An irreverent Wall Street Blog
The Damnatio Memoriae of Former SEC Counsel Rory Flynn
December 11, 2017
On the website of the law firm of Bruch Hanna
LLP is a biography for attorney Rory Flynn
that, in part, states:
Rory C. Flynn, of counsel to the firm, has more than thirty years of litigation and appellate experience. He spent twelve of those years with the Securities and Exchange Commission as an Assistant Chief Litigation Counsel in its Division of Enforcement and, later, as an Associate General Counsel in its Office of the General Counsel. In between, Mr. Flynn spent thirteen years as Chief Litigation Counsel of NASD's (and its successor, FINRA's) Department of Enforcement.. . .In recognition of his collective contributions at the SEC, Mr. Flynn received two letters of commendation from Chairman Arthur Levitt. He was also nominated to receive the Stanley M. Sporkin Award, which recognizes those who made exceptionally tenacious and insightful contributions to the SEC's efforts to enforce compliance with the federal securities laws. Mr. Flynn also received several honors during his tenure at NASD and FINRA including the association's Excellence in Service Award, its Chairman's Award, and is a three-time recipient of its President's Award. He has also taught as an adjunct professor at the Georgetown University Law Center in its securities law graduate program.
2010 FINRA
Termination
As reported some eight years ago
in "FINRA
laying off five enforcement officials, report says"
(Investment News, January 21, 2010):
The Financial Industry Regulatory Authority Inc. is laying off five enforcement officials . . .The officials include Katherine Malfa, vice president and chief counsel, Rory Flynn, vice president and chief litigation counsel, Evan Rosser, vice president of strategic planning, and Michael Armelin, an assistant director, the report said.A fifth unidentified person from Finra's New York office is also being let go, the news service reported, citing people familiar with the matter. . .
2012 Return to
SEC
After some 13 years at NASD/FINRA, in August 2012, Rory Flynn
purportedly began work as an Associate General Counsel at the Securities and Exchange Commission ("SEC"), where he had
previously been employed for 12 years. During his second stint at the SEC, Flynn was
apparently in charge of the federal regulator's Office of General Counsel's Adjudication
section (herein, "Adjudication"), which assisted the SEC in deciding
appeals.
Adjudication
Backlog
Apparently, Flynn was alarmed by Adjudication's backlog of unresolved
appellate cases, which he found to have involved nearly half of his section's docket. Flynn deemed the degree of stale caseload to be contrary to SEC Rules of Practice Rule 900(a)
and (b) [Ed: highlighting added]:
SEC Rule of Practice 900: Informal procedures and supplementary information concerning adjudicatory proceedings.(a) Guidelines for the timely completion of proceedings.(1) Timely resolution of adjudicatory proceedings is one factor in assessing the effectiveness of the adjudicatory program in protecting investors, promoting public confidence in the securities markets and assuring respondents a fair hearing. Establishment of guidelines for the timely completion of key phases of contested administrative proceedings provides a standard for both the Commission and the public to gauge the Commission's adjudicatory program on this criterion. The Commission has directed that:
(i) To the extent possible, a decision by the Commission on review of an interlocutory matter should be completed within 45 days of the date set for filing the final brief on the matter submitted for review.(ii) To the extent possible, a decision by the Commission on a motion to stay a decision that has already taken effect or that will take effect within five days of the filing of the motion, should be issued within five days of the date set for filing of the opposition to the motion for a stay. If the decision complained of has not taken effect, the Commission's decision should be issued within 45 days of the date set for filing of the opposition to the motion for a stay.(iii) Ordinarily, a decision by the Commission with respect to an appeal from the initial decision of a hearing officer, a review of a determination by a self-regulatory organization or the Public Company Accounting Oversight Board, or a remand of a prior Commission decision by a court of appeals will be issued within eight months from the completion of briefing on the petition for review, application for review, or remand order. If the Commission determines that the complexity of the issues presented in a petition for review, application for review, or remand order warrants additional time, the decision of the Commission in that matter may be issued within ten months of the completion of briefing.(iv) If the Commission determines that a decision by the Commission cannot be issued within the period specified in paragraph (a)(1)(iii) of this rule, the Commission may extend that period by orders as it deems appropriate in its discretion. The guidelines in this paragraph (a) confer no rights or entitlements on parties or other persons.
