Filed: Nov. 09, 1999
Latest Update: Mar. 02, 2020
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 99-60201 Summary Calendar _ JAMES HARVEY THORNTON, Petitioner, versus SECURITIES AND EXCHANGE COMMISSION, Respondent. _ On Petition for Review of an Order of the Securities and Exchange Commission (Admin. Proc. File No. 3-9046) _ October 22, 1999 Before POLITZ, JOLLY, and WIENER, Circuit Judges: Per Curiam* Petitioner James Harvey Thornton (“Thornton”) seeks review of an order of the Securities and Exchange Commission (“SEC” or “Commissi
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 99-60201 Summary Calendar _ JAMES HARVEY THORNTON, Petitioner, versus SECURITIES AND EXCHANGE COMMISSION, Respondent. _ On Petition for Review of an Order of the Securities and Exchange Commission (Admin. Proc. File No. 3-9046) _ October 22, 1999 Before POLITZ, JOLLY, and WIENER, Circuit Judges: Per Curiam* Petitioner James Harvey Thornton (“Thornton”) seeks review of an order of the Securities and Exchange Commission (“SEC” or “Commissio..
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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________________________
No. 99-60201
Summary Calendar
________________________________________
JAMES HARVEY THORNTON,
Petitioner,
versus
SECURITIES AND EXCHANGE
COMMISSION,
Respondent.
______________________________________________
On Petition for Review of an Order of the
Securities and Exchange Commission
(Admin. Proc. File No. 3-9046)
______________________________________________
October 22, 1999
Before POLITZ, JOLLY, and WIENER, Circuit Judges:
Per Curiam*
Petitioner James Harvey Thornton (“Thornton”) seeks review of
an order of the Securities and Exchange Commission (“SEC” or
“Commission”) sustaining sanctions imposed on him by an
administrative law judge (“ALJ”) for violating sections 15(b)(4)(E)
and 15(b)(6) of the Securities and Exchange Act of 1934. The
violations involve Thornton’s failure to supervise a registered
representative, Gail Griseuk (“Griseuk”) and, accordingly, to
prevent her violations of section 17(a) of the Securities Act of
*
Pursuant to 5th Cir. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5th Cir. R. 47.5.4.
1
1933 and section 10(b) of the Securities and Exchange Act of 1934
and Rule 10b-5 thereunder. Thornton admits to violating the Act
but challenges the sanctions imposed. We affirm.
I.
Facts and Proceedings
Thornton is a registered representative employed by and
serving as president and compliance officer of a Houston, Texas
securities brokerage firm, Payne & Thornton, Inc. d/b/a Retirement
Investment Group (“Retirement”). Griseuk is a registered
representative who worked for Retirement out of offices in Florida,
from 1988 to late 1991. Under her employment agreement, Griseuk
received ninety percent of all commissions she generated. She
quickly became Retirement’s most productive salesperson, by 1991
bringing in fifty percent of the firm’s revenue.
At the time she was hired by Retirement, Griseuk represented
that she had never been the subject of an investment-related,
customer-initiated complaint or proceeding; but, in fact, at that
time, she was the subject of two separate customer complaints
alleging that she had placed her customers in unsuitable
investments (both actions were dismissed). Immediately after
Griseuk joined Retirement, another customer suitability lawsuit was
filed against her. That suit resulted in a total judgment of
$898,528, which forced her to file for bankruptcy protection. Less
than one year later, thirty-two plaintiffs filed a class action
lawsuit against her which was dismissed.
Thornton was notified of these suits by disclosure forms
2
supplied by the National Association of Securities Dealers, Inc.
(“NASD”) and by a former employee of Griseuk’s. Thornton testified
that he received the disclosure forms but “missed” the information
on them about Griseuk’s disciplinary history. In addition to
failing to inform himself about Griseuk’s prior wrongdoing,
Thornton failed to monitor her work, audit her client accounts,
conduct surprise inspections, or interview her salespeople or
employees, even though, according to written supervisory
procedures, Thornton, as president, was the sole officer
responsible for supervision of registered representatives employed
by the firm. Not until the fall of 1991, when two Griseuk clients
expressed concern to Thornton regarding her high-pressure sales
tactics, did Thornton modify some of Retirement’s procedures and
supervisory policies.
In 1991, the Division of Enforcement of the SEC brought
charges against Griseuk in connection with the offer, purchase, and
sale of nearly $5 million worth of securities, mostly in the form
of high-risk limited partnership interests. Griseuk settled the
charges, consenting to findings that she violated securities laws
by making false and misleading statements and material omissions
regarding the risk, safety, and liquidity of certain securities, as
well as making false statements about the compensation she earned
from selling those securities. She was ordered to remit $370,786,
the approximate amount of her commissions, plus interest, all but
$20,000 of which was waived due to her insolvency.
The Division of Enforcement of the SEC thereafter brought
3
charges against Retirement and Thornton for failure to supervise
Griseuk. The ALJ, in determining the appropriate sanctions,
reviewed Thornton’s own disciplinary history and discovered that he
had been disciplined by the NASD and state securities regulators
eight different times for failure to supervise the firm’s
registered representatives and for mishandling client funds. On
those prior incidents, Thornton was censured, fined, and once had
his license revoked for six days. The ALJ, after hearing
Thornton’s testimony and reviewing the documentary evidence,
revoked Retirement’s broker-dealer registration, imposed a civil
monetary penalty of $50,000.00 on Retirement, permanently barred
Thornton from acting as a broker-dealer, barred him from
association with any broker-dealer, and imposed a civil monetary
penalty of $5,000.00 on Thornton.
