2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

3-17-2008

Amanat v. SEC

Precedential or Non-Precedential: Non-Precedential

Docket No. 06-5209

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Recommended Citation

"Amanat v. SEC" (2008). 2008 Decisions. Paper 1437.

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 06-5209

 

IRFAN MOHAMMED AMANAT,

 Petitioner

v.

SECURITIES AND EXCHANGE COMMISSION,

 Respondent

 

PETITION FOR REVIEW OF AN ORDER OF THE

SECURITIES AND EXCHANGE COMMISSION

No. 3-11813

 

Argued: March 5, 2008

 

Before: BARRY, JORDAN and HARDIMAN, Circuit Judges

(Opinion Filed: March 17, 2008)

 

Martin S. Siegel, Esq. (Argued)

David J. Molton, Esq.

Brown Rudnick Beriack Israels

7 Times Square

New York, NY 10036

Counsel for Petitioner
2

Susan S. McDonald, Esq. (Argued)

Securities & Exchange Commission

100 F Street, N.E. 

Washington, DC 20549

Counsel for Respondent

 

OPINION

 

BARRY, Circuit Judge

Petitioner Irfan Amanat seeks review of the decision of the Securities and

Exchange Commission (the “Commission”) finding that he willfully violated § 10(b) of

the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17

C.F.R. § 240.10b-5. We will deny the petition.

I.

Because we write only for the parties, familiarity with the facts is presumed, and

we include only those facts that are relevant to our analysis.

Amanat was the Chief Technology Officer for Tradescape Corp. (“Tradescape”), a

securities and technology company. Tradescape was the parent company of several

securities trading entities. One such entity was MarketXT, an electronic communications

network that also was a registered broker-dealer and a member of the National

Association of Securities Dealers (“NASD”), and thus eligible to trade on NASDAQ. In

late 2001, Amanat learned that NASDAQ had instituted a rebate program to share with
 1

 NASDAQ was a member of the Consolidated Tape Association (“CTA”). The CTA

gathered trading data from its members – NASDAQ and the major U.S. securities

exchanges – consolidated that data, and sold it to vendors such as Reuters and Bloomberg

who then disseminated it to investors. The CTA earned substantial revenue from selling

this data (“market data revenue”), which it distributed to its members based on the

number of qualifying trades each member reported.

3

NASD members a portion of the revenue it earned by selling transaction data – so-called

“market data revenue”1

 – provided the members met a minimum threshold of qualifying

trades during the financial quarter. As a NASD member, MarketXT was eligible to

participate in the rebate program, and Amanat became interested in obtaining a rebate for

the quarter ending March 31, 2002. However, as of mid-March, MarketXT was not on

pace to meet the minimum threshold of qualifying trades.

Recognizing that MarketXT needed to generate a large number of trades in a short

period of time to qualify for a rebate, Amanat enhanced an existing computer program he

had designed to automatically execute qualifying trades. Every few seconds, the program

placed a pair of market orders – one “buy” order and one “sell” order – for the same

number of shares of the same security. The orders were placed on MarketXT, ostensibly

to be routed out to the market (i.e., to NASDAQ). One second or less separated the buy

order from the corresponding sell order, and only a few seconds separated each

consecutive buy/sell pair. Amanat testified that he believed the buy order would be

routed out to the market before the sell order hit MarketXT’s system. However,

apparently because of the manner in which the program was coded, or perhaps because of

alterations made to MarketXT’s order processing system, thousands of Amanat’s buy
4

orders were held on MarketXT’s system long enough to execute against his sell orders. 

Nevertheless, even after learning that there were problems with his trades, Amanat (on

behalf of MarketXT) sought and obtained a rebate of approximately $50,000.

The Commission’s Division of Enforcement instituted civil administrative

proceedings against Amanat, alleging that he willfully violated § 10(b) and Rule 10b-5 by

generating thousands of wash sales and matched orders in order to receive a NASDAQ

rebate. Following a five-day hearing, an Administrative Law Judge ruled in favor of

Amanat. On administrative appeal, the Commission conducted an independent review of

the record and reversed, finding that Amanat willfully violated § 10(b) and Rule 10b-5. 

