John J. Kenny and Nicholson/Kenny Capital Management, Inc.

SECURITIES ACT OF 1933
Rel. No. 8234 / May 14, 2003

SECURITIES EXCHANGE ACT OF 1934
Rel. No. 47847 / May 14, 2003

INVESTMENT ADVISERS ACT OF 1940
Rel. No. 2128 / May 14, 2003

Admin. Proc. File No. 3-9611

In the Matter of

JOHN J. KENNY
AND
NICHOLSON/KENNY CAPITAL MANAGEMENT, INC.

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ORDER IMPOSING SANCTIONS

On the basis of the Commission's opinion issued this day it is

ORDERED that John J. Kenny be, and he hereby is, barred from association with any broker, dealer, or investment adviser; and it is further

ORDERED that the investment adviser registration of Nicholson/Kenny Capital Management, Inc. be, and it hereby is, revoked; and it is further

ORDERED that John J. Kenny cease and desist from committing or causing any violations or future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and it is further

ORDERED that John J. Kenny and Nicholson/Kenny Capital Management, Inc. cease and desist from committing or causing any violations or future violations of Section 206 of the Investment Advisers Act of 1940; and it is further

ORDERED that John J. Kenny pay a civil money penalty of $700,000 and Nicholson/Kenny Capital Management, Inc. pay a civil money penalty of $500,000; and it is further

ORDERED that Kenny and Nicholson/Kenny Capital Management, Inc., jointly and severally, pay disgorgement in the amount of $1,333,000, together with prejudgment interest; and it is further

ORDERED that the Division of Enforcement submit a plan of disgorgement in accordance with Rule 610 of the Rules of Practice, 17 C.F.R. § 201.610, within 60 days of the date of this order; and it is further

ORDERED that Respondents shall, within 21 days of the entry of the Order, pay the civil money penalties and the disgorgement. Payment shall be: (i) made by United States postal money order, certified check, bank cashier's check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) delivered by hand or mailed to the Office of Financial Management, Securities and Exchange Commission, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and, (iv) submitted under cover letter which identifies the particular respondent's name as a respondent in these proceedings and the file number of this proceeding. A copy of this cover letter and check shall be sent to Polly A. Atkinson, Counsel for the Division of Enforcement, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202-2648.

By the Commission.

