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SEC V. SLOAN, 436 U. S. 103 (1978) - US SUPREME COURT DECISIONS ON-LINE
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SEC V. SLOAN, 436 U. S. 103 (1978)
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2. The Commission does not have the authority under § 12(k), based upon a single set of circumstances, to issue a series of summary orders that would suspend trading in a stock beyond the initial 10-day period, chanroblesvirtualawlibrary
547 F.2d 152, affirmed. chanroblesvirtualawlibrary
REHNQUIST, J., delivered the opinion of the Court, in which BURGER, C.J.,and STEWART, WHITE, POWELL, and STEVENS, JJ., joined. BRENNAN, J., filed an opinion concurring in the judgment, in which MARSHALL, J., joined, post, p. 436 U. S. 123. BLACKMUN, J., filed an opinion concurring in the judgment, post, p. 436 U. S. 126.
Under the Securities Exchange Act of 1934, ch. 404, 48 Stat. 881, the Securities and Exchange Commission has the authority "summarily to suspend trading in any security . . . for a period not exceeding ten days" if "in its opinion the public interest and the protection of investors so require." [Footnote 1] Acting chanroblesvirtualawlibrary
On November 29, 1973, apparently because CJL had disseminated allegedly false and misleading press releases concerning certain of its business activities, the Commission issued the first of what was to become a series of summary 10-day suspension orders continuously suspending trading in CJL common stock from that date until January 26, 1975. App. 109. During this series of suspensions, respondent Sloan, who owned 13 shares of CJL stock and had engaged in substantial purchases and short sales of shares of that stock, filed a petition in the United States Court of Appeals for the Second Circuit challenging the orders on a variety of grounds. On October 15, 1975, the court dismissed as frivolous all respondent's claims, except his allegation that the "tacking" of 10-day summary suspension orders for an indefinite period was an abuse of the agency's authority and a deprivation of due process. It further concluded, however, that, in light of two events which had occurred prior to argument, it could not address this question at that time. The first event of significance was the resumption of trading on January 26, 1975. chanroblesvirtualawlibrary
Thereafter, respondent immediately petitioned the Commission for the promised hearing. The hearing was not forthcoming, however, so, on April 23, 1976, during the period when the second series of orders was still in effect, respondent brought the present action pursuant to § 25(a)(1) of the Act, 15 U.S.C. § 78y(a)(1) (1976 ed.), challenging the second series of suspension orders. He argued, among other things, that there was no rational basis for the suspension orders, that they were not supported by substantial evidence in any event, and that the "tacking" of 10-day summary suspension orders was beyond the Commission's authority because the statute specifically authorized suspension "for a period not exceeding ten days." [Footnote 2] The court held in respondent's favor on this latter point. It first concluded that, despite the fact that there had been no 10-day suspension order in effect since May 2, chanroblesvirtualawlibrary
1976, and the Commission had asserted that it had no plans to consider or issue an order against CJL in the foreseeable future, the case was not moot because it was "capable of repetition, yet evading review.'" 547 F.2d 158, quoting from Southern Pacific Terminal Co. v. ICC, 219 U. S. 498, 515 (1911).
The court then decided that the statutes which authorized summary suspensions -- § 12(k) and its predecessors -- did not empower the Commission to issue successive orders to curtail trading in a security for a period beyond the initial 10-day period. 547 F.2d 157-158. We granted certiorari, specifically directing the attention of the parties to the question of mootness, 434 U.S. 901 (1977), to which we now turn.
