SEC v. SLOAN
Legal provision: Securities Act of 1933, the Securities and Exchange Act of 1934, or the Williams Act
Argument of Harvey L. Pitt
Chief Justice Warren E. Burger: We will hear arguments next in Securities and Exchange Commission against Sloan.
Mr. Pitt you may proceed whenever you are ready.
Mr. Harvey L. Pitt: Mr. Chief Justice and may it please the Court.
For 33 years the Securities and Exchange Commission has filed the practice of issuing consecutive but separate orders of ten days duration, suspending trading and security when necessary to provide immediate protection for the investing public against fraud, manipulation and inadequate corporate disclosures, and the Commission has done so only after making a separate and fresh review of the then current facts in each situation.
The Court of Appeals, however in this case, has enjoined the Commission from ever again suspending trading and security for more than ten consecutive days, despite the Commission’s longstanding and consistent administrative practice, express congressional approval of that practice and reenactment and expansion of the Commission’s authority in that regard.
Although the Commission recognizes that it may not exercise its summary suspension power, for an indefinite period of time, what we respectfully seek from this Court is the restoration of the full measure of statutory authority, we believe, the Congress intended to confirm.
Justice William H. Rehnquist: Do you think there is any limited all to the number of times the Commission can consecutively exercise its ten days suspension?
Mr. Harvey L. Pitt: Yes, I do.
Justice William H. Rehnquist: What do you think --
Mr. Harvey L. Pitt: I think that that would be tested by whether the Commission has abused its discretion, and it would depend on the circumstances, but surely where the Commission had adequate basis for permitting trading to resume, it would be an abuse of its discretion and I think that courts can review that issue and direct the Commission to terminate its trading suspension.
Chief Justice Warren E. Burger: What would you think about 36 consecutive suspensions of ten days each?
Mr. Harvey L. Pitt: Of course the --
Justice William H. Rehnquist: Where would that fall?
Mr. Harvey L. Pitt: Of course the Court of Appeals in this case never reached the question of an abusive discretion, and the facts in context in this case do not suggest that there was necessarily an abusive discretion with respect to that matter.
That is an issue that could be tested, had this case been heard timely which is one of the issues that Court has asked me to address.
I do think that at some point a trading suspension can constitute an abusive discretion and certainly in a case 36 consecutive suspensions might constitute an abusive discretion.
Chief Justice Warren E. Burger: If the Court had decided it on that basis would you be here?
Mr. Harvey L. Pitt: If the Court had held that it was an abusive discretion, no Your Honor we would not.
Justice William H. Rehnquist: Do you think on the same set of facts, Court would be justified and setting aside that 20 consecutive suspension, whereas it would not be set for second suspension?
Mr. Harvey L. Pitt: I think that there are degrees of concern that the Commission would have had with respect to the suspensions at varying points in time and that a court, if the matter was properly presented to it, could differentiate between the factual circumstances that existed anytime.
Bear in mind, I think that the Commission does have a large measure of discretion in this area.
Its focus is to protect trading and the public investors who trade in these securities and in this particular case, there was an alleged market manipulation which in fact the Commission ultimately concluded had existed.
Justice William H. Rehnquist: But supposing that review was sought after the second consecutive ten days suspension, and the Court concludes no abusive discretion, there are then 18 more successive ten days suspensions and review was again sought in the Court, would the same court be justified and concluding that there was an abusive discretion simply by the number of successive suspensions?
Mr. Harvey L. Pitt: I do not believe that the mere number of suspensions per se would give rise to an abusive discretion.
I think it is hard to fashion that kind of a rule.
I think in any given factual context the continued duration of these suspensions may constitute an abusive discretion, but I do not think a court can simply say, because consistent for 18 consecutive periods that, that was an abusive discretion.
Take for example, the situation where there is rapid manipulation ongoing and the Commission is trying to get to the bottom of that manipulation.
It is having difficulty nailing down the evidence, finding out whether the manipulation existed.
It might take 180 days to put that case together, go into court, obtain an injunction and prevent the manipulators from reeking the habit that they might be perpetrating in the markets.
Justice William H. Rehnquist: You can go and then get a preliminary injunction, can't you?
Mr. Harvey L. Pitt: We can if we have put together prima facie case indicating the probable likelihood of success on the merits.
Justice William H. Rehnquist: But your hypothesis is that having failed to do that you can similarly suspend for 180 days without any evidance?
Mr. Harvey L. Pitt: No, my hypothesis is that the Commission, having sufficient cause to believe that there is a possibility of manipulation and not having enough evidence yet to go into Court, can suspend trading.
Justice John Paul Stevens: For how long, how long should it there be required to get enough evidence to make out a prima facie case?
Mr. Harvey L. Pitt: I think it would be difficult to say that that is susceptible of a hard and fast objective standard.
I could not say to the Court that it should take the Commission 30 days or 40 days, or 50 days.
I can say that a court can look at the type of case and determine whether an investigation has bought down, it is not being pursued diligently, or there are explanations as to why a matter is taking as long as it is, and I think that the Commission has an obligation to be sensitive to the fact that a suspension of trading can cause some problems for investors and should be terminated as promptly as possible.
Justice Potter Stewart: In this case it is more than well over a year, wasn't it?
Mr. Harvey L. Pitt: In this case it was 370 days, one year and Ten days.
Justice Potter Stewart: And that had been proceeded by another series of suspensions based on different grounds for an even longer period, right?
Mr. Harvey L. Pitt: Yes, but the one year suspension --
Justice Potter Stewart: 400 and some days.
Mr. Harvey L. Pitt: -- involved three separate grounds, as it turned out, and the Commission did review the circumstances each ten days.
We were dealing with people who are fugitives from Justice.
We were dealing with both foreign and domestic marketplaces and the effects of manipulations in both marketplaces.
This was a complicated case which the Commission had put together.
Justice Byron R. White: I take your argument as it includes the argument that whatever might have been true when the statute was first passed at least now, it should be construed the way you suggest it should be that Congress is actually approved this interpretation by the Commission, it says, though it were now written that the Commission may enter successive suspensions for ten day periods, if yet at the end of maximum appropriate determination.
Mr. Harvey L. Pitt: No, I would say that as well as the fact that I think that the original enactment contemplated the construction that we have placed on it for 33 years and that I think can be gleamed from a precise reading of the statute.
The statute --
Unknown Speaker: You do not need to make that argument if your first was --
Mr. Harvey L. Pitt: No, I do not, but we think both arguments succeed or should succeed.
Justice William H. Rehnquist: Do you think --
Chief Justice Warren E. Burger: I think that both of these observations are subject to what you were seeming to say it before that it might well be abusive a discretion to have 36 suspensions of ten days each and that you would not be here if the Court had placed it on an abusive discretion.
Unknown Speaker: That is correct, we would not be.
Justice Potter Stewart: Didn't you also say earlier that not only had Congress approved your construction, but indeed had expended?
Mr. Harvey L. Pitt: Yes, Your Honor in the initial 1934 Act, the authority to suspend trading was limited to securities that were listed on an exchange.
In 1964, at the specific request of the Commission, the Congress expended that authority to all securities traded in the over the counter markets as well as in listed securities.
It was at that time, that the Commission presented to the Congress as it had previously each year in its annual report, its consistent practice of successive, but separate suspension orders, and the senate report expressly approved and accepted the interpretation of the Commission and the House would be Commission’s assistant in grafting the bill, expand that our authority do encompass over the counter markets.
Justice William H. Rehnquist: Do you think the Commission unambiguously and fairly explained to Congress its present policy in 1964?
Mr. Harvey L. Pitt: Yes Your Honor I do, and I think it stamps back not just from the legislative development but from our annual reports as well.
Starting in 1946 and each year thereafter, we provided furnished information to the Congress with respect to our practices with regard to trading suspensions.
