Securities Regulation Daily No review of SEC decision for petition filed in the wrong court
Tuesday, April 28, 2020

No review of SEC decision for petition filed in the wrong court

By Amy Leisinger, J.D.

Filing a petition for review in a state court that "clearly lacks jurisdiction" over the petition does not toll the filing deadline in federal court.

The U.S. Court of Appeals for the District of Columbia Circuit has denied a petition for review of an SEC administrative order sanctioning a broker-dealer for antifraud violations originally filed in the District of Columbia Court of Appeals. According to the appellate panel, even assuming a violation of a non-mandatory claims processing rule, the appellant failed to demonstrate entitlement to equitable tolling. No extraordinary circumstance prevented him from timely filing in the federal appellate court, and he is not entitled to equitable tolling, the panel stated (Young v. SEC, April 28, 2020, Wilkins, R.).

Misconduct. From 2006 to 2009, Bernerd Young was the CCO at Stanford Group, an affiliate of a network of companies referred to as the Stanford Financial Group. Stanford Group was a dually registered investment adviser and broker-dealer that heavily marketed to U.S. investors certificates of deposit issued by another affiliate. The CDs, which accounted for approximately 55 percent of the firm’s revenues, were part of an alleged Ponzi scheme.

SEC findings. Rejecting Young’s claim that he was deprived of access to key documents, the Commission left intact an administrative law judge’s initial decision finding that he violated the antifraud provisions by negligently failing to conduct reasonable diligence in investigating the CDs and approving Stanford Group’s use of materials misrepresenting material facts regarding the liquidity of the underlying investment portfolio. The SEC noted Young’s "lack of remorse" and his "hostility and indifference" to regulators. As a result, the Commission imposed a cease-and-desist order and wide-ranging industry bars. The Commission also ordered Young to pay disgorgement of nearly $600,000 and imposed a $260,000 civil money penalty.

Young appealed the ruling to the D.C. Court of Appeals, but upon realizing the misfiling, he refiled it in the D.C. Circuit Court of Appeals—one day too late.

Jurisdiction and limitations period. The circuit court requested briefs on the issue, and amici argued that, because Young’s petition complied with every requirement except for the place of filing, his petition, in effect, was filed in compliance the deadline. However, the appellate panel noted, the cases the briefs relied on speak to petitions timely filed in the correct court but with a technical defect.

"[Young] did not timely file a petition in our court at all," the panel stated.

The court noted that filing deadlines fall into one of three categories: jurisdictional deadlines, mandatory claims-processing deadlines, and non-mandatory claims-processing deadlines (which are subject to equitable tolling and flexible). However, according to the panel, Young could not demonstrated entitlement to equitable tolling.

"Every circuit that has considered the question before us has held that filing an action in a state court or federal agency that clearly lacks jurisdiction over the action does not toll the time for filing in federal court," the panel stated.

When a litigant reasonably believes that another court possesses concurrent jurisdiction over a federal claim, courts will toll the limitations period from the time of filing of the state action, the panel stated. However, there was not a reasonable basis for Young to believe that the D.C. Court of Appeals possessed concurrent jurisdiction over a petition for review of an SEC order, the panel concluded.

Because no extraordinary circumstances beyond Young’s control prevented timely filing of his petition for review with the D.C. Circuit Court of Appeals, the panel found no entitlement to equitable tolling and dismissed the petition for review.

The case is No. 16-1149.

Attorneys: Bernerd E. Young, pro se. Dina B. Mishra for the SEC.

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