SEC v. Stanley Brooks , 664 F. App'x 654 ( 2016 )

FILED
NOT FOR PUBLICATION
NOV 15 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
U.S. SECURITIES & EXCHANGE No. 15-55046
COMMISSION,
D.C. No.
Plaintiff-Appellee, 8:09-cv-01431-DOC-AN
v.
MEMORANDUM*
BROOKSTREET SECURITIES
CORPORATION,
Defendant,
and
STANLEY C. BROOKS,
Defendant-Appellant.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Submitted November 9, 2016**
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: O’SCANNLAIN, FERNANDEZ, and RAWLINSON, Circuit Judges.
Stanley C. Brooks challenges the district court’s judgment, imposing a $5.88
million civil penalty against him pursuant to § 21(d)(3)(A) of the Securities
Exchange Act (“the Act”), 15 U.S.C. § 78(d)(3)(A). As the parties are well aware
of the facts, we do not reiterate them here.
I
Brooks contends that the district court abused its discretion by failing to
consider a list of factors allegedly relevant to determining the appropriate
magnitude of civil penalties.1 However, the district court’s analysis already
incorporates most of the factors listed by Brooks. Furthermore, its decision not to
consider factors such as proportionality to illicit gain, proportionality to penalties
imposed on other violators, and Brooks’ ability to pay does not render its
1
Brooks did not waive such argument by failing to raise it during his initial
appeal. This is “not a new claim . . . but a new argument to support what has been
his consistent claim” that the district court abused its discretion by awarding an
oversized penalty. Lebron v. National R.R. Passenger Corp., 513 U.S. 374, 379
(1995).
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calculation “beyond the pale of reasonable justification under the circumstances.”2
Harman v. Apfel, 211 F.3d 1172, 1175 (9th Cir. 2000).
Brooks also asserts that the district court abused its discretion by drawing
improper factual inferences against him on issues such as what he did wrong,
whether his infractions were recurrent, and whether he accepted responsibility.
However, these factual matters were decided during a prior appeal. S.E.C. v.
Brookstreet Sec. Corp., 584 F. App’x 689, 690–91 (9th Cir. 2014). “When a case
has been once decided by this court on appeal, and remanded to the [district court],
whatever was before this court, and disposed of by its decree, is considered as
finally settled.” United States v. Thrasher, 483 F.3d 977, 981 (9th Cir. 2007)
(internal quotation marks omitted).
II
Next, Brooks contends that the civil penalty violates the Excessive Fines
Clause of the Eighth Amendment. However, such argument fails because $5.88
2
Nothing in the Act requires courts to impose penalties based on a
wrongdoer’s illicit gain or ability to pay. In fact, at the time of Brooks’ infractions,
courts had discretion to impose a civil penalty per violation up to the greater of
$120,000 or the gross amount of pecuniary gain. 15 U.S.C. § 78u(d)(3)(B)(iii); 17
C.F.R. pt. 201, subpt. E, tbl. 2. Furthermore, we eschew evaluating penalties in
light of awards against other defendants because doing so inappropriately “pushes
the decision toward a mathematical bright-line.” Swinton v. Potomac Corp., 270
F.3d 794, 819 (9th Cir. 2001).
3
million is not “grossly disproportional” to the gravity of his violation. United
States v. Bajakajian, 524 U.S. 321, 336–37 (1998).
This court generally considers four factors when weighing the gravity of a
violation: (1) the nature and extent of the violation, (2) whether the violation was
related to other illegal activities, (3) the penalties that may be imposed for the
violation, and (4) the extent of the harm caused. U.S. v. $100,348.00 in U.S.
Currency, 354 F.3d 1110, 1122 (9th Cir. 2004). Assessment of these factors
indicates the violation in question is severe.
We have already identified Brooks’s actions as “particularly egregious.”
Brookstreet, 584 F. App’x at 691. Further, Brooks has been sanctioned numerous
times by state securities regulators and the Financial Industry Regulatory Authority
as a result of failures to supervise and to establish supervisory procedures.
The penalties that may be imposed for Brooks’s actions highlight their
serious nature. United States v. Beecroft, 825 F.3d 991, 1001 (9th Cir. 2016).
Brooks’s claim that his acts are less blameworthy because he is a controlling
person rather than a primary violator is unavailing because § 20(a) of the Exchange
Act explicitly provides that the two are equally liable. 15 U.S.C. § 78t(a).
“[J]udgments about the appropriate punishment for an offense belong in the first
4
instance to the legislature,” and $5.88 million is a permissible civil penalty for
Brooks’s actions under this statutory scheme. Bajakajian, 524 U.S. at 336.
The extent of the harm caused is also grave. The undisputed record indicates
that retail customers invested $300 million in the collateralized mortgage
obligation (“CMO”) program and that many of them experienced damages so
staggering that they lost their homes, ability to retire, or ability to stay retired. A
conservative assessment of evidence from the limited summary judgment record
indicates that losses sustained by six of the forty-nine victims equals at least $2
million.
A $5.88 million penalty is not grossly disproportionate to this serious
violation. Even if we assume that the CMO program caused only $2 million in
damages, a penalty less than three times this figure is not unconstitutionally
excessive. See, e.g., State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 425
(2003) (suggesting that punitive damages more than four times the amount of
compensatory damages might be close to the line of constitutional impropriety
under the Due Process Clause, which itself prohibits grossly excessive monetary
penalties).
III
5
Brooks raises other issues for the first time on this appeal, but “[w]e need
not and do not consider a new contention that could have been but was not raised
on the prior appeal.” Munoz v. County of Imperial, 667 F.2d 811, 817 (9th Cir.
1982).
The judgment of the District Court is
AFFIRMED.
6