I think the Congress was aware of this indeed in 1950 --
Justice William H. Rehnquist: You are suggesting that average (Inaudible) reads your annual report?
Mr. Harvey L. Pitt: I am suggesting that there may be congressman who do read it and do not read it.
I think for purposes of construing what the congressional intent was when Congress acted upon our legislation that are expressed explanation of our policies which took several forms.
The annual report may be one lesser form of that.
We also went to Congress or oversight committees were priced of this in 1959 and in 1960, we indicated that the policy of successive rollovers where a separate determination was made, was one that we have been employing consistently.
We got expressed committee approval of that by one of our oversight committees.
In 1964 we --
Justice William H. Rehnquist: No that does not constitute our congressional approval, does it?
Mr. Harvey L. Pitt: Well, I think that the congressional expansion of our authority coupled with an acceptance of that interpretation in the committee reports accompanying the bill is about as good an indication as we can have in the circumstances without --
Justice William H. Rehnquist: But an approval by an oversight committee in 1959 certainly does not represent an active Congress.
Mr. Harvey L. Pitt: No and that was supplied in 1964.
Justice William H. Rehnquist: So you say that an adequate presentation of this policy was made to the 1964 Congress that did enact the bill.
Mr. Harvey L. Pitt: I do, but I would not minimize in 1959 approval by the oversight committees, because Congress, as this Court is well aware, monitors the activities of the independent regulatory agencies through its oversight committees.
They are the ones responsible for monitoring our activities and determining whether our acts are in the first instance appeared to be in accordance with congressional intent.
It is true that the words of a congressional oversight committee cannot bind the whole Congress.
That came in 1964.
Justice Lewis F. Powell: Mr. Pitt are these rollover orders as you described customarily issued Ex parte?
Mr. Harvey L. Pitt: I think Your Honor that the term Ex parte would presume a proceeding and the answer to that is to full.
The Commission staff usually suffice information for the Commission that is not in advisory context.
It is simply the Commission and its staff reviewing information.
We do, however, receive request from corporate issuers, trustees, and bankruptcies, and in fact the courts on occasion and those are transmitted from the staff to the Commission.
We have adopted --
Justice Potter Stewart: Does an issuer have any notice (Inaudible).
Mr. Harvey L. Pitt: An issuer has notice of the fact that in most cases that a suspension is about to be issued unless the circumstances are such an emergency nature that we are required to announce it before notifying the issuer.
We do have a specific procedure that permits an issuer or any person who believes that they have information bearing on the wisdom or lack of wisdom of our trading suspension power to furnish the Commission with information as to whether or not a particular trading suspension should be listed.
Justice Potter Stewart: Could the issuer gradually on demand have a hearing as to whether or not the continuation of the rollover is justified?
Mr. Harvey L. Pitt: I am not certain, if we posit the situation where it is due to the issuer’s misconduct that the trading suspension has issued, then Section 12 (j) of the Securities Exchange Act contemplates that the Commission should at some point, commence a proceeding.
It is conceivable -- although I must confess I have not given thought to this that an issuer might seek into the Administrative Procedure Act to claim that he can compel agency action unlawfully withheld which is a 12 (j) proceeding to have an adjudication on the merits.
In the absence of an issuer’s violation of the Act, 12 (j) is inapplicable, indeed that is the problem with the reasoning of the Court of Appeals that has led us to this Court, and in that circumstance, it seems to me that an issuer might have a cause of action for review of an abusive discretion, but I do not know that issuer could compel us to hold an administrative proceeding, but I think in either event, the issuer would get the question before a Court and have the timely resolution of the suspension it starts.
Justice John Paul Stevens: I have two questions Mr. Pitt, I will put them both at once, if I may.
Are there any regulations or anything in this record to tell us what kind of a procedure the Commission follows when it issues a successive order?
Is there any kind of a -- or can it just be done by somebody saying, okay let us extend it another ten days.
And my second question is if during a period of suspensions the Commission does find it has enough evidence to make out prima facie case of violation, what is the statutory procedure available to, if they go into Court and get some kind of injunction is there, other than 12 (j)?
Mr. Harvey L. Pitt: We -- with respect to your first question, there is no written rule that binds the Commission to a process there is the same consistent approach to the Commission as always followed in the record does evidence that here, namely it is that the staff is required, if it believes that a trading suspension should be continued to furnish the Commission with information suggesting why that suspension should be considered.
Justice John Paul Stevens: But could that information that it could be what we tell to you last week is still true.
Do they have to have anything new?
Mr. Harvey L. Pitt: At some point the Commission as a matter of internal discipline required something new.
Justice John Paul Stevens: Does it each ten days record or something?
Mr. Harvey L. Pitt: Not necessarily.
It may be, for example in this case, the staff may be finding out from the Royal Canadian Mounted Police as was the case here, what the extent of their information was with manipulation and it indicated to the Commission that it was going to Newfoundland to take testimony.
That took several weeks to arrange.
In that context it was certainly understandable that ten days later the memorandum to the Commission from the staff would indicate the fact that this was still the procedure that was going to be followed and what the developments were in arranging that testimony, but the information would have been the same.
Justice John Paul Stevens: So if the information in effect said would take us about six months to get a case together then they just have rubber stamps for six months.
Mr. Harvey L. Pitt: No, I believe -- and of course that is not this case.
I believe if the staff thought it would take them six months to get the information and so apprise the Commission that that would be the strongest case for arguing that the Commission would be under responsibility to publish whatever facts it was aware of and terminate the suspension as promptly as possible, but that situation would be the kind of situation that could be dealt with in a case seeking to review the Commission’s action for abusive discretion.
If I have not responded I can elaborate.
Justice John Paul Stevens: You have not responded the second question, maybe you do not remember it.
Mr. Harvey L. Pitt: The second question as I understood it was what statutory remedies are available to the Commission if there is issuer misconduct?
Justice Potter Stewart: No if there is a situation not covered by 12 (j).
Mr. Harvey L. Pitt: Okay.
Justice Potter Stewart: And there is need for a suspension of more than ten days and there is probable cause to prove all sorts of violations of the statute.
What would you do, would you just use the ten day power or would you have gone to Court?
Mr. Harvey L. Pitt: Again, it would depend on the kind of information we had available.
If 12 (j) is inapplicable we would use the ten day power either to assist us in getting into Court, for example, with a temporary restraining order or preliminary injunction, because by that time we would have filed our complaint, the facts would be public, and investors would be alerted to what our allegations were, and that is our policy, we do not weight for the action to be litigated.
Justice John Paul Stevens: I am just wandering why -- if you have the ten day power in your claim, why you would even run in the Court for preliminary adjunctions?
Mr. Harvey L. Pitt: Because the preliminary injunction is necessary to stop the people who are violating the law.
Justice John Paul Stevens: I see.
Mr. Harvey L. Pitt: The fact that we can suspend trading will not protect those people who have been victimized by the violations of law.
The Commission’s position --
Justice Potter Stewart: What therefore would be the prior of the injunction or the injunction necessarily stop trading?
Mr. Harvey L. Pitt: No, in that circumstance the suspension of trading would be necessary to alert investors to the facts.
Once they are informed to the facts the Commission does not assume a paternalistic position.
Investors, once they know as much as we know, are free to make their own investment decisions so long as there is not a manipulation in the marketplace.
That is something that would be of greater concern.
Justice Potter Stewart: And therefore the prayer of the injunction would be designed to terminate the alleged manipulation on the marketplace, wouldn't it?
Mr. Harvey L. Pitt: That is correct.
Justice Potter Stewart: The injunction would necessarily include a prayer that all trading would be suspended, wouldn't it?
Mr. Harvey L. Pitt: The injunction in that circumstance would not address itself to trading at all.
