Court Opinion

ID: 9494984
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:51:48.947079+00
Date Added: 2024-06-11T17:56:44.950425
License: Public Domain

RANDOLPH, Circuit Judge,
dissenting:
I believe the SEC’s cease and desist order should be vacated and remanded to the agency.'
In its first opinion, the SEC nodded in favor of the need to find some risk of future misconduct as a precondition to a cease and desist order. But it then turned around and held that “[a]bsent evidence to the contrary, a finding of violation raises a sufficient risk of future violation.” KPMG challenged this conclusion, and on reconsideration the SEC expressly disclaimed any notion that a cease and desist order is “automatic” after a violation of the securities laws. The SEC said it will continue to consider “our traditional factors” before imposing a cease and desist order, which, according to the SEC’s first opinion, appear to be “the harm caused by the violations” (here none), “the seriousness of the violations,” “the extent of the wrongdoer’s unjust enrichment” (here none), and “the wrongdoer’s disciplinary record” (as acknowledged at oral argument, meager at best). In its opinion on reconsideration, the SEC wrote that its “findings” — (1) the loan to Olson; (2) the contingent fee arrangement; (3) KPMG’s lack of remorse; *127and (4) the negligence of the KPMG partners including Conway and Sturm, all of which it discussed in the prior sentences— were “more than adequate to support [the SEC’s] conclusion that there was ... a serious risk of future violation, which, together with the traditional sanctioning factors we considered, fully warranted the cease-and-desist relief [the SEC] issued.”
The SEC’s contingent fee finding was clearly erroneous. On its face, AICPA’s Rule 302 covers not all services provided to Porta Systems, but only professional services. Rules of Professional Conduct § 302 (American Inst, of Certified Pub. Accountants 2001). The SEC’s interpretation of the rule receives no deference because we have no hint that Congress intended the SEC to fill in gaps left by AICPA. It would be another thing entirely if the SEC had its own rule on contingent fees, but all the agency has is its general requirement that accountants be independent. See 17 C.F.R. § 210.2-01.
It is also clear that the SEC’s negligence finding based on Sturm’s conduct is erroneous given the way the case was tried. There was no charge of wrongdoing regarding Sturm. At trial before the Administrative Law Judge, the SEC enforcement staff called Sturm “a careful guy” who was “kept in the dark.” As to KPMG’s failure to bring this objection to the SEC, we do not require that a party raise arguments when it would be futile to do so. See, e.g., Omnipoint Corp. v. FCC, 78 F.3d 620, 635 (D.C.Cir.1996). The SEC’s original opinion explicitly stated that each of its four reasons for issuing the order independently justified its cease and desist order. It was only on reconsideration that the SEC made an about-face and lumped all the findings together. Given this posture, and the fact that the SEC found Conway to be negligent as well, it would have been “clearly useless” for KPMG to object to imposition of a sanction for Sturm’s conduct in its motion for reconsideration. See Randolph-Sheppard Vendors of Am. v. Weinberger, 795 F.2d 90, 105-06 (D.C.Cir.1986).
The reconsideration order criticizes KPMG for its “consistent failure to recognize the seriousness” of its violations. True, KPMG mounted a vigorous defense to the SEC’s ease, but those charged with misconduct have a right to defend themselves. Also, it is arbitrary for the SEC to fault KPMG for not recognizing the seriousness of Sturm’s so-called misconduct when the SEC enforcement staff praised his behavior.
In light of the SEC’s errors in finding a contingent fee arrangement and in finding Sturm negligent, the cease and desist order cannot be sustained. We should have vacated the order and sent the case back so the SEC could decide whether it still wants to issue the order without these legs of the table.
I would therefore not reach any of the other issues in the case.