(2) The guidelines in this paragraph (a) do not create a requirement that each portion of a proceeding or the entire proceeding be completed within the periods described. Among other reasons, Commission review may require additional time because a matter is unusually complex or because the record is exceptionally long. In addition, fairness is enhanced if the Commission's deliberative process is not constrained by an inflexible schedule. In some proceedings, deliberation may be delayed by the need to consider more urgent matters, to permit the preparation of dissenting opinions, or for other good cause. The guidelines will be used by the Commission as one of several criteria in monitoring and evaluating its adjudicatory program. The guidelines will be examined periodically, and, if necessary, readjusted in light of changes in the pending caseload and the available level of staff resources.(b) Reports to the Commission on pending cases. The administrative law judges, the Secretary and the General Counsel have each been delegated authority to issue certain orders or adjudicate certain proceedings. See 17 CFR 200.30-1 through 200.30-18. Proceedings are also assigned to the General Counsel for the preparation of a proposed order or opinion which will then be recommended to the Commission for consideration. In order to improve accountability by and to the Commission for management of the docket, the Commission has directed that confidential status reports with respect to all filed adjudicatory proceedings shall be made periodically to the Commission. These reports will be made through the Secretary, with a minimum frequency established by the Commission. In connection with these periodic reports, if a proceeding pending before the Commission has not been concluded within 30 days of the guidelines established in paragraph (a) of this rule, the General Counsel shall specifically apprise the Commission of that fact, and shall describe the procedural posture of the case, project an estimated date for conclusion of the proceeding, and provide such other information as is necessary to enable the Commission to make a determination under paragraph (a)(1)(iv) of this rule or to determine whether additional steps are necessary to reach a fair and timely resolution of the matter.(c) Publication of information concerning the pending case docket. Ongoing disclosure of information about the adjudication program caseload increases awareness of the importance of the program, facilitates oversight of the program and promotes confidence in the efficiency and fairness of the 116 program by investors, securities industry participants, self-regulatory organizations and other members of the public. The Commission has directed the Secretary to publish in the first and seventh months of each fiscal year summary statistical information about the status of pending adjudicatory proceedings and changes in the Commission's caseload over the prior six months. The report will include the number of cases pending before the administrative law judges and the Commission at the beginning and end of the six-month period. The report will also show increases in the caseload arising from new cases being instituted, appealed or remanded to the Commission and decreases in the caseload arising from the disposition of proceedings by issuance of initial decisions, issuance of final decisions issued on appeal of initial decisions, other dispositions of appeals of initial decisions, final decisions on review of self-regulatory organization determinations, other dispositions on review of self-regulatory organization determinations, and decisions with respect to stays or interlocutory motions. For each category of decision, the report shall also show the median age of the cases at the time of the decision, the number of cases decided within the guidelines for the timely completion of adjudicatory proceedings, and, with respect to appeals from initial decisions, reviews of determinations by self-regulatory organizations or the Public Company Accounting Oversight Board, and remands of prior Commission decisions, the median days from the completion of briefing to the time of the Commission's decision.
SIDE BAR: The Rule 900 above was effective starting September 27, 2016. In the version that was effective during Flynn's employment, seven months was the standard for the issuance of the decision and 11 months for the extension for "unusual complicating circumstances."
Flynn believed that Adjudication was violating Rule 900(a) by failing to timely
resolve appeals; and, further, although the Rule provided
for further delay upon the SEC's determination that "extraordinary facts
and circumstances" existed, Flynn believed that the requisite
determination or approval for extensions were not being obtained. In essence, Flynn believed that not only were appeals failing to
be completed within the 30-day window proscribed in Rule 900(b) but the SEC was
not being properly notified via the required detailed report as to
the procedural posture of an overdue case, an estimated date of completion,
and other specified information.
2013 Meeting with SEC Chair Walter
Starting in October 2012 (a mere two months after the
inception of his second tour at the SEC), Flynn notified various SEC staff of
his Rule 900 compliance concerns. By January 2013, he met with then SEC Chair
Elisse Walter and conveyed his concerns.
SIDE BAR: As set forth, in part, in Walter's online SEC biography:
Elisse B. Walter was appointed Commissioner by President George W. Bush and was sworn in on July 9, 2008. She was later designated the 30th Chairman of the SEC by President Barack Obama, and she served as the agency's leader from December 2012 to April 2013. She served as Acting Chairman in January 2009.Prior to her appointment as an SEC Commissioner, Ms. Walter served as Senior Executive Vice President, Regulatory Policy & Programs, for FINRA. She held the same position at NASD before its 2007 consolidation with NYSE Member Regulation.
