United States of America
In the Matter of
STEPHEN S. WIEN
|ORDER GRANTING PETITION TO VACATE ADMINISTRATIVE BAR ORDER|
Introduction and Disposition. Petitioner Stephen S. Wien ("Wien"), the subject of a 1982 order of the Commission, entered by his consent, has petitioned for relief from that order. This matter and two similar matters the Commission also decides today 1 provide an opportunity for the Commission to review its precedent concerning, and to discuss the standard that it uses for review of, petitions for relief from administrative bar orders. That standard reflects the Commission's interest in maintaining its ability to control, in the usual situation and consistent with its statutory obligations, the securities industry activities of individuals whom it has barred in response to findings of serious misconduct. The Commission concludes in this instance, however, that relief is appropriate.
Background. Twenty-one years ago, in July 1982, Wien was barred from association in a proprietary or supervisory capacity with any broker, dealer, investment company, investment adviser or municipal securities dealer with the proviso that, after two years, he could apply to become so associated. 2 The Commission's 1982 order found that Wien aided and abetted hisfirm's violations of customer protection, recordkeeping and reporting, and credit extension provisions. 3
From 1982 to 1986, after a 30-day suspension also imposed by the Wien order, Wien was employed as a registered representative and trader with two brokerage firms. In 1986, his application to become associated with Wien Securities Corporation ("WSC") as a supervisory principal was granted, and in 1989, the National Association of Securities Dealers, Inc. ("NASD") and the Commission authorized him to acquire 50% of WSC's issued and outstanding common stock. Wien's wife owned the other 50%. The 1986 and 1989 approvals were conditioned on Wien having no responsibility for, or involvement in, the preparation of WSC's books and records and not signing or approving, or having any responsibility for the preparation of, any financial report to be filed with regulatory authorities.
In 1998 the Commission denied Wien's motion for an order vacating the supervisory and proprietary bar ("1998 Wien Order"). 4 According to the 1998 Wien Order, Wien had not demonstrated that vacation of the bar was warranted. 5 The Commission also indicated that in other reported decisions Wien cited, in which the Commission had determined to vacate bars, the bars were in effect for a longer period of time than Wien's. The 1998 Wien Order acknowledged Wien's demonstrated record of compliance with the securities laws since 1982 but also observed that Wien's earlier failure to fulfill his obligation to monitor and safeguard his brokerage firm's financial condition led to the financial collapse and forced liquidation of the firm. Accordingly, it concluded that "continued control over Wien's activities" afforded by the bar "is still a necessary safeguardin the public interest." 6 The Commission further observed that "[w]hile Wien has been permitted since [issuance of the consent order] to occupy supervisory and proprietary positions with a brokerage firm, he has done so subject to significant recordkeeping and reporting restrictions that guard against a repetition of his prior misconduct." 7
Substance of Wien's Petition. In his renewed request to vacate the supervisory and proprietary bar imposed in the 1982 order, Wien advises that he has gleaned from the Commission's precedent the following factors to be considered in assessing whether to vacate an administrative bar: (i) the age and securities industry experience of the applicant; (ii) the passage of time since the underlying misconduct or entry of the order; (iii) the amount of time that has elapsed since the individual was permitted to return to the securities industry on a limited basis; (iv) the extent to which the SEC has granted prior relief from the administrative bar; and (v) the compliance record of the individual since being permitted to return to the securities industry.
Wien is 66 years old and asserts that the length of time since he has returned to the securities industry is comparable to the duration at issue in those cases in which the Commission has vacated an administrative bar: "Since the Order, Mr. Wien has been employed as a registered representative for nearly 20 years, a general securities supervisory principal for 14 years and a proprietary owner for 11 years." He notes that the Commission, in permitting him to work in these capacities, has had several occasions to determine whether it is in the public interest to relax the restrictions imposed upon him and has determined to permit him to engage in the requested activity or capacity. He advises that he has served on the NASD Board of Governors and certain NASD committees. He asserts, without contradiction, that his record since 1982 is unblemished, and that the Commission's action was the only regulatory action that has been taken against him in some 40 years in the securities business.