And once the complaint was filed the trading suspension would be lifted.
Justice John Paul Stevens: The purpose of the suspension then is to give you time to assemble information to make public so that thereafter the investing public to make and form decisions.
Mr. Harvey L. Pitt: That is precisely the purpose of the suspension, although in the case of a market manipulation it may be to get us into the Court and take some preliminary action.
So in the market manipulation context the fact that there is some information may not prevent investors from being abused, but by enlarge, Your Honor has concisely stated what our need for the suspension powers are?
Justice John Paul Stevens: And in this case it took a year to get enough information there to issue the appropriate press release.
Mr. Harvey L. Pitt: In this case there were three separate basis in the series of, suspension, consecutive suspension orders.
There was a market manipulation both here and abroad that had to be tracked down, there was a change in management of the company and there were a failure to file current reports.
Three separate basis that occurred over the course of that one year period which is precisely why we believe that the limitation that the Court of Appeals below put on our suspension power is inconsistent with the statutory intent both in 1934, again in 1964, and finally in 1975 when the Act was amended again.
We briefly stated, the Court also asked us to address the question of mootness, and I hope it is plain that the Commission of course prefers a decision on the merits in this case because our summary suspension authority has been a critical element of our enforcement and policing of the securities markets.
Nevertheless because the Court invited us to discuss the question of mootness we have given careful consideration to whether this case was properly before the Court of Appeals.
In terms of the relevant facts, on that issue I think all that needed to be stated is that at the time this case was presented to the Court below, the petition was filed nine days later the trading suspensions terminated.
At the time of oral argument, at the time of briefing, and at the time of the Second Circuit’s decision there were no trading suspensions in effect.
The Court held nevertheless that the case was not moot based on this Court’s decision in Southern Pacific Terminal Co. against the ICC suggesting that the matter was capable of reputation yet evading review.
Justice Potter Stewart: What have they complained in this case as for an injunction or declaratory judgment or money damages or all three or what?
Mr. Harvey L. Pitt: Your Honors as precisely the question that gives rise to our dilemma with respect to mootness, there was no District Court complaint in this action, in this particular action, although one had been tried previously.
This was a petition for review pursuant to Section 25 (a) of the Securities Exchange Act of 1934 which sought review of a discrete set of orders, this one year set of orders.
Justice Potter Stewart: That is in the Commission or in the Court of Appeals?
Mr. Harvey L. Pitt: That is right, to the Court of Appeals and it is set forth on Page 122 of the Appendix.
It does not challenge in terms all of the Commission’s orders with respect to trading suspensions; it challenges one series that lasted as the Court has indicated for a year with respect to Canadian Javelin stock.
Justice Thurgood Marshall: Well, why is not that moot?
Mr. Harvey L. Pitt: Well, your Honor.
It is not clear that it is not moot, and it may well be moot for the following reasons:
Chief Justice Warren E. Burger: Is there anything outstanding or --
Mr. Harvey L. Pitt: In so far as the petition for review sought judicial review of that precise question as to whether Canadian Javelin stock should have been suspended, or could have been suspended that order no longer exists and the case ordinarily would be moot.
The analysis, as I understand this Court’s decision, requires us to consider whether it is capable of repetition and yet evading review, in a sense it is not capable of repetition at least to the degree of certitude that this Court has required in its prior decisions, because this specific review proceeding was over the suspension of Canadian Javelin stock and it is by no means clear that this Commission would again suspend trading in Canadian Javelin stock nor certainly for the same reasons.
Justice William H. Rehnquist: Well, in Weinstein agaisnt Bradford we said it had to be capable of a repetition with respect to the particular parties involved.
Mr. Harvey L. Pitt: That is correct.
It is our contention as we set forth both in our petition and in our brief on the merits in this Court that Weinstein agaisnt Bradford is dispositive of this case.
Justice William H. Rehnquist: And that therefore it is or is not moot.
Mr. Harvey L. Pitt: Therefore it is moot, if the petitioner is viewed in its capacity as a shareholder of Canadian Javelin stock, which is the posture he was in, in the Court of Appeals.
If however, the case is viewed with respect to the generic question of the appropriateness of trading suspensions, it is certainly clear that this is an issue that is capable of repetition.
We will, if this Court restores our power in appropriate circumstances, resume ten day trading suspensions on a consecutive, but separate basis.
Justice William H. Rehnquist: It gives to this particular respondent?
Mr. Harvey L. Pitt: We have done nothing against this particular respondent.
Justice William H. Rehnquist: Doesn't Weinstein versus Bradford say, it has to capable of repetition with respect to each of the parties?
Mr. Harvey L. Pitt: I believe Weinstein agaisnt Bradford and DeFunis against Odegaard both support that proposition Your Honor.
Unknown Speaker: But this respondent has filed an affidavit or it claims that he owns what some 400 different securities.
Mr. Harvey L. Pitt: He has now changed that in his brief on the merits which we just received to allege 150 securities, 12 of which have been the subject of consecutive suspensions.
He also --
Unknown Speaker: And the Commission suspends what 20 or 30 different securities each year?
Mr. Harvey L. Pitt: Something along that line yes.
Consecutively we suspended more, but only about 20 a year on a consecutive basis.
Unknown Speaker: And has done so every year as a matter for historic fact.
Mr. Harvey L. Pitt: That is correct.
Now, if --
Chief Justice Warren E. Burger: Then as a petitioner I suppose it is kind of probable one thing’s capability of repetition is required but --
Mr. Harvey L. Pitt: That, that would --
Chief Justice Warren E. Burger: Anybody owns that many securities and if you are suspending that much trading in separate securities every single year, eventually those lines are going to meet, and that is capable repetition yet evading review with respect to this party.
Mr. Harvey L. Pitt: We would concede and we did set forth a probability formula which suggests one possible analysis, we would concede that it is possible that a stock that the respondent owns may be subject to a consecutive suspension, but even if that is true that does not reach the second phase of the Southern Pacific case which is whether this matter is a matter that evades review.
And for that question it depends on the kind of review that is sought.
If the review that is sought is of the statutory authority of the Commission to suspend trading for more than one ten day period that is a question which we believe does not evade review even if this Court holds that the lower court's decision should be vacated for mootness.
After all this respondent could have done what the respondents in others of the cases that have been held not to be moot did namely institute a District Court action seeking declaratory relief and an injunction.
In fact, however, that is precisely what this respondent did in 1974, and what is surprising to us is he made that claim and challenged our trading suspension authority both as to constitutional basis, successive basis, and as an abusive discretion.
The District Court ruled on the merits and claimed that the allegations were frivolous.
The Court of Appeals for the Second Circuit affirmed and this Court denied certiorari and our concern is that --
Justice Potter Stewart: Well, if he took that as a lesson never to try that rule again. [Laughter]
Mr. Harvey L. Pitt: Indeed he has learned well, so he has now filed the petition if this Court were to hold as we think it probably must that the Second Circuit’s decision should be vacated for mootness, viewed in the capacity in which the case was presented there.
We would be lost (ph) to see the same sequence of events that occurred in 1974 commence allover again in a sense even the government need some protection against repetitive litigation.
In sum --
Justice Lewis F. Powell: In sum, we should not dispose unless on mootness.
Mr. Harvey L. Pitt: I am constrained to advise the Court that my reading of the cases suggest that the case was moot at the time that Second Circuit decided.
We would like to see a decision on merits.
Unknown Speaker: Because of the procedure that he followed --
Mr. Harvey L. Pitt: That is correct.
Chief Justice Warren E. Burger: By asking the Court of Appeals to review certain specific suspension orders.
Mr. Harvey L. Pitt: It is certain that we will be back in District Court again as soon as the decision is vacated.
In sum, the Commission is going to be -- Commission’s construction of Section 12 (k) has been used to maintain fair and orderly capital markets.
