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World Trade Financial Corp. v. U.S. Securities Exchange Commission

United States Court of Appeals, Ninth Circuit

January 16, 2014

WORLD TRADE FINANCIAL CORPORATION; Jason Troy Adams; Frank Edward Brickell; Rodney Preston Michel, Petitioners,
v.
U.S. SECURITIES & EXCHANGE COMMISSION, Respondent.

Argued and Submitted Nov. 7, 2013.

Page 1244

[Copyrighted Material Omitted]

Page 1245

John Courtade (argued), Law Office of John Courtade, Austin, TX; Irving M. Einhorn, Law Offices of Irving M. Einhorn, Manhattan Beach, CA, for Petitioners.

Catherine A. Broderick (argued), Jacob H. Stillman, and Tracey A. Hardin, Securities and Exchange Commission, Washington, D.C., for Respondent.

On Petition for Review of an Order of the Securities and Exchange Commission.

Before: M. MARGARET McKEOWN, RONALD M. GOULD, and JAY S. BYBEE, Circuit Judges.

OPINION

GOULD, Circuit Judge:

World Trade Financial Corporation (" World Trade" ), Jason T. Adams, Frank E. Brickell, and Rodney P. Michel (collectively, " Petitioners" ) petition for review of the Security and Exchange Commission's (" Commission" ) Order Sustaining Disciplinary Action Taken by FINRA (the Financial Industry Regulatory Authority), which upheld a variety of fines and sanctions against Petitioners for their violations of Sections 5(a) and 5(c) of the Securities Act of 1933, 15 U.S.C. ยงยง 77e(a), 77e(c) (" 1933 Securities Act" ), which prohibit the sale or offer of sale of a security without filing a registration statement, id. In its opinion, the Commission found that Petitioners had traded unregistered securities and that the Section 4(4) " brokers' exemption" of the 1933 Securities Act, which exempts " brokers' transactions executed upon customers' orders" from liability under Sections 5(a) and 5(c), was unavailable to Petitioners because they had not met their duty of inquiry given the presence of many suspicious circumstances surrounding the sales. The Commission also upheld the fines and sanctions imposed by FINRA and the National Adjudicatory Council (" NAC" ) for these Section 5 violations as well as for supervisory failures that violated the National Association of Securities Dealers (" NASD" ) Conduct Rules 2110 and 3010 establishing standards of supervision for registered representatives, principals, and other individuals associated with covered transactions. Petitioners urge us to reverse and dismiss the Commission's order, or alternatively, to vacate the fines and sanctions and remand the case.

We conclude that substantial evidence supports the Commission's finding that Petitioners violated Sections 5(a) and 5(c) of the 1933 Securities Act, and we hold that Petitioners did not meet their duty of inquiry necessary to claim the Section 4(4) brokers' exemption. We defer to the Commission's discretionary determination as to the appropriate fines and sanctions because they are within FINRA's guidelines and are supported by evidence in the record. Accordingly, we deny the petition for review.

I.

World Trade, a broker-dealer registered with the SEC, has been a member of FINRA since 1998, and Petitioners Michel and Adams were its principals and owners at the relevant times. Michel and Adams shared responsibility for supervising the firm's brokers and trading activity. Michel had responsibility for establishing supervisory systems and overall compliance. Adams handled client accounts, performed trading operations, and reviewed trade tickets; ...


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