Brief for Petitioner 15, quoting from Pet. for Cert. 12 n. 7. Cf. Weinstein v. Bradford, 423 U. S. 147, 423 U. S. 149 (1975). The Commission concedes, however, that respondent, in his capacity as a diversified investor, might be harmed in the future by the suspension of some other chanroblesvirtualawlibrary
Weinstein v. Bradford, supra, at 423 U. S. 147 (emphasis added). That the first prong of this test is satisfied is not in dispute. A series of consecutive suspension orders may last no more than 20 days, making effective judicial review impossible during the life of the orders. We likewise have no doubt that the second part of the test also has been met here. CJL has, to put it mildly, a history of sailing close to the wind. [Footnote 5] Thus, chanroblesvirtualawlibrary
Turning to the merits, we note that this is not a case where the Commission, discovering the existence of a manipulative scheme affecting CJL stock, suspended trading for 10 days and then, upon the discovery of a second manipulative scheme or other improper activity unrelated to the first scheme, ordered a second 10-day suspension. [Footnote 6] Instead, it is a case in which the chanroblesvirtualawlibrary
The first and most salient point leading us to this conclusion is the language of the statute. Section 12(k) authorizes the Commission "summarily to suspend trading in any security . . . for a period not exceeding ten days. . . ." 15 U.S.C. § 78l(k) (1976 ed.) (emphasis added). The Commission would have us read the underscored phrase as a limitation only upon the duration of a single suspension order. So read, the Commission could indefinitely suspend trading in a security without any hearing or other procedural safeguards as long as it redetermined every 10 days that suspension was required by chanroblesvirtualawlibrary
Other sections of the statute reinforce the conclusion that, in this area, Congress considered summary restrictions to be somewhat drastic, and properly used only for very brief periods of time. When explicitly longer term, though perhaps temporary, measures are to be taken against some person, company, or security, Congress invariably requires the Commission to give some sort of notice and opportunity to be heard. For example § 12(j) of the Act authorizes the Commission, as it deems necessary for the protection of investors, to suspend the registration of a security for a period not exceeding 12 months if it makes certain findings "on the record after notice and opportunity for hearing. . . ." 15 U.S.C. § 78l(j) (1976 ed.) (emphasis added). Another section of the Act empowers the Commission to suspend broker-dealer registration for a period not exceeding 12 months upon certain findings made chanroblesvirtualawlibrary
only "on the record after notice and opportunity for hearing." § 78o(b)(4) (1976 ed.) (emphasis added). Still another section allows the Commission, pending final determination whether a broker-dealer's registration should be revoked, to temporarily suspend that registration, but only "after notice and opportunity for hearing." § 78o(b)(5) (1976 ed.) (emphasis added). Former § 15(b)(6), which dealt with the registration of broker-dealers, also lends support to the notion that, as a general matter, Congress meant to allow the Commission to take summary action only for the period specified in the statute when that action is based upon any single set of circumstances. That section allowed the Commission to summarily postpone the effective date of registration for 15 days, and then, after appropriate notice and opportunity for hearing, to continue that postponement pending final resolution of the matter. [Footnote 8] The section which replaced § 15(b)(6) even further underscores this general pattern. It requires the Commission to take some action -- either granting the registration or instituting proceedings to determine whether registration should be denied -- within 45 days. 15 U.S.C. § 78o(b)(1) (1976 ed.). In light of the explicit congressional recognition in other sections of the Act, both past and present, that any long-term sanctions or any continuation of summary chanroblesvirtualawlibrary
This argument is unpersuasive, however, because the conclusion simply does not follow from the various premises. Even assuming the Commission can again suspend trading upon learning of another event which threatens the stability of the market, it simply does not follow that the Commission therefore must necessarily have the power to do so even in the absence of such a discovery. On its face and in the context of this statutory pattern, § 12(k) is more properly viewed as a chanroblesvirtualawlibrary
This very case belies the Commission's argument that injunctions cannot be sought in appropriate cases. At exactly the same time the Commission commenced the first series of suspension orders, it also sought a civil injunction against CJL and certain of its principals, alleging violations of the registration chanroblesvirtualawlibrary
