Court Opinion

ID: 4313825
Source: CourtListenerOpinion
Date Created: 2018-09-20 14:00:51.952803+00
Date Added: 2024-06-11T14:17:44.908839
License: Public Domain

Case: 17-15283    Date Filed: 09/19/2018   Page: 1 of 9

                                                      [DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________

                            No. 17-15283
                        Non-Argument Calendar
                      ________________________

                            Agency No. 3-17925

DAVID A. ELGART,

                                              Petitioner,

versus

SECURITIES AND EXCHANGE COMMISSION,

                                              Respondent.

                      ________________________

                 Petition for Review of a Decision of the
                  Securities and Exchange Commission
                       ________________________

                            (September 19, 2018)

Before MARTIN, JILL PRYOR, and EDMONDSON, Circuit Judges.
              Case: 17-15283     Date Filed: 09/19/2018   Page: 2 of 9

PER CURIAM:

      David Elgart petitions for review of a final order of the Securities and

Exchange Commission (“SEC”) sustaining a disciplinary action brought against

him by the Financial Industry Regulatory Authority (“FINRA”). On appeal, Elgart

challenges the SEC’s conclusion that he acted “willfully” in failing to disclose --

on his Uniform Application for Securities Industry Registration or Transfer (“Form

U4”) -- outstanding tax liens. No reversible error has been shown; we deny the

petition.

      Elgart began working in the securities industry in 1971. In 1998, Elgart

became the president and chief compliance officer of Sequoia Investments, Inc., a

small broker-dealer and FINRA member. As a registered securities representative

and principal with FINRA, Elgart was required to file -- and to keep current -- a

Form U4. The Form U4 requests detailed information about an applicant’s

personal, employment, disciplinary, and financial background. In pertinent part,

question 14M of the Form U4 asks: “Do you have any unsatisfied judgments or

liens against you?” When Elgart first began his employment with Sequoia in 1998,

he responded “no” to this question on his Form U4.

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      Between 2003 and 2010, Elgart became the subject of several tax liens,

including three federal tax liens and two State of Georgia tax liens: totaling

$388,755.98. Elgart testified that he received notice of each lien at or about the

time it was issued. In January 2013, Elgart met with a tax lawyer who also notified

Elgart about the number and amount of the outstanding tax liens.

      Meanwhile, in the ten years following the filing of the first tax lien in July

2003, Elgart amended his Form U4 thirteen times. Four of these amendments were

filed after Elgart met with his tax lawyer in January 2013. Elgart’s response to

question 14M remained unchanged.

      As part of a routine examination of Sequoia in late 2013, FINRA staff asked

Elgart to complete a Personal Activity Questionnaire (“PAQ”). Question 21 of the

PAQ asked: “Do you have any unsatisfied judgments or liens against you? If yes,

provide detail as to each.” Elgart completed and signed the PAQ in November

2013; Elgart responded “no” to Question 21, without further explanation.

      In December 2013, FINRA contacted Elgart about discrepancies between

the responses on his Form U4 and PAQ and the results of a record search that

revealed the outstanding tax liens. On 23 December 2013, Elgart amended his

Form U4 to disclose the tax liens. In that filing, Elgart reported that he first

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learned of each lien on 1 January 2013. Despite requests by FINRA staff, Elgart

filed no amendments to his PAQ to disclose the tax liens.

      In November 2015, FINRA’s Department of Enforcement filed a complaint

against Elgart, alleging Elgart violated FINRA by-laws and Rule 1122 and Rule

2010 by (1) failing to disclose timely his tax liens on his Form U4, and (2) making

a false statement to FINRA on his PAQ by denying the existence of the liens. A

FINRA Hearing Panel found that Elgart committed the alleged violations and that

his failure to amend his Form U4 had been willful. The Hearing Panel suspended

Elgart for a total of seven months from associating with a FINRA member firm

and imposed a fine of $20,000. Elgart appealed to FINRA’s National Adjudicatory

Council (“NAC”), which affirmed the Hearing Panel’s decision.

      Elgart then petitioned the SEC to review the NAC decision. In pertinent

part, the SEC determined that Elgart’s failure to amend his Form U4 had been

willful and that he was therefore subject to statutory disqualification. In doing so,

the SEC rejected Elgart’s contention that he misunderstood the scope of the

disclosure required by question 14M.

      In reviewing the SEC’s decision, we treat the SEC’s factual findings as

conclusive as long as they are “supported by substantial evidence.” 15 U.S.C. §

78y(a)(4); ZPR Inv. Mgmt. v. SEC, 861 F.3d 1239, 1248 (11th Cir. 2017).

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“Substantial evidence is such relevant evidence as a reasonable mind might accept

as adequate to support a conclusion.” ZPR Inv. Mgmt., 861 F.3d at 1248

(quotations omitted). “The substantial evidence standard limits the reviewing court

from deciding the facts anew, making credibility determinations, or re-weighing

the evidence.” DeKalb Cnty. v. United States DOL, 812 F.3d 1015, 1020 (11th

Cir. 2016). Under this standard of review, “we will reverse such findings only

when the record compels a reversal; the mere fact that the record may support a

contrary conclusion is not enough.” Id.

