United States of America
In the Matter of
|ORDER GRANTING PETITION TO VACATE ADMINISTRATIVE BAR ORDER|
Introduction and Disposition. Petitioner Ciro Cozzolino ("Cozzolino"), the subject of a 1974 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-nine years ago, in September 1974, by his consent, the Commission suspended Cozzolino from association with any broker or dealer for 240 days and barred him thereafter from association with any broker-dealer except as a supervised employee in a non-supervisory capacity. Association was conditioned "upon a showing to the Division of Enforcement that he would be adequately supervised." 2 In the order ("Cozzolino Order"), the Commission found that Cozzolino, a trader, and another respondent, a salesman, willfully aided and abetted violations of the antifraud provisions when they participated in a manipulative scheme involving the securities of The BoltonGroup, Ltd. In that scheme, most of a public offering of the securities was withheld from public sale and sold to a small group of scheme participants through nominee accounts, causing the aftermarket to open at an artificially inflated premium. The order further found that the withheld securities later were sold at inflated prices and fraudulent representations were made in connection with their sale, and that Cozzolino and the salesman willfully aided and abetted their broker-dealer employer's recordkeeping violations by causing false entries to be made in the broker-dealer's books and records. 3
In 1975, the Commission's Division of Enforcement ("Division") permitted Cozzolino to become associated in a supervised capacity. In 1977 the Division approved Cozzolino's association with a second firm, again in a supervised capacity. Subsequently, because the Division previously had permitted Cozzolino to reenter the securities industry in a supervised capacity, the National Association of Securities Dealers, Inc. ("NASD") granted him permission to associate with a series of NASD member firms in a similar capacity and provided appropriate notifications to the Commission's Division of Market Regulation.
Substance of Cozzolino's Petition. Cozzolino is 69 years old and argues that, although he has over 40 years of securities experience, he is finding it increasingly difficult to find work in the securities industry ("I have great success on the interviews, but when the U4 problem is mentioned, they lose interest."). He claims that he has been unable to find an employer since 1997 when his then-employer, Saperston Financial Inc., ceased doing business. According to Cozzolino, the NASD's $1,500 annual inspection fee required of a firm employing an individual subject to a bar order contributes to his inability to find employment. Cozzolino therefore requests "relief of [his] supervised status." 4 Cozzolino states that, since the conductgiving rise to the Commission's order, he has not been the subject of any other disciplinary action. The record supports Cozzolino's assertion. 5
Division's Position on the Petition. The Division opposes Cozzolino's request. The Division suggests that, in lieu of vacating the bar entirely, Cozzolino first should seek relief from the requirement that he be subject to special supervisory procedures approved by the Division. Then, "if relief is granted," the Division would expect the individual "to establish a reasonable track record of association without those restrictions before seeking the extraordinary relief of having the bar order vacated." The Division supports its position with two prior Commission orders in which the Commission has "taken the extraordinary step of setting aside a bar from association [Munro J. Silver 6 and Bruce William Zimmerman 7]," asserting that, in those matters, the facts establish that the supervisory restrictions that the Commission had imposed as a condition for reentry 25 and 19 years before, respectively, already had been lifted. The Division acknowledges that, in a third case, John W. Bendall, Jr., 8 not all supervisory restrictions had beenremoved at the time the Commission granted relief from a 28-year-old bar order, but stresses that Bendall had been allowed previously to act in a supervisory and proprietary capacity.
The Division further argues that "the mere passage of time does not provide a basis for vacating a Commission order," 9 and asserts that any difficulty Cozzolino has experienced in obtaining employment since 1997 because of the bar is, in fact, a "natural consequence of the action taken against him." 10
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. 11 In orders denying the vacation or modification of bars, the Commission has cited, variously, Swift v. United States, 12 and Rufo v. Inmates of the Suffolk County Jail. 13 These orders have focused on the public interest and investor protection concerns presented should the Commission relinquish its control over the petitioners' activities. 14 In those instances in which the Commission has vacated bar orders, 15 the Commission has applied a facts and circumstances test stressing, variously, the nature of the underlying misconduct and the lengthof time since entry of the Commission's bar order, 16 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. 17 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. 18
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, and demonstrates the use of the following standard for assessing such petitions 19:
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 in response 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. 20 At the same time, the Commission will act inresponse 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 Cozzolino 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 Ciro Cozzolino to vacate the order entered against him on September 13, 1974, 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 ____; Stephen S. Wien, Exchange Act Rel. No. 49000(December 29, 2003), __ SEC Docket ____.
2 Ciro Cozzolino, et. al., Exchange Act Rel. No. 11012 (Sept. 13, 1974), 5 SEC Docket 152.
3 The order found that Cozzolino wilfully aided and abetted violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and that Cozzolino wilfully aided and abetted violations of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder.
4 The letter motion that Cozzolino has submitted could be read to request relief only from the necessity of being subject to special supervisory conditions -- he specifically requests "relief from being supervised." However, in the next sentence of that letter motion he indicates his understanding that, if the Commission grants him relief, an employing firm will save the $1,500 NASD annual inspection fee (and a principal to supervise him will not be needed). The inspection fee is applicable in all situations where afirm employs an individual subject to a bar order. Accordingly, as does the Division, the Commission construes Cozzolino's request as a request to vacate the bar order.
5 The record includes a 1993 order from the State of Idaho Department of Finance denying Cozzolino's registration in that state, based on the Commission's 1974 order and a finding that Cozzolino was insolvent as evidenced by outstanding tax liens. Cozzolino explains in his motion that Idaho authorities informed his firm that he was disqualified because of the Commission order, and gave the firm 30 days to withdraw the application for registration. According to Cozzolino, the firm failed to withdraw the application within the time allowed, and the 1993 Idaho order was entered as a result. The Division represents that: "An examiner for the State confirmed that it would be the Department's practice to allow withdrawal of an application prior to issuance of a denial order. The order does not appear to represent additional, intervening misconduct by Cozzolino."
6 Admin. Proc. File No. 3-7496 (Aug. 9, 1991).
7 Exchange Act Rel. No. 36275 (Sept. 25, 1995), 60 SEC Docket 883.
8 Exchange Act Rel. No. 38326 (Feb. 24, 1997), 63 SEC Docket2790.
9 Paraphrasing Donald H. Parsons, Exchange Act Rel. No. 32948 (Sept. 23, 1993), 55 SEC Docket 112, 114. The Division assesses Cozzolino's petition against the standard set forth in United States v. Swift, 286 U.S. 106, 119 (1932) (relief warranted upon "clear showing of grievous wrong evoked by new and unforseen conditions").
10 Quoting from 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).
11 See, e.g., Stephen S. Wien, Exchange Act Rel. No. 40239 (July 21, 1998), 67 SEC Docket 1781, 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.").
12 286 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, 55 SEC Docket at 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).
13 502 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 Stephen S. Wien, 67 SEC Docket at 1782; 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.
14 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, 57 SEC Docket at 590 ("the public benefit of maintaining our Order outweighs any detriment to Pike that may result from its continuance").
15 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).
16 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.
17 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).
18 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.
19 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.
20 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 throughan 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).
21 See discussion supra notes 8 and 17 and accompanying text.
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