Wien also represents that the 1982 order hinders his dealings with prospective business associates who are understandably troubled by the existence of the bar. He seeks to "eliminate these hardships" and be allowed "greater professional mobility within the securities industry." He asserts that the restrictions imposed by the order "are no longer needed to serve an important investor protection purpose," and have resulted in unnecessary yearly examination fees, and audit and modification procedures. He further submits that his long record ofcompliance and the fact that there have been significant changes in the securities industry as a whole that make retaining business challenging for small firms such as Wien's justify vacating the 1982 order.
Further, he states that, in obtaining Commission consent to associate with WSC in a proprietary capacity, he essentially agreed to keep in place supervisory policies and procedures by which, among other things, he is not permitted to prepare or aid in the preparation of WSC's books and records, and not permitted to sign or otherwise approve for filing any financial report to be filed with a regulatory authority. He contends that responsibility for those activities from which he is prohibited is restricted to individuals who are registered as Series 27 and Series 28 Financial and Operations Principals, and he represents that he does not hold those licenses and has no intention to assume those responsibilities. He further asserts that, should he wish to acquire those licenses, he would be subject to the rigorous examination requirements imposed by the NASD. He submits that the procedural examination requirements provide a significant and adequate safeguard to public customers.
Division's Position on the Petition. In opposing Wien's motion, the Division of Enforcement contends that it is "premature" to conclude that Wien can operate in a proprietary or supervisory capacity without the recordkeeping and financial reporting restrictions to which he presently is subject. The Division suggests that Wien should first apply to have these restrictions lifted and "establish a track record of compliance while free from those restrictions." Further, the Division asserts that, other than the passage of additional time, it does not appear that conditions have changed sufficiently since 1998 to support relief from the bar order. In the Division's view, Wien's argument that rigorous NASD registration requirements are an adequate substitute for the bar order are not persuasive. 8
Wien's Reply to the Division's Pleading. Wien contends that the Commission should balance the degree of necessity for continuing the bar and its accompanying restrictions against the hardship that it imposes. 9 As for hardship, Wien stresses"numerous time consuming application procedures, fees and an annual audit," and the "difficult economic climate" and "decline in consumer confidence in the equities markets," which to his thinking make it imperative that he be afforded greater professional mobility in the industry. Wien asserts, by affidavit, that he has no intention of becoming a financial operations principal or taking responsibility for his firm's books and records and has delegated those duties to others in his firm. Thus, he states that applying to lift those restrictions, as the Division suggests, would have no practical purpose. However, if the Commission decides to deny his motion to vacate, Wien requests that the remaining restrictions on his activities be lifted.
Standard Against Which the Commission Assesses Petitions to Vacate or Modify Bars. In determining requests to vacate or modify bars the Commission has considered the impact of the requested relief on the public interest and the protection of investors. 10 In orders denying the vacation or modification of bars, the Commission has cited, variously, Swift v. UnitedStates, 11 and Rufo v. Inmates of the Suffolk County Jail. 12 These orders have focused on the public interest and investor protection concerns presented should the Commission relinquish its control over the petitioners' activities. 13 In thoseinstances in which the Commission has vacated bar orders, 14 the Commission has applied a facts and circumstances test stressing, variously, the nature of the underlying misconduct and the length of time since entry of the Commission's bar order, 15 the extent to which prior relief from the order had been granted, the unblemished compliance record of the respondent since he or she had been permitted to return to the securities industry, and the Division of Enforcement staff's position with respect to the relief requested. In most of these matters, lifting the bar was the last in a series of incremental grants of relief -- that is, the petitioner earlier had been permitted to associate without restrictions. 16 Review of this precedent reflects that the Commission granted relief on concluding that there would be no adverse impact on the public interest and the protection of investors if the bar were vacated or modified. 17
The Commission's long-standing approach to petitions to vacate or modify, in sum, reflects the Commission's statutory obligation to ensure that a request for relief or modification comports with the public interest and investor protection, anddemonstrates the use of the following standard for assessing such petitions 18:
In reviewing requests to lift or modify administrative bar orders, the Commission will determine whether, under all the facts and circumstances presented, it is consistent with the public interest and investor protection to permit the petitioner to function in the industry without the safeguards provided by the bar. In the usual case, bars will remain in place; relief will be appropriate only in compelling circumstances. Consideration of a range of factors guides the Commission's public interest/investor protection inquiry, and no one factor is dispositive. These factors are:
Consistent with the Commission's long-standing approach in this area, Commission administrative bars, which are imposed inresponse to findings of misconduct, will remain in place in the usual case and be removed only in compelling circumstances. Preserving the status quo ensures that the Commission, in furtherance of the public interest and investor protection, retains its continuing control over such barred individuals' activities. 19 At the same time, the Commission will act in response to those situations in which, under all the facts and circumstances, the equitable need for relief, consistent with the public interest and investor protection, warrants vacating or modifying a Commission bar order.
