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SEC May Order Permanent Bar from Securities Industry for Broker Who Churned Accounts
Description Appeals court upheld an order of the SEC that a securities professional, who willfully and recklessly churned the accounts of clients who requested conservative portfolios, be permanently barred from the industry. The courts reverse such decisions only if there is no statutory basis for them.
Topic Securities Law
Key Words Churning; Permanent Bar
C A S E   S U M M A R Y
Facts Rizek was a vice president of PaineWebber in Puerto Rico. In 1993 he churned the accounts of five customers, causing losses of about $200,000 on accounts with average balances of $700,000. The customers had all asked for conservative investment strategies; the opposite of what Rizek did. The SEC ordered that Rizek, in addition to paying a civil penalty of $100,000 and disgorge over $120,000 be permanently barred from the securities industry. The SEC administrative law judge had recommended a two-year suspension from the industry. Rizek appealed, contending that the permanent bar is arbitrary and capricious, is improperly punitive, and is not meant to protect the public.
Decision Affirmed. A sanction ordered by the SEC must be upheld unless the order is a "gross abuse of discretion." The SEC has the authority to order a permanent bar (which may be lifted) from the securities industry if it finds such a bar "is in the public interest." Rizek knew what he was doing when he churned the accounts in violation of the trust given him by his clients. He tried to conceal his activities from his firm. He acted willfully and recklessly. The SEC did not abuse its discretion.
Citation Rizek v. Securities and Exchange Commission, F.3d (2000 WL 768024, 1st Cir., 2000)

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