputed facts established that

Bruno’s transfer of Barclay’s assets to himself and another

12

excluded parties engaged in fraudulent conduct while participating in

the registration statement.” Id. at 386 n.22. Accordingly, the Court

observed that without a cumulative construction of § 10(b), “[t]he

exempted individuals would be immune from federal liability for

fraudulent conduct even though Section 10(b) extends to ‘any person’

who engages in fraud in connection with a purchase or sale of

securities.” See id.

III.

The plain language of § 20(a) supports our holding that the

SEC had a claim for payment from Bruno under § 20(a) because

Bruno was jointly and severally liable to the SEC for a debt in the

amount of Barclay’s unpaid penalty. In order for Bruno to be jointly

and severally liable to the SEC under § 20(a): (1) the SEC has to be

a person; (2) to whom the controlled person, Barclay, was liable; (3)

as a result of some act or acts constituting a violation or cause of

action under any provision of the Exchange Act or any rule or

regulation thereunder. See 15 U.S.C. § 78t(a).8
employee caused Barclay’s inability and subsequent failure to

pay the penalty, and therefore the District Court correctly held

that Bruno both induced and was a culpable participant in

Barclay’s failure to pay the penalty.

 Section 20(b) provides: 9

(b) Unlawful activity through or by means of any

other person

It shall be unlawful for any person, directly or

indirectly, to do any act or thing which it would

be unlawful for such person to do under the

provisions of this chapter or any rule or regulation

thereunder through or by means of any other

person.

15 U.S.C. § 78t(b).

13

A.

We join the Second Circuit and hold that the SEC is a

“person” within the meaning of § 20(a). See First Jersey, 101 F.3d

at 1472. We therefore decline to join the Sixth Circuit’s contrary

holding that the SEC is not a “person” under § 20(a). See Coffey, 493

F.2d at 1318.

The Sixth Circuit in Coffey reasoned that because § 20(b) of

the Exchange Act “sets forth the standard of lawfulness to which a 9

controlling person must conform, on penalty of liability in injunction

to the SEC or criminal prosecution,” § 20(a) was meant only “to

specify the liability of controlling persons to private persons suing to

vindicate their interests.” Id. Accordingly, the Sixth Circuit held that

the SEC was “not a person under section 20(a)” and that the SEC

could not rely on § 20(a) when seeking personal injunctions against

corporate officials for a corporation’s alleged violations of the

securities laws. Id.
 Subsequent legislative history confirms our construction of 10

§20(a) in light of the Exchange Act’s statutory definition of

“person.” In the Insider Trading Sanction Act of 1984, 98 Stat.

1264, Congress authorized the SEC to collect civil penalties for

insider-trading violations, but also specifically exempted this

new provision from the operation of § 20(a). See id. (“Section

20(a) of this title . . . shall not apply to an action brought under

this paragraph.”). The House Report stated that this legislation

nonetheless “would not change existing law with respect to

other Commission remedies that may be used against these

classes of law violators. . . . Under current law, the Commission

could impose liability on a controlling person under Section

20(a) of the Exchange Act. . . . The bill does not alter this

situation in any way.” 1983 House Report, H.R. Rep. No. 98-

355, 98 Cong. 1st Sess. 10 (Sept. 15, 1983), reprinted in 1984

U.S.C.C.A.N. 2274. Accordingly, although this legislative

14

Regardless of the merits of this reasoning in 1974, the Sixth

Circuit’s conclusion that the SEC is not a person under § 20(a) was

severely undermined in 1975, when an amendment to the Exchange

Act modified the Exchange Act’s definition of “person.” See 15

U.S.C. § 78c(a)(9) (1975 Amendments). As of 1974, the Exchange

Act had defined a “person” as “an individual, a corporation, a

partnership, an association, a joint stock company, a business trust, or

an unincorporated organization.” The 1975 amendment, however,

explicitly expanded the scope of the Exchange Act’s definition of a

“person” so as to include governments and government agencies,

changing it to “a natural person, company, government, or political

subdivision, agency, or instrumentality of a government.” Id.

Accordingly, while the Sixth Circuit’s limitation of § 20(a)

claims to “private persons” may have been supported by the

Exchange Act’s statutory definition of “person” as of 1974, the

Exchange Act’s current statutory definition of “person” explicitly

includes government agencies such as the SEC. Consequently, we 10
history does not describe in detail how the SEC could make use

of § 20(a), the 1984 Congress apparently construed § 20(a) as

potentially providing standing to the SEC in civil penalty cases

such that Congress deemed it necessary to specifically exempt

this new penalty provision from the operation of § 20(a).