Jonathan G. Katz
Secretary

_______________________

1 John J. Kenny, Initial Decision Rel. No. 147 (Aug. 6, 1999), 70 SEC Docket 1011.
2 15 U.S.C. § 77q(a).
3 15 U.S.C. § 78j(b).
4 17 C.F.R. § 240.10b-5.
5 In May 1997, Wilson pleaded guilty to charges of conspiracy to commit wire fraud in connection with the dealings with one of the insurance companies, United States Consumer Fund of Florida ("USEC-FL"), described below. United States v. Wilson, No. 97-189-CR-T-99(E) (M.D. Fl. May 20, 1997). In January 1998, Wilson pleaded guilty to charges of wire fraud and tax evasion arising out of conduct unrelated to the matters discussed in this opinion. He was sentenced to a 57-month prison term. United States v. Wilson, CR 97-177 (C.D. Cal. Jan. 15, 1998).
6 15 U.S.C. § 80b-6.
7 Respondents had been charged with violating Section 207 of the Advisers Act, 15 U.S.C. § 80b-7, by willfully omitting to state in Form ADV filed with the Commission a material fact required to be stated therein. The law judge found that the violation charged was not established. The issue was not appealed.
8 The branch manager of Dean Witter's St. Louis office testified that Dean Witter would not have approved the sending of such a letter because "there were known misuses of [such letters] by people making representations to potential clients or investors on a less than above board basis."
9 The Commission, federal financial institution supervisory agencies, and Canadian regulators have all issued alerts warning the public about the fraudulent nature of "prime bank" schemes. See Martin R. Kaiden, Exchange Act Rel. No. 41629 (July 20, 1999), 70 SEC Docket 439, 448 (listing agencies that have issued alerts). See also SEC v. Lauer, 52 F.3d 667, 670 (7th Cir. 1995) ("Prime Bank instruments do not exist.").
10 The investor had asked, "What degree of responsibility does Dean Witter take?" The promoter of the schemereplied that Dean Witter was not serving as underwriter or broker of the "deposit promissory note" to be issued by Earnscliffe, and that it would therefore not participate in pre-deposit correspondence. The promoter explained that he had therefore asked Dean Witter to provide a letter stating that Earnscliffe was "an account holder in good standing." Kenny's letter, using that wording, was enclosed with the promoter's letter to the investor.
11 In addition to objecting to the use of its name in promoting Earnscliffe's alleged program, Dean Witter also objected to "unauthorized references" to Dean Witter in a private placement memorandum for a "Structured Note Program" originated by Earnscliffe Trust. The record does not show that Kenny was aware of the particular uses of its name to which Dean Witter objected. Kenny admitted, however, that he knew both that Dean Witter had objected to Wilson's use of its name and that Dean Witter had initiated litigation in connection with that use.
12 Kenny testified that he was not asked to provide documents responsive to the subpoena. The branch officer at Dean Witter's St. Louis office testified, however, that in the normal course of business Dean Witter would have asked the account executive to provide materials from his or her files in order to comply with the subpoena.
13 Wilson proposed to pay NAT the strike price for the options, $1.96 (Canadian) per share. He also proposed to pay the options holders $2.20 per share, and to share the proceeds of his trading program with the options holders and NAT. At the time, NAT stock was trading at approximately $6.00 per share.
14 Parrott testified that he never fully understood Wilson's trading program, but that he was relatively unconcerned as long as the monthly statements showed that the account was increasing in value. He testified that the NAT account yielded nearly 100% return on investment between March 1993 and December 1993, when it was at Pauli & Co. In early 1994 the account was transferred to Johnson & Kent. Although NAT ultimately received $1.96 per share for each of the options, the options holders did not receive the $2.20 per share promised to them. When the options holders and NAT tried to recover their funds from Johnson & Kent, there was nothing in the account.
15 Wilson initially told Kenny that he had paid over $70 million for the bonds, but he admitted at his deposition that he never paid anything for them.
16 Kaufman had been introduced to Wilson by McClain. McClain and his family were close friends of Kaufman's stepdaughter.
17 It is undisputed that Kaufman always meant to refer to the same account.
18 The $70,000 figure is apparently a typographical error. Had McClain deposited the $20,000 that Kaufman expected, the total deposited would have been $170,000.

It is not clear why the second letter referred to the purchase of "additional" shares of Tri-Northern Resources; the record does not show that Kaufman had previously earmarked funds for the purchase of such shares. Nor does the record explain Kaufman's apparent decision to use funds from the account for stock purchases rather than for the bond trading program, as originally planned.

19 Wilson and his attorney, Samuel L. Boyd, repeatedly told Kaufman that Tri-Northern stock would be listed on an exchange.
20 The figure $175,000, unlike those used elsewhere in Kaufman's letters to Kenny, indicates only deposits by Kaufman and does not include the $20,000 that Kaufman expected McClain to deposit.
21 There was a $20,000 discrepancy between the "total" that Kaufman's letter mentioned and the amounts deposited that Kenny's letter specified. The discrepancy apparently reflects Kaufman's erroneous belief that McClain had deposited $20,000.
22 Kenny bought 22,000 shares of NAT at $4.16 a share for Kaufman's account on July 6 and another 1,500 shares at $3.38 on August 17. As of October 29, the price per share was $3.031.
23 Kenny stated that he told Kaufman in late October 1993 that Tri-Northern was not yet trading publicly.
24 Kaufman initiated arbitration against Pauli & Co. to recover the $205,000 he had deposited into the AKaccount. Kaufman was awarded $5,000.
25 See Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); Section 10(b) of the Exchange Act, 15 U.S.C. § 78j; Exchange Act Rule 10b-5, 17 C.F.R. § 240.10b-5; and Section 206 of the Advisers Act, 15 U.S.C. § 80b-6.
26 SEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999); SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir. 1996).
27 See Aaron v. S.E.C., 446 U.S. 680, 695, 697 (1980); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976); Steadman v. S.E.C., 603 F.2d 1126, 1134 (1979), aff'd, 450 U.S. 91 (1981); Scienter requirement in actions under antifraud provision of Investment Advisers Act, 133 A.L.R. Fed. 549 (and cases there cited).
28 Aaron v. S.E.C., 446 U.S. at 696; S.E.C. v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 196 (1963); Steadman, 603 F.2d at 1134.
29 See, e.g., Howard v. Everex Systems, Inc., 228 F.3d 1057, 1063 (9th Cir. 2000). Reckless conduct involves "an extreme departure from the standards of ordinary care, . . . which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it." Id.
30 Kaufman's fourth letter stated, "This should total $225,000." The phrase "[t]his should total" is less precise than the phrase "the account should now total," which Kaufman used in his third letter, since "this should total" could mean "this should total $225,000 that I've now sent you." Even if Kenny interpreted Kaufman's letter as seeking confirmation of the amount sent, however, it was misleading to respond by referring simply to Kaufman's deposits while keeping silent about other activity in the account. As discussed infra, once Kenny undertook to answer Kaufman's letters, he was obligated to include information necessary to make his answers not misleading. By merely reviewing the amounts deposited into the account without mentioning the stock purchases, decline in value of securities purchased with money in the account, or amount transferred out of the account, Kenny failed to satisfy this obligation.