Application of Standard. On balance, on review of all the facts and circumstances, the Commission has not identified the potential for public interest or investor protection concerns, if Wien is permitted now to function in the industry without the safeguards provided by the bar to which he presently is subject. The Commission concludes that the factors that are relevant to that inquiry, applied to the facts here, indicate that relief is warranted:
Accordingly, IT IS ORDERED that the petition of Stephen S. Wien to vacate the order entered against him on July 6, 1982, be, and it hereby is, GRANTED; and
IT IS FURTHER ORDERED that the order be, and it hereby is, VACATED.
By the Commission.
Jonathan G. Katz
1 Edward I. Frankel, Securities Exchange Act Rel. No. 49002 (December 29, 2003), __ SEC Docket ____; Ciro Cozzolino, Exchange Act Rel. No. 49001(December 29, 2003), __ SEC Docket ____.
2 M.S. Wien & Co., Inc., Exchange Act Rel. No. 18869 (July 6, 1982), 25 SEC Docket 1063. Wien also was suspended for 30 days. In a related Commission injunctive action charging violations of net capital provisions, M.S. Wien & Co., Inc. ("MSW") and its officers were permanently enjoined from further violations of those provisions. In addition, an SIPC trustee was appointed to liquidate the firm.
3 Specifically, the Commission found that Wien willfully aided and abetted MSW's violations of Sections 7(c), 15(c)(3), 17(a) and 17(e) of the Exchange Act and Rules 15c3-3, 17a-3, 17a-5, 17a-11 and 17a-13 thereunder and Regulation T of the Rules and Regulations promulgated by the Board of Governors of the Federal Reserve System.
4 Exchange Act Rel. No. 40239 (July 21, 1998), 67 SEC Docket 1781.
5 The 1998 Wien Order discussed United States v. Swift, 286 U.S. 106 (1932), and Rufo v. Inmates of the Suffolk County Jail, 502 U.S. 367 (1992), indicating that Wien had not shown either that the bar imposed a "grievous wrong" (Swift, 286 U.S. at 119), or that there had been a "significant change in circumstances" (Rufo, 502 U.S. at 383) since issuance of the consent order. See 67 SEC Docket at 1783.
6 67 SEC Docket at 1783.
8 According to the Division: "Tests of knowledgeability are certainly important as a means of ensuring that associated persons are aware of their legal responsibilities, but they simply are not, and cannot be, a guarantee that any individual will in fact meet those responsibilities."
9 Wien cites in support of the Commission's use of this standard in the administrative context the opinion in SEC v. Crofters, Inc., 1982 WL 1362 at 4 (S.D. Ohio, Aug. 23,1982), in which the court, in determining whether to modify a Commission injunction, assessed the "degree of necessity" on consideration of the following factors: the nature and severity of the alleged danger that the injunction was designed to prevent; the likelihood of future violations; the difficulty in enforcing against possible future violations; and the period of non-violation or non-compliance with the injunction.
10 See, e.g., 1998 Wien Order, 67 SEC Docket at 1783 ("[W]e are not convinced that lifting the bar would be consistent with the protection of public customers. . . . [Our] control is still a necessary safeguard in the public interest.").
11 286 U.S. 106 (1932). Swift requires a "clear showing of grievous wrong evoked by new and unforeseen conditions." Id. at 119. The Commission's citation to Swift in its denial orders dates back to the Commission's 1985 order in Cranford Delano Newell, Admin. Proc. File No. 3-6174 (Oct. 3, 1985). Commission orders denying requests to vacate or modify bars entered on consent which reference the Swift standard include Donald H. Parsons, Exchange Act Rel. No. 32948 (Sept. 23, 1993), 55 SEC Docket 112, 113; Peter E. Aaron, Exchange Act Rel. No. 31470 (Nov. 16, 1992), 52 SEC Docket 3813, 3816; and Sam E. Whittaker, Admin. Proc. File No. 3-6252 (July 22, 1991).
