By Robert Fusfeld 

(Robert Fusfeld is on the faculty of the Institute for Public Policy Studies at the University of Denver where he teaches graduate and undergraduate courses.  From 1975 until his retirement in 2006 he was an SEC enforcement attorney and managed the SEC's Denver office trial unit for 15 years.  He publishes a blog commenting on SEC administrative proceeding decisions at www.secteaparty.blogspot.com). 

A recent administrative opinion by the commission illustrates a very disturbing and unfortunately long standing practice of the SEC.  See, Howard Braff , Exchange Act Release 66467, February 24, 2012.

Braff had been a registered rep since 1983.  He was charged by FINRA with failing to provide written notice to three employers of outside brokerage accounts and falsely claiming in writing to have no outside accounts between 2005 and 2007.  FINRA fined him $25,000 and suspended from all associations for two years.  The commission upheld the sanctions. 

The opinion provides useful guidance as to the factors that the commission considers aggravating and mitigating when assessing sanctions.  

The commission used Braff's extensive industry experience to justify its finding that his concealment was intentional.  In upholding the sanctions the commission noted that the following are not considered mitigating factors when assessing the appropriateness of sanctions: 

    •  lack of disciplinary history; 

    • cooperation with the investigation; 

    • absence of monetary gain; 

    • absence of customer harm; and 

    • absence of aggravating factors. 

None of this is unusual. However, the commission continues - as it does in virtually all appeals of both FINRA sanctions and decisions by its administrative law judges -  to punish people for defending themselves.  This is wrong and totally inappropriate. 

Braff claimed that he relied on the advice of an compliance officer at one firm.  The commission found this an aggravating factor characterizing this as an attempt to "shift blame... to others" and a "failure to appreciate ... [his] duty...."  

It truly is wrong for the commission to continue to uphold sanctions for purportedly failing to recognize wrongdoing when respondents defend themselves. Reliance on this factor is wrong because it discourages people from defending themselves.  Nor is it necessary.  

The commission can appropriately justify sanctions based solely on the actual violative conduct that has occurred.  It need not insist on penalizing people for defending themselves.

Yes, I know the federal criminal sentencing guidelines punish people with harsher sanctions for going to trial under the rubric of failing to take responsibility.  However, given the wide discretion that the commission has in sanctioning under the statutory "public interest" standard, there is no reason for it to justify its sanctions when respondents attempt to defend their conduct or claim mitigating evidence.