We note that Kenny did correct Kaufman's apparent erroneous belief that McClain had deposited $20,000 into the account.

31 See Kline v. First W. Gov't Sec., Inc., 24 F.3d 480,

490-91 (3d Cir. 1994) ("[W]hen a professional 'undertakes

the affirmative act of communicating or disseminating information,' there is a general obligation or 'duty' to speak truthfully . . . .[E]ncompassed within that general obligation is also an obligation or 'duty' to communicate any additional or qualifying information, then known, the absence of which would render misleading that which was communicated.") (quoting Rose v. Arkansas Valley Envtl. & Util. Auth., 562 F. Supp. 1180, 1207-08 (W.D. Mo. 1983)).

32 Kenny asserts that the Division was required to demonstrate that Kaufman and another customer, Smith, relied on his statements. The Commission does not have to demonstrate reliance in an enforcement action. SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985); Martin R. Kaiden, Exchange Act Rel. No. 41629 (July 20, 1999), 70 SEC Docket 439, 451 n.34.
33 An omitted fact is material if there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information available." TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
34 We note that the failure to reveal Kaufman's interest in the account more clearly in the new account documents helped to disguise Wilson's and Kenny's activities from Pauli & Co. and Bear Stearns.
35 The president and CEO of Pauli & Co. testified that the firm was not even considering creating a bond trading program at that time.
36 According to Wilson, Tensiodyne would use x-ray technology to examine aircraft parts for corrosion and cracks.
37 Kenny argues that his alleged misrepresentations were not in connection with the purchase or sale of a security because the only bond transaction in the account was the sale of a $250,000 Treasury bond pursuant to Smith's instructions. Here, Smith opened his account to participate in a trading program involving purchasing and margining Treasury bonds. He authorized Kenny to use the funds only for that program. Kenny misled Smith by leading him to believe that he would use the proceeds from the sale of the Treasury bond for the bond trading program. Instead, Kenny purchased Tensiodyne stock for Smith's account. Thus, there were misrepresentations in connection with the purchase and sale of specific securities.
38 Kenny testified that Wilson or McClain told Smith to write the letter. The law judge, however, credited Smith's testimony.
39 In addition to the approximately $300,000 in assets that were transferred from Smith's account at Pauli & Co. to the Boyd trust account, Smith lost $50,000 in his attempt to buy Tensiodyne shares directly from Wilson. Smith ultimately received a check for $25,000 from a Wilson employee, but the record does not establish its purpose.
40 The record does not explain how it could make sense from Wilson's point of view for him to put up collateral in the form of Treasury instruments valued at 120% of the loan amount in order to borrow funds for his investment program rather than simply investing the "collateral" in the program.
41 Tullis explained that it would be easier for an auditorto see NFC's assets reflected on a single brokerage statement than to have to review loan documentation and collateral.
42 See supra pp. 29-30.
43 By this time, $8 million had been wired from NFC's account at Pauli & Co. into Boyd's trust account.
44 Between July 22, 1994 and October 26, 1994, Kenny carried out NFC's instructions to withdraw more than $9 million from Pauli & Co. and transferred the money to Boyd's trust account at NationsBank. Although NFC believed that these funds were being used in Wilson's bond trading program, Wilson misappropriated all the money, putting it to various uses that did not benefit NFC.