We believe that the decision below weakens the capacity of the Commission in an unfair manner to monitor the securities, markets, and urge that this Court reverse the decision of the court below.
Chief Justice Warren E. Burger: Mr. Sloan, before you commence your argument when Court granted you leave to appear in this case, you received a notice, the usual notice to counsel, did you not?
Argument of Samuel H. Sloan
Mr. Samuel H. Sloan: No, I have not received anything since the time there was one week ago that I was advised that I would be allowed to argue, I have not received anything.
Chief Justice Warren E. Burger: Nothing?
Mr. Samuel H. Sloan: No.
Chief Justice Warren E. Burger: March 1, letter you would have not received?
Mr. Samuel H. Sloan: No, I have not.
Chief Justice Warren E. Burger: Are you aware that the rules for current require that counsel (Inaudible) list to arguments registrar with the Deputy Clerk in room 22 (d) at 9.00 a.m. or shortly after that on the day of signing for argument.
Mr. Samuel H. Sloan: No, I am not aware that rule.
Chief Justice Warren E. Burger: Then you better check your mail because you are in violation of that rule and you did not appear here till 2.30 today and the Court can not organize its business if it does not know that arguing counsel is not to be present.
Now you may proceed.
Mr. Samuel H. Sloan: Thank you very much Your honor.
Gentleman, Mr. Chief Justice and may it please the Court.
My name is Sam Sloan.
I believe this is a simple case.
The Section 12 (k) of the Securities Exchange Act gives the SEC the authority to suspend trade in a security for a period not exceeding ten days.
Here the SEC has suspended trading in a security for 370 days, therefore the SEC has filed the statute and the Court of Appeals under the circumstances was rquired to enjoin the SEC from issuing from continuous practice which it has continued over a period of 33 years.
Now they say, the case has moot, but the problem that anyone has in objecting to this procedure of the SEC is the problem that I face, because as the SEC has pointed out I started a case back in 1974 protesting the trading suspensions in Canadian Javelin Limited and these suspensions continued and I lost that case then I came back with a petition for review and the Court of Appeals again protesting the trading suspensions of Canadian Javelin Limited and I lost that case.
Finally, and the reason I lost the second case was because the SEC said that they were going to an administrative hearing.
I applied to the SEC for an administrative hearing.
They waited until they were ready to enter their last trading suspension order, and they did so and at the same time, they denied my request for an administrative hearing, and thus putting me back into the Court of Appeals for the third time.
Now they say because of their delays and because they ran me around for approximately two years prior to getting me back into the Court of Appeals by making a bunch of suggestion, such as the suggestion that they were going to give me administrative hearing, which in fact they did not give that the case has become moot upon expiration of the consecutive ten day.
The last order which was timed to coincide with the denial of my request for hearing.
I do not believe that a government agency can be allowed to put a person in this kind of position where they are controlling the case, where they are deciding at what point I can object to their procedure, and they can then manipulate the facts in such a way to say that case is moot before I have ever had an opportunity to present my claims.
Now, they say that the case, the action of the SEC can only be reviewed by a Court in an abusive discretion situation.
Well, as the Court is well aware if you file a petition for review in the Court of Appeals -- now I tried to proceed in the District Court, I lost the SEC said my exclusive remedy was to file a petition for review in the Court of Appeals.
So since they told me what my remedy was, I pursued that remedy.
I filed a petition for review in the Court of Appeals, and when I got up there, they, at that point, said that this really was not my remedy, I should go back to the Commission and where they would give me an administrative hearing.
Now, in the situation where they say a court may review a case on the matter of abusive discretion the question arises.
Chief Justice Warren E. Burger: We will resume at 10 o’clock tomorrow morning.
Argument of Samuel H. Sloan
Chief Justice Warren E. Burger: We will continue the arguments in Securities and Exchange Commission against Sloan.
Mr. Sloan you may continue whenever you are ready.
Mr. Samuel H. Sloan: Mr. Chief Justice and may it please the Court.
I wish to bring the attention of the Court to a small factual matter which came to my attention yesterday.
You mentioned 36 trading suspension orders and the source of this is because on Page 122 of the Appendix, there is a list of orders and there was a typographical error and that the SEC when they copied my original petition left out, the December 25, 1975 order.
Chief Justice Warren E. Burger: The question I think Mr. Sloan was a purely hypothetical right, asking whether if 36 consecutive 10-day orders were entered.
Mr. Samuel H. Sloan: Yes, but I did discover that there are 36 listed here and in fact they were 37, because there is a typographical error in their Appendix.
Chief Justice Warren E. Burger: But my hypothetical was deliberate in one last order to make it hypothetical.
Mr. Samuel H. Sloan: Okay, for whatever reason I did notice that -- in the original record, I do have the December 25 date in my petition I were to file to the Court of Appeals which has been transmitted to this Court.
However, on the subject of the record I also wish to bring to the attention of this Court the fact that the SEC has refused to permit the record as it was, in the State it was, before the Court of Appeals to be transmitted to this Court.
I mentioned this in my brief, and it is now a matter which is pending before the Court of Appeals because I filed a motion in the Court of Appeals to require that the SEC to certify the full record to the Court of Appeals and that matter is now pending.
I have also explained what happened in some detail in a letter which I wrote to this Court, but he has advised me that he will not distribute it at this late date.
What essentially happened was that after the Court of Appeals made its decision, the Court of Appeals sent the record back to the SEC which is its normal practice.
When this Court granted certiorari, the SEC was directed or requested to send the record back to the Court of Appeals, so it could be transmitted to this Court, but what it did, was it switched the record, so that the record that was sent back to the Court of Appeals was not the record, which the Court of Appeals had returned to the SEC and the Court of Appeals does not appraise to this fact.
So that the record which this Court has consist of memorandums dealing with trading suspension orders.
I have no objection to this Court reading these memorandums, but the fact remains that they were not filed in the Court of Appeals.
All that was filed in the Court of Appeals was a certified list.
The record which has not been transmitted to this Court, concerns the record of the administrative proceedings against me which was a part of the record in the consolidated case when these two cases were before the Court of Appeals.
The SEC says that that record is not pertinent to the issues involved in this appeal and therefore they will not transmit that record to the Court of Appeals for certification to this Court, even though they have been requested by the Court to the Court of Appeals to do so.
So right now we have a situation because I happen to feel that that record is pertinent to the question of mootness which the SEC has raised particularly with regard to certain points which were discussed yesterday.
Justice Potter Stewart: I thought the Court raised the question of mootness.
Mr. Samuel H. Sloan: Well, the SEC has always said that this case was moot right from the very beginning.
Justice Potter Stewart: But did not the Court ask the parties to brief the question of mootness?
Mr. Samuel H. Sloan: Oh! Yes, they did, but the SEC was briefing the question of mootness already.
Now this Court to the case of Weinstein versus Bradford, for example, which was discussed yesterday.
It is true that the trading suspension orders have expired.
However, at the present time there is an order currently outstanding which is a lifetime bar against me from being associated with the securities dealer.
I believe that I can show through the record which the SEC has refused to transmit that this lifetime bar was based in part on successive trading suspension orders which the Court of Appeals declared to be illegal.
Justice Thurgood Marshall: Was that order before the Court of Appeals?
Mr. Samuel H. Sloan: Yes, it was because there were two cases before Court of Appeals.
The Court of Appeals consolidated both cases, the record is combined.
Justice Thurgood Marshall: But, Why is that the Court of Appeals did not mention?
Mr. Samuel H. Sloan: Did not mention what?
Justice Thurgood Marshall: That what you are talking about.
Mr. Samuel H. Sloan: Oh! It was prior the same decision.
The decision in the Court of Appeals discussed two different cases, but they were consolidated.
