MISCONDUCT – SEC free to enact state disciplinary rules based on its findings that a lawyer violated state discipline rules in his securities practice
In Altman v. Securities and Exchange Commission, D.C. Cir., No. 11-1067, 12/16/11, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the SEC may apply state disciplinary rules – suspending or disbarring a lawyer from practice before the commission when it finds a lawyer has violated said rules in the lawyer’s securities practice.
“[T]he Commission did not lack authority to act because of previous pronouncements that it would generally not do so without prior judicial or administrative findings of misconduct.”
The SEC sought to disbar a lawyer from practicing before the commission based on its findings that he tried to make a deal with another lawyer that included an offer for his client to present untruthful testimony in an SEC matter. The SEC charged that New York attorney Steven Altman engaged in unprofessional conduct while representing a commission witness. Altman, the court said, had been recorded purportedly negotiating a deal that would have benefited his client in exchange for not testifying before the commission or claiming not to remember certain things.
The SEC ultimately disbarred Altman from future practice before the commission, citing his “egregious” and “recurrent” misconduct. The commission relied on a finding by an administrative law judge that Altman violated three provisions of the former New York Code of Professional Responsibility: DR 1-102(A)(4) prohibiting dishonesty; DR 1-102(A)(5) prohibiting conduct prejudicial to the administration of justice, and DR 1-102(A)(7) prohibiting conduct adversely reflecting on a lawyer's fitness as a lawyer.
After exhausting remedies with the SEC, Altman petitioned the appellate court for review. The court upheld the commission's disciplinary authority and its decision to exercise that power against Altman. “The Commission has previously relied on external codes of professional conduct, including the ABA Canons of Professional Ethics, as a basis for disciplining attorneys under its rules,” observed Justice Rogers.
The court dismissed Altman's contention that the SEC's “exercise of authority absent prior disciplinary proceedings” implicated separation of powers concerns.
“The sanction imposed on Altman is limited to appearances before the Commission and has no effect either on his ability to practice law in New York State and to appear before any court, or on New York State's authority to discipline him,” wrote Justice Rogers for the court.
The SEC has long possessed the statutory power to discipline those who appear before it for engaging in improper professional conduct, under Section 4C of the Securities and Exchange Act of 1934, 15 U.S.C. §78d-3(a)(2). That authority is exercised through the SEC's Rule 102(e), the court noted.
The court also observed that the SEC had made clear in an administrative ruling Carter and Johnson, 47 S.E.C. 471 (Feb. 28, 1981) that it retains the authority to discipline securities lawyers for violating lawyer conduct rules.