Even assuming, however, that a totally satisfactory remedy -- at least from the Commission's viewpoint -- is not available in every instance in which the Commission would like such a remedy, we would not be inclined to read § 12(k) more broadly than its language and the statutory scheme reasonably permit. Indeed, the Commission's argument amounts to little more than the notion that § 12(k) ought to be a panacea for every type of problem which may beset the marketplace. This does not appear to be the first time the Commission has adopted this construction of the statute. As early as 1961, a recognized authority in this area of the law called attention to the fact that the Commission was gradually carrying over the summary suspension power granted in the predecessors of § 12(k) into other areas of its statutory authority and using it as a pendente lite power to keep in effect a suspension of trading pending final disposition of delisting proceedings. 2 L. Loss, Securities Regulation 854-855 (2d ed.1961). chanroblesvirtualawlibrary
Volkswagenwerk v. FMC, 390 U. S. 261, 390 U. S. 272 (1968). And this is just such a case -- the construction placed on the statute by the Commission, though of long standing, is, for the reasons given in 436 U. S. 745, where we said:
Finally, the Commission argues that, for a variety of reasons, Congress should be considered to have approved the Commission's construction of the statute as correct. Not only has Congress reenacted the summary suspension power without disapproving the Commission's construction, but the Commission participated in the drafting of much of this legislation and, on at least one occasion, made its views known to Congress in Committee hearings. [Footnote 9] Furthermore, at least one Committee chanroblesvirtualawlibrary
Here, the administrators, so far as we are advised, made no reference at all to their present construction of 12(k) to the Congress which drafted the "enabling legislation" here in question -- the Securities Exchange Act of 1934. They made known to at least one Committee their subsequent construction of that section 29 years later, at a time when the attention of the Committee and of the Congress was focused on issues not directly related to chanroblesvirtualawlibrary
Subsequent congressional pronouncements also cast doubt on whether the prior statements called to our attention can be chanroblesvirtualawlibrary
In sum, had Congress intended the Commission to have the power to summarily suspend trading virtually indefinitely, we expect that it could and would have authorized it more clearly than it did in § 12(k). The sweeping nature of that power supports this expectation. The absence of any truly persuasive legislative history to support the Commission's view, chanroblesvirtualawlibrary
The Court's opinion does not reveal how flagrantly abusive the Security and Exchange Commission's use of its § 12(k) authority has been. That section authorizes the Commission "summarily to suspend trading in any security . . . for a period not exceeding ten days. . . ." 15 U.S.C. § 78l(k) (1976 ed.). As the Court says, this language "is persuasive in and of itself" that 10 days is the "maximum time period for which trading can be suspended for any single set of circumstances." Ante at 436 U. S. 112. But the Commission has used § 12(k), or its predecessor statutes, see ante at 436 U. S. 105 n. 1, to suspend trading in a security for up to 13 years. See App. to Brief for Canadian Javelin, Ltd., as Amicus Curiae 1a. And, although the 13-year suspension is an extreme example, the record is replete with suspensions lasting the better part of a year. See App. 18211. I agree that § 12(k) is clear on its face, and that it prohibits this administrative practice. But even if § 12(k) were unclear, a 13-year suspension, or even a 1-year suspension as here, without notice or hearing so obviously violates fundamentals of due process and fair play that no chanroblesvirtualawlibrary
Moreover, the SEC's procedural implementation of its § 12(k) power mocks any conclusion other than that the SEC simply could not care whether its § 12(k) orders are justified. So far as this record shows, the SEC never reveals the reasons for its suspension orders. [Footnote 2/1] To be sure, here respondent was able long after the fact to obtain some explanation through a Freedom of Information Act request, but even the information tendered was heavily excised, and none of it even purports to state the reasoning of the Commissioners under whose authority § 12(k) orders issue. [Footnote 2/2] Nonetheless, when the SEC finally chanroblesvirtualawlibrary
Worse, however, is the Court's insistence that, to be credited, an administrative practice must pay "specific attention to the statutory authorization'" under which an agency purports to operate. Ante at 436 U. S. 117, quoting Adamo Wrecking Co. v. United States, 434 U. S. 275, 434 U. S. 287 n. 5 (1978). As my Brother STEVENS chanroblesvirtualawlibrary
I join the Court in its judgment, but I am less sure than the Court is that the Congress has not granted the Securities and Exchange Commission at least some power to suspend trading in a nonexempt security for successive 10-day periods despite the absence of a new set of circumstances. The Congress' awareness, recognition, and acceptance of the Commission's practice, see ante at 436 U. S. 119-120, nn. 9 and 10, at the time of the 1964 amendments, blunts, it seems to me, the original literal language of the statute. The 1975 Report of the Senate chanroblesvirtualawlibrary