UNITED STATES OF AMERICA
|In the Matter of
LAURIE JONES CANADY
|ORDER DENYING REQUEST
FOR RECONSIDERATION AND
MOTION TO ADDUCE
On April 5, 1999, we issued an opinion finding that Laurie Jones Canady, formerly a salesperson in the Davenport, Iowa branch of Merrill Lynch, Pierce, Fenner & Smith, churned customer accounts, engaged in unauthorized and unsuitable trading, and made fraudulent statements and omitted material facts in connection with the offer and sale of securities. Based on those findings, we concluded that it was in the public interest that Canady be barred from association with any broker or dealer; ordered to cease and desist from committing or causing any violation and committing or causing any future violation of Section 17(a) of the Securities Act of 1933 or Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and ordered to disgorge $23,624, less specified set-offs as substantiated by an accounting, plus prejudgment interest. 1Canady now moves for reconsideration, 2and for leave to adduce additional evidence. 3
A. Canady contends that these proceedings should have been dismissed because certain of Canady's conduct that is the basis for our imposition of sanctions occurred more than five years before these proceedings were instituted. As Canady notes, 28 U.S.C. Section 2462 provides that "an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued."
As we noted in our opinion, Canady never raised the issue of whether Section 2462 applied to these proceedings. Indeed, when we raised the issue ourselves with Canady's counsel at oral argument, he responded only vaguely that the proceedings were aged and ought to be dismissed. Nor, in the period between oral argument and the issuance of our decision, did Canady ever offer to brief the issue after we raised it. Based on Canady's inaction, we held that any defense afforded by Section 2462 had been waived.
Canady now claims that, in effect, it was not possible to waive the statute of limitations defense because Section 2462 "is a jurisdictional hurdle which can be raised at any time." As indicated in our opinion, however, the weight of authority supports the view that "`[r]eliance on a statute of limitations is an affirmative defense and is waived if a party does not raise it in a timely fashion.'" 4 Underlying this position is the concern that, otherwise, the opposing party would not have the opportunity "to establish relevant facts that might affect the applicability of the statute of limitations." 5 In finding that Canady had waived her limitations defense, we were seeking to further both fairness and efficiency.
Canady notes that our Rules of Practice were revised in 1995 and now explicitly require that "[a] defense of res judicata, statute of limitations or any other matter constituting an affirmative defense shall be asserted in the answer." 6 She claims that we "have unfairly penalized Canady and her counsel by retroactively applying" these revised rules to her defense. While these revised rules, along with the Federal Rules of Civil Procedure, 7 are consistent with the authority we have cited and further counter Canady's claim that a statute of limitations cannot be waived -- they are not the basis for our conclusion because, as Canady asserts, they did not apply to this proceeding. 8 Our decision was based on the weight of judicial authority, as well as on our former Rules of Practice which govern these proceedings. 9
B. Canady also questions the sanctions we imposed. 10 She argues that our decision to impose a bar was inappropriate in light of our decision to reverse the law judge's findings of violation regarding ten of the customers at issue. As we discussed, and notwithstanding our determination that the evidence did not support findings with respect to those accounts, Canady's misconduct was sufficiently egregious to demonstrate that she constitutes a threat to investors. A bar of Canady from association with any broker-dealer, and the continuing oversight that such a bar gives us if she seeks to associate with a broker-dealer, is amply warranted by the record.
Canady further claims that the amount of disgorgement we ordered was incorrect because it included the amount of commissions charged customers Mary and Richard Gruhl, despite our finding that Canady did not control their account. While our finding of lack of control caused us to reverse the law judge's determination that Canady churned the Gruhls' account, we nevertheless found that she defrauded the Gruhls through misrepresentations and omissions to state material facts and unsuitable recommendations. Our decision to order disgorgement of commissions charged the Gruhls is based on these latter findings.
C. Canady repeats several of the contentions made in her brief before us on appeal, including that the law judge's credibility findings in favor of Canady's customers and against Canady should be rejected, and that the periods of account activity used by the Division of Enforcement to establish churning were arbitrary. 11 We rejected these contentions in our earlier opinion and see no reason to reconsider them here.
Canady seeks leave to adduce additional evidence. Such evidence may be adduced if it is "material" and if "there were reasonable grounds for failure to adduce such evidence" at an earlier stage in the proceeding. 12 The evidence at issue consists of order tickets and trade confirmations relating to the accounts of one of the customers Canady was found to have defrauded, Carolyn Campbell, as well as selected transcripts from an arbitration proceeding brought by Campbell against Canady and others. While Canady's motion is vague about the circumstances surrounding her receipt of this new evidence, she apparently obtained it before we issued our opinion.
Canady denies that she is at fault for producing this evidence after issuance of our decision, and claims that, in seeking such evidence, she "proceed[ed] diligently." Hearings in this proceeding, which was instituted by order dated October 25, 1994, were held in March 1995. The law judge issued his decision on October 31, 1995. Briefing was completed before the Commission on March 27, 1996, and we heard oral argument on June 22, 1998. Canady filed her motion to adduce additional evidence on May 31, 1999.
We previously have held that it is the respondent's obligation "to marshall all the evidence in his defense." 13 Canady's motion to adduce additional evidence comes more than five years after hearings were held. Canady neither explains why this evidence was previously unavailable nor details her efforts, if any, to obtain it earlier. She merely states that "[t]hrough a combination of perseverance, deep digging in old storage boxes, and fortuitous circumstances, Merrill Lynch unearthed the . . . order tickets and wire confirms in November 1998 . . . ."
