15-621 West v. SEC UNITED STATES COURT OF APPEALS FOR THE SECO ND CIRCUIT
SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JA NUARY 1, 2007, IS PE RMITTED AND IS GOVERNE D BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT = S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (W ITH THE NOTATION A SUMMARY ORDER @ ). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL. At a stated term of the United States Cour t of Appeals for the Se cond Circuit, held at 1 the Thurgood Marshall United Stat es Courthouse, 40 Foley Sq uare, in the City of New 2 York, on the 2 nd day of February, two thousand sixteen. 3 4 PRESENT: 5 GUIDO CALABRESI, 6 GERARD E. LYNCH, 7 RAYMOND J. LOHIER, JR., 8 Circuit Judges. 9

___________________ __________________ 10 11 BLAIR ALEXANDER WEST, 12 Petitioner , 13 14 v. No. 15-621 15 16 UNITED STATES SECURITIES AND 17 EXCHANGE COMMISSION, 18 Respondent . 19

___________________ __________________ 20 21 FOR PETITIONER: STANFORD R. SOLOMON, The 22 Solomon Law Group, P.A., Tampa, FL. 23 24 FOR RESPONDENT: THEODORE J. WEIMAN (Anne K. 25 Small, Michael A. Conley, Jacob H. 26 Stillman, Jeffrey A. Berger, on the brief ), 27 Securities and Exchange Commission, 28 Washington, D.C. 29 302 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, 1 AND DECREED that the petition for review is DENIED and the order of the Securities 2 and Exchange Commission is AFFIRMED. 3 Petitioner Blair Alexander West seeks revi ew of an order of the Securities and 4 Exchange Commission (“SEC”) affirming disc iplinary action taken against West by the 5 Financial Industry Regulatory Authority (“FINR A”) for misusing client funds in violation 6 of NASD Conduct Rule 2110. 1 FINRA sanctioned West by permanently barring him from 7 associating with any FINRA member firm. We assume the parties’ familiarity with the 8 underlying facts, and the proce dural history of the case. 9 West makes three main arguments in this petiti on, all of which lack merit. First, he 10 argues that the SEC order affirming FINRA’s sanctions was not supported by substantial 11 evidence. Second, he contends that the sanction imposed was excessive. Finally, he 12 argues the SEC erred by failing to hold oral argument. 13 (1) “[W]e will affirm the SEC's findings of fact if supported by substantial 14 evidence.” VanCook v. SEC, 653 F.3d 130, 137 (2d Cir. 2011). “Substantial evidence” 15 is “more than a mere scintilla. It means su ch relevant evidence as a reasonable mind 16 might accept as adequate to support a conclusi on.” Richardson v. Pe rales, 402 U.S. 389, 17 401 (1971) (internal quotation marks omitted). Under this “very deferential standard of 18

1 NASD Conduct Rule 2110 requires members to “ observe high standard s of commercial honor and just and equitable principles of trade.” After FINRA initiated this action, FINRA renamed NASD Rule 2110 FINRA Rule 2010 without substa ntive change. Order Approving FINRA’s Adoption of Certain FINRA Rules in the Consolidated Rulebook, 73 Fed. Reg. 57,174 (Oct. 1, 2008). We apply the rule in effect at the time of the misconduct.3 review,” “once [the agency] finds facts, we can reject those facts only if a reasonable 1 factfinder would have to conc lude otherwise.” Brault v. Social Sec. Admin., 683 F.3d 2 443, 448 (2d Cir. 2012) (internal quotation marks and emphasis omitted). 3 West does not dispute that he used client funds placed with him as a deposit pending 4 closure of a purchase lease-back deal to pay his own personal an d business expenses. 5 Rather, West contends that an agreement with his client, Am eriChip International, Inc. 6 (“ACII”), permitted him to use the funds placed with him for any purp ose. Upon review 7 of the record, we conclude that the SEC properly found that “there was no 8 misunderstanding over the custome r’s intended use of the funds, ” J.A. 1008, and that West 9 misused the funds “[n]otwithst anding the clear limitations on the use of the [d]eposit until 10 the transaction closed.” J.A. 1003. The contract governing the deposit, of which West 11 was aware, specified that the deposit would be “held until closing” and returned to ACII 12 “promptly” if the transaction di d not close. Id. In Decemb er 2008, ACII transferred the 13
funds to an accoun t labeled “Crusader Securities LLC Escrow Account,” 2 evidencing the 14 parties’ understanding that the funds would, in fact, be held in escrow. Drew Mouton, a 15 member of ACII’s board, testifie d that he assumed the funds w ould be kept in an escrow 16

account. Furthermore, West’s own conduct at the tim e indicates that he did not believe he 17 had the right to spend the de posit on personal expenses. Despite spending the deposit 18 almost immediately after it was transferred to him, West repeatedly lied to Mouton about 19 when the funds would be retu rned and never disclosed to Mouton that he had spent the 20

2 West is the sole principal of Crusader S ecurities LLC, a former FINRA member firm.4 deposit on personal and business expenses. West did not retu rn the deposit until April 29, 1 2009, more than two months afte r Mouton had initially requested the return of the deposit. 2 In support of his argument that ACII had ag reed that he could use the funds for his 3 own purposes, West relies pr imarily on a letter submitted by Mouton to FINRA on May 26, 4 2009 seeking withdrawal of his FINRA complaint. 3 The letter states, in pertinent part, that 5 there was no written agreement between ACII a nd West regarding the use of the deposit 6 and “since there was no written agreement . . . , the deposit was unrestricted and was at 7 [West’s] discretion during the intervening period.” J.A. 90 9. The SEC was entitled to 8 give this letter minimal weight, however, as it was submitted only after the funds were 9 repaid and was contradicted by contemporane ous evidence, in cluding two months of email 10 exchanges wherein West did not disclose to Mouton that he had used the money for his 11
own expenses. 4 Moreover, while Mouton did testify that he “didn’t believe that [the 12 letter] . . . was false,” J.A. 404, he also testified that he did not believe that West had the 13 right to use the deposit for West’s business e xpenses and that he a ssumed the funds would 14 be held in an escrow account. Additionally, Mouton stated in a swor n declaration that he 15 had not given West authority to use the funds at his discretion, or even discussed that 16

