SEC Cannot Order Former Rauscher Pierce Broker to Compensate Investors for Losses, Says Court

According to the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission cannot order former Rauscher Pierce Refsnes Inc. broker Michael Siegel to uphold an award of restitution to investors who sustained financial losses as a result of his alleged broker misconduct. Siegel worked as a general securities representative for the financial firm from October 1997 to June 1999.

In 2002, NASD’s Department of Enforcement charged Siegel with “selling” away and making inappropriate recommendations to certain investors. Specifically, the investors that the alleged violations involved are Dorothy and Barry Landry and Linda and Huntington Downer, who invested in World Environmental Technologies Inc. The NASD has accused Siegel of recommending that they invest in World ET without reasonable cause for why doing so would be appropriate for them. To discipline him, NASD ordered Siegel to serve two six-month suspensions. They also fined him $30,000.

While the NASD disciplinary committee did not order restitution, an NASD appeals panel did. He was told to pay $100,000 to the Landers and $303,000 to the Downers. Siegel appealed but the SEC affirmed the appeals panel’s decision.

Now, however, the appeals court is agreeing with Siegel that the SEC abused its discretion when it upheld the restitution awards because it did not properly assess the causes of the four investors’ losses. The court said there was no reasoned decision making to support the SEC’s judgment for why restitution is appropriate under NASD General Principal No. 5.

According to stockbroker fraud lawyer William Shepherd, “Most investors do not realize that securities regulators only ‘police’ the world of securities and rarely recover lost money for investors. State Securities Commissions and the SEC issue “tickets” and collect fines. The same is true for the Financial Industry Regulatory Authority (FINRA), despite spending millions of dollars to advertise themselves. In this case the SEC actually tried to force the broker to pay the losses, but the court said they could not. To recover losses an investor should hire a securities fraud attorney to seek damages. The chances for recovery are far better when working with an investment fraud law firm that specializes in securities claims.”

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Read the Opinion (PDF)


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