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David A. Finnerty, et. al., Exchange Act Rel. 56765, November 6, 2007

Motion to sever
Pages - 5


One respondent in this proceeding with 20 respondents moved to sever pursuant to Rule 201(b). That rule permits severance if a settlement offer is pending before the Commission or if the movant "otherwise show[s] good cause."   The respondents are registered specialists who were associated with five firms and were charged with improper floor trading on the NYSE between 1999 and 2003.  The parties have agreed to a two stage hearing where the first stage will deal with issues of fact common to all respondents and the second will deal with specific conduct by respondents to be organized sequentially and grouped by firm.  The moving respondent sought to be severed from the second stage.

In considering motions for severance the Commission first determines whether the allegations were properly consolidated.  If so, it determines whether there is good cause for severance.  The respondent here argues that the consolidation is prejudicial to him because it creates an inference that his conduct was more widespread than it actually was.  He claims severance is necessary to prevent him from being "tarred" with wrongdoing he was uninvolved in.  The Division of Enforcement argued that consolidation was proper because the conduct of respondents was similar and involves common legal issues.  The common issues cited by the Division include the firm's training, internal policies, and compensation.  It also argues that severance would result in duplicative evidence and a "tremendous" waste of judicial resources.

The Commission found that consolidation was proper due to common legal and factual issues that will be involved at each phase of the hearing.  The Commission rejected the "tarring" argument, noting that the ALJ "should have little difficulty in judging movant['s] case [] solely on the basis of the evidence adduced with respect to [him]."  Finally, the Commission noted that considerations of "adjudicatory economy carry great weight" in considering a motion to sever.  It found that there will be common questions of fact concerning multiple respondents in the phase two group involving the moving respondent.


Unlike final decisions, interlocutory decisions by the Commission do not note how long the matter has been before the Commission.  Since the Commission denied a similar motion by another respondent in this case, one can only hope that the Commission acted promptly in deciding this motion without delaying the proceeding.  But, because it does not tell us when the motion was filed, we unfortunately have no way of knowing.