NFC went to arbitration to recover the funds lost through its involvement with Wilson. NFC was awarded more than $1.7 million, to be paid by Kenny and others, including Bear Stearns and Pauli & Co. NFC was also awarded $650,000 in punitive damages, of which $550,000 was to be paid by Kenny. The award was affirmed by court order. Euro American Ins. v. National Family Care, No. 95-11063-J (Tex. Dist. Ct. June 2, 1999); final judgment entered, (Tex. Dist. Ct. Aug. 30, 2000); appeal dismissed as to Kenny, No. 05-00-01994-CV (Tex. App. Feb. 28, 2002).

45 Nicholson/Kenny is a wholly owned subsidiary of Kenny Capital Management, which, in turn, is wholly owned by Kenny and his wife. Kenny Capital Management also owns Kenny Securities Corp., a sister corporation to Nicholson/Kenny.
46 Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000); Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir. 1983); Richard D. Chema, 53 S.E.C. 1049, 1055-56 (1998); Adrian C. Havill, 53 S.E.C. 1060, 1065 (1998); Donald T. Sheldon, 51 S.E.C. 59, 66 (1992), aff'd, 45 F.3d 1515 (11th Cir. 1995).

A finding that a respondent willfully aided and abetted violations of the securities laws necessarily makes that respondent a "cause" of those violations. See, e.g., Sharon M. Graham, 53 S.E.C. 1072, 1085 n.35 (1998), aff'd, 222 F.3d 994 (D.C. Cir. 2000); Dominick & Dominick, Inc., 50 S.E.C. 571, 578 n.11 (1991). As noted above, to conclude that a respondent aided and abetted another's violations, it must be found that the respondent acted with scienter. A respondent is a "cause" of another's violation if the respondent "knew or should have known" that his or her act or omission would contribute to such violation. Exchange Act Section 21C(a), 15 U.S.C. § 78u-3(a).

47 The state of Florida took over USEC-FL in 1995.
48 The hearing transcript repeatedly refers to the "securities" in the USEC-FL account, although the only security held in the account during January 1995 was the $7 million U.S. Treasury note discussed above.
49 The total apparently represented $3.4 million as security for USEC-FL's $3.4 million deposit and $5 million for the purchase of USEC-FL's surplus debenture and delinquent receivables. See supra p. 34.
50 USECA subsequently lost additional funds through its involvement with Wilson. In March 1995, when USEC-FL no longer had an account at Pauli & Co., USECA sent Wilson $1.1 million in securities so that Wilson could pay the state of Florida $1.1 million; if USECA had cashed the securities in order to pay the state, it would have lost $100,000 on the investment. Wilson, however, did not pay the state, and USEC-FL lost the entire $1.1 million.
51 15 U.S.C. § 80b-6(1).
52 15 U.S.C. § 80b-6(2).
53 SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 191-92, 194 (1963).
54 An associated person may be charged as a primary violator under Section 206 where the activities of the associated person cause him or her to meet the broad definition of "investment adviser." For example, courts have found that an associated person is liable under Section 206 where the investment adviser is an alter ego of the associated person or is controlled by the associated person. See, e.g., SEC v. Berger, 2001 U.S. Dist. LEXIS 18448, at *28 (S.D.N.Y. Nov. 13, 2001) (finding associated person liable under §§ 206(1) and (2) based on control of investment adviser), aff'd on other grounds, 2003 U.S. App. LEXIS 3562 (2d Cir. Feb. 27, 2003); SEC v. Gotchy, 981 F.2d 1251 (4th Cir. 1992) (unpublished table decision) (finding president and half-owner of investment adviser liable under §§ 206(1) and (2)).
55 On June 29, 2001, counsel for Respondents filed a motion to supplement the record. The motion seeks leave to adduce two arbitration awards in which Kaufman and Smith respectively were claimants; a settlement agreement and related order of dismissal with prejudice between Wilson, Boyd, McClain, and several Wilson-related entities on the one hand and NFC, Sandra Erwin, and several other parties on the other hand; a federal district court order in a case brought by the Commission against Gary Long, a Wilson associate, and others; and a brief filed by Kenny in state court contesting the confirmation of an arbitration award against Kenny in favor of NFC.

On September 23, 2002, counsel for Respondents filed a second motion to supplement, this time seeking to adduce material from the Central Registration Depository ("CRD") related to Kenny's disciplinary history; a release and settlement agreement between the Florida Department of Insurance as receiver for USEC-FL, with an accompanyingorder approving the release and settlement agreement; and an opinion and order dismissing Kenny's appeal of a Texas District Court judgment affirming an arbitration award among Kenny and others, see supra n. 44, with related documents, including a settlement agreement.

