Rapoport v. Securities & Exchange Commission
682 F.3d 98
D.C. Cir.2012Background
- SEC issued an Order Instituting Proceedings against CI-Moscow, CI-New York, and Dan Rapoport for alleged violations of Section 15(a) of the Exchange Act.
- Allegations involved lack of registration/solicitation of US investors by CI-Moscow and Rapoport while in US-related roles.
- Service of the OIP on Russian respondents was effected via US counsel after permission under Rule 141(a)(2)(iv); Rapoport did not defend or respond.
- ALJ entered a July 31, 2009 Default Order imposing cease-and-desist, bar from association, accounting, and civil penalties; penalty later reduced on reconsideration.
- Rapoport's first Rule 155(b) motion to set aside was denied by the ALJ in March 2010; the Commission denied his subsequent motion in January 2011.
- Court grants petition, vacates the Commission’s order, and remands for further proceedings due to inconsistent Rule 155(b) application and timing mechanics.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| whether Rule 155(b) requires three factors | Rapoport argues three-factor test (willfulness, prejudice, meritorious defense) governs | SEC contends that it may set aside for good cause without applying those exact factors and can vary per rule | Rule 155(b) must be applied consistently with precedent; three-factor standard not rigidly required here |
| consistency of Rule 155(b) interpretation | SEC departed from precedent by failing to explain deviations in applying Rule 155(b) | SEC asserts its interpretation is proper and within discretion | SEC’s interpretation was inconsistent with its own precedent; remand required for reasoned explanation |
| timeliness/“reasonable time” to file motion to set aside | Clock start and duration for reasonable time were not clearly defined by the SEC | SEC considered multiple dates and determined delay was unreasonable | The timing standard is vague and indecisive in the SEC’s practice; remand for principled guidance |
| calculation of second-tier penalties | Penalty must be tied to number of violations/parties and proper parsing | ALJ applied maximum second-tier penalties per year without explicit parsing or justification | Second-tier penalties must be parsed and tied to actual violations; current calculation unsupported |
| adequacy of the sanctions analysis | OIP and ALJ’s analysis relied on conclusory allegations without sufficient justification | Commission believed sanctions were warranted given default and conduct | Sanctions analysis inadequate; require meaningful explanation; vacate and remand |
Key Cases Cited
- Chenery Corp. v. SEC, 332 U.S. 194 (Supreme Court 1947) (agency must articulate basis for action; cannot guess theory)
- Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519 (Supreme Court 1978) (agencies may tailor rules to their tasks and industry)
- FCC v. Schreiber, 381 U.S. 279 (Supreme Court 1965) (agency procedural rules may be tailored to regulatory context)
- Verizon Tele. Cos. v. FCC, 570 F.3d 294 (D.C. Cir. 2009) (need for principled, nonvague agency interpretations; remand when inconsistent)
- Rockies Fund, Inc. v. SEC, 428 F.3d 1088 (D.C. Cir. 2005) (SEC sanctions review requires meaningful explanation; deference is limited)