3 West also cites the non-standard nature of the tr ansaction, and lack of written escrow agreement, as evidence that he was entitle d to use the funds for his bus iness and personal expenses. However, the lack of written restrictions on West’s use of the funds does no t mean that the parties agreed there would be no restrictions.

4 Additionally, Mouton stated in an email exch ange that “his only complaint was with the non-receipt of funds,” and that he would “have no problem pulling [his] complaints when the transfer occurs.” J.A. 753.5 subject with him, and clarified that he submitted the letter b ecause he felt that he “should 1 have done a better job sp ecifying use and any restrictions to use of funds . . ., rather than 2 mistakenly assuming that the fu nds were being held in a sepa rate account until closing.” 3 J.A. 911. Under these circumstances, the SEC di d not err in giving minimal weight to the 4 Mouton letter. 5 5 (2) “We will not disturb the SEC’s choice of sanction unless it is ‘unwarranted in 6 law or without justification in fact.’” VanC ook, 653 F.3d at 137, quoting Butz v. Glover 7 Livestock Comm’n Co., 411 U. S. 182, 186 (1973). “Typically, such an abuse of 8 discretion will involve either a sanction palpab ly disproportionate to the violation or a 9 failure to support the sancti on chosen with a meaningful statement of ‘findings and 10 conclusions, and the reasons or basis therefor, on all the material issues of fact, law, or 11 discretion presented on the record.’” Red dy v. Commodity Futures Trading Comm’n, 191 12 F.3d 109, 124 (2d Cir. 1999), quoting 5 U.S. C. § 557(c)(3)(A). We review each case on 13 its own facts, and, if we conclude that th e sanction is excessive or does not serve its 14 intended purposes, we have discretion to reduce or eliminate it. See Arthur Lipper Corp. 15 v. SEC, 547 F.2d 171, 184–85 (2d Cir. 1976 ). The purpose of a sanction is to protect 16 investors, not to penalize brokers, although deterrence may be an additional consideration 17

5 West also contends that the SEC’s finding that he delayed retu rning the money for two months was clearly erroneous because the delay was only twenty days. This argument rests on a selective reading of the record. While there was only a twenty-day period between when West received permission from ACII’s partner in the purchase lease- back transaction to return the deposit and the return of the funds, Mouton requested return of the deposit more than two months prior.6 as part of the overall remedial inquiry. McCarthy v. SEC, 406 F. 3d 179, 188-89 (2d Cir. 1 2005). 2 The sanction affirmed by the SEC was not an abuse of discretion. The FINRA 3 Sanction Guidelines recommend imposing a permanent ban on a member who has 4 improperly used client funds, unless “the improper use resulted from respondent’s 5 misunderstanding of his or her cu stomer’s intended use of the f unds . . . or other mitigation 6 exists.” G.A. 36. The SEC found no mitigating factors a nd no misunderstanding. 6 To 7 the contrary, it found four aggravating factors 7 and concluded that, in light of the 8 seriousness of West’s misconduct and his lack of remorse, there was a risk of future 9 violations. Substantial record evidence su pports these findings. The sanction imposed 10 by FINRA was thus not excessive or oppressive, and was remedial rather than punitive. 11 (3) Finally, the SEC did not err in failing to hear oral argument. The pertinent 12 regulation provides: 13 Motions for oral argument with respect to whether to affirm all or part of an 14 initial decision by a hearin g officer shall be granted unless exceptional 15

6 West argues that the SEC erred in finding no mitigating factors because he accepted responsibility for his actions and had an otherwise spotless disciplinary record. First, the SEC did not err in finding that West had not accepted re sponsibility because, despite his acknowledgment that he should have returned the money earlie r and been more forthcoming with Mouton, he continued to claim that he was authorized to spend the deposit on business and personal expenses. Second, the lack of an aggravating factor – such as a prior discipli nary record – does not establish a mitigating factor, see Rooms v. SEC, 444 F .3d 1208, 1214 (10th Cir. 2006), as securities professionals are required at all times to co mply with FINRA’s standards of conduct.

7 These aggravating factors were: (1) West’s mi sconduct was intentional; (2) West engaged in deceptive acts to conceal his misconduct from AC II; (3) West benefitted from his misconduct; and (4) West’s misconduct occurred over an extended period of time.7 circumstances make oral argument impractical or inadvisable. The 1 Commission will consider appeals , motions and other matters properly 2 before it on the basis of the papers filed by the parties without oral argument 3 unless the Commission determines that the presentation of facts and legal 4 arguments in the briefs and record and the decisional process would be 5 significantly aided by oral argument. 6 7 17 C.F.R. § 201.451(a) (emphasis added). Becau se this was an appeal, and not review of 8 an “initial decision by a hearing officer,” the SEC was not required to grant West’s motion 9 for oral argument. 10 We have considered all of West’s remaini ng arguments and find them to be without 11 merit. Accordingly, th e petition for review is DENIED and the order of the SEC is 12 AFFIRMED

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FOR THE COURT: 14 Catherine O’Hagan Wolfe, Clerk 15