United States Court of Appeals, District of Columbia Circuit
John M.E. Saad, Petitioner
Securities and Exchange Commission, Respondent
March 16, 2017
Petition for Review of an Order of the Securities &
E. Kropf argued the cause for petitioner. With her on the
briefs was Steven Nathan Berk.
B. Mishra, Attorney, U.S. Securities and Exchange Commission,
argued the cause for respondent. On the brief were Anne K.
Small, General Counsel at the time the brief was filed,
Sanket J. Bulsara, Deputy General Counsel at the time the
brief was filed, John W. Avery, Deputy Solicitor, and
Christopher Paik, Special Counsel.
Before: Garland, Chief Judge, and Kavanaugh and Millett,
Millett Circuit Judge.
M.E. Saad, a broker-dealer, unlawfully misappropriated his
employer's funds on two separate occasions, and then
spent the next seven months misleading investigators in an
effort to cover up his wrongdoing. After a lengthy review
process, the Securities and Exchange Commission sustained a
decision of the Financial Industry Regulatory Authority
("FINRA") permanently barring Saad from membership
and from working with any of its affiliated members. Saad
challenges the Commission's decision as insufficiently
attentive to mitigating factors and argues that the permanent
bar is impermissibly punitive rather than remedial. We hold
that the Commission reasonably grounded its decision in the
record, which extensively evidenced Saad's acts of
misappropriation, his prolonged efforts to cover his tracks
through falsehoods, and his repeated and deliberate
obstruction of investigators. With respect to the permanent
bar on Saad's registration with FINRA and affiliation
with its members, the court remands for the Commission to
determine in the first instance whether Kokesh v.
SEC, 137 S.Ct. 1635 (2017), has any bearing on
Saad's case. Accordingly, Saad's petition for review
is denied in part and remanded to the Commission in part.
is a private self-regulatory organization that oversees the
securities industry, including broker-dealers. Saad v.
SEC, 718 F.3d 904, 907 (D.C. Cir. 2013); see Public
Investors Arbitration Bar Ass'n v. SEC, 771 F.3d 1,
2 (D.C. Cir. 2014). As part of its industry oversight, FINRA
sets professional rules of conduct for its members. See
Saad, 718 F.3d at 907; see also 15 U.S.C.
§ 78o-3(b)(2). One such rule- FINRA Rule 2010-requires
"[a] member, in the conduct of its business, [to]
observe high standards of commercial honor and just and
equitable principles of trade." Financial Industry
Regulatory Authority, FINRA Manual, FINRA Rules, Rule
2010. The high ethical standards enforced by
Rule 2010 are vital because "customers and firms must be
able to trust securities professionals with their
money." J.A. 111-112. Trustworthiness and integrity thus
are essential to the functioning of the securities industry.
has developed "Sanction Guidelines, " which
elaborate upon the contours of its rules of conduct. As
relevant here, the Guidelines provide that conversion and the
improper use of funds or securities will violate Rule 2010.
J.A. 93. Conversion is defined as "an intentional and
unauthorized taking of and/or exercise of ownership over
property by one who neither owns the property nor is entitled
to possess it." Id. In cases of conversion, the
Sanction Guidelines provide that "a [lifetime] bar is
standard, " "regardless of [the] amount
determining the appropriate sanction to be imposed for a
violation of its rules, FINRA's Guidelines outline eight
factors to be considered: (i) the need for the sanction to be
remedial, to deter future misconduct, and to improve business
standards in the securities industry, (ii) the violator's
status as a repeat or one-time violator, (iii) the
appropriateness of the sanction for the specific misconduct,
(iv) the need in a particular case either to aggregate or to
sanction individually similar violations, (v) the
appropriateness of restitution or rescission, (vi) the
remediation needed to ensure the individual does not benefit
from ill-gotten gains, (vii) the necessity of requalification
before permitting continued participation in the securities
industry, and (viii) the violator's ability to pay any
fine or restitution. J.A. 87-90.
addition to those general principles, FINRA adjudicators must
consider any other mitigating or aggravating factors. J.A.
91. FINRA's Sanction Guidelines provide a non-exhaustive
list of nineteen potential aggravating or mitigating factors,
including whether the violator (i) accepts responsibility for
the misconduct, (ii) took voluntary corrective action prior
to detection, (iii) engaged in a pattern of misconduct, (iv)
perpetrated the misconduct over an extended period of time,
(v) attempted to conceal the misconduct, (vi) acted
intentionally, or (vii) was already disciplined by the FINRA
member firm. J.A. 91-92.
disciplinary process begins when FINRA's Department of
Enforcement or Department of Market Regulation files a
complaint with the FINRA Office of Hearing Officers. FINRA
Rule 9211. A panel of hearing officers then conducts a
disciplinary proceeding, FINRA Rule 9213, and issues a final
written decision addressing both liability and remedial
sanctions, FINRA Rule 9268.
