Page 2 of the OHO DecisionThe Hearing Panel finds that Enforcement met its burden of showing by a preponderance of the evidence that Respondent violated NASD Conduct Rule 2110 when he submitted a false expense report and false receipts, and accepted reimbursement for $1,144.63 in expenses to which he was not entitled.
The Hearing Panel recognized that Respondent was under a great deal of pressure to produce and was under additional pressure due to the illness of his one-year old son. However, at the time that Respondent engaged in this misconduct, he was a registered principal, as well as a registered representative and must have known that he was engaging in misconduct. The Hearing Panel finds that Respondent deliberately decided to deceive his employer in two separate reimbursement transactions, once with the false travel expenses and again with the cell phone. . .
[E]nforcement unfairly implied that he was guilty of spousal infidelity and that this prejudiced the Hearing Panel. He contends that, by entering into the record Saad's July 9, 2006 receipt showing Saad's purchase of four beverages in an Atlanta hotel lounge and asking Saad why he spent two nights (July 9 and 10) in a hotel room just miles away from his home, Enforcement intimated that Saad had been unfaithful in his marriage, possibly with Person A, the woman for whom he purchased a cell phone that same week. Saad further criticizes Enforcement for failing to contact Person A to ask her about her relationship with Saad. Saad argues that, in all, Enforcement's suggestions prejudiced him before the Hearing Panel. We reject Saad's argument of prejudice.Under FINRA's procedural rules, the Hearing Officer was to admit into the record relevant evidence and exclude evidence that was irrelevant, immaterial, unduly repetitious or unduly prejudicial. See NASD Rule 9263. The Hearing Officer properly admitted the evidence at issue, which was both relevant and material. The July 9, 2006 lounge receipt was relevant to whether Saad was in fact in Atlanta or Tennessee on July 9, and [*14] the fact of Saad's initial efforts to submit this receipt to Penn Mutual for reimbursement demonstrates Saad's willingness to use false receipts to obtain reimbursement to which he was not entitled. We find nothing inappropriate in the nature of Enforcement counsel's questions regarding the receipt and Saad's Atlanta hotel stay. Saad himself suggested that his Atlanta hotel stay was a "legitimate" business expense because he worked out of the hotel room. Enforcement counsel's questions were factual and did not include suggestions of any type regarding Saad's relationship with Person A or Saad's marriage. Furthermore, Saad cites no evidence to support his theory that the Hearing Panel was somehow prejudiced by the inclusion in the record of this evidence. We reject Saad's argument of prejudice. See John D. Audifferen, Exchange Act Rel. No. 58230, 2008 SEC LEXIS 1740, at *42 (July 25, 2008) (rejecting argument that evidence of respondent's personal relationship with customer was prejudicial).
Page 13 of the SEC Opinion"the record supports that indisputable mitigating factors exist pursuant to the Guidelines which neither FINRA nor the NAC chose to address." In particular, Saad argues that his misconduct was an "aberrant" lapse in judgment and that, "[w]hile he is not looking for a reward for doing what he should have been doing, it is important to note that he engaged in this conduct during an extremely short period of his career while he was under severe stress with a hospitalized infant and a stressful job environment." He claims FINRA also failed to consider that HTK had fired him before FINRA detected his misconduct and that his misconduct did not involve customers or large amounts of money.28
Saad engaged in highly troubling conduct that raises serious doubts about his fitness to work in the securities industry, "a business that is rife with opportunities for abuse."31 Saad lied to his employer about going on a recruiting trip, and he fabricated receipts, submitted a falsified expense report, and accepted unjustified reimbursement as a result of that lie. Saad also sought reimbursement for a cell phone he misled his employer into believing he purchased for himself through a falsified receipt and expense report, and Saad attempted, at least initially, to recoup money he spent at an Atlanta-area hotel lounge at the same time he claimed he was in Memphis. After his employer caught and fired him, Saad further misled investigators by telling them he sought reimbursement for a trip that "had yet to occur" and by denying that he had purchased the cell phone for someone other than himself.32 As FINRA summarized, "Saad's actions reveal a willingness to construct false documents and then lie about them that suggests that his continued participation in the securities industry poses an unwarranted risk to the investing public."33