12 502 U.S. 367 (1992). The Rufo standard for modification or vacation of a judicial consent order requires a showing that a "significant change in facts or in law warrants revision of the decree and that the proposed modification is suitably tailored to the changed circumstance." Id. at 383. Among the Commission's orders which reference Rufo are the 1998 Wien Order; Edward I. Frankel, Exchange Act Rel. No. 38378 (Mar. 10, 1997), 64 SEC Docket 131, 135; Salvatore F. Geswaldo, Exchange Act Rel. No. 37896 (Oct. 30, 1996), 63 SEC Docket 342, 345; and First Omaha Securities Corp., Exchange Act Rel. No. 37654 (Sept. 6, 1996), 62 SEC Docket 2253, 2256.
13 See, e.g., First Omaha Securities Corp., 62 SEC Docket at 2260 (finding "significant governmental interest" in continuing the order, as "maintenance of the [o]rder functions to alert potential investors to the firm's disciplinary history"); Parsons, 55 SEC Docket at 114 ("The order against Parsons contains findings of very serious misconduct. Although limited relief from the order, such as that already granted, may be appropriate in certain discrete circumstances, the public interest requires that continuing control be maintained over Parsons' activities."); Edward I. Frankel, Admin. Proc. File No. 3-2783 (Dec. 22, 1994) (concluding that "it would be against the public interest for us to consider relinquishing [our] control" over the petitioner while allegations of serious post-order misconduct were unresolved); William H. Pike, Investment Company Act Rel. No. 40417 (July 20, 1994), 57 SEC Docket 589, 590, petition for review denied, Pike v. SEC, 52 F.3d 1122 (D.C. Cir. 1995) ("the public benefit of maintaining our Order outweighs any detriment to Pike that may result from its continuance").
14 The Commission granted relief from bars entered by consent in Mark E. Ross, Exchange Act Rel. No. 43033 (July 13, 2000), 72 SEC Docket 2587; John W. Bendall, Jr., Exchange Act Rel. No. 38326 (Feb. 24, 1997), 63 SEC Docket 2790; Ralph J. Hayes, Exchange Act Rel. No. 36604 (Dec. 19, 1995), 60 SEC Docket 2880; Bruce William Zimmerman, Exchange Act Rel. No. 36275 (Sept. 25, 1995), 60 SEC Docket 883; Munro J. Silver, Admin. Proc. File No. 3-7496 (Aug. 9, 1991).
15 In each of these matters, the underlying Commission orders involved findings of fraud, but the time elapsed since the Commission's bar order varied from 19 to 32 years.
16 Bendall and Ross are the exceptions. In Ross, the Commission noted that the Commission had relaxed certain (but not all) of the restrictions in the order (72 SEC Docket at 2587-88); in Bendall, while the NASD and the Commission had granted certain relief from the bar order, that grant was subject to certain conditions (63 SEC Docket at 2791).
17 In Ross, for example, the Commission cited favorably the Division's view that the order was "no longer needed to protect investors." 72 SEC Docket at 2588. In Bendall, similarly, the Commission highlighted the Division's position that "the requirements imposed on Bendall as a result of the bar no longer serve an important investor protection purpose." 63 SEC Docket at 2792.
18 Consistent with Chevron, USA, Inc. v. Natural Res. Def. Counsel, Inc., 467 U.S. 837 (1984), the Commission as an administrative agency is free to adopt any reasonable standard for relief from its orders, absent a statutory requirement to the contrary.
19 To paraphrase the U.S. Court of Appeals for the D.C. Circuit in SEC v. Clifton, 700 F.2d 744 (D.C. Cir. 1983), significant Commission interests would be impaired if a modification standard is adopted that too readily lifts consent orders against violators -- by settling with the Commission, violators receive significant benefits and the Commission, in turn, advances investors' interests through an order that permits continuing control over respondents.
The Commission's approach also reflects the need, in the usual case, for finality in administrative adjudications. As the Supreme Court has recognized:
If upon the coming down of the order litigants might demand rehearings as a matter of law because some new circumstance has arisen, some new trend has been observed, or some new fact discovered, there would be little hope that the administrative process could ever be consummated in an order that would not be subject to reopening.
Interstate Commerce Commission v. City of Jersey City, 322 U.S. 503, 514 (1944).
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