This Court when it granted certiorari only agreed to review the issues pertaining to one of the cases, but nevertheless I claimed that the record of both cases, since it was a consolidated case, it should be here, and I should be allowed to cite documents in the record of the other case which I think demonstrate that this case is not moot in my presentation.
Justice William H. Rehnquist: Is it your contention then Mr. Sloan that the SEC relied on a number of factors in issuing its lifetime bar order against you and one of them was this 10-day order and therefore it is at least conceivable that if this 10-day order were found to be invalid they might not have entered the same lifetime bar order against you?
Mr. Samuel H. Sloan: Yes, what my contention is precisely is that the SEC when they issued successive 10-day suspension orders, deducted from my net capital certain securities which were it failed to deliver.
Then they found me retroactively in violation to the Net Capital Rule, and on the basis of these findings that was in violation in Net Capital Rule, they then barred me from the securities business.
If these 10-day suspension orders were illegal on the first place, I would say that they cannot rely on them to make net capital deductions and therefore the order which barred me for life in the securities business, is invalid.
There is --
Justice William H. Rehnquist: What is the tie in between the 10-day suspension and the net capital deduction?
Mr. Samuel H. Sloan: Yes, because the SEC has released Securities Exchange Act release 10209, which states that if a broker is short a security which is suspended from trading by the SEC, he is required to deduct from his net capital the fails to deliver in suspended securities, and I in fact was short at the time in the successive suspension order at a number of occasions, and they deducted the fails to deliver in suspended securities.
Therefore it seems to me reasonable that if those orders were illegal they cannot rely on them to bar me from the securities business.
I have not reached that point in this case, I do not know if this Court affirms the decision it may be that there would be further proceedings and I lose on that particular point, but it seems to me that I have the right to make this showing that they did in fact rely on successive trading suspension orders to bar me from the securities business.
Justice William H. Rehnquist: As an argument against mootness?
Mr. Samuel H. Sloan: As in argument against mootness, this is precisely the point because I am here arguing the question of mootness.
Unknown Speaker: But Mr. Sloan what was the present status of the bar against your-- is that involved in some litigation?
Mr. Samuel H. Sloan: I know, there is no proceedings at all.
The SEC claims that the Commission has --
Unknown Speaker: But, have you attacked anywhere this bar against your engaging in the securities business?
Mr. Samuel H. Sloan: Well, it was the prior decision against the Court of Appeals.
I have not instituted any further proceedings for the reason that the SEC staff claims that as long as the case is pending in the courts, the SEC itself has no jurisdiction to review the matter because the Court of Appeals required exclusive jurisdiction with the filing of the record.
I disagree with their contention, but as long as they are going to make it --
Unknown Speaker: Well, does a challenge to the validity of that order is whether or not there shall be one which will or will not turn on the result of this case?
Mr. Samuel H. Sloan: It may turn on the result of this case, I feel that.
Unknown Speaker: And that is why you suggest there is no mootness.
Mr. Samuel H. Sloan: That is right.
Unknown Speaker: Well, why is not the issue of that order close matter, you did not bring, you have not brought that case here.
Mr. Samuel H. Sloan: Well, I did bring the case here but you denied certiorari on that case.
Unknown Speaker: Well, so it is over.
Mr. Samuel H. Sloan: It is over, but nevertheless if this Court finds that the SEC acted illegally in issuing successive trading suspension orders -- I think I can go back to the Securities and Exchange Commission in the first instance and reopen it, that would be the place I would go to with that particular claim.
And that is why I feel it is critical to have the record here so that the Judges to this Court can look at the record and see that in fact they did deduct from my net capital certain sums in money based on successive trading suspension orders.
Now, I will point it out that because of the continuing policy of the SEC, this case has been going on for a long time.
The specific orders which the Court of Appeals vacated were not themselves used by the SEC as a basis because by the time, this case got in the Court -- this is a third suit I brought -- by the time this case got before the Court of Appeals, it was too late to challenge those suspension orders because there is a 60-day limitation in Section 25 (a) of the Securities Exchange Act.
Nevertheless the decision of the Court of Appeals makes it clear, I now believe, that if you will affirm that decision it will be cleared that all these were illegal that they have been issuing over the past 33 years, and this would give me a basis for going back to the Securities and Exchange Commission and asking them to reopen the procedure.
Justice Thurgood Marshall: It would also a destroy or denials assret in the other one.
Mr. Samuel H. Sloan: No, this is a new proceeding, and if I go back to the Commission and start a whole new proceeding --
Justice Thurgood Marshall: But you do understand that that other case is not before us.
Mr. Samuel H. Sloan: I understand that you did not grant certiorari in those issues.
Justice Thurgood Marshall: Do you understand that the other case is not before us.
Mr. Samuel H. Sloan: No, I do not Your Honor, because --
Justice Thurgood Marshall: Well, let me tell you, it is not.
Will that up you?
Mr. Samuel H. Sloan: Well, but --
Justice Thurgood Marshall: Could you argue on that assumption that I might possibly be right?
Mr. Samuel H. Sloan: Well, I am going to agree that you might possibly be right, but I am not going to concede that.
Justice Thurgood Marshall: Do that for a minute now, in argument what we have got.
Mr. Samuel H. Sloan: Yes.
Justice Thurgood Marshall: We have got the opinion of the Court of Appeals.
Mr. Samuel H. Sloan: Yes, but you do have --
Justice Thurgood Marshall: Jedge Gendison's (ph) opinion.
That is all we have.
Mr. Samuel H. Sloan: You do have the case before you, even though my petition was denied, and their petition in the same case was granted.
I do not think a Court's jurisdiction is limited.
I do not expect the Court to decide anything about that case, but I do not think the Court's jurisdiction is limited to specific points the SEC has raised.
Justice Thurgood Marshall: Well, you would not assume that I might be right?
Mr. Samuel H. Sloan: Oh! No, I will assume that you might be right.
I said I do not expect this Court to do anything with regard to that matter.
I just said that only issue of mootness, which I am briefing and arguing is that I can demonstrate that the case is not moot through the record.
I do not know what is going to happen if the Court of Appeals grants my motion the SEC transmits record to the Court of Appeals and that arrives here a month from now or so.
It seems to me this is a very undesirable situation to be in.
Justice William H. Rehnquist: Well, may I suggest that if the time was granted, you might get on to the merits.
Mr. Samuel H. Sloan: Now, in the -- yesterday the SEC gave three reasons for the trading suspension and they said that this suspension was of this length because there were three different things going on and this is the reason why they had let it for so long, and one was - market manipulation, two was - a change in management, three was - a late 10 (k) filing.
I want to address the facts which are in the record with regard to these three merits.
The change in management took place at a meeting of the Board of Directors of Canadian Javelin Ltd on March 06, 1976.
At that time a group headed by William Wismer throughout the Doyle Group, throughout the management of Canadian Javelin Ltd., fired Mr. Doyle personally.
This is reflected in the March 26 memo which is on Page 104-105 of the Appendix.
The 10 (k) delinquency which is another reason cited by the SEC occurred on March 31, 1976 and this can be seen from Page 110 of the Appendix.
So prior to March 6, there were 32 suspension orders, prior to March 31, there were 34 suspension orders, this means that the SEC suspended trading for 31 times because of the market manipulation, for two more times because of the change in management, and for another three times because of the lateness in the 10 (k) filing.
The SEC also referred to a fugitive from Justice yesterday in the argument that they presented.
However, on March 6, 1976 Mr. Doyle who is a notorious fugitive from Justice, who they are referring to, was thrown out of the company, he was fired personally, and the SEC claims that they suspended trading for that reason.
On July 30, 1976, after the suspension was listed, there was a court order to special meeting of directors, special meeting of stockholder, which I intended, in Montreal which is also discussed in the record because a copy of the Judge's order is here.