After careful review of the record before us, we conclude that the case must be remanded for further consideration by the SEC. Remand is warranted because the decision of the Commission - as well as those of the FINRA Hearing Panel and the NAC - ignores several potentially mitigating factors asserted by Saad and supported by evidence in the record. We have previously cautioned that the SEC "must be particularly careful to address potentially mitigating factors" before affirming a permanent bar. PAZ I, 494 F.3d at 1065. The SEC has failed to do so in this case. In particular, Saad correctly notes that FINRA and the SEC failed to consider that "Mr. Saad's firm, HTK[,] disciplined him by terminating his employment in September of 2006, prior to regulatory detection." Br. of Pet'r at 34; see also Reply Br. at 12-13. Under the FINRA Sanction Guidelines, number fourteen of the "Principal Considerations in Determining Sanctions" is "[w]hether the member firm with which an individual respondent is/was associated disciplined the respondent for the same misconduct at issue prior to regulatory detection." SANCTION GUIDELINES 7. The SEC's decision acknowledges this argument: "[Saad] claims FINRA also failed to consider that HTK had fired him before FINRA detected his misconduct . . . ." Saad, 2010 WL 2111287, at *7. However, the SEC's decision says nothing more regarding this issue, nor do the decisions issued by the Hearing Panel and the NAC. When questioned about this point at oral argument, SEC counsel mistakenly argued that the termination was "irrelevant" because it occurred after the violation. See Oral Arg. at 19:45 - 23:40. The Guidelines say otherwise.Similarly, the SEC's decision noted, but did not address, Saad's argument that "he was under severe stress with a hospitalized infant and a stressful job environment." Saad, 2010 WL 2111287, at *7. The Guidelines do not expressly mention personal stress as a mitigating factor, but they are by their own terms "illustrative, not exhaustive; as appropriate, Adjudicators should consider case-specific factors in addition to those listed." SANCTION GUIDELINES 6.In response to Saad's argument that the SEC ignored these potentially mitigating factors, the Commission weakly responds that it "implicitly denied that they were [mitigating] when it stated that it denied all arguments that were inconsistent with the views expressed in the decision." Br. of SEC at 24. This contention is not an acceptable explanation for the SEC's failure to provide "reasoned decisionmaking" in support of a lifetime bar. See Allentown Mack, 522 U.S. at 374-75.When we explained in PAZ I that the SEC "must be particularly careful to address potentially mitigating factors," we meant that the Commission should carefully and thoughtfully address each potentially mitigating factor supported by the record. The Commission cannot use a blanket statement to disregard potentially mitigating factors - especially those, like an employee's termination, that are specifically enumerated in FINRA's own Sanction Guidelines. Because the SEC failed to address potentially mitigating factors with support in the record, it abused its discretion by "fail[ing] to consider an important aspect of the problem." See State Farm, 463 U.S. at 43. We must remand on that basis.We take no position on the proper outcome of this case. We leave it to the Commission in the first instance to fully address all potentially mitigating factors that might militate against a lifetime bar. . .
Page 2 of the SEC Order of Remand(1) When considering Principal Consideration Number 14 of FINRA's Sanction Guidelines (which concerns the consideration of whether a member firm disciplined an associated respondent prior to regulatory detection), does that guideline apply as to the member firm, the associated person, or both (e.g., does the guideline apply when determining whether (a) the member firm's misconduct was mitigated because the firm disciplined an associated person before regulators detected the misconduct, (b) the associated person's misconduct was mitigated because the firm had already disciplined the associated person, or (c) either the member firm's or the associated person's misconduct was mitigated by such disciplinary action)?(2) In light of FINRA's finding as to question (1) above, is Saad's claim that HTK had terminated his employment before FINRA detected his misconduct mitigating?(3) Is Saad's claim that he was under personal and professional stress at the time of his misconduct mitigating?(4) Are there any other considerations that Saad has raised (whether or not discussed in the D.C. Circuit's decision) that are mitigating?(5) In light of FINRA's findings as to questions (1) through (4) above, what is an appropriate sanction in this case?
SEC (1): [This] part of Principal Consideration Number 14 is relevant only to the sanctions imposed on an individual respondent, and not a member firm . . .
