Wiley v. Securities & Exchange Commission
663 F. App'x 353
| 5th Cir. | 2016Background
- Wiley was an independent insurance agent affiliated with Farmers and associated with a FINRA member firm; he used Farmers’ ACA system to record customer premium payments and had a Farmers co-banking account for remitting those premiums.
- Farmers’ Agent’s Guide and ACA Manual required agents to deposit ACA-reported premium collections into the co-banking account within one business day after closing an ACA entry.
- From March–April 2011 Wiley recorded $7,703.06 in ACA payments but failed to deposit $6,532.70 into the co-banking account, instead using funds for business and personal expenses.
- Farmers’ audit found the shortfall; Wiley signed a statement admitting use of customer payments for personal/business expenses and was terminated by Farmers.
- FINRA charged Wiley with conversion (FINRA Rule 2010) and making false statements in response to a Rule 8210 inquiry; a FINRA panel, the NAC, and the SEC all sustained the findings and barred Wiley from associating with a FINRA member.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC/FINRA lacked jurisdiction under McCarran-Ferguson | Wiley: Exchange Act/FINRA cannot regulate conduct that is solely the business of insurance | SEC/FINRA: Wiley’s acts (misuse of collected premiums) are not the business of insurance and fall within securities/SRO oversight | Court: Wiley’s acts are not the business of insurance; McCarran-Ferguson defense fails |
| Whether SEC exceeded authority by interpreting private contract rights | Wiley: SEC/FINRA improperly interpreted private contractual obligations | SEC: Securities regulation necessarily interprets contractual terms; violation rests on contractual deposit requirement and conversion | Court: SEC acted within jurisdiction; contractual interpretation appropriate |
| Whether evidence supports findings of conversion and false statement | Wiley: Manuals are recommendations; evidence insufficient; Texas law should control | SEC/FINRA: Manuals require one-day deposits; Wiley admitted personal use; his on-the-record denial contradicted admissions | Court: Substantial evidence supports conversion and false-statement findings |
| Whether Wiley’s due process/equal protection rights were violated | Wiley: Selective/arbitrary enforcement and denial of opportunity to be heard | SEC/FINRA: Proceedings afforded standard notice and hearings; no evidence of discriminatory motive | Court: No proof of selective prosecution or denial of hearing; arguments fail |
Key Cases Cited
- Meadows v. SEC, 119 F.3d 1219 (5th Cir. 1997) (standard for appellate review of SEC factual findings)
- Intercontinental Indus., Inc. v. Am. Stock Exch., 452 F.2d 935 (5th Cir. 1971) (deference to SEC interpretations of SRO rules if reasonable)
- SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (investment contract definition emphasizes that securities regulation often involves contract interpretation)
- Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982) (factors for determining what constitutes the "business of insurance")
- Sanger Ins. Agency v. HUB Int’l, Ltd., 802 F.3d 732 (5th Cir. 2015) (three-factor test for whether activity is part of the business of insurance)