UPDATE: Lawyer Barred From Practicing Before SEC Sues

December 20, 2011

In January 2009, SEC Administrative Law Judge (ALJ) Brenda Murray found that securities industry lawyer Steven Altman had engaged in unethical and improper professional conduct while representing a prospective witness for the Division of Enforcement ("Division") in a SEC administrative proceeding. In the Matter of Steven Altman, Esq (Initial Decision Release No. 367, Administrative Proceeding File No. 3-12944, January 14, 2009). The ALJ's Initial Decision sought to deny Altman the privilege of appearing before the SEC for a period of nine months.


According to the ALJ's Initial Decision, in January 2009, Altman was a forty-six year old graduate of Boston University and New York Law School, a member of the New York State Bar, and had been practicing law since 1987. Altman maintained an office in Manhattan where he employed one salaried attorney, who handled the paperwork, while Altman spent his time litigating commercial disputes in courts and before the National Association of Securities Dealers, Inc. (NASD), now known as the Financial Industry Regulatory Authority. Altman did not have an extensive practice before the SEC.New York State Bar Association Lawyer's Code of Professional Responsibility. Pursuant to Rule 102(e)(1)(ii) of the SEC's Rules of Practiceand Section 4C of the Securities Exchange Act of 1934, the ALJ suspended Altman from appearing or practicing before the SEC for nine months.

Nine Months Not Enough

The SEC's Office of the General Counsel ("OGC") appealed the nine-month suspension imposed on Altman in the Initial Decision, and sought an order permanently denying him the privilege of appearing or practicing before the Commission.

According to the SEC, Altman had known Bonnie Rosen since he was in high school and she worked at a local insurance agency. From November 1999 to October 2003, Rosen worked as an administrative assistant with a salary of $60,000 at Nextgen Inc. ("Nextgen"), a company that was owned by Jay Adoni and shared office space with Harrison Securities, Inc. ("Harrison"), a broker-dealer. Nextgen paid Rosen's salary, but she spent half of her time working for Harrison and its chief executive officer, Frederick C. Blumer, who was Adoni's close business associate.

Sometime in 2003, Rosen called Altman and told him that she had been forced out of her job at Nextgen. Rosen asked Altman for his help in obtaining severance pay from Nextgen and removing her name from two car leases she co-signed for Blumer, who used the cars and paid the leases. Altman testified that he agreed to assist Rosen as a "favor." Altman twice contacted Adoni and requested that he pay Rosen severance and remove her name from the car leases. On both occasions, Adoni refused the requests.

The Division's C&D Case

In 2003, the Division instituted administrative and cease-and-desist proceedings against Harrison, Blumer, and Nebrissa Song, alleging violations of the Exchange Act's books and records, net capital, and financial reporting provisions (hereinafter the "Harrison Proceeding"). Respondents raised as a defense to the books and records charge that they were unable to maintain the firm's general ledger for certain periods because a computer virus corrupted their files. A hearing in the Harrison Proceeding was held on January 20 through January 26, 2004 and March 8 through 10, 2004.

Division Wants to Talk to Rosen

On January 26, 2004, Division staff learned from NASD staff that Rosen had called NASD and claimed to have information adverse to Harrison's and Blumer's computer virus defense. Division staff hoped, but were not sure, that Rosen would be able to testify that there was no computer virus that compromised Harrison's files. Division staff also thought that Rosen might be able to testify about Blumer's accounting practices. Division staff concluded that Rosen might be a good rebuttal witness.

Division staff called Rosen on January 28, 2004 and told her that they learned she might have useful information for the Harrison Proceeding. They asked Rosen if she would be willing to meet or speak with them. Rosen expressed some anxiety about testifying. She mentioned to Division staff that she co-signed two car leases for Blumer, and she was concerned that if Blumer was ordered to pay a civil penalty in the Harrison Proceeding, it might increase the likelihood that he would default on the leases and she would have to pay the remaining balance on the leases. Division staff testified that the car leases were not relevant to their case and were not a subject of interest to them, except insofar as the leases might prevent Rosen from testifying in the Harrison Proceeding. Rosen identified Altman as her attorney and referred Division staff to him.

Altman Speaks to Division As Rosen's Lawyer

On or about January 28, 2004, Division staff spoke with Altman, who identified himself as Rosen's legal representative. During the conversation, Division staff described the nature of the Harrison Proceeding, indicated that it was ongoing, and expressed their interest in possibly using Rosen's testimony as part of their case. Division staff asked Altman if they could interview Rosen. Division staff testified that Altman was "noncommital" about whether Rosen would agree to an interview and said that he would get back to them. Altman asked Division staff who was representing Harrison and Blumer, and they gave him Irving Einhorn's name.

