By Bill Singer
On November 16, 2007, I posted a blog entry concerning the Securities and Exchange Commission's Initial Decision to not impose a Censure upon former American Stock Exchange Chairman and CEO Salvatore S. Sodano.
On March 22, 2007 the SEC charged Sodano with
failing to enforce compliance with the Exchange Act during his term as the
AMEX's Chairman and CEO. The SEC alleged that the AMEX's regulatory
deficiencies resulted in large part from Sodano's failure to pay adequate
attention to regulation, to put in place an oversight structure, to ensure the
regulatory staff was properly trained, and to dedicate sufficient resources to
ensure that the AMEX was meeting its regulatory obligations. The SEC alleged
that Sodano's inattention to and apparent lack of interest in regulation
filtered down the management chain creating an environment in which regulation
was not a priority and, therefore, compliance with the securities laws and the
AMEX's rules was not enforced.
The only sanction sought by the SEC against Sodano was a Censure pursuant to Section 19(h)(4) of the Exchange Act (the Section), which provides the SEC with the authority "to remove from office or censure any officer or director of such self-regulatory organization [if] such officer or director has willfully violated any provision . . .willfully abused his authority, or without reasonable justification or excuse has failed to enforce compliance."
Sodano moved to dismiss based upon the argument that the SEC lacked authority to proceed against him because the Section only permits the SEC to censure or remove a current officer or director, and, Sodano had not been an AMEX officer or Director since April 2005 (some two years before the proceeding was instituted). Plainly stated, the defense was that "I quit before you filed and there's nothing you can do to me as a former officer or director." That line of attack was found persuasive and the SEC Administrative Law Judge dismissed the case.
On December 22, 2008, the Securities and Exchange Commission reversed the Initial Decision discussed in more detail in my earlier Blog entry. The Commission determined that the statute and the authorities raised in the proceeding lead to the conclusion that Section 19(h)(4) authorizes the Commission to censure both current and former SRO officers and directors. As a result, the Commission reversed the Initial Decision dismissing the proceeding against Sodano. In accordance with this determination, the Commission remanded the proceeding to the administrative law judge for a hearing that will consider the underlying charges against Sodano, which were never reached because the Initial Decision dismissed the proceeding on Sodano's motion for summary disposition. See In the Matter of Salvatore S. Sodano ('34 Act Rel. # 59141 / December 22, 2008)
COMMENT: As a lawyer I am too often confronted with the unsettling reality that what I see as a right decision is based upon questionable legal underpinnings, and wrong decisions are often based upon equally dubious applications of facts and law. Beyond any doubt, the outcome of the Initial Decision was infuriating--if for no other reason than it highlighted the inherent unfairness of subjecting the regulated to a far more draconic standard than those regulating them. If Sodano were charged for industry misconduct in the capacity of a registered person, the issue of whether he was currently registered would have little relevancy (provided the charges were filed within two years of the termination of such registration). However, since Sodano was charged for industry misconduct in his role as a regulator, the law seemed to permit sanctions only upon a current regulator.
As my earlier blog disclosed, I found the dichotomy between Sodano's treatment and that of the average registered representative to be absurd and disheartening. All of which makes things even worse when I read the Commission's decision to reverse. Painful as it is to me, I must admit that the ALJ's Initial Decision is premised upon a far more cogent and convincing reading and understanding of the law, and that the Commission's subsequent reversal seems more predicated in efforts at public-relations damage control. It's a fairly simple problem. You can't legally re-draft a poorly phrased law, rule, or regulation through the mechanism of a hearing or trial. Written words say what they say--judges and juries are not supposed to add those wished-for commas, periods, adjectives, or adverbs. Adjudicators don't get to rewrite the stupidity in the written law simply because they are now uncomfortable or embarrassed by the outcome compelled by inept language.
If we go by the letter of the law, Sodano should take a walk and emerge unsanctioned. Which, of course, means that I should take a walk to the nearest bar and down a couple of shots of bourbon to ease my pain at that conclusion.
Which sadly returns us to the leitmotif of much of what I write: the need to cleanse Wall Street of the idiots who continue to draft incompetent rules and regulations and their fellow dolts who fail to timely correct such inequities. Yeah, I know, a tad blunt but, geez, does this crap ever end? Is there no way to shut down this carousel?
Postscript: As many of you have reminded me, the Sodano case is all too reminiscent of former President Clinton's comment (footnote 1,128 in the Starr Report):
It depends on what the meaning of the word 'is' is. If the--if he--if 'is' means is and never has been, that is not--that is one thing. If it means there is none, that was a completely true statement....Now, if someone had asked me on that day, are you having any kind of sexual relations with Ms. Lewinsky, that is, asked me a question in the present tense, I would have said no. And it would have been completely true.