                                                                  FILED
                                                           United States Court of
                                PUBLISH                        Appeals
                                                               Tenth Circuit
               UNITED STATES COURT OF APPEALS
                                                                August 13, 2019
                       FOR THE TENTH CIRCUIT               Elisabeth A. Shumaker
                     _________________________________         Clerk of Court

DENNIS J. MALOUF,

       Petitioner,

v.                                                No. 16-9546

SECURITIES AND EXCHANGE
COMMISSION,

       Respondent.
                     _________________________________

                Petition for Review from an Order of the
                   Securities & Exchange Commission
                            (SEC No. 3-15918)
                    _________________________________

Kenneth F. Berg, Ulmer & Berne LLP, Chicago, Illinois (Alan M. Wolper
and Heidi E. VonderHeide with him on the briefs), for Petitioner.

Daniel Aguilar, Attorney, Appellate Staff, Civil Division, United States
Department of Justice, Washington, D.C. and Lisa Helvin, Senior Counsel,
Securities and Exchange Commission, Washington, D.C. (Chad A. Readler,
Acting Assistant Attorney General, Mark R. Freeman, Attorney, and Joshua
A. Salzman, Attorney, Appellate Staff, Civil Division, United States
Department of Justice, Washington, D.C.; Michael A. Conley, Solicitor,
and Dominick V. Freda, Assistant General Counsel, Securities and
Exchange Commission, Washington, D.C., with them on the briefs), for
Respondent.
                       _________________________________

Before BRISCOE, HARTZ, and BACHARACH, Circuit Judges.
                 _________________________________

BACHARACH, Circuit Judge.
               _________________________________
      Mr. Dennis Malouf occupied key roles at two firms. One of the firms

(UASNM, Inc.) offered investment advice; the other firm (a branch of

Raymond James Financial Services) served as a broker-dealer. Raymond

James viewed those dual roles as a conflict, so Mr. Malouf sold the

Raymond James branch. But the structure of the sale perpetuated the

conflict. Because Mr. Malouf did not disclose perpetuation of the conflict,

administrative officials sought sanctions against him for violating the

federal securities laws.

      An administrative law judge found that Mr. Malouf had violated the

Securities Exchange Act of 1934, the Securities Act of 1933, the

Investment Advisers Act of 1940, Rule 10b–5, and Rule 206(4)–1. Given

these findings, the judge imposed sanctions. The SEC affirmed these

findings and imposed additional sanctions, including disgorgement of

profits.

      Mr. Malouf appeals the SEC’s decision, and we affirm.

                                Background

I.    Mr. Malouf sells the Raymond James branch and uses that branch
      to execute trades for UASNM’s clients.

      In 2007, Raymond James became concerned about the conflict of

interest between (1) Mr. Malouf’s role at its branch office and (2) his role

at UASNM. These concerns led Raymond James to ask Mr. Malouf to

choose between the two roles. Mr. Malouf opted to remain at UASNM and

                                      2
sold his Raymond James branch to Mr. Maurice Lamonde for roughly $1.1

million, to be paid in installments based on the Raymond James branch’s

collection of securities-related fees. 1

      To facilitate the installment payments, Mr. Malouf routed bond

trades on behalf of his UASNM clients through the Raymond James branch.

This way, Mr. Lamonde would receive enough in commissions to allow him

to pay what he owed Mr. Malouf. 2

      While Mr. Malouf was routing bond trades to the Raymond James

branch, he regularly failed to seek competing bids for the trades. Mr.

Malouf conceded that he should have sought competing bids: UASNM’s

compliance procedures required firm personnel to solicit bids from three

different broker-dealers before placing a trade, and Mr. Malouf admitted




1
      The written agreement does not state a specific dollar figure for the
sale. The written agreement instead provides that Mr. Lamonde would pay
40% of securities-related fees that the Raymond James branch collected
over a four-year period. But Mr. Malouf testified that he and Mr. Lamonde
had agreed that upon payment of $1.1 million, they would consider the
purchase price fully paid.
2
      The Raymond James branch collected $1,074,454 in commissions on
UASNM bond transactions. With these commissions, Mr. Lamonde
ultimately paid Mr. Malouf $1,068,084 to buy the Raymond James branch.




