Sharemaster v. U.S. Securities & Exchange Commission
847 F.3d 1059
9th Cir.2017Background
- Sharemaster, a small FINRA-member broker-dealer, filed a 2009 annual report using a non-PCAOB-registered accountant after concluding it qualified for an exemption; FINRA rejected the report and suspended Sharemaster in an expedited proceeding.
- A FINRA hearing panel found a violation and ordered Sharemaster suspended until a compliant report was filed and assessed $1,785 in costs (stated as including a $750 administrative fee and hearing-transcript costs).
- Because the sanction came from an expedited proceeding, it was not automatically stayed; Sharemaster quickly filed a compliant report and FINRA lifted the suspension months later. Sharemaster then sought SEC review under Exchange Act § 19(d)(2).
- The SEC dismissed the application, adopting a rule (the “live-sanction” requirement) that it will only review final disciplinary sanctions that remain "live" (i.e., coercive or capable of redress at time of review).
- Sharemaster petitioned for judicial review in the Ninth Circuit, arguing the SEC misinterpreted § 19(d)(2) and, alternatively, that the FINRA monetary assessment preserved a live controversy. The Ninth Circuit granted relief in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC interpretation that it may review only “live” final disciplinary sanctions under § 19(d)(2) is lawful | SEC must review “any final disciplinary sanction” without a live-sanction requirement | SEC’s live-sanction reading is permissible; avoids advisory review and conserves resources | Court: Chevron deference applies; SEC’s live-sanction interpretation is reasonable and entitled to deference |
| Whether SEC unreasonably applied the live-sanction rule to Sharemaster because sanctions were moot after suspension lifted | The $1,000 portion of FINRA’s $1,785 assessment was a fine/penalty that remained unpaid and thus is a live, redressable sanction | SEC found the $1,785 were costs (administrative fee + transcript); even if part were a fine, SEC thought it lacked authority to order repayment | Court: SEC unreasonably concluded no live sanction here — record supports that $1,000 was a penalty/fine subject to set‑aside/remission under § 19(e), so jurisdiction exists; remand to SEC |
| Whether SEC may order disgorgement or monetary relief when setting aside SRO fines | Sharemaster sought remission/set‑aside of the monetary assessment if it prevails | SEC suggested it lacked authority to ‘‘repay’’ monetary assessments | Court: § 19(e)(1)–(2) authorizes the SEC to set aside, cancel, reduce, or require remission of sanctions, including monetary ones; monetary relief is within SEC remedial power |
| Whether Sharemaster waived the argument about the $1,000 assessment by not raising it on appeal | Sharemaster raised the issue before the SEC; failure to articulate it on appeal risks waiver | Government argued waiver based on appellate briefing rules | Court: Made exception to waiver rules (pro se, issue litigated below, SEC addressed it, supplemental briefing requested); considered the $1,000 issue on the merits |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (agency interpretations receive deference when statute ambiguous) (Chevron framework)
- City of Arlington v. FCC, 569 U.S. 290 (2013) (agency interpretations of statutes it administers receive Chevron analysis)
- SEC v. Hickey, 322 F.3d 1123 (9th Cir. 2003) (purging contempt renders controversy moot — used by SEC analogically for coercive sanctions)
- Campbell-Ewald Co. v. Gomez, 577 U.S. 153 (2016) (a concrete interest, however small, can prevent mootness)
- Nw. Res. Info. Ctr. v. Nat’l Marine Fisheries Serv., 56 F.3d 1060 (9th Cir. 1995) (agency controversies are not moot where agency action can be undone)