Rule 452 of our Rules of Practice, 17 C.F.R. § 201.452, provides, in relevant part, that the Commission may allow the submission of additional evidence upon the motion of a party. Such a motion must "show with particularity that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence previously." Id.

Respondents have not shown that there were reasonable grounds for failure to adduce the arbitration awards or the CRD record of Kenny's pre-hearing disciplinary history previously. The awards were mailed to counsel months before the law judge issued his decision, and the CRD material was readily available. Respondents have not shown why this evidence could not have been adduced before the initial finder of fact. We therefore decline to consider the arbitration awards and the CRD material related to Kenny's disciplinary record up to the date of the hearing.

We decline to allow the submission of the settlement agreements and related materials because they are not material. Neither the record nor the proposed new evidence shows why the parties settled the claims in question. The fact of settlement is not material to the question of Kenny's liability. Moreover, others' decisions to settle their civil cases do not affect our responsibility to conduct this proceeding in the public interest.

The district court order in the case brought against Long is also immaterial. The order reflects that a default judgment was entered against Long, but that the relief sought was denied due to an inadvertent failure to provide supporting evidence in a timely fashion. This says nothing material about Respondents' liability, or about the propriety of sanctions against them.

Kenny's brief contesting the confirmation of the arbitration award also is immaterial. We have no authority to reviewthe actions of the arbitration panel.

Finally, the material from the CRD is immaterial insofar as it reflects Kenny's recent disciplinary record. The knowledge that a disciplinary proceeding is pending may lead one to take special care in conducting business; this is not a reliable indicator that the same care will be taken in the future.

For these reasons, Respondents' first two motions to supplement the record are denied.

In a third motion to supplement, filed after oral argument, Respondents made additional arguments based on other proceedings involving Kenny, sought to introduce materials related to those proceedings, and asked the Commission to sanction counsel for the Division of Enforcement for alleged misstatements made at oral argument. The materials in question are irrelevant, immaterial, and/or duplicative. We therefore deny the third motion to supplement. Further, we see no reason to sanction Division counsel for the conduct about which Respondents complain, and we therefore deny the motion for sanctions as well.

56 Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187-88 (1973); accord, Valicenti Advisory Servs., Inc. v. SEC, 198 F.3d 62, 66 (2d Cir. 2000) (amended opinion) (courts will affirm sanctions imposed unless they are either unwarranted in law or without justification in fact) (citation omitted).
57 15 U.S.C. § 78o(b)(6)(A)(i).
58 15 U.S.C. § 80b-6(3)(e), (f).
59 Donald T. Sheldon, 51 S.E.C. at 86 (quoting Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981)).
60 SEC v. First City Financial Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989); SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir. 1987); Hibbard, Brown & Co., 52 S.E.C. 170, 183 n. 64 (1995).
61 On September 9, 1994, $25,000 was transferred to Kenny from Boyd's trust account at NationsBank. On October 21, 1994, $913,000 was wired from the Boyd account to Robert Nicholson as Kenny's payment to acquire the Nicholson Group. An additional $115,000 was wired from the Boyd account to Kenny Capital Management in February 1995. Finally, in January and February 1995, $280,000 was wired from a DGA account to the Kennys.
62 15 U.S.C. §§ 77h-1, 78u-3, 80b-3(k).
63 KPMG Peat Marwick LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 S.E.C. Docket 384, 435, petition for review denied, 289 F.3d 109 (D.C. Cir. 2002).
64 See supra p. 49.
65 Id., 74 S.E.C. Docket at 436.
66 Although we have revoked Nicholson/Kenny's registration, see supra p. 44, we nonetheless find the imposition of a cease-and-desist order in the public interest, since the order would apply should Nicholson/Kenny improperly act as an unregistered investment adviser in the future and to prevent Nicholson/Kenny from causing another person's violation of the securities laws.
67 15 U.S.C. §§ 78u-2(a), 80b-3(i)(1).
68 Section 21B(b) of the Exchange Act, 15 U.S.C. § 78u-2(b); Section 203(i)(1) of the Advisers Act, 15 U.S.C. § 80b-3(i)(1).
69 In considering whether a penalty is in the publicinterest, we consider:

(1) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement;

(2) the harm to other persons resulting either directly or indirectly from such act or omission;

(3) the extent to which any person was unjustly enriched, taking into account any restitution made to persons injured by such behavior;

(4) whether such person previously has been found by the Commission, another appropriate regulatory agency, or a self-regulatory organization to have violated the Federal securities laws, State securities laws, or the rules of a self-regulatory organization, has been enjoined by a court of competent jurisdiction from violations of such laws or rules, or has been convicted by a court of competent jurisdiction of violations of such laws or of [certain felonies or misdemeanors];

(5) the need to deter such person and other persons from committing such acts or omissions; and

(6) such other matters as justice may require.