Canady also states that "[t]he full import of these . . . order tickets did not become clear until Stephen Lyders [Canady's branch manager] testified in the arbitration proceedings on December 31, 1998, and Canady testified in the arbitration proceedings on March 31, 1999." We note that both Lyders and Canady previously testified in this administrative proceeding, and that Canady was not found credible. Assuming that Canady required Lyders' testimony to appreciate the "full import" of her own order tickets, it is inconceivable that she further required her own testimony before reaching her conclusion that the tickets were relevant to her appeal. Hence, Canady has offered no valid excuse for her failure to produce this evidence at an earlier date, certainly before we issued our opinion.
Although Canady also seeks to adduce selective portions of testimony by Campbell and Campbell's son which was given after the issuance of our decision, this testimony is not material. 14 Canady claims that the testimony shows that Campbell consulted with professionals regarding Canady's handling of her account and that this circumstance undermines our conclusion that Campbell was an unsophisticated investor.
Our finding regarding Campbell's sophistication was made with the awareness that she had sought independent professional advice after becoming concerned about Canady's handling of her accounts. Thus, in our earlier discussion of the facts, we found that, in May 1989, Campbell sent Merrill Lynch a letter, which Campbell recalled had been prepared by her accountant, revoking prior authorization that she had given Canady to trade in her accounts. That Campbell eventually began to doubt Canady's overall handling of her accounts and consequently sought the advice of others does not belie our finding that she was unable to assess independently the transactions Canady effected for those accounts at the time of their execution.
In sum, we have found no merit in Canady's contentions.
Accordingly, IT IS ORDERED that the petition for reconsideration filed by Laurie Jones Canady be, and it hereby is, denied; and it is further
ORDERED that Canady's motion for leave to adduce additional evidence be, and it hereby is, denied.
By the Commission.
Jonathan G. Katz
|1||Laurie Jones Canady, Securities Exchange Act Rel. No. 41250 (Apr. 5, 1999), __ SEC Docket __.|
|2||Canady cites new Rule of Practice 470, 17 C.F.R. § 201.470, as the basis for her motion. However, the former Rules of Practice govern this appeal, as the proceeding was instituted on October 25, 1994, and the parties have not formally agreed to proceed under the new Rules of Practice. Accordingly, we will consider the motion under former Rule of Practice 21(e), 17 C.F.R. § 201.21(e), which provides:
Any petition for rehearing by the Commission shall be filed within 10 days after the entry of the order complained of, or within such time as the Commission may prescribe upon request of the party, if made within the foregoing 10-day period. The petition for rehearing shall clearly state the specific matters upon which rehearing is sought.
|3||Canady cites new Rule of Practice 452, 17 C.F.R. § 201.452, as the basis for this motion. For the reasons stated above, we will consider the motion under former Rules of Practice 21(d), which provides:
The Commission, upon its own motion or upon application in writing by any party for leave to adduce additional evidence which application shall show to the satisfaction of the Commission that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence at the hearing before the Commission or the hearing officer, may hear such additinal evidence or may refer the proceeding to the hearing officer for the taking of such additional evidence.
|4||Harris v. Department of Veterans Affairs, 126 F.3d 339, 343 (D.C. Cir. 1997) (citing Banks v. Chesapeake & Potomac Telephone Co., 802 F.2d 1416, 1427 (D.C. Cir. 1986)). See also Aceveo-Ramos v. United States, 961 F.2d 305, 307 (1st Cir.) (rejecting limitations defense in criminal context and noting that "every circuit that has addressed it has held that the statute of limitations is a waivable affirmative defense rather than a jurisdictional bar"), cert. denied, 506 U.S. 905 (1992), and the other cases cited in our opinion at n.53.|
|5||Harris v. Secretary, Department of Veterans Affairs, 126 F.3d 339, 344 (D.C. Cir. 1997).|
|6||17 C.F.R. § 201.220(c).|
|7||See Fed. R. Civ. P. 8(c) (requiring a party to "set forth affirmatively [in its pleading] . . . statute of limitations . . . and any other matter constituting an avoidance or affirmative defense.").|
|8||See n.2, supra.|
|9||See 17 C.F.R. §§ 201.16(d), 201.17(b) (contentions not raised by a party before a law judge or the Commission on appeal may be deemed waived or abandoned).|
|10||Among other things, Canady notes that all of the customers she was found to have defrauded either received settlements of their claims or are currently pursuing their claims in arbitration. Our order provides, however, that the disgorgement amount is to be reduced to the extent Canady shows she has compensated her customers for their losses. To date she has made no such showing.|
|11||Canady also renews her arguments that: the Division failed to meet its burden to prove that Canady churned her customers' accounts and made unsuitable investments; that the rate of prejudgment interest assessed was punitive; and that the disgorgement amount was excessive and constituted a penalty.|
|12||See n.3, supra.|
|13||Ronald Earl Smits, 50 S.E.C. 1020, 1024 (1992). See also David Disner, 52 S.E.C. 1217, 1221 n.15 (1997) (after the Division has made a prima facie case, the burden shifts to the respondent to refute the Division's evidence).|
|14||Canady does not explain why she did not call Campbell's son as a witness in the hearings before the law judge.|
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