Thornton and Retirement petitioned the SEC for review of the
ALJ’s decision. The SEC did not dispute the ALJ’s findings of
fact, and accordingly affirmed the civil monetary penalties and the
permanent ban on supervisory work but adjusted the severe sanction
of a total ban on work as a registered representative to a three-
year ban. The SEC also reversed the ALJ’s sanction barring
Thornton from participating in penny stock offerings, finding such
a bar irrelevant to the type of fraud committed.
II.
Standard of Review
We review the Commission’s decision to impose a particular
4
sanction for gross abuse of discretion.1 The choice of sanction
will not be overturned unless unwarranted in law or without
justification in fact.2
III.
Discussion
Thornton does not appeal the monetary sanction or the ban on
supervisory activities. He asserts, however, that the temporary
ban on his license to serve customers individually was an abuse of
discretion by the SEC. Thornton argues that as he was sixty-four
years-old at the time of the hearing in 1996, a three-year ban has
the same effect as a lifetime ban and would leave him with no means
of supporting himself. Moreover, he contends that neither the
alleged wrongdoing in connection with Griseuk nor his prior eight
disciplinary proceedings regarding inadequate supervision in any
way bear on his ability to serve the public in an individual
capacity; therefore, the ban on his working directly with clients
was an abuse of discretion. Thornton asks us to remove the three-
year ban on his practice as a registered representative or,
alternatively, to reduce the ban to not more than ninety days.
We conclude that the SEC did not abuse its discretion in
banning Thornton from working as a registered representative for
three years. Sanctions for securities violations must be
administered with an eye towards protecting the public rather than
1
Amato v. Securities and Exchange Commission, 18 F.3d 1281,
1284 (5th Cir. 1994).
2
Butz v. Glover Livestock Commission Co., 411 U.S. 182, 186-
87 (1973).
5
merely punishing the wrongdoer.3 Certainly, revocation of a
professional license and exclusion from the industry is a severe
sanction which, at first glance, might appear punitive.
Accordingly, the Commission has an obligation specifically to
articulate why a less severe sanction would not suffice.4
In complying with its duty to articulate such reasons, the
Commission should consider “the egregiousness of the defendant’s
actions, the isolated or recurrent nature of the infraction, the
degree of scienter involved, the sincerity of the defendant’s
assurances against future violations, the defendant’s recognition
of the wrongful nature of his conduct, and the likelihood that the
defendant’s occupation will present opportunities for future
violations.”5 The Commission may not presume future wrongdoing
merely on the basis of past misconduct.6 Here, the ALJ and
Commission sufficiently articulated reasons for imposing the
sanction by pointing out the recurrent nature of Thornton’s
supervisory infractions, the perceived lack of sincerity in his
testimony, his failure to recognize the wrongfulness of his prior
conduct, and the likelihood of opportunities for future misconduct.
In affirming the subject order of sanctions, we are
3
Beck v. Securities and Exchange Commission, 430 F.2d 673,
674 (6th Cir. 1970) (citing U.S. Supreme Court precedent and cases
from other circuits); see also Meadows v. Securities and Exchange
Commission,
119 F.3d 1219, 1128 n. 20 (5th Cir. 1997).
4
Steadman v. Securities and Exchange Commission, 603 F.2d
1126, 1139-40 (5th Cir. 1979), aff’d
450 U.S. 91 (1981).
5
Id. at 1140.
6
Id.
6
particularly persuaded by the evidence that Thornton has been
sanctioned eight times previously for violations in connection with
the broker-dealer business. True, as he points out, all of the
prior sanctions related to his failure adequately to supervise
registered representatives employed by Retirement and not to his
conduct as a registered representative; but the ALJ determined that
in light of several past sanctions which did not curb Thornton’s
unlawful behavior, the more severe sanction is in the public
interest.7 Thornton demonstrated a continual pattern of culpable
behavior, apparently reckless to the interests of customers who
might be harmed.8 As long as he has a license to work as a
registered representative, he will have opportunities to act in a
supervisory capacity and otherwise to compromise the interest of
clients.
In addition, we are persuaded by the conclusions of the ALJ ——
the only adjudicator to view the witness’s demeanor —— who doubted
Thornton’s credibility in saying that he was unaware of Griseuk’s
conduct prior to or during her employment with Retirement, as well
as his sincerity in expressing remorse about his admitted
violations of securities laws by inadequate supervision. The ALJ
found that Thornton “deliberately obfuscates,” “uses excuses,” and
“gave blatantly untruthful testimony.” In the ALJ’s view, Thornton
7
The ALJ stated, “Because Mr. Thornton refuses to acknowledge
that he has ever done anything wrong, the probability that he will
continue violating the securities laws and regulations is almost
certain.”
8
See similarly Meadows, 119 F.3d at 1228.
7
remained wilfully blind to Griseuk’s violations because of the
considerable revenue she was generating for Retirement.
On the basis of all the evidence before him, the ALJ
permanently banned Thornton from working in his chosen profession
as a registered representative. That evidence as well as the
relevant legal standards were reviewed by the SEC which has already
extended some appellate relief to Thornton by lessening the
sanction to a three-year bar.9 We agree that, in addition to the
civil monetary penalty and the permanent ban on supervisory work,
the three-year ban on Thornton’s work as a registered
representative is necessary to protect the investing public and to
deter future violations. Based on our review of the Initial
Decision of the ALJ and the Opinion of the Commission in light of
the facts revealed by the record and the legal arguments advanced
in the appellate briefs of counsel, we conclude that the three-year
ban was warranted by law and justified in fact, and was not the
product of an abuse of discretion. For essentially the same
reasons as set forth in the well-reasoned opinions of the ALJ and
the SEC, the modified order of sanctions is, in all respects,
AFFIRMED.
9
Meadows, 119 F.3d at 1228 n.21 (noting that the re-entry
into the brokerage industry after a temporary bar is not entirely
illusory).
8