2013 Cancelled Meeting with SEC Chair White
By May 2013, after hiring additional
Adjudication staff and implementing a triage system prioritizing simpler cases,
Flynn arranged to meet with new SEC Chair Mary Jo White to further discuss his
ongoing concerns. Four days before the scheduled meeting with White, her office
cancelled.
2013 Termination
A few days after that cancellation, Flynn was fired by his
supervisor, Michael Conley. Among the reasons given for his termination were
"poor work performance,""fail[ure] to produce high quality work product on
a timely basis," "failure to prioritize assignments," and "inability to work cooperatively
with senior level managers."
Office of Special
Counsel Appeal
Following his termination, Flynn
initiated a grievance process with the Office of Special Counsel, where he
sought corrective action in response to his claim that the SEC had engaged in a
prohibited personnel action by firing him for raising his concerns about
non-compliance with Rule 900.
Merit Systems
Protection Board Appeal
Upon the Office of Special
Counsel's declination to pursue his claims, Flynn filed a action before the
three-member United States Merit Systems Protection Board ("MSPB").
An MSPB Administrative Judge denied Flynn relief after finding that he had not
made any protected disclosures as set forth in Section
2302(b)(8):
5 U.S. Code § 2302: Prohibited personnel practices. . .(b) Any employee who has authority to take, direct others to take, recommend, or approve any personnel action, shall not, with respect to such authority --. . .(8) take or fail to take, or threaten to take or fail to take, a personnel action with respect to any employee or applicant for employment because of-(A) any disclosure of information by an employee or applicant which the employee or applicant reasonably believes evidences-(i) any violation of any law, rule, or regulation, or(ii) gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety,if such disclosure is not specifically prohibited by law and if such information is not specifically required by Executive order to be kept secret in the interest of national defense or the conduct of foreign affairs; or(B) any disclosure to the Special Counsel, or to the Inspector General of an agency or another employee designated by the head of the agency to receive such disclosures, of information which the employee or applicant reasonably believes evidences-(i) any violation (other than a violation of this section) of any law, rule, or regulation, or(ii) gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety;
Flynn appealed the
Administrative Judge's Initial Decision to the MSPB, which
was then operating with only two of its three members: Susan Tsui Grundmann, Chairman and Mark A. Robbins, Member. The two-member Board
could not concur on Flynn's appeal and, accordingly, the Initial
Decision became the MSPB's Final Decision.Rory C. Flynn,
Appellant, v. United States Securities and Exchange Commission, Agency [On
Petition for Review of Initial of Merit Systems Protection Board. (DC-1221-14-1124-W-1)]
(Order, United States of America Merit Systems
Protection Board / September 1,
2016).
4Cir
Appeal
Flynn appealed the MSPB's denial
of his claim to the United States Court of Appeals for the Fourth Circuit
("4Cir"). Rory
C. Flynn, Petitioner, v. United States Securities and
Exchange Commission, Respondent (Opinion,
United States Court of Appeals for the Fourth Circuit, No. 16-2122 / December
7, 2017). As set forth in the "Syllabus" for the 4Cir
Opinion:
In May 2013, Rory Flynn was fired from his position at the Securities and Exchange Commission ("SEC," or the "Commission"). Flynn claims that his supervisor terminated him in reprisal for raising concerns about his section's alleged chronic inefficiency. Seeking redress under a provision of the Whistleblower Protection Enhancement Act, 5 U.S.C. § 2302(b)(8), Flynn filed suit. An Administrative Judge determined that Flynn had not made any protected disclosures and was thus not entitled to relief. The Merit Systems Protection Board affirmed, and now Flynn petitions this Court for review.We deny the petition in part, grant in part, and remand for further consideration.
4-Prong
MSPB Test
In addressing the
threshold issue of whether Flynn had engaged in any protected activity as a
whistleblower, the 4Cir noted that Section 2302 prohibited the taking (or
withholding) of "personnel action" based upon an employee's
disclosure of a violation of a law, rule, or regulation, or of assertions of
conditions involving, in part, gross mismanagement and abuse of authority. 4Cir
then discussed a four-prong test by which MSPB evaluates such whistleblower claims:
Page 8 of the 4Cir Opinion(1) the acting official has the authority to take, recommend, or approve any personnel action; (2) the aggrieved employee made a protected disclosure; (3) the acting official used his authority to take, or refuse to take, a personnel action against the aggrieved employee; and (4) the protected disclosure was a contributing factor in the agency's personnel action.
4Cir found that the
MSPB Administrative Judge had "concluded that Flynn failed to satisfy the second prong of his
prima facie case-that is, Flynn did not make any protected disclosures."