FINRA or the violator may appeal to the National Adjudicatory
Council, FINRA Rule 9311, which "may affirm, modify,
reverse, increase, or reduce any sanction, or impose any
other fitting sanction, " FINRA Rule 9349(a). The
Council then provides a proposed decision to the FINRA Board.
FINRA Rule 9349(c). If no Board member calls for review of
the Council's decision, it becomes final. Id.
violator may then seek review of FINRA's decision by the
Securities and Exchange Commission, FINRA Rule 9370, which
superintends the disciplinary decisions of financial industry
self-regulatory organizations like FINRA, 15 U.S.C. §
78s(d)-(e). The Commission conducts its own review of the
disciplinary action, and may modify, affirm, or set aside the
sanction. Id. § 78s(e)(1)(A)-(B). The
Commission will set a remedial order aside if the order
"imposes any burden on competition not necessary or
appropriate" to further the purposes of the Securities
Exchange Act, or if the sanction "is excessive or
oppressive." Id. § 78s(e)(2).
Saad was a regional director in the Atlanta Office of Penn
Mutual Life Insurance Company, and was a FINRA-registered
broker-dealer employed by Penn Mutual's affiliate Hornor,
Townsend, & Kent, Inc. Saad, 718 F.3d at 906.
Hornor, Townsend, & Kent, Inc. is a FINRA member firm.
2006, Saad scheduled a business trip from Atlanta, Georgia,
to Memphis, Tennessee, but the trip was canceled at the last
minute. Saad, 718 F.3d at 908; see also
J.A. 107. Instead of going home to his wife and infant twins,
Saad checked into an Atlanta hotel for two days.
Saad, 718 F.3d at 908. Upon returning to his office,
Saad submitted a false expense report for air travel to
Memphis and a two-night stay in a Memphis hotel. Id.
Attached to that false expense report were forged receipts
for the fictitious airfare and hotel. Id.
to the fabricated Memphis trip, Saad submitted another false
expense report to his firm for a replacement cellphone.
Saad, 718 F.3d at 908. Contrary to his
representation in the expense report, Saad did not replace
his own cellphone but instead purchased the cellphone for a
female insurance agent at another firm. Id.; see
also J.A. 62.
misconduct was soon discovered by an administrator in the
Atlanta office of his firm because Saad submitted for
reimbursement a receipt for four drinks purchased at an
Atlanta hotel lounge on the same date that he was supposedly
in Memphis. Saad, 718 F.3d at 908. When the
administrator confronted him with the receipt, Saad grabbed
the receipt and threw it away. Id. The administrator
retrieved the receipt and sent it to Penn Mutual's home
office. Id. In September 2006, Saad's employment
was terminated. Id.
Saad's termination, investigators from the National
Association of Securities Dealers
("NASD")-FINRA's predecessor-questioned him
about the false expense reports. Saad, 718 F.3d at
908. In a November 2006 email, Saad falsely told
investigators that the fabricated trip report was "for a
business trip that had yet to occur[.]" Id.
Five months later, in April 2007, Saad falsely stated to
investigators that he did not know the person for whom he had
purchased the cellphone. Id. The next month, Saad
untruthfully told examiners that he could not remember if he
had purchased a plane ticket for the fabricated Memphis trip.
September 2007, FINRA brought a disciplinary proceeding
against Saad alleging "Conversion of Funds" in
violation of FINRA Rule 2010. Saad, 718 F.3d at
The hearing panel found that Saad had violated Rule 2010.
Saad, in his own defense, explained that he had been
experiencing significant personal and professional stress at
the time he submitted the false expense reports because his
sales had declined and one of Saad's one-year old twins
was suffering from a stomach disorder that required frequent
hospitalizations. Id. The hearing panel imposed a
bar that permanently forbade Saad from associating with any
FINRA member firm in any capacity. Id. at 909.
appealed, and the National Adjudicatory Council affirmed.
Saad, 718 F.3d at 909. In reviewing the lifetime
ban, the Council concluded that Saad's misconduct
involved several aggravating factors, such as "the
intentional and ongoing nature of Saad's misconduct,
Saad's efforts to deceive [Hornor, Townsend, & Kent]
and Penn Mutual, [and] Saad's initial instinct to conceal
the extent of his actions from state and FINRA
examiners." Id. at 909 (second alteration in
original and citation omitted). The Council further
determined that no mitigating factors counseled a lesser
Securities and Exchange Commission affirmed, holding that, on
this record, FINRA's sanction was not "excessive or
oppressive." Saad, 718 F.3d at 909.
court granted Saad's petition for review in part. We
upheld the Commission's use of the Sanction Guideline
governing conversion as a "starting point" for
determining the appropriate sanction for Saad's two acts
of misappropriation. Saad, 718 F.3d at 911. We
remanded only because the Commission's analysis failed to
address potentially mitigating factors, such as Saad's
termination by his employer and Saad's personal and
professional stress. Id. at 913. We left open the
question whether the lifetime bar was an "excessive or