Opinion ID: 4182911
Heading Depth: 3
Heading Rank: 3

Heading: Monetary Penalties

Text: The standard for imposing monetary penalties is the same as for industry bars. See 15 U.S.C. § 80b-3(i)(1)(A). However, the factors for determining whether it would be “in the public interest,” id., are different from the Steadman 28 Case: 16-15322 Date Filed: 06/30/2017 Page: 29 of 32 factors. The Advisers Act lists the following factors for making the public interest determination: (A) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; (B) the harm to other persons resulting either directly or indirectly from such act or omission; (C) the extent to which any person was unjustly enriched, taking into account any restitution made to persons injured by such behavior; (D) whether such person previously has been found by the Commission, another appropriate regulatory agency, or a selfregulatory organization to have violated the Federal securities laws, State securities laws, or the rules of a self-regulatory organization . . .; (E) the need to deter such person and other persons from committing such acts or omissions; and (F) such other matters as justice may require. Id. § 80b-3(i)(3). The Act also establishes a three-tier system of civil penalties, with each tier addressing increasingly serious misconduct and imposing progressively higher maximum penalties. Id. § 80b-3(i)(2). If the Commission applies the public interest factors listed in the Act and determines that some monetary penalty is warranted, the Commission must then decide which tier is appropriate. In this case, the Commission imposed second-tier penalties, which apply when the wrongdoing involves fraud or deceit. Id. § 80b-3(i)(2)(B). Specifically, the Commission imposed a maximum second-tier penalty on Mr. Zavanelli for each of 29 Case: 16-15322 Date Filed: 06/30/2017 Page: 30 of 32 his eight violations, totaling $570,000, and a single below-maximum second-tier penalty of $250,000 on ZPRIM. 8 Petitioners have not shown these penalties were a “gross abuse of discretion.” Orkin, 31 F.3d at 1066. In deciding whether to impose the monetary penalties, the Commission discussed each of the public interest factors. The Commission found, among other things, that the petitioners “repeatedly violated the antifraud provisions with scienter”; the misconduct was “especially serious because it involved attempts to promote their firm through false claims”; and “[t]here is a need to deter [petitioners] from committing future” violations. These findings are supported by the record, and the Commission appropriately gave them significant weight. Also, while acknowledging that the SEC did not offer evidence to quantify the harm caused by the petitioners’ misrepresentations, the Commission found the market was harmed insofar as the misrepresentations “denied investors the ability to make direct comparisons between ZPRIM’s performance and that of other investment advisers.” On this record, we cannot say the Commission grossly abused its discretion in its choice of monetary penalties. See id. Although we generally affirm the Commission’s imposition of monetary penalties, the amount of the penalties imposed here must be reduced by any 8 The maximum penalty for corporations is considerably higher than for “natural person[s].” 15 U.S.C. § 80b-3(i)(2)(B). 30 Case: 16-15322 Date Filed: 06/30/2017 Page: 31 of 32 amounts related to the December 2009 newsletter violations, which we vacate. Because the Commission’s order makes clear it assessed a $75,000 penalty on Mr. Zavanelli for the December 2009 newsletter, we vacate that portion of his monetary sanction. For ZPRIM, however, the Commission did not impose penalties for each violation, but instead a single $250,000 penalty. As a result, we vacate the ZPRIM penalty and remand for the Commission to determine the amount, if any, by which that penalty should be reduced.