 The Exchange Act provides that its statutory definitions are 11

to be used “unless the context otherwise requires.” See 15

U.S.C. § 78c(a). As discussed in Part III.D, infra, our

construction of § 20(a) serves the remedial purposes of the

Exchange Act, and so we hold that the context supplied by §

20(a) does not require us to use a more limited definition of

“person.”

15

agree with the Second Circuit that the plain language of 15 U.S.C.

78c(a)(9), as amended in 1975, requires our holding that the SEC is

a “person” who may bring a claim under § 20(a). See First Jersey,

101 F.3d at 1472.11

B.

We further hold that in the circumstances of this case, Barclay

was liable to the SEC for a debt in the amount of the unpaid penalty

within the meaning of § 20(a). We begin with the observation that §

20(a) explicitly provides for a control person’s joint and several

liability. “A liability is joint and several when ‘the creditor may sue

one or more of the parties to such liability separately, or all of them

together, at his [or her] option.’” United States v. Gregg, 226 F.3d

253, 260 (3d Cir. 2000) (citation omitted). Accordingly, “an assertion

of joint and several liability is an assertion that each defendant is

liable for the entire amount, although the plaintiff only recovers the

entire amount once.” Golden v. Golden, 382 F.3d 348, 355 n.5 (3d

Cir. 2005) (emphasisin original). Joint and several liability can arise

in many different contexts. See, e.g., id. (various torts); Gregg, 226

F.3d at 260 (statutory damages for violations of the Freedom of
 For the purposes of § 20(a), the financial obligation of the 12

controlled person to the creditor must arise under the Exchange

Act or any rule or regulation thereunder. See 15 U.S.C. § 78t(a).

 The SEC conceded in its briefs that: (1) Barclay was not 13

liable to the SEC for the unpaid penalty until Barclay failed to

pay the penalty order; (2) Barclay’s failure to pay the penalty

order did not occur until thirty days after the administrative

proceedings concluded; and (3) Bruno’s joint and several

16

Access to Clinic Entrances Act); Janney Montgomery Scott, Inc. v.

Shepard Niles, Inc., 11 F.3d 399, 406 (3d Cir. 1993) (co-obligors

under a contract).

In this case, the relevant liability of the controlled person for

the purpose of defining the control person’s joint and several liability

under § 20(a) is the controlled person’s obligation to pay some

amount to a creditor when that claim for payment arises under the

securities laws. Given the uncontested facts of this case, we hold 12

that Barclay was liable to the SEC within the meaning of § 20(a) for

a debt in the amount of the unpaid penalty. On this issue, we take

note of the definitions of “debt” and “debtor” in the Federal Debt

Collection Procedures Act, 28 U.S.C. § 3001 et seq. That Act defines

a “debt” to the United States in part as “an amount that is owing to

the United States on account of a . . . penalty . . . .” 28 U.S.C. §

3002(3)(B). A “debtor” in turn is a “person who is liable for a debt

or against whom there is a claim for a debt.” 28 U.S.C. § 3002(4).

Although these definitions do not appear in the Exchange Act,

we find them instructive on the general relationship between unpaid

penalties and the liability of persons to the United States and its

agencies. In accordance with these definitions, we hold that when

Barclay failed to pay its penalty within thirty days after the SEC

issued its Order and the administrative proceedings concluded,

Barclay became a debtor to the SEC. Barclay thus was liable for a 13
liability under § 20(a) for the amount of the unpaid penalty did

not arise until that date. Consequently, we also hold that

Bruno’s joint and several liability for this debt under § 20(a) did

not arise until that time.

Because of the limited nature of the SEC’s claim in this 14

case, we need not reach the issue of whether the SEC could have

used § 20(a) to impose joint and several liability on Bruno

insofar as he may have induced and been a culpable participant

in Barclay’s violations of § 17(a) and Rule 17-a-5, rather than

insofar as he induced and was a culpable participant in Barclay’s

failure to pay the penalty. Nonetheless, we note that such a

claim would have sought to impose derivative legal liability on

Bruno for Barclay’s violations of the Exchange Act, and we

agree with the Sixth Circuit in Coffey that § 20(b), not § 20(a),

defines the general “standard of lawfulness to which a

controlling person must conform.” See 493 F.2d at 1318. We

also agree with the United States District Court for the District

of Oregon, which reasoned that while a control person could be

held liable in an SEC enforcement action under § 20(b) for

certain violations committed by a controlled person, in such a

case the SEC itself would not be an “injured party,” and the

defendants in such an enforcement action would not be “liable

to the SEC the way that [they] would be liable to a private

plaintiff.” Stringer, WL 23538011 at *6. In our case, however,

the SEC is not claiming that Barclay is liable to the SEC for its

violations of § 17(a) and Rule 17-a-5, but rather that Barclay is

liable to the SEC for a debt in the amount of its unpaid penalty.

