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SEC allowed to assist in collection of NASD Restitution order by applying for court order
SEC v. Vittor, No. 02-13876 (11th Cir., 3/7/03). Enforcement Practices/Procedures * 1934 Act (§21) * Collection Issues * Statutory Definitions (Order).
The SEC can assist in collection of a NASD restitution order by applying for a court order directing payment.
There must be tens, if not hundreds, of millions of unpaid regulatory fines, disgorgement and restitution orders arising from the sanctions levied by SROs and securities regulators. The SEC has collection clout, but the SROs main leverage lies in their ability to prevent re-entry into the business.
This Opinion cites a Fifth Circuit Opinion, Lang v. French, 514 F.3d 217 (1998), which determined that an investor, claiming a right to recovery under a NASD restitution order, has no standing. Perhaps, that is why the SEC acted in this case to obtain a court order that could summarily convert a NASD restitution order into a court judgment.
To do so, the staff relies upon Section 21(d) and (e) of the Securities Exchange Act, but those provisions, while permitting the SEC to commence its own action to enforce SRO rules, anticipates the existence of a prior SEC order, with which compliance may be commanded. The SEC argues that such an order was issued when it affirmed the findings of the NASD disciplinary decisions, but Mr. Vittor argues that the SECs affirmance of the NASD penalty is not an order, for Section 21 purposes. It requires no action on his part and, therefore, a court cannot command him to comply with it.
This Court thinks it can and finds that the SEC action, after review of the NASD findings and sanctions, constitutes an order, under Sections 21(d) and (e). That leaves Section 21(f), which forbids SEC action under the former subsections, unless the SRO has failed or is unable to act first (or where SEC is otherwise necessary or appropriate). The district court found Section 21(f) inapplicable here and the majority agrees. This section applies only when the SEC initiates its own enforcement action for violation of, or to command compliance with, the rules of a self-regulatory organization. Here, the NASD acted and the SEC applied oversight, not independent action. Mr. Vittor is commanded to pay. (SAC Ed: The dissent thinks 21(f) is applicable, but its policy concern is that adding execution clout to the consequences one faces in pursuing review of a SRO disciplinary proceeding will further chill the right to an appeal.) (SLC Ref. No. 2003-11-05)
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