SEC (2): [I]ndeed, there are good reasons for not crediting a firm's decision to terminate a respondent with mitigation. First, being fired for engaging in misconduct is usually an inherent result of the misconduct itself. See Brokaw, 2013 SEC LEXIS 3583, at *71 (stating that loss of employment and other "hardships" were not mitigating because "they are all a direct result of his deliberate misconduct"); Jason A. Craig, Exchange Act Release No. 59137, 2008 SEC LEXIS 2844, at *27 (Dec. 22, 2008) (rejecting argument that "loss of work" was mitigating because any "economic disadvantages" suffered were "a result of his misconduct"). Moreover, a firm's termination of an individual does not disqualify an individual from working elsewhere, as demonstrated by Saad's ability to quickly join another company that did not require him to have a securities registration. Therefore, the fact that HTK terminated Saad before FINRA detected the misconduct is not mitigating.
SEC (3): [W]e are sympathetic to the personal and job-related stress that Saad faced in 2006, and understand how his concerns over losing his job may have motivated him to hide his lack of business-related travel through the submission of a falsified expense report. Nevertheless, there is no evidence that his stress interfered with his ability to comply with FINRA rules or his understanding of what those rules required in terms of ethical conduct. Saad's conduct did not involve a momentary, stress-caused lapse in, or interference with, his judgment. Instead, t involved several separate decisions that were, as we said in our first decision, "premeditated, intentional and ongoing.". . .[I]n short, this was not a situation where a stressful situation or period caused a person to be momentarily distracted from his compliance obligations or unable to fulfill or understand the substance of those obligations. Rather, Saad, in response to a stressful personal situation,voluntarily chose and then methodically continued an unethical course of conduct and, thus, did not react to his stress in a manner appropriate for a person registered with FINRA. Saad's willingness to provide false documents to, and misappropriate funds from, his employer gives no assurance that Saad would choose to act in an ethical manner were he to again face a stressful situation related to his job or family, which could recur at any time. Saad's personal stress thus warrants no mitigation under the Guidelines.
SEC (4): Saad has argued that he has a clean disciplinary history.19 While the existence of a disciplinary history is an aggravating factor when determining appropriate sanctions, its absence is not mitigating. . .. . .Similarly, Saad has argued that there have been no additional complaints filed against him and, likewise, that "[t]ime and actual reality have shown that there is no serious risk of recidivism." The absence of customer complaints, however, is not mitigating. . .. . .As for his claims of remorse, Saad points to no place in the record where he expressed remorse. Moreover, his claims of remorse and of having accepted responsibility are at odds with his numerous efforts to minimize his transgressions and-despite his claims otherwise-blame others. . .. . .Finally, Saad's contention that he provided substantial assistance to FINRA in its examination of this matter is belied by the record. Saad attempted to mislead FINRA and state investigators and also conceal the extent of his misconduct from them. In sum, the record contains no mitigating factors. , ,
SEC (5): [I]n sum, we have looked at the record anew and considered all of the parties' sanctions related arguments, including those concerning potential mitigating and aggravating factors. We find that Saad's conduct was egregious and find no acceptable mitigation. His choices reflect a troubling willingness to engage in unethical misconduct involving dishonesty and the misappropriation of firm assets through the use of false expense reports. Saad's remaining in the industry, which relies so heavily on personal integrity in matters both great and small, poses serious risks to the investing public. A bar is not only within the range of sanctions recommended in the Guidelines, it is an appropriate remedial sanction that will protect the public from future harm at his hands and deter others in the industry from engaging in similar misconduct. Therefore, after further consideration of the sanctions, we reaffirm our decision to bar Saad in all capacities for his misconduct.