The Commission barred him from associating with any broker-dealer for a period of five

years, entered a cease and desist order, and imposed a civil monetary penalty of $60,000.

In his petition, Amanat challenges the Commission’s conclusion that he willfully

violated § 10(b) and Rule 10b-5, and claims that the sanctions imposed are unreasonable.

II.

We have jurisdiction to review a final order of the Commission pursuant to 15

U.S.C. § 78y(a)(1). “Commission findings of fact are conclusive for a reviewing court ‘if

supported by substantial evidence.’” Levine v. SEC, 407 F.3d 178, 182 (3d Cir. 2005)

(citation omitted). Substantial evidence exists if “a reasonable mind might accept [the]

evidentiary record as adequate to support [the Commission’s] conclusion.” Bradbury v.

SEC, 512 F.3d 634, 639 (D.C. Cir. 2008) (citation omitted); see also Monetta Fin. Servs.,

Inc. v. SEC, 390 F.3d 952, 955 (7th Cir. 2004) (“Substantial evidence includes such
5

evidence as a reasonable mind might accept as adequate to support a conclusion.”)

(citation and internal quotation marks omitted). With respect to legal conclusions, “[t]he

SEC’s interpretation of ambiguous text in the Exchange Act is ‘entitled to deference if it

is reasonable.’” Levine, 407 F.3d at 182 (citation omitted).

The Commission’s choice of sanctions is reviewed for abuse of discretion, and we

will overturn the imposition of a particular sanction only if it is “unwarranted in law

or...without justification in fact.” American Power & Light Co. v. SEC, 329 U.S. 90, 112-

13 (1946); see also Lowry v. SEC, 340 F.3d 501, 504 (8th Cir. 2003); Rizek v. SEC, 215

F.3d 157, 160 (1st Cir. 2000); Markowski v. SEC, 34 F.3d 99, 105 (2d Cir. 1994).

III.

Amanat challenges the Commission’s conclusion – set forth in a comprehensive,

twenty-four page opinion – that he willfully violated § 10(b) and Rule 10b-5. Based on

its independent review of the record, the Commission found that Amanat designed and

operated his automatic trading program for the sole purpose of capturing rebate revenue,

knowingly engaged in thousands of wash sales and matched orders at the end of the

financial quarter to meet the eligibility threshold, and – despite having been told that his

trades were “wrong” – contacted NASDAQ to request payment. The Commission further

found that, as a result of Amanat’s conduct, the CTA was deceived into paying money to

NASDAQ (some of which was rebated to MarketXT) that it would not have paid had it

known the true nature of Amanat’s trades. Were we permitted to conduct a de novo

review of the record, we might well reach a different conclusion with respect to certain of
6

the Commission’s findings. However, under the deferential substantial evidence standard

of review, we are bound to accept those findings so long as they are based on evidence

that “a reasonable mind might accept as adequate to support a conclusion.” Monetta Fin.

Servs., 390 F.3d at 955. The Commission’s findings easily satisfy that test whether

judged under a specific intent or a recklessness requirement. Because the conclusion

reached by the Commission, i.e., that Amanat willfully violated § 10(b) and Rule 10b-5,

is reasonable and supported by substantial evidence, we will not disturb it.

Amanat also challenges the sanctions imposed by the Commission. We recognize

that the sanctions are harsh. However, the Commission found that Amanat’s violation

was serious and capable of repetition. It also found that, as a result of his youth,

experience and continuing involvement in the financial industry, he posed a risk of

violating the securities laws in the future. Those findings are supported by substantial

evidence. In light of those findings, and recognizing the Commission’s expertise in these

matters, see American Power & Light, 329 U.S. at 112-13, we find that the sanctions

imposed were a proper exercise of the Commission’s discretion. 

IV.

For the foregoing reasons, we will deny the petition for review.