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Commission Continues to Waste Resources Issuing Opinions Barring Convicted Felons

Eric S. Butler, Exchange Act Rel. 65204, August 26, 2011

Butler was convicted of conspiracy to commit wire and securities fraud. His convictions for were overturned on appeal. The Commission barred him from association with any broker, dealer, or investment adviser.

Butler was charged with unauthorized purchases in accounts of his customers at Credit Suisse of auction rate securities. He touted government guaranteed student loan backed securities to his customers. However, some customers were placed into uninsured mortgage backed securities. Emails were sent to customers that falsified the names of the products actually purchased to make it appear that the customers had in fact bought guaranteed student loan backed instruments.

Jury instructions required that the jury find that Butler voluntarily, deliberately, and purposefully joined the conspiracy.

On appeal the appellate court dismissed the substantive wire and securities fraud counts on venue grounds but upheld the conspiracy convictions.

As one would expect the administrative law judge barred Butler based on his conviction without holding an evidentiary hearing.

The statute allows sanctions if the conviction involves the purchase or sale of a security or arises out of the conduct of a broker or dealer. Since he was associated with a firm that was both a broker-dealer and an investment adviser when the conduct occurred there is administrative jurisdiction under both the Exchange Act and Advisers Act.

Unsurprisingly the Commission concluded that the bars imposed by the ALJ were "amply warranted."

The Commission's treatment of these kind of cases is an enduring mystery. It approved of the ALJ's summary disposition without trial of the matter. Yet it does not summarily affirm the ALJ's imposition of clearly warranted sanctions. It wasted the time of its staff and its scarce monetary resources by issuing a thirteen page opinion replete with 39 footnotes. There was nothing in this case of particular interest or difficulty. When will the Commission begin to make wiser and more appropriate use of its limited human and monetary resources?