Barclay in that sense is liable to the SEC for this debt just as any

debtor would be liable to a private creditor because of the

debtor’s unpaid financial obligation to the claimant. Similarly,

Bruno is individually liable to the SEC for this debt just as any

jointly and severally liable party would be individually liable to

17

debt to the SEC in the amount of this unpaid penalty as of that date.

14
a private creditor because of the debtor’s unpaid financial

obligation to that creditor.

 We note again that the relevant act was not Barclay’s 15

original violation of § 17(a) and Rule 17-a-5, and that the SEC

has not sought to impose control person liability on Bruno for

that act. Rather, the only relevant act was Barclay’s failure to

comply with the Order by failing to pay its penalty within thirty

days. The control person, however, need not have induced a

violation of the Exchange Act in order to have joint and several

liability under § 20(a). The plain language of § 20(a) provides

that the control person must have induced “the act or acts

constituting the violation or cause of action.” See 15 U.S.C. §

78t(a) (emphasis added). The disjunctive “or” in this clause

implies that joint and several liability for control persons can

arise under § 20(a) where the control person has induced acts

which constitute a cause of action arising under the Exchange

Act, even if the control person did not induce acts which

constitute a violation under the Exchange Act.

18

C.

Finally, we hold that Barclay’s failure to pay the penalty was

an act constituting a cause of action under a provision of the

Exchange Act, specifically § 21(e). We have noted that a “cause of 15

action” has been defined as “the fact or facts which give a person a

right to judicial relief . . . [or] to institute judicial proceedings.” In re

Remington Rand Corp., 836 F.2d 825, 830 n.5 (3d Cir. 1988)

(quoting Black’s Law Dictionary 201 (5th ed. 1979)). In this case,

the relevant facts arose when Barclay failed to pay its penalty within

thirty days as provided by the Order. At that point, the SEC had a

cause of action against Barclay arising under a provision of the

Exchange Act because § 21(e) provides in part that the district courts
 The amicus, relying on a Ninth Circuit case, SEC v. 16

McCarthy, 322 F.3d 650 (9th Cir. 2003), argues that an SEC

application pursuant to § 21(e) does not commence an “action,”

and therefore that Barclay’s failure to pay the penalty did not

constitute a “cause of action.” Relying on the definition of

“application” in Black’s Law Dictionary, the Ninth Circuit in

McCarthy distinguished “applications” from “actions” for the

purpose of determining whether SEC applications brought under

§ 21(e) require a formal complaint and full formal proceedings

pursuant to the Federal Rules of Civil Procedure. See id. at

656-57. Regardless of the merits of that distinction in the

context of that case, we do not find that distinction applicable to

the issue of whether the failure to comply with an SEC order

constitutes a “cause of action” under § 21(e). In fact, Black’s

Law Dictionary defines an “action” as any “civil or criminal

judicial proceeding,” and this broad definition is supported by

the following reasoning:

An action has been defined to be an ordinary

proceeding in a court of justice, by which one

party prosecutes another party for the enforcement

or protection of a right, the redress or prevention

of a wrong, or the punishment of a public offense.

But in some sense this definition is equally

applicable to special proceedings. More

accurately, it is defined to be any judicial

proceeding, which, if conducted to a

determination, will result in a judgment or decree.

19

of the United States, upon application by the SEC, shall have

jurisdiction to issue orders commanding any person to comply with

the SEC’s orders. See 15 U.S.C § 78u(e). Accordingly, the SEC was

entitled to obtain judicial relief against Barclay in the District Court

when Barclay violated the Order by failing to pay its penalty within

thirty days. Barclay’s failure to pay the penalty thus was an act giving

rise to a cause of action under the Exchange Act.16
The action is said to terminate at judgment.

Black’s Law Dictionary 31 (8th ed. 2004) (quoting 1 Morris M.

Estee, Estee’s Pleadings, Practice, and Forms § 3, at 1 (Carter P.

Pomeroy ed., 3d ed. 1885)). The “special proceedings” in a

district court following an SEC application brought under §

21(e) fit this general definition of an “action”–even if they are

not conducted as full civil actions governed by the Federal Rules

of Civil Procedure–because they are judicial proceedings which

terminate in a judgment or decree. Consequently, the Ninth

Circuit’s holding in McCarthy that applications under § 21(e)

are not full civil actions within the meaning of the Federal Rules

of Civil Procedure is not inconsistent with our holding that a

party’s failure to comply with an SEC order is a “cause of

action” under § 21(e).