Holding a special action and at that point Doyle got back into management and through the Wismer Group out.
So, now we have a situation where an individual, a Toronto attorney became the President of Canadian Javelin Ltd.
At that point the SEC says, it suspends trading; three months later when the fugitive from Justice gets back and control over the company, they do not suspend trading and I point this out because I think this demonstrate really that reason that it is a fiction.
In addition to that Mr. Justice Powell yesterday raised the question of whether a cooperation has the right to protest, to come in and ask for hearing to protest a trading suspension?
Ironically it is reported in the Wall Street Journal that at the time of May 02, 1976 lifting the trading suspension management of Canadian Javelin Ltd petitioned the SEC to continue the trading suspension, and incidentally also, the earlier trading suspension which was terminated in January 1975, the management of Canadian Javelin again requested, a different management requested that the SEC continued a trading suspension and filed a motion and obtained the stay in the District Court.
This illustrates a point that very often the cooperation itself does not want a trading suspension, even though it is to the detriment of its own stockholders, because the corporate management for their own personal reasons may desire that trading not take place.
Now in the matter of the 10 (k), this 10 (k) report became delinquent on March 31, 1976, as the records state.
I have not known of any case the SEC often suspends its trading because 10 (k) delinquency, but they do not suspend on the day that the 10 (k) became delinquent, and they do not suspend even two months later because the trading suspension here was lifted on May 02.
Justice Byron R. White: Do you challenge, I think that you challenge solely the right of SEC to issue more than one suspension.
Mr. Samuel H. Sloan: Yes, that is correct.
That is --
Justice Byron R. White: And why do you do?
Mr. Samuel H. Sloan: Well, because they did say, yesterday that these were the reasons that they suspended trading, and I want to show that there was no rational basis for this.
What they have done is make a --
Justice Byron R. White: What if there had been, what if there had been.
I thought your view was that without a hearing or without some further proceeding they just could not grant more than one 10-day suspension.
Mr. Samuel H. Sloan: Yes, I do feel that.
That is a point which I thought might be raised when I went into discussion of this, but --
Justice Byron R. White: Well, that is what the Court of Appeals held, doesn't it?
Mr. Samuel H. Sloan: Yes, that is what the Court of Appeals held.
I just wanted to show that the there is not any rational basis for the --
Justice William H. Rehnquist: Do you concede there or don't you that there are circumstances under which they would issue more than one 10-day inconsecutive suspension?
Mr. Samuel H. Sloan: No, I do not make that concession.
As the amicus does make that concession, I do not because I do not believe that the SEC can be allowed particularly when they do not issue reasons for the trading suspensions.
Therefore when they say that we are issuing a new suspension because we have a new reason for the suspension, and they have not said that in this case, but if they said that something simply new and differnt here as a reason.
What happened is --
Justice Byron R. White: What if it was the same old thing?
Mr. Samuel H. Sloan: Well, I think if it was the same old thing, it clearly would be prohibited by the statute, and I am saying even if it was for a different reason, it would also be prohibited.
When Congress originally passed the permission in 1934, there Section 19 (a) had had four provisions – 1, 2, 3 and 4, Sections 19 (a) (1), (2) and (3) all required the SEC to give notice and the opportunity for hearing.
Only Section 19 (a) (4) allowed the SEC to act similarly without notice and the opportunity for hearing, and both the House and Senate report stated in 1934 that they did not require the SEC to give notice and opportunity for hearing because this was a summary power to be exercised in emergency situation.
Unknown Speaker: Was this an argument that the statute authorizes only one single 10-day suspension?
Mr. Samuel H. Sloan: That is correct.
Justice William H. Rehnquist: And if they want another one, they have to give notice and hearing.
Mr. Samuel H. Sloan: Well, that would be under (Inaudible) Section 12 (j) they could after --
Justice William H. Rehnquist: All of their authority under (4) is exhausted at one suspension.
Mr. Samuel H. Sloan: That is right.
There had been some instances this year in which the SEC on three separate occasions, but not successive, has suspended trading in Penn Central Transportation Company and a number of subsidiaries.
Unknown Speaker: Now, Mr. Sloan do you concede that the SEC would have power under 12 (k) to issue a 10-day suspension of trading, let us say, in January?
Mr. Samuel H. Sloan: Right.
Unknown Speaker: And then again to issue a 10-day suspension of trading under 10 (k) in March?
Mr. Samuel H. Sloan: Yes, I would agree as a statute has written it does.
Unknown Speaker: For the same reason?
Mr. Samuel H. Sloan: Yes it does permit that.
Unknown Speaker: Well, could it not issue a 10-day suspension on trading on January 2, and then takes it to January 12, and then on the morning of January 13, to issue a 10-day suspension on trading?
Mr. Samuel H. Sloan: No, I do not believe that this is permitted.
Unknown Speaker: Why not?
What is the difference between January and March, and January 10, and January 12 , and January 13.
Mr. Samuel H. Sloan: Well, I think that this goes really to a matter of the intent of Congress.
Congress did not intend that the SEC particularly if it -- since it never issues reasons for strains, we do not know if it has new reason or a different reason --
Unknown Speaker: Well, your point is though - with good reasons or bad, with or without reasons, no matter how great the reason or how great the public interest that 12 (k) as a matter of the power of the Commission simply does not empower the Commission to issue a suspension of trading for longer than a 10-day period.
Mr. Samuel H. Sloan: That is correct.
Unknown Speaker: That is your basic position as I understand, am I right?
Mr. Samuel H. Sloan: Yes, you do sir.
Justice Thurgood Marshall: Well, what about the 1975 amendment, one year amendment?
Mr. Samuel H. Sloan: Well, Section 12 (j) which you are referring to is actually a renumbering, because it was formerly called Section 19 (a) (2), they moved it over the Section 12 (j).
The Commission has had the power since 1934 to suspend the registration of a security.
Now when they enacted 12 (j), they included a sentence which, in addition to renumbering, they include a sense which said that would be illegal for a broker, or dealer to buy or sell or to use the means of instrumentalities of interstate commerce to affect a transaction in the security whose registration has been suspended or revoked.
So that this makes it clear, although it was clear already that the SEC could after notice and a hearing suspend the registration which would also suspend the trading in the security under Section 12 (j), but they have always had this power since 1934.
Justice Thurgood Marshall: For one year.
Mr. Samuel H. Sloan: For up to one year.
Incidentally, I would like to mention that in this case there is --
Justice Thurgood Marshall: That is not involved in it.
Mr. Samuel H. Sloan: Well, they have an exercise that power under Section 12 (j) -- they have not provided notice and the hearing.
I would like to point out that in this particular case, the SEC suspended trading for 370 days, which is more than one year therefore they actually suspended trading for more time under Section 12 (k) without noticing the opportunity for hearing then they were permitted to suspend with notice and the opportunity for hearing under Section 12 (j).
So what they are saying is that they can suspend trading for a longer period of time without notice, indicating with notice, and I am sure that this could not possibly be what Congress intended.
Now, also yesterday Mr. Justice Powell asked whether the rollover proceedings are ex parte?
And of course of Commission says that this is not a rubber stamp procedure and the Commission very seriously considers the needs of investors and this of thing, but again although I do not want to go into the same track that I may have fallen and just a second ago, I think that the record demonstrates that the Commission not only is in the rubber stamp proceeding, but the Commission itself plays no part in the decision to suspend in this record of this case.
The first trading suspension is dated April 29, 1975.
The memorandum which they have submitted as to record of this trading suspension is a memorandum by the staff, dated May 02, 1975, three days later.
So that it is clear this is not a memorandum from the Commission, this is a memorandum from the staff and it explains the reasons for the trading suspension.
From this it is clear that the Commissioners themselves could not have received this memorandum at the time trading was suspended, and in fact since the suspension orders are not signed by the Commissioners, they do not bear the Commissioners' names, and we do not even know if the Commissioner is new.