Altman Telephones Einhorn

The SEC concluded that Altman first called Einhorn on or about January 28, 2004. In this conversation, Altman told Einhorn that he represented Rosen and that the Division was interested in possibly using her as a witness in the Harrison Proceeding. Altman also told Einhorn that Rosen had left Nextgen under unfavorable circumstances with little or no severance pay; she had worked for Harrison and Blumer; and she was hostile towards them. Altman gave Einhorn an abbreviated version of his discussions with Adoni and said he thought this would be an opportune time to reinvigorate Rosen's requests for severance pay and removal of her name from the car leases. In his hearing testimony and briefs on appeal, Altman admitted that the Division's interest in Rosen as a witness gave him some leverage to renew her requests.

MR. ALTMAN: I am not going to pull punches with you. They [Division staff] are aware[,] if asked, [Rosen] will testify that there was no virus in the computer,10 and I suspect once they start peeling it away, some other very, very unhelpful stuff with respect to the books and records of the firm -

MR. EINHORN: No, no, no, I am here, Steven, trying to figure out what's happening here. So, she hasn't given that testimony?

MR. ALTMAN: That's correct. She is not a registered rep[resentative] so she is not at risk of losing her license if she doesn't appear any place.

MR. EINHORN: Well, suppose she gets a subpoena to appear at the hearing?

MR. ALTMAN: Well, you know[,] if she gets served, then, you know, she is going to be [like] any other human being. I, of course, can't advise her to evade the [subpoena] process, but . . . [m]emory fades and the like.13 And you know[,] I don't know.

MR. EINHORN: So, what you are saying is[,] if they reach some agreement, she would be more favorably inclined?

MR. ALTMAN: That would be my guess as to what her recollection would be, you know.14 I don't have the personal knowledge, and I haven't done a full debriefing of her. I know Fred, I met him, as he may have told you.

MR. EINHORN: Yeah, no, [Fred] told me he likes you.

MR. ALTMAN: I like him. He is a nice guy. This is all silly. I hate to see this happen. Really, it would be terrible.


MR. ALTMAN: If somebody just does the right thing,15 and

MR. EINHORN: But you think they learned about this from others and were pointed to her. They have other people lined up that are

MR.ALTMAN: No, no. I don't think that is the case.

MR. EINHORN: You don't think they have other people coming to testify?

MR. ALTMAN: No, no, not with respect to what I talked to you about.


MR. ALTMAN: I think if you cut it off with her, then it is closed. 16 That will be[,] you know[,] killing themselves.


The SEC's Opinion on Appeal

Following appeal, the SEC independently reviewed the case and found that Altman had engaged in unethical and improper professional conduct while representing a prospective witness in an SEC administrative proceeding, in violation of state bar disciplinary rules. In a rare move, the SEC permanently denied Altman the privilege of appearing or practicing before the SEC. In the Matter of Steven Altman, Esq, (Securities Exchange Act Of 1934 Rel. No. 63306 / Admin. Proc. File No. 3-12944, November 10, 2010).

Altman Sues SEC

On December 9, 2010, the Courthouse News Service (CNS) published an article titled: Attorney Declares War on SEC. The CNS story states that

Attorney Steven Altman sued the SEC in Federal Court, claiming the agency "has wrongfully sought to ‘federalize' the subject of attorney ethics discipline" - a function of state judiciaries - by its Nov. 10 order permanently barring him from "appearing or practicing (law) before the Commission."

According to CNS, Altman claims that "there is absolutely no statutory authority granting the Commission to unilaterally apply part or even all of the New York State Disciplinary Rules to anyone." Moreover, the lawyer does not view his action as an appeal of the SEC's Opinion and Order but rather a "facial attack on the Commission's jurisdiction to bring the [underlying] proceeding."

CNS says that Altman argues that he has been "vilified by the Commission and in effect been accused of being and found to be unfit to practice law at all, a conclusion which is not in any way supported by and contrary to his record." Altman alleges that the SEC's action was an "unconstitutional usurpation of the New York State Disciplinary Rules," and he concludes that such improper action violated his right to equal protection, due process and privacy. Altman seeks to enjoin the SEC's Order against him.

Altman's Complaint pointedly dismisses the nature of his legal action against the SEC as an "appeal," but characterizes it as seeking declaratory, preliminary, and permanent injunctive relief against the SEC; and further seeking an Order of Mandamus directing the vacatur and stay of proceedings, decisions, and orders.

Further, Altman's Complaint asserts that the SEC's proceedings, decisions, and orders against him constituted the first instance in which the SEC has

disciplined a lawyer solely for allegations of New York State's disciplinary rules without a prior hearing, determination or even charges brought against that lawyer by or under the New York State disciplinary procedures.

In explaining the extent of damage he has sustained as a result of the SEC's action, Altman's Complaint states that:

Plaintiff's reputation as a lawyer is his stock and trade. That reputation has been intentionally and permanently marred by the Commission's unconstitutional actions against him.

Click here to read full-text copies of Altman's Complaint and Memoradum of Law. Steven Altman, Plaintiff v. United States Securities and Exchange Commission, Mary Schapiro (Chairman), and Elizabeth M. Murphy (Secretary), Defendants (Southern District Court of New York, 10 CIV 9141, Dec. 7, 2010).


On March 6, 2011, SDNY dismissed Altman's Complaint for lack of jurisdiction.  Reduced to a relatively simplistic proposition, the District Court told Altman that he had filed his lawsuit with the wrong court.