 Because the plain language of § 20(a)–including the 17

Exchange Act’s statutory definition of “person”–supports our

construction of § 20(a), this is not a case in which we are using

the general remedial purposes of the securities laws to justify a

departure from the language of § 20(a). Cf. Pinter, 486 U.S. at

20

D.

In sum, the plain language of § 20(a) requires our holding that

the SEC had a claim for payment from Bruno under § 20(a) because

Bruno was jointly and severally liable to the SEC for a debt in the

amount of Barclay’s unpaid penalty. The SEC was a person to whom

Barclay was liable as the result of an act constituting a cause of action

under the Exchange Act. Bruno, who controlled Barclay, induced and

was a culpable participant in the act constituting this cause of action,

and therefore he was jointly and severally liable for this debt in the

amount of the unpaid penalty.

We further note that our construction of § 20(a) serves the

remedial purposes of the Exchange Act. With a more narrow 17
653. Similarly, because § 20(a) is a substantive liability

provision, we are not implying that the SEC has a claim against

Bruno merely on the basis of a jurisdictional provision. Cf.

Touche Ross, 442 U.S. at 577. Finally, as we did in Rochez

Bros., 527 F.2d at 889-90, we are looking to the language of §

20(a) to define the scienter requirements for control persons

under § 20(a). Cf. Aaron, 446 U.S. at 689-97. Accordingly, it

is appropriate for us to consider the remedial purposes of the

securities laws as we construe § 20(a).

21

construction of § 20(a), the deterrent effects of civil penalties arising

under the Exchange Act would be diluted in cases such as this one

where a closely-held firm is subject to a penalty, and the persons

controlling the firm transfer the firm’s assets to themselves, causing

the firm to be unable to pay its penalty. Although § 20(b) may

provide an overlapping remedy in some such cases, control persons

who induce the transfers of the firm’s assets to themselves may not

have participated in the underlying violations. In that sense, our

cumulative construction of § 20(b) and § 20(a) targets different forms

of wrongdoing, and thus § 20(a), given our construction, could reach

wrongdoers who might otherwise escape liability under § 20(b).

Consequently, our construction of § 20(a) is also supported by the

remedial purposes of the Exchange Act. Cf. Huddleston, 459 U.S. at

381-87.

IV.

Our holding that the SEC had a claim for payment from Bruno

under § 20(a) because of his joint and several liability for a debt in the

amount of the unpaid penalty does not itselfimply that the SEC could

assert this claim in its Application under § 21(e). Bruno has argued

that because he was not a party to the Order, he could not be ordered

to pay the penalty on Barclay’s behalf. The amicus also has reasoned
 The amicus cites SEC v. Cherif, 933 F.2d 403, 413 (7th Cir.

18

1991), for the proposition that § 21(e) cannot be used to impose

individual liability on a party not named in the administrative

proceedings and not alleged to have violated the Exchange Act.

In Cherif, the party accused of violating the securities laws had

allegedly been using the non-party’s brokerage account to make

trades. Id. at 406-07. In a § 21(e) application, the SEC sought

a preliminary injunction freezing the assets in the non-party’s

account, but the SEC did not claim that the account holder

himself had violated the securities laws. Id. at 413. The

Seventh Circuit held that “[n]othing in the statute or case law

suggests that [§ 21(e)] authorizes a court to freeze the assets of

a non-party, one against whom no wrongdoing is alleged.” Id.

at 413-14 (emphasis added). Accordingly, Cherif is

distinguishable from our case because here the SEC alleged in

its application that Bruno “knowingly failed to cause Barclay to

comply with the Commission’s order,” and we hold that this was

an allegation of wrongdoing for the purpose of finding Bruno

jointly and severally liable for a debt in the amount of the unpaid

penalty under § 21(a). Indeed, the Seventh Circuit’s

wrongdoing requirement for new claims brought under § 21(e),

as stated in Cherif, will automatically be satisfied when the new

claims are properly stated against a control person under § 20(a)

in a § 21(e) application. That is because one element of control

person liability under § 20(a) is that the control person was a

“culpable participant” in the controlled person’s act or acts

constituting the violation or cause of action. See Rochez Bros.,

527 F.2d at 889-90. 

22

that § 21(e) is merely an enforcement mechanism for existing SEC

orders and that the District Court did not have jurisdiction to issue

this judgment and order against Bruno. We hold, however, that the 18

plain language of § 21(e), interpreted in light of the broad remedial

purposes of theExchange Act, grants jurisdiction to the district courts

to order control persons who are jointly and severally liable under §
23

20(a) to fulfill their individual financial obligations to the relevant

claimant, even where those control persons are not subject to an

existing SEC order.