It is aggravating that Saad attempted to conceal his misconduct from Penn Mutual and regulators, and that he profited from his actions and Penn Mutual suffered loss. The Guideline's Principal Consideration 10 considers "[w]hether the respondent attempted to conceal his . . . misconduct or . . . mislead . . . regulatory authorities or" his firm. Saad admittedly concealed his actions from his employer for months and concealed his actions from regulators through repeated omissions and affirmative misrepresentations, including statements to regulators that the Memphis expenses were for a future trip and that the phone charges were to replace Saad's own broken phone. The Guideline's Principal Considerations 11 and 17 include whether the misconduct resulted in "injury" to the respondent's firm and/or "monetary or other gain" to the respondent. Given that Saad was reimbursed for the false expense reports, both of these considerations apply and support the bar.Nevertheless, Saad argues that the bar is "an impermissible penalty," dismissing his actions as "a series of blunders in desperate times" accompanied by a "foolish (aided by poor legal advice) attempt to cover up that mistake." Saad further challenges FINRA's "refusal to accept 'termination of employment' as a mitigating factor." In support, he cites the Guideline's statement that adjudicators are to consider "[w]hether the member firm with which an individual respondent is/was associated disciplined respondent for the same misconduct at issue prior to regulatory detection."We repeatedly have held that the "collateral consequences" of misconduct, including loss of employment, reputation, and income, are not mitigating. That said, the Guidelines direct that employment termination, which we have held is a form of disciplinary action, should be considered mitigating if it was related to the misconduct at issue and it occurred before regulatory detection. But, as we have held in a similar situation, "the mitigating effect from [respondent's] termination is no guarantee of changed behavior . . ." and may not be enough to overcome our concern that he or she "poses a continuing danger to investors and other securities industry participants (including would-be employers) . . . ."It is undisputed that Saad repeatedly used dishonest means to overcome personal and professional disappointments and obstacles, and to mislead his employer and regulators. Not only did he submit false expense requests; he also took considerable effort in forging documents to support those requests, and diligently persevered in his dishonest scheme despite partial exposure by his administrator. Then, when confronted by authorities with reason to doubt his claims, he again chose dishonesty in a failed attempt to avoid the consequences of his actions. Indeed, Saad's continued deception during the investigation of this matter, which occurred months after his termination, shows that his termination was insufficient to dissuade him from further misconduct. As a result, we cannot conclude that termination, while mitigating under certain circumstances, overcomes the threat he would pose to investors and other securities industry participants were he to return to the industry.Nor are we persuaded by Saad's argument that "[h]is conduct spr[a]ng from pressure and stress not innate dishonesty" and that "[h]e did not intend to harm anyone."23 Although we credit Saad's assertion that he was under both professional and personal stress at the time of his relevant conduct, we find that his stress is not a mitigating factor under these circumstances. His course of conduct was not the type that one might associate with stress, such as an unthinking reaction during a stressful moment that is later redressed; instead, his deceptive conduct demonstrated a high degree of intentionality over a long period of time.When his trip to Memphis was cancelled, Saad did not disclose this professional setback to his Firm. Even if this failure standing alone might have been viewed as an unthinking reaction to stress, his next steps were intended to deceive his Firm and required planning and research. He led his Firm to believe that the Memphis trip had occurred as planned by disappearing for two days at an Atlanta hotel, methodically forging hotel and airfare receipts that bore logos that he had copied from the internet, incurring expenses in Atlanta during those two days to make it appear as if he had incurred them on a business trip to Memphis, and then submitting a falsified expense report that attached the receipts. Although Saad could have admitted the truth when questioned about his conduct-including when his office administrator challenged one of his receipts-he repeatedly chose deception. Separate and apart from the Memphis trip, Saad, used dishonest means and a false justification to circumvent Firm reimbursement policy to purchase a cell phone for a recruiting prospect. Saad compounded his deception by misleading FINRA investigators.The extent of Saad's planning, and his detailed execution of that plan, belies Saad'sassertion that his conduct was simply "a series of blunders." And Saad's repeated deception of his employer and attempt to mislead FINRA investigators are contrary to his assertions that his conduct was a result of "stress not innate dishonesty." We find that Saad's stress is not a mitigating factor under these circumstances.Saad makes certain other claims in support of his appeal, none of which we find justifies modification of the sanction. He suggests that he does not pose a risk to investors because there was "no evidence" that he "misappropriated one dollar of customer money" and because "[h]e was mostly in the recruitment side of the business where his job was to recruit other brokers." But we previously have upheld bars where the underlying dishonesty did not relate directly to customers.Finally, Saad argues that FINRA erred in not considering that, other than this matter, he has a clean disciplinary record. Moreover, according to Saad, "even if FINRA had facts to support a finding of investor 'risk' in 2006, that finding would, at a minimum, be diluted over the past 9 years, particularly as Mr. Saad has been complaint free in that time period." But we have repeatedly held that a clean disciplinary record is not mitigating. 25 And, as FINRA noted, Saad's lack of additional problems in the period subsequent to the misconduct at issue here can be at least partially credited to his employment termination and FINRA bar.