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ALJ Decision Dismissing Charges Reversed - Commission Has Jurisdiction Over Former SRO officers Under §19(h)

Salvatore F. Sodano, Exchange Act Rel. 59141, December 22, 2008

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Sodano was the CEO of the AMEX and was charged with failing to enforce compliance with AMEX rules. Before a hearing on the merits the ALJ dismissed the proceedings ruling that the Commission only has jurisdiction under Exchange Act Section 19(h) over current officers of self regulatory organizations like AMEX. Here, Sodano had resigned from AMEX two years before the proceedings were instituted. The Commission ruled that §19(h) applies to current and former officers and directors of self regulatory organizations.


The only issue is whether Exchange Act Section 19(h) authorizes proceedings against former SRO officers and directors. That section is rarely used. The Commission has settled one case against a former SRO officer. This is the first litigated case on the reach of 19(h).

The Commission noted that the statute authorizes proceedings against "any" SRO officer or director and does not specify that proceedings may only be brought against currently serving officers and directors. It noted that deference will be given to a reasonable agency interpretation of an ambiguous statue citing SEC v. Zandford, 535 U.S. 813 (2002). It also found support for jurisdiction in the fact that both removal and censure are authorized remedies under §19(h) and that a censure is not a remedy limited to current officers. The opinion also draws support from its interpretation of the legislative history.


It is not surprising that the Commission ruled for a broad interpretation of the statute.