In response to that finding, the Court characterized Flynn's appeal as raising
three issues:
Page 9 of the 4Cir Opinion[F]irst, he argues the Administrative Judge erred in concluding that Flynn's Rule 900(a) disclosures were not protected. Second, Flynn makes a parallel argument for Rule 900(b)-that his disclosures regarding those violations were also protected. Finally, Flynn contends that the Administrative Judge imposed several inappropriate procedural limitations, including curtailing the number of evidentiary exhibits Flynn could admit and denying extensive discovery.
In
parsing through Flynn's appeal, 4Cir admonishes that its review of MSPB's
decision is limited to a finding that the agency had engaged in arbitrary or
capricious conduct or otherwise abused its discretion; failed to comply with
law/rule/regulation; or ruled in a manner unsupported by substantial evidence.
A Matter of
Aspiration
As
to the first appellate standard, 4Cir noted that the MSPB Administrative Judge
essentially found that Rule 900(a) was merely an internal guideline or policy
and, as such, not a binding law, rule, or regulation. 4Cir
declines to get bogged down in that preliminary issue and does concur, to some
extent, that the rule sets forth "aspirational and discretionary"
provisions that would not generally constitute a "violation" if not
achieved. Moving forward, the Court then considers whether the SEC had actually
"violated" Rule 900(a)[Ed: footnotes omitted]
:
Thus, although Rule 900(a) sets timelines by which the Commission would ideally adjudicate cases, the permissive language of the text could not lead an employee to reasonably conclude that failing to meet such aspirational guidelines would amount to a "violation." We reach this decision despite Flynn's reference to various interactions he had with individuals at the Commission, which he maintains bolstered his belief Rule 900(a) created mandatory deadlines. The facts Flynn cites are at best disputed, but even if taken as true, they do not outweigh the textual analysis that would inform the viewpoint of an objective observer. More importantly still, our standard of review is very deferential. The Administrative Judge more than adequately explained why, under the facts presented by the parties, an employee in Flynn's position could not have reasonably concluded Rule 900(a) was violated. Thus, the Administrative Judge did not err in rejecting Flynn's Rule 900(a) claim.
Page 13 of the 4Cir
Opinion
To
(b) or Not to (b)
Notwithstanding the 4Cir's support for the SEC's
and MSPB's handling of the bulk of Flynn's Rule 900(a) claims, the Court is
more sympathetic for his claims attendant to Rule
900(b):
Page 15 of the 4Cir OpinionNothing in the decision below indicates the Administrative Judge analyzed Flynn's Rule 900(b) claim. Outside the brief factual recitation of the nature of the 900(b) claim, the Administrative Judge's decision focuses solely on matters related to Rule 900(a). And although the Administrative Judge quoted Rule 900(b) in full, he did not engage with the text of the provision. . .
In light of its finding of a
failure of adjudication on the Rule 900(b) claims, 4Cir remanded that portion
of Flynn's appeal back to the MSPB Administrative Judge. In conclusion, 4Cir,
denied in part, granted in part, and remanded for further proceedings Flynn's
appeal.
Damnatio
Memoriae
As was the practice of ancient
peoples, when someone had engaged in particularly heinous conduct, the
miscreants would have their names and images removed from wherever they exist
-- be that on obelisks, statues, or monuments. For some
civilizations, this was a fate worse than death. As such, I find it both
laughable and somewhat indicative of human nature that a search
of Rory Flynn's name on the SEC's public database elicits a
damnatio memoriae comparable to that of Akhenaten,
Tutankhamun, Herostratus, and Nero. See: https://secsearch.sec.gov/search?utf8=%E2%9C%93&affiliate=secsearch&query=Rory+Flynn
Also READ:
DOL Whistleblower Darrell Whitman Files Emergency Request With US Office Of Special Counsel (BrokeAndBroker.com Blog, November 24, 2017)GUEST BLOG: A FAILURE OF ACCOUNTABILITY: Wells Fargo Fraud Goes Unanswered As Washington Dithers" By Darrell Whitman (BrokeAndBroker.com Blog, September 5, 2017)Darrell Whitman Petitions Attorney General Sessions About Wells Fargo Investigation" (BrokeAndBroker.com Blog, August 7, 2017).UPDATE: SEC Inspector General Exonerates ALJ System (BrokeAndBroker.com Blog, February 12, 2016)"SEC Whistleblower Program Is A Black Hole of Despair" (BrokeAndBroker.com Blog, April 9, 2015).