 We begin again with the text of the relevant provision. By its

plain terms, the grant of jurisdiction to the district courts in § 21(e) is

not limited to ordering persons subject to existing SEC orders to

comply with those orders. Rather, the broad language of § 21(e)

empowers the district courts “to issue writs of mandamus,

injunctions, and orders commanding [] any person to complywith the

provisions of [the Act], the rules, regulations, and orders thereunder

. . . .” See 15 U.S.C. § 78u(e).

In this case, we hold that the District Court’s order directing

Bruno to pay Barclay’s unpaid penalty was an order commanding

Bruno to comply with his obligations under § 20(a). As discussed in

Part III.B, supra, when a party is jointly and severally liable for a

financial obligation, that party is individually responsible for paying

the entire amount of the obligation to the creditor. Accordingly,

insofar as Bruno was jointly and severally liable for Barclay’s debt to

the SEC under § 20(a), § 20(a) created a duty on Bruno’s behalf to

pay the entire amount of this obligation to the SEC. In that sense, the

District Court simply commanded Bruno to comply with his duties as

defined by § 20(a), and therefore the District Court had jurisdiction

to issue this order under § 21(e).

We note again that while our construction of § 21(e) is based

primarily on the plain language of the provision, it is further

supported by the broad remedial purposes of the Exchange Act. In

this case, as the SEC conceded, Bruno’s joint and several liability

under § 20(a) did not arise until Bruno induced and culpably

participated in Barclay’s failure to pay the penalty within thirty days

as required by the Order. Accordingly, the SEC could not have

ordered Bruno to comply with his duties under § 20(a) in the original
 Bruno argues that the SEC should be required to institute a 19

new administrative proceeding, naming him as a party, if it

wishes to impose a civil penalty on him through § 20(a). As

Bruno rightly points out, however, the SEC can assess monetary

penalties in administrative proceedings only if the party has

willfully participated in a violation of the securities laws. See

15 U.S.C. 78u-2(a). The SEC has not claimed that Bruno

participated in Barclay’s violations of § 17(a) and Rule 17-a-5,

nor has the SEC claimed that Bruno has “violated” § 20(a).

Rather, the SEC is merely seeking payment of a financial

obligation for which Bruno is jointly and severally liable under

§ 20(a). Accordingly, the SEC could not seek to impose a

monetary penalty on Bruno through an administrative

proceeding on the basis of its § 20(a) claim, and for that reason

the remedial purposes of the Exchange Act are served by our

holding that the SEC can assert such a claim in a § 21(e)

application instead.

 The amicus suggests that rather than claiming a right to 20

payment from Bruno arising under § 20(a) in a § 21(e)

application, the SEC could have asserted a right to payment

from Bruno arising under some other state or federal statute in

a separate civil action. Because we hold that the plain language

of § 20(a) made Bruno individually liable to the SEC for a debt

in the amount of the unpaid penalty, and that the plain language

of § 21(e) granted the District Court jurisdiction to order Bruno

24

Order because Bruno did not yet have any such duties. In contrast, 19

when Barclay failed to pay the penalty within thirty days, the SEC’s

cause of action against Barclay under § 21(e) arose. Consequently,

our construction of § 21(e) serves the remedial purposes of the

Exchange Act because it allows the SEC to seek court orders

directing payment for an unpaid penalty from all of the parties who

are jointly and severally liable for such a penalty, and to do so in a

single proceeding and at the first possible opportunity.20
to comply with his duties under § 20(a), we need not consider

the availability of other remedies.

V.

Following discovery and the SEC’s unopposed motion for

summary judgment, the District Court correctly held that the

undisputed facts of this case established that Bruno was jointly and

severally liable under § 20(a) for Barclay’s unpaid penalty. Further,

the District Court properly concluded that it had jurisdiction under §

21(e) to order Bruno to comply with his obligations under § 20(a).

While we base both of these holdings primarily on the plain language

of the relevant provisions, we also note that this construction of §

20(a) and § 21(e) serves the remedial purposes of the Exchange Act.

In short, this construction of the relevant provisions facilitates the

collection of SEC penalties in cases where people who control a

person subject to an SEC penalty culpably attempt to transfer the

assets of the controlled person to themselves rather than directing the

controlled person to pay its penalty. Facilitating the collection of

SEC penalties in such cases helps to give those penalties their full

intended deterrent effect, which in turn serves the remedial purposes

of the Exchange Act. Accordingly, we will affirm the judgment of

the District Court.