Having been bounced from SDNY, Altman petitioned the United States Court of Appeals for the District of Columbia Circuit (the "Circuit Court") to review the Opinion and Order of the SEC that had permanently denied him the privilege of appearing or practicing before the SEC, pursuant to the SEC's Rule of Practice 102(e)(1)(ii) and Section 4C of the Securities Exchange Act of 1934 ("the Act").  Altman argued to the Circuit Court that the SEC's bar of his ability to practice before it was excessive and, additionally, that its procedure was unconstitutional, because the SEC:

  1. lacked authority to sanction him under Rule 102(e)(1)(ii) and Section 4C of the Act based on its determination of violations of the New York Bar disciplinary rules;
  2. failed to provide notice that it could proceed against him in the absence of prior action by New York State and of the standard of conduct that could be found to violate Rule 102(e)(1)(ii) and Section 4C; and
  3. findings are not supported by substantial evidence.

On December 16, 2011, the Circuit Court issued an Opinion denying the Petition, noting, among other factors, that:

Neither, as Altman contends, does the Commission's exercise of authority absent prior disciplinary proceedings against him by New York State implicate separation of powers or federalism concerns. The sanction imposed on Altman is limited to appearances before the Commission and has no effect either on his ability to practice law in New York State and to appear before any court, or on New York State's authority to discipline him. . .

Bill Singer's Comment

Hmmmm . . . you know, this appeal is one of those technical legal issues that veteran lawyers love to dissect.  The SEC's allegations and findings against Altman are that he engaged in serious misconduct and given that the federal district and circuit courts have sustained those findings and sanctions, as a matter of law, that's pretty much the end of the line. Frankly, guilty as charged.

So, please, under no circumstances should you misinterpret anything that follows here as an effort by me to either excuse or rationalize Altman's conduct. Not my intention. Not my desire.

Unfortunately, given my understanding of the law, I'm not sold on the Circuit Court's rationale behind its denial of Altman's Petition.  Speaking solely to the technical legal issues raised, it appears that the SEC found that Altman's conduct constituted a violation of Disciplinary Rules and the Code of Professional Responsibility - and then used those violations as a springboard to sustain its decision to permanently bar him from practicing before the SEC.

In New York State, contested disciplinary matters against lawyers are heard before a disciplinary committee, whose recommendations are then submitted to a state court for review and approval.  As such, I'm not understanding how the SEC had jurisdiction or was otherwise empowered to find that Altman had violated his New York professional ethical obligations when no such finding was made by a duly authorized committee or imposed following a New York court's review.

To put it more simply, imagine that the SEC found that a New York State citizen committed a felony under New York State's Penal Code.  Now, what if I told you that this citizen had never been indicted in New York and had not pleaded guilty to any felony and had never been convicted in a New York court? How then could the SEC have found that individual to have "committed a felony?"

In this case the issue is not whether Altman committed a felony for which he was never indicted or found guilty but whether he engaged in professional misconduct - and there is no indication that he was duly charged or found guilty within the context of New York State's lawyer disciplinary procedure, which is reserved for a state committee and state court.

This is not as esoteric an issue as appears at first blush.  Goldman Sachs, MF Global, Bank of America, Fannie Mae, Freddie Mac, UBS, Morgan Stanley, JP Morgan, Wells Fargo - how many executives at those companies have already been accused in various public forums of acting like "criminals" but have never been so formally charged or convicted? Wall Street and the financial services community are in the public's woodshed - and with good cause; nonetheless, does that populist outrage justify procedural short-cuts?

As executives at major financial services firms increasingly come under scrutiny, one has to wonder whether Altman will be expanded to permit suspensions and bars - at the SEC and beyond - to be based upon beliefs of tortious or criminal conduct where corroborative formal complaints, indictments, pleas, and verdicts do not exist.  Additionally, how will this ruling now impact the in-house and outside legal counsel to those firms?

Ultimately, I would have been far more comforted as a lawyer if New York State had charged Altman with violations of its disciplinary rules and his ethical obligations and, thereafter, secured a plea from him or found him guilty in accordance with the state's laws and rules.  On that set of facts, the SEC would have be on firm ground to permanently bar Altman on the basis that he had, in fact, violated his state's legal ethical obligations and disciplinary rules.  Which raises the even more puzzling question as to whether such disciplinary proceedings were initiated against Altman and, if not, why not - and, to take it one step further, if New York does not see the need to prosecute Altman for such transgressions, then what jurisdiction does the SEC have to substitute its limited federal regulatory role for that of any state's judicial system?

In closing, I doubt few folks familiar with this case deem Altman's conduct as anything less than horrendous.  The question is why "horrendous" misconduct isn't a sufficient basis, in and of itself, upon which the SEC could premise a permanent bar from practicing before it? Why is it even necessary to undertake the legal fiction that such horrendous misconduct should constitute a violation of a given state's legal ethics and disciplinary rule in the absence of just such a finding pursuant to that state's procedures?