The Commissioners may have been on vacation at some place, we do not even know that they were in Washington at the time, they therefore did not participate and perhaps they were read in newspaper said trading have been suspended in Canadian Javelin Ltd., but this is really about all.
It is quite clear that the Secretary of Commission is performing the ministerial task apparently at the direction of members of the staff and the Commissioners themselves are not involved.
Justice John Paul Stevens: Mr. Sloan let me ask you, what is your view of what the Commission's duty was ten days after the first order was entered, if they were persuaded there was market manipulation going on, but they did not have real solid proof of it?
What do you say they should have done?
Mr. Samuel H. Sloan: The market manipulation in this instance ended on February 12, 1975.
I have the indictment -- this is the information that was filed in Canada by the Canadian authorities and the last watched trade that took place which is alleged here the 406 counts watched trade, the last one took place on February 12, 1975.
And all of the trades alleged here are could on the Montreal or Vancouver stock exchanges.
Now, in a hypothetical situation of what if there is a market manipulation, I would say that a trading suspension order which holds trading for ten days is sufficient to bring to an end any market manipulation, because usually our market manipulators, they rely on certain things to keep the price up.
They have the park securities.
I was a broker dealer for five years and somehow I have some idea of what they do when they manipulate a stock, and when a trading suspension comes along -- [Laughter]
When a trading suspension comes along they suspend trading for ten days and that brings to an end any market manipulation.
When the stock opens for trading again any stock in margin accounts almost always very often is sold the people who they have got the stock clocked in with almost always have to get out those investigations involved.
The stock comes down and the manipulation is over and in practice.
And I think, it could be assumed that this would happen even in theory.
And I think that this is what Congress had in mind.
They said that this was an emergency power, they did not say that this was something that Commission could do for more than a year as in this case or for 13 years as in Continental Vending Machine case.
Justice John Paul Stevens: You do not suggest then that there should be some other legal proceeding or some other legal remedy that was available at the end of the ten days to perpetuate the suspension.
Mr. Samuel H. Sloan: The SEC already has a number of remedies - they have administrative remedies, they have injunctive remedies.
If there is some remedy, in addition to that the appropriate relief is for them to apply to Congress for this remedy.
Congress has given them Section 12 (j) and it stated in the Senate Report 1975 that this was intended to be exercised when they wanted to suspend trading for a period of extended duration.
Now they say this is insufficient because many companies are not registered because they do not have as much as a million dollars in assets, and 500 stockholders which is required by Section 12 (g) of the Securities and Exchange Act.
So they say, many securities are not registered therefore what is going to happen in a case of a security which is not registered, however we are going to stop trading in that.
And I think the answer is that Congress simply did not intend that they should be allowed to do this, because you must remember that there are many corporations which are technically, which are traded, which are small and which's public interest is simply not sufficient for the SEC to get involved.
Justice Byron R. White: Your answer to Justice Stevens is that, that under the statute there just is not any remedy provided to suspend the trading in the security for more than ten days even with the hearing.
Mr. Samuel H. Sloan: Summarily suspend trading.
Justice Byron R. White: Even with the hearing.
Mr. Samuel H. Sloan: No, we are talking about securities which are not registered.
Canadian Javelin is registered, so it does not apply in this case.
Justice Byron R. White: But I am -- that is true about non registered way.
Mr. Samuel H. Sloan: Right.
There are companies which are small corporations, they have less --
Justice Byron R. White: Well, now by answering my Brother Stevens' question then what should the SEC have done here with respect to a registered security, started a new proceeding?
Mr. Samuel H. Sloan: Well, with respect a registered security, they can start proceeding under 12 (j) with respect to a non registered security --
Justice Byron R. White: After notice and hearing.
Mr. Samuel H. Sloan: Yes, after notice and hearing.
Justice Byron R. White: So again the ten days issue had gone under 12.
Mr. Samuel H. Sloan: Right.
That is what they should have been in this case, but by the way in this case there was no issue or misconduct at least according to the indictment and according to the SEC's complaint against the Canadian, because the SEC filed a complaint in the Southern District of New York, but the defendants were Doyle and its cohorts, the Canadian Javelin Ltd. was not named as a defendant.
Similarly, in the information filed in Canada, Canadian Javelin Ltd. was not a defendant so there was no issuer misconduct, therefore Section 12 (j) could not have been invoked.
They make a big point of this, but I think the remedy is to go to Congress and ask for extended powers if that is what, what they need.
Thank you very much.
Chief Justice Warren E. Burger: Your time is expired Mr. Sloan.
Mr. Pitt -- your time has expired here.
Mr. Pitt you have three minutes left.
Argument of Harvey L. Pitt
Mr. Harvey L. Pitt: Thank you.
The only brief points I wish to make or that as Mr. Sloan conceived at the end of his submission, 12 (j) was inapplicable in this circumstance because the market manipulation which went on was not engaged in by the company and therefore issuer misconduct was not involved in 12 (j) was inapplicable that would have meant that there was no remedy whatsoever.
In addition to manipulation that we charged, was charged to have begun in the beginning of 1975 and continued right up to the date of the complaint.
It did not stop in February 1975 according to the charges in our allegation.
The last point --
Justice John Paul Stevens: Mr. Pitt is Mr. Sloan correct in telling us that the change of management and the late 10 (k) filings occurred in March 1976 so they really could not have justified the first 25 or 30 suspension orders.
Mr. Harvey L. Pitt: We learned about it late, about that time.
Justice John Paul Stevens: So that is your principal period of suspension.
Mr. Harvey L. Pitt: It was the manipulation.
Justice John Paul Stevens: It was the manipulation.
Mr. Harvey L. Pitt: That is correct.
Justice John Paul Stevens: Is it also correct that there was an order entered on Christmas that just did not get into the record?
Mr. Harvey L. Pitt: Apparently so.
Justice John Paul Stevens: That I think was given great deliberation on that day.
Mr. Harvey L. Pitt: There was deliberation with respect to each of these suspension orders as I indicated yesterday.
Unknown Speaker: By which part?
Mr. Harvey L. Pitt: By the Commission itself.
Unknown Speaker: All the Commissioner went to office and on (Inaudible).
Unknown Speaker: All the members.
Mr. Harvey L. Pitt: I do not recall the precise date, I would have to look that, but I do not recall the precise date of the order, but what happens is that each of the Commissioners must approve the trading suspension order.
It cannot be done by any other official.
Justice Thurgood Marshall: Done in writing?
Mr. Harvey L. Pitt: Pardon.
Justice Thurgood Marshall: Is that done in writing?
Mr. Harvey L. Pitt: There is a minute of the Commission entered; that is correct.
Justice Thurgood Marshall: Where is that?
Mr. Harvey L. Pitt: That is -- there is an official Commission minute record book that is kept in the agency.
Unknown Speaker: Would that have been for December 25?
Mr. Harvey L. Pitt: I do not know if that was.
I must confess I do not know if that was the precise date that that trading suspension order was entered.
What would have happened is that the order might have been ordered on the 25 formally, but the decision to enter that order would have been taken three or four days prior to that.
Unknown Speaker: I just want to be sure of this.
You are telling us that the full Commission, every member acts on a suspension order and personally signed something, is that it?
Mr. Harvey L. Pitt: A quorum of the Commission minimum of three of the five members, if some members are sick or out of town, they might not participate, but a minimum of three Commissioners must participate and their votes are recorded in an official minute.
If the matter is taken around seriatim --
Unknown Speaker: Yeah, but what do they have before them in the Act?
Mr. Harvey L. Pitt: They have a staff memorandum and the advice of their legal assistants, each Commissioner has a separate legal assistant.