      On appeal, Elgart challenges only the SEC’s finding that he acted willfully

in failing to disclose his tax liens on his Form U4 and, thus, was subject to

statutory disqualification. Elgart raises no challenge to the SEC’s determination

that he failed to update timely his Form U4, that the omissions on his Form U4

were material, that he submitted false information on his PAQ, or that his conduct

violated FINRA Rules 1122 and 2010 and FINRA’s by-laws.

      A person acts “willfully” within the meaning of the federal securities laws if

he “intentionally committed the act which constitutes the violation.” ZPR Inv.

Mgmt., 861 F.3d at 1255 (alteration omitted). A person “need not also be aware

that he is violating one of the Rules or Acts.” Id. (quotation omitted).

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      Substantial evidence supports the SEC’s finding that Elgart acted willfully in

failing to disclose his outstanding tax liens on his Form U4. Elgart was aware of

his continuing obligation to amend his Form U4 to reflect changes to his reported

answers. Elgart testified that he learned of the tax liens shortly after each lien was

issued. Elgart also discussed his outstanding tax liens with his tax lawyer in

January 2013. Despite his having knowledge of the tax liens, Elgart testified that

he decided not to report the tax liens on his Form U4 because the liens were filed

against him personally, and not against the firm. Because Elgart’s decision not to

disclose his tax liens on his Form U4 was an intentional act, sufficient evidence

exists to support a determination that his conduct was willful.

      Elgart contends, however, that his failure to disclose the tax liens was

inadvertent -- and not willful -- because it stemmed from his misunderstanding that

question 14M applied only to outstanding liens or judgments “that could endanger

or impact the firm and its clients.” Because the tax liens were filed against Elgart

personally, he says he believed mistakenly that he was under no obligation to

report them.

      We are unpersuaded by this argument. The Hearing Panel determined --

based on Elgart’s demeanor at the hearing and on the evidence presented -- that

Elgart’s testimony that he misunderstood question 14M was not credible. The SEC

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then deferred to the Hearing Panel’s credibility determination. Elgart raises no

challenge to the adverse credibility finding on appeal, and we defer to the agency’s

credibility determination absent substantial evidence to the contrary. Cf. DeKalb

Cnty., 812 F.3d at 1020; Daniel D. Manoff, 55 S.E.C. 1155, 1162 & n.6 (2002)

(credibility determinations may “be overcome only when there is ‘substantial

evidence’ for doing so.”).

      Because no substantial contrary evidence exists, we defer to the agency’s

adverse credibility determination in this case. The credibility determination is also

supported by the unambiguous language of question 14M, Elgart’s inconsistent

testimony about when he first learned of the tax liens, and that Elgart’s purported

misunderstanding of question 14M conflicted with his testimony that he was

unaware of the contents of Form U4.

      Elgart contends that the SEC’s willfulness determination is contrary to the

Hearing Panel’s decision in Dep’t of Enf’t v. Harris, Disciplinary Proceeding No.

C07010084 (NASD May 31, 2002), and to the Second Circuit’s decision in Mathis

v. SEC, 671 F.3d 210 (2d Cir. 2012). In Harris, the Hearing Panel determined that

the respondent’s failure to disclose a prior misdemeanor on his Form U4 was not

“willful” when the omission resulted in part from a misreading of the question.

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Harris is distinguishable from this case, however, because (among other reasons)

the Hearing Panel credited the respondent’s testimony.

      Elgart cites to language in the Mathis opinion that says that “an inadvertent

filing of an inaccurate form” is insufficient evidence of willfulness. See Mathis,

671 F.3d at 218. But the Mathis decision is not inconsistent with the SEC’s

“willfulness” determination in this case. Instead, the Second Circuit concluded

that sufficient evidence supported a finding of “willfulness” because the

respondent -- like Elgart -- denied having unsatisfied judgments or liens against

him even though he had received IRS notices and was, thus, aware of his

outstanding tax liens before filing his Form U4. See id.

      We reject Elgart’s contention that FINRA’s application of the willfulness

standard is inconsistent and “so vague” that it provides no guidance and deprives

its members and associated persons of “fair procedure.” The willfulness standard

applied in this case is consistent with the standard that has long been applied by the

SEC and by federal appellate courts. See, e.g., Tager v. SEC, 344 F.2d 5, 8 (2d

Cir. 1965) (“It has been uniformly held that ‘willfully’ in this context means

intentionally committing the act which constitutes the violation. There is no

requirement that the actor also be aware that he is violating one of the Rules or

Acts.”); Mathis, 671 F.3d at 218 (citing Tager); ZPR Inv. Mgmt., 861 F.3d at 1255.

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      Moreover, a finding of willfulness is dependent on the facts and

circumstances of each individual case. Elgart has cited no case with materially

similar facts in which the willfulness standard was applied differently than in this

case. Among other things, each of the cases Elgart relies upon involved a

settlement. We have said the SEC abuses no discretion in imposing lesser

sanctions as a reward for settlement. See Orkin v. SEC, 31 F.3d 1056, 1067 (11th

Cir. 1994).

      Substantial evidence supports the SEC’s determination that Elgart acted

intentionally in failing to disclose his tax liens on his Form U4 and, thus, that his

conduct was willful. We are not compelled to reverse that finding on appeal.

      PETITION DENIED.

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