Exchange Act Section 21B(c), 15 U.S.C. § 78u-2(c); Advisers Act Section 203(i)(3), 15 U.S.C. § 80b-3(i)(3).

70 15 U.S.C. §§ 78u-2(b), 80b-3(i)(2).
71 17 C.F.R. § 201.410(c).
72 Kenny did submit financial information at the hearing. The financial statements he submitted were not sworn, and an accountants' report attached to financial statements submitted on behalf of Nicholson/Kenny noted departures from generally accepted accounting principles. Additionally, the validity of Kenny's asserted $1.3 million debt to a Wilson entity, a sum that represents more than 50% of his asserted liabilities, appears highly questionable since, as discussed above, the note was not executed until 1995, no collateral was posted, and no payments were made.

After oral argument was held, Kenny submitted additional materials purporting to reflect a current inability to pay a penalty. The Division objects and expresses doubt about the accuracy and completeness of the financial statements. By failing to comply with Rule 410(c) by filing a sworn financial statement with his opening brief, Kenny waived his opportunity to assert inability to pay in this proceeding. Moreover, Kenny has not established that these materials should be admitted under Rule 452 because he has not demonstrated that there were reasonable grounds for his failure to file sworn financial statements at a time the Division could have responded to, and the Commission could have evaluated, the statements more thoroughly. We note, however, that nothing precludes Kenny's seeking to prove inability to pay if an attempt is made to enforce the disgorgement order against him.

73 Kenny does not assert that res judicata applies to the determination of issues of liability in this proceeding.
74 E.g., SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1463 (2d Cir. 1996).
75 We further find that Kenny waived the defense of res judicata by failing to assert it in his answer. Rule 220(c) of the Rules of Practice, 17 C.F.R. § 201.220(c).
76 U.S. Const. amend. V. See also Hudson v. United States, 522 U.S. 93, 98-99 (1997) (reaffirming traditional rule that double jeopardy clause prohibits multiple sanctions for same offense only if those sanctions are criminal punishment).
77 See Jones v. SEC, 115 F.3d 1173, 1183 (4th Cir. 1997) (double jeopardy clause not applicable where sanctions were imposed first in NASD disciplinary proceeding, then in Commission administrative proceeding, in part because "the NASD is a private party and not a governmental agent").
78 See, e.g., SEC v. Palmisano, 135 F.3d 860, 864-66 (2d Cir. 1998) (civil penalty assessed in Commission enforcement action not a criminal punishment).
79 On October 1, 2001, Respondents filed a motion asking us to "vacate" this proceeding summarily as a sanction imposed pursuant to Rule 180(a) of the Rules of Practice, 17 C.F.R. § 201.180(a), on the ground that the Division allegedly made numerous misrepresentations during the hearing. Rule 180(a) provides:

Contemptuous conduct by any person before the Commission or a hearing officer during any proceeding, including any conference, shall be grounds for the Commission or the hearing officer to: (i) exclude that person from such hearing or conference, or any portion thereof, and/or (ii) summarily suspend that person from representing others in the proceeding in which such conduct occurred for the duration, or any portion, of the proceeding.

The statements to which Respondents object are in many cases arguments by counsel; they are not misrepresentations and were not improper conduct. Moreover, the rule is intended to ensure that hearings and conferences proceed in an orderly fashion. The sanctions provided for by the rule are designed to be imposed at the time of the conduct, so that the proceeding may continue without improper conduct. Invoking the rule long after the conclusion of the hearing at which the allegedly contemptuous conduct occurred makes no sense. In addition, the sanction sought is not within the scope of the rule. The motion for sanctions is thus denied, as is the motion for leave to supplement Respondents' brief to include additional instances of allegedly improper behavior.

80 We have considered all of the parties' contentions. We have rejected or sustained them to the extent that theyare inconsistent or in accord with the views expressed in this opinion.

 

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