Justice Lewis F. Powell: Do the minutes show the reasons for the roll over the suspension?
Mr. Harvey L. Pitt: Sometimes they might and many cases they would reflect --
Justice Lewis F. Powell: Does that o contain a typical minute?
Mr. Harvey L. Pitt: This record does not contain a typical minute.
Justice Lewis F. Powell: Nor any does it.
Mr. Harvey L. Pitt: No.
Justice Lewis F. Powell: It does not contain any minute.
Unknown Speaker: Or are there supporting papers in the file somewhere?
Mr. Harvey L. Pitt: Yes.
Unknown Speaker: So what was presented to the Commission?
Mr. Harvey L. Pitt: Yes, those are in the record, the staff recommendations and the information that was given to the Commission are in the reocrd.
Unknown Speaker: Why not the Commission's minute presented all the rest of it, say.
Mr. Harvey L. Pitt: I simply do not know why that was not put in the record below.
Justice Thurgood Marshall: But you say you did see the minutes that set on Christmas day, the Commission met.
Mr. Harvey L. Pitt: No, Your Honor.
The Commission did not meet on Christmas Day.
The period of the trading suspension commenced on Christmas Day.
The staff recommendation would have come up three or four days earlier at which point the Commission would have met.
The Commission probably took that action on December 21, or 22, to commence on December 25.
The Commission itself would not meet on Christmas Day.
Justice Lewis F. Powell: Do the minutes record any findings?
Mr. Harvey L. Pitt: The minutes indicate that the staff has made certain matters known to in general, and that the Commission has taken action because the public interest and the protection of investor was required.
Unknown Speaker: Were those minutes available to Mr. Sloan when he complains about what the SEC have done?
Mr. Harvey L. Pitt: I am simply unaware whether he requested them in this case or whether they were made available.
Unknown Speaker: Well, what is the policy of the Commission?
Mr. Harvey L. Pitt: The policy of the Commission is often to make its minutes available in Court litigation where they are requested, and under the Freedom of Information Act where they are requested.
Justice John Paul Stevens: Quite required from the Court litigation; normally you can see a court order without having litigation, is that the policy of the Commission?
Mr. Harvey L. Pitt: The Commission's minutes are made available under the Freedom of Information Act, unless they contain certain matters that might be exempt and they are --
Justice John Paul Stevens: That implies that they are not made available to Mr. Sloan --
Mr. Harvey L. Pitt: I think Mr. --
Justice John Paul Stevens: -- unless he proceeds under Freedom of Information Act.
Mr. Harvey L. Pitt: If Mr. Sloan makes a request to the Commission to seek Commission minutes and there is no exempt material in there and he would see the Commission's minutes.
Chief Justice Warren E. Burger: Did he get some of these memos that are in the record, did he gets some by supernal process or simple request?
Mr. Harvey L. Pitt: He did get, I think he requested them and we made them available as part of the record and he had them.
Chief Justice Warren E. Burger: Are you representing to us that had he requested the minutes, he would have got the minutes.
Mr. Harvey L. Pitt: I would have to know what was in the minutes?
The precise minutes of these particular actions to say whether there might have been excisions, but I think he would have gotten the minutes, yes.
Unknown Speaker: Suppose, you think there is manipulation in an unregistered security and you want to suspend trading and you look at the statute, says ten days, you suspend and you continue to suspend, what is that pending?
What other remedy, you cannot go on forever as longer you think there is manipulation?
Mr. Harvey L. Pitt: That is correct.
Unknown Speaker: What is that pending?
What are you trying to find, you are investigating, you have probable cause you think to believe what?
Mr. Harvey L. Pitt: To believe if we can go into court either get a preliminary injunction or --
Unknown Speaker: Under what section of the statute?
Mr. Harvey L. Pitt: Under Section 21 of the Securities Exchange Act.
Unknown Speaker: So there is a remedy that you can have.
Mr. Harvey L. Pitt: To stop the manipulation.
Unknown Speaker: Yes. So, there is a remedy.
You are not without remedy.
Mr. Harvey L. Pitt: We are not.
The remedy we lack if Mr. Sloan's interpretation of the 10-day suspension power is correct, is from the time we learn that there might be a manipulation to the time that we conclude there is one and can go to Court to stop it, under Mr. Sloan's theory, we would be compelled to allow the manipulation to take place.
Unknown Speaker: So that you can do it on your own until you can convince a Judge to give you a preliminary injunction.
Mr. Harvey L. Pitt: Until we can find out who did it?
And convince the Judge to enjoin.
Unknown Speaker: So without evidence you can do ex parte, but you have to have -- you really cannot --
Mr. Harvey L. Pitt: No, as I indicated yesterday I think that we could have used --
Unknown Speaker: Well, if it is ex parte you did not give Mr. Sloan notice of it.
Mr. Harvey L. Pitt: Mr. Sloan avail themselves of a procedure that is published in the Code of Federal Regulations to price the Commission of information.
Unknown Speaker: That does not (Inaudible) being ex parte, does it?
Mr. Harvey L. Pitt: No, it does not.
Justice Thurgood Marshall: Mr. Pitt, they did the general rule that one lawyer gets a temporary injunction or restraining order he thought he has undefined once he gets it. [Laughter]
And I am only afraid, if admit that is true, why would not that be true once you get a 10-day one that you can renew forever, why would not you be absent?
Mr. Harvey L. Pitt: First, we do not suggest that we can renew the suspension forever and I wish to stress that point.
Unknown Speaker: Only 370 days. [Laughter]
Mr. Harvey L. Pitt: In this particular case and although the Court did not find an abuse --
Unknown Speaker: What about the one that went 13 years that Mr. Sloan mentioned.
Mr. Harvey L. Pitt: The one that went on for 13 years was a bankruptcy proceeding and in which --
Unknown Speaker: Well, was this a series of 10-day suspension?
Mr. Harvey L. Pitt: There was a series of --
Unknown Speaker: For 13 years?
Mr. Harvey L. Pitt: There was a series of 10-day suspensions.
In that case we had specific request from Court appointed officers to suspend the trading and the Commission obliged the trustee and bankruptcy while a reorganization proceeding was effected.
Our present policy would not be to repeat that kind of activity.
Justice John Paul Stevens: Mr. Pitt, am I correct that the suspension order suspends trading in the stock by anyone whether involved a manipulation or not, now if you have got to go into Court you would proceed against the manipulators, you might get injunction against manipulation, but could you in court get injunction against trading by everyone?
Mr. Harvey L. Pitt: No, we could not.
Justice John Paul Stevens: So, really this is a broader remedy in its coverage than the remedy you can get in court with notice and hearing all the rest, isn't it?
Mr. Harvey L. Pitt: This is a broader remedy and it is solely a stopgap remedy, until we can stop the market forces that are disrupting an orderly market place.
Justice Potter Stewart: Stopgap.
Mr. Harvey L. Pitt: Stopgap.
That is correct.
Justice John Paul Stevens: May I ask one another question, is Mr. Sloan correct in saying the first suspension as I believe was on April 29, and the first memorandum then the Commission files explaining the reasons for the suspension or recommending it is May 02, is that correct?
Mr. Harvey L. Pitt: That is the first memorandum that is in the record, and I cannot be sure whether there was an earlier memorandum, but what often happens in response to that question is that the staff will come up on an emergency basis orally and advise the Commission that it has learned of certain facts and tell the Commission they, as in this case, had talked to Royal Canadian Mounted Police Authorities that they suspected a manipulation, and that there was a possible criminal indictment in Canada, and the Commission would, on the basis of that oral presentation, enter a suspension order.
Under the Sunshine Act, this is now in effect, those discussions would be recorded and there would be a tape recording to verify it.
That act was not in effect at the time that this occurred.
Chief Justice Warren E. Burger: Thank you gentleman.
The case is submitted.