Apparently, Katz argued that her heart was often in the right place when it came to her complaining customers.  The SEC didn't buy the "good intentions.".  More pointedly, the SEC views Katz as a serious threat to the public, and attempts to protect other investors from this broker by sustaining the NYSE's bar.

A Life of Quiet Desperation?

Why wouldn't the SEC view Katz as a decent, hardworking individual who only tried to do the right thing?  Why did the federal regulator see her as something of a self-interested fraudster?  Consider this statement on Page 35 of the Opinion: 

In deciding that a censure and bar were appropriate sanctions, the NYSE focused almost exclusively on Katz's misappropriation of client funds and her misstatements to Pinajian. The NYSE described these actions as "extremely serious," noting that Katz's "unauthorized transfers constituted, at best, reckless misuse of customer money, and at worst, deliberate theft from one customer to benefit another" and that Katz's misstatements to Pinajian were an attempt "to conceal additional misconduct." As the NYSE noted, "many of [Katz's] actions appear to have stemmed from desperation - stealing money from one customer to cover a margin call in the account of another, creating and sending false statements to conceal the mounting losses in that customer's account, taking Firm documents out of the office under cover of night." The NYSE concluded that Katz's "clumsy attempts to hide what may have been mere incompetence caused great harm to her customer and to the trust that investors place in those who making a living in the securities industry." We agree with these characterizations of Katz's conduct. 

It came down to the SEC believing that, at best, Katz was reckless with her client's funds, and, at worst, a deliberate thief.  When the best that can be said about you is that you made "clumsy attempts to hide…incompetence," you have to know that the appeal is going into the toilet.  The bluntness of both the NYSE's and SEC's language let us know that they were not going to cut this broker any slack -- and that the regulators felt they had good reason for being so adamant. 

Assumption of Risk 

But surely, Katz must have raised some defenses?  Continuing to row backwards through the SEC's Opinion, we see that she attempted to justify some of her conduct claiming that her clients knew that they had to spin the proverbial wheel to have a shot a higher returns.  That's an old line of defense and it was given short shrift on Pages 27 and 28 of the SEC Opinion

Katz also argues that Ennis confirmed Kapakjian's and Voskian's willingness to assume risk, but Kapakjian's and Voskian's apparent willingness to take on some risk does not change our conclusion that Katz 's recommendations were unsuitable for Kapakjian and Voskian. A client's awareness of - or even desire for - risk does not relieve a registered representative of the obligation to tailor recommendations to each customer's financial profile. Katz did not meet this obligation. She instead admitted that she essentially followed the same investment strategy for all of her clients, testifying that "if you are looking for safety of principal, you go to the bank, put your money in the bank, you should not be talking to me." For these reasons, we conclude that Katz's recommendations were unsuitable.

For Katz to successfully raise the defense that she tailored a riskier investment strategy to the specific needs of a client wanting to utilize more speculative strategies, she needed to demonstrate that she had, indeed, customized the portfolio. A bespoke approach can't be selling an off-the-rack, ready-to-wear suit as one that is hand tailored. The SEC was unimpressed by her defense because she seemed to have produced little more than a one-size-fits-all line.  It seemed that if you wanted to use Katz's services you were offered little choice but to accept her blanket approach to investing -- or so the SEC and the NYSE seem to have concluded.

Flaming Parachute

Sometimes a respondent in a regulatory action is confronted with so much evidence of what is alleged that there just isn't much point in denying the facts alleged.  In such cases, the best the broker's lawyer can often do is argue that even if the allegations are true, the client didn't make any money from the trades, acted in good faith, and only sought to further the best interests of the client.  It's a fair point because no Wall Street professional can (or should) guarantee profits or promise that every recommendation will be a home-run.  At best, many brokers offer educated guesses.  If that's the case, then sometimes the culprit is not the supposed fraudster broker but a fickle stock market that punishes even the wisest stockpickers.  Unfortunately for Katz, when you're going down in flames, sometimes even your parachute is afire.  The SEC noted on Page 23: 

Katz argues that none of the above transfers amounted to misappropriation because (i) she derived no personal benefit from the transfers and (ii) there was "no relationship between the broker and either account." We disagree. Katz had a relationship with all of the account holders to and from whom funds were transferred: she was their registered representative. She also derived a personal benefit by keeping the clients who received the transfers happy and retaining their business. Furthermore, we have held in similar circumstances that a registered representative misappropriates funds by transferring assets from one customer account to another without authorization. Misuse of customer funds "is serious misconduct," and Katz's conduct would violate NYSE Rule 476(a) regardless of whether she gave the money to another customer, kept it herself, or eventually gave it back to her customers.

Widows and Orphans - and the Elderly

Defense lawyers dread having an industry defendant who is accused of stealing from a widow or orphan. Bad enough that your client is charged with the kitchen sink, but, please, dear god, please, don't tell me that we have a widow or orphan making those allegations.  We do?  Geez…lemme see what we can do with that. As to Katz's attempt to do something with just such a set of facts, on Page 18, the SEC wags a finger:

Sometime after her husband passed away, Smith began to notice that Katz was trading in her account without her approval. Smith testified, for example, that Katz made nine trades in her account in June 1999 and eight trades in her account in April 2001, but that Smith had not spoken with Katz a corresponding number of times. Smith claimed that she asked Katz at one point about why she had executed so many trades, to which Katz responded "that she was repositioning the accounts, slowly but surely."