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Court Blocks Retroactive Penalty From the SEC

(CN) - The Securities and Exchange Commission cannot retroactively ban non-attorneys who have previously been barred from the securities industry from representing clients in securities-related arbitration, the 9th Circuit ruled Tuesday.

The federal appeals court in San Francisco granted Richard Sacks' petition to review a rule proposed by the Financial Industry Regulatory Authority and adopted by the SEC in 2007. Sacks, who was banned from the industry in 1991, has since represented more than 1,300 clients in securities-related arbitration, according to the ruling. Sacks argued that the regulation would put him out of a job and add an additional punishment, nearly 20 years after his alleged missteps, according to the ruling.

Arguing that laws with retroactive effects are, according to case law, generally unfair, and that a rejection of such effects has long been the norm in American jurisprudence, the three-judge panel ruled for Sacks.

The panel found that Sacks' case was nearly identical to the circuit's 1999 ruling in Koch v. SEC, in which the court found that the commission's Securities Enforcement Remedies and Penny Stock Reform Act of 1990 could not be applied retroactively.

"Like Koch, Sacks was barred by the SEC from engaging in certain securities-related activities," Judge Sidney Thomas wrote for the panel. "And, like Koch, Sacks was confronted with the consequences of a new statute or regulation as a result of prior misconduct - the new rule here bars Sacks, like Koch, from participating in a securities-related activity in which he had previously been allowed to participate. Based on the reasoning in Koch, as well as the 'deeply rooted' 'presumption against retroactivity,' we hold that the rule here cannot be applied retroactively."


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