                                           3
that he probably could have received better prices for his clients through

competing bids.

II.   UASNM makes misstatements concerning Mr. Malouf’s conflict of
      interest, and he does not correct these misstatements.

      Mr. Malouf bore responsibility for preparing UASNM’s forms to be

filed with the SEC (referred to as “Forms ADV”) 3 and ensuring the

accuracy of the UASNM website. But UASNM delegated compliance with

these responsibilities to a chief compliance officer and hired an outside

consultant to review UASNM’s compliance procedures and Forms ADV.

      Mr. Malouf later acknowledged that his financial arrangement with

Mr. Lamonde had created a conflict of interest that should have been

disclosed. But Mr. Malouf did not disclose that arrangement to UASNM’s

chief compliance officer or the outside consultant. Because these

individuals did not know the details of the Malouf-Lamonde arrangement,

UASNM not only failed to disclose Mr. Malouf’s conflict of interest but

also boasted that (1) UASNM’s employees were not receiving any

commissions or fees from the Raymond James branch and (2) UASNM was

providing impartial advice untainted by any conflicts of interest.




3
      A “Form ADV” is used by investment advisers to register with the
SEC and state securities authorities. Form ADV, SEC,
https://www.sec.gov/fast-answers/answersformadvhtm.html (last visited
June 26, 2019).

                                      4
       While UASNM was boasting of its impartiality, Mr. Malouf was

participating in deciding what UASNM would disclose. He acknowledged

that he had reviewed some of the Forms ADV for what to disclose and had

at least some familiarity with the contents of the website. But he took no

steps to remedy UASNM’s misstatements or to disclose his own conflict of

interest.

III.   UASNM discloses Mr. Malouf’s conflict of interest.

       In June 2010, UASNM’s outside consultant learned that Mr. Malouf

had been receiving ongoing payments from Mr. Lamonde. With this

information, the consultant told Mr. Malouf and UASNM that the payments

had created a conflict of interest that needed to be disclosed. UASNM

disclosed the conflict roughly nine months later.

IV.    The SEC finds that Mr. Malouf violated the federal securities
       laws.

       The SEC then brought an enforcement proceeding against Mr.

Malouf. Based on the evidence introduced in that proceeding, an

administrative law judge found that Mr. Malouf had (1) aided and abetted

UASNM’s violations of the federal securities laws and (2) committed

violations of his own. In the administrative appeal, the SEC agreed,

finding that Mr. Malouf had violated

           § 10(b) of the Securities Exchange Act of 1934 and Rules 10b-
            5(a) and (c),


                                       5
          §§ 17(a)(1) and 17(a)(3) of the Securities Act of 1933, and

          §§ 206(1) and 206(2) of the Investment Advisers Act of 1940.

The SEC also found that Mr. Malouf had aided and abetted UASNM’s

violations of §§ 206(4) and 207 of the Investment Advisers Act and Rule

206(4)-1(a)(5).

     The SEC imposed four sanctions on Mr. Malouf:

     1.    a lifetime bar from the securities industry,

     2.    an order to cease and desist violations of federal securities
           laws,

     3.    an order to disgorge $562,001.26 plus prejudgment interest,
           and

     4.    an order to pay a $75,000 civil penalty.

     On appeal, Mr. Malouf makes four arguments:

     1.    The appointment of his administrative law judge violated the
           Constitution’s Appointments Clause.

     2.    The SEC misinterpreted the securities laws.

     3.    The SEC’s findings lack substantial evidence.

     4.    The sanctions should be vacated.

                           Standard of Review

     When considering these appellate arguments, we credit the SEC’s

factual findings if they are supported by substantial evidence. Geman v.

SEC, 334 F.3d 1183, 1188 (10th Cir. 2003). Substantial evidence is “such

relevant evidence as a reasonable mind might accept as adequate to support

                                     6
a conclusion.” C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1433 (10th Cir.

1988) (quoting Consol. Edison Co. of New York v. NLRB, 305 U.S. 197,

229 (1938)).

                                 Discussion

I.    Mr. Malouf forfeited his challenge under the Appointments
      Clause.

      Mr. Malouf contends that the administrative law judge was not

validly appointed under the Constitution’s Appointments Clause. But Mr.

Malouf forfeited this contention by failing to present it in the SEC

proceedings. 4 Given the forfeiture, we decline to reach the merits of this

challenge.




4
      In its response brief, the SEC argues in part that Mr. Malouf
forfeited the issue by omitting it in his opening appeal brief. We reject this
argument.

      Before the SEC filed its response brief, Mr. Malouf had requested
leave to file a supplemental brief addressing the issue under the
Appointments Clause. The SEC opposed the request, contending that Mr.
Malouf should have raised the issue in his opening appeal brief. A motions
panel provisionally granted Mr. Malouf’s request, leaving the final
decision to the merits panel and extending the SEC’s deadline to file a
response brief. So the SEC obtained notice and extra time to brief the issue
before filing the response brief. Given the notice and extra time,
consideration of the issue would not unfairly prejudice the SEC. In light of
the absence of prejudice, we grant the request to supplement and reject the
SEC’s argument that Mr. Malouf forfeited the issue by failing to raise it in
his opening appeal brief.

                                      7
     A.    Exhaustion of administrative remedies is mandatory under
           the pertinent statutes.

     The Constitution’s Appointments Clause authorizes Congress to

delegate the appointment of “inferior officers” to the President, courts, and

department heads. U.S. Const. art. II § 2, cl. 2. Mr. Malouf contends that

his administrative law judge was an “inferior officer” who had not been

appointed by the President, a court, or a department head. See Lucia v.

SEC, 138 S. Ct. 2044 (2018). For this contention, the threshold issue

involves exhaustion of administrative remedies.

     The underlying securities laws expressly require administrative

exhaustion. See 15 U.S.C. §§ 77i(a) (Securities Act), 78y(c) (Securities

Exchange Act), 80b-13(a) (Investment Advisers Act). 5 Given the statutory

requirement, courts lack discretion to excuse the failure to exhaust

administrative remedies. Ross v. Blake, 136 S. Ct. 1850, 1856–57 (2016).

Failure to comply with a mandatory exhaustion requirement prevents

judicial review of the issue. United States v. L.A. Tucker Truck Lines, Inc.,

344 U.S. 33, 37 (1952).




5
      The exhaustion requirement encompasses constitutional claims. See
C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1439 (10th Cir. 1988)
(concluding that the SEC could have addressed the petitioners’
“constitutional concerns” and that the opportunity for administrative
review had triggered the exhaustion requirement).

                                      8
      B.    Mr. Malouf lacks reasonable grounds to excuse his failure to
            exhaust.

      Mr. Malouf concedes that his administrative filings did not address

the Appointments Clause. We thus must decide whether Mr. Malouf

satisfies an exception to the exhaustion requirement.

      The Securities Act does not contain an express exception to the

exhaustion requirement, so we cannot excuse a failure to satisfy the

Securities Act’s exhaustion requirement. 15 U.S.C. § 77i(a); see Ross, 136

S. Ct. at 1856–57. But the other two securities statutes (the Securities

Exchange Act and Investment Advisers Act) provide an exception,

allowing the claimant to avoid the exhaustion requirement upon a showing

of reasonable grounds. 15 U.S.C. §§ 78y(c)(1), 80b-13(a).

      Mr. Malouf argues that he had two reasonable grounds to skip the

exhaustion requirement:

      1.    It would have been futile to raise this challenge in the SEC
            proceedings.

      2.    The law changed after the SEC had ruled. 6




6
      In two stray sentences, Mr. Malouf also states that enforcement of
the exhaustion requirement would create a miscarriage of justice. But Mr.
Malouf provides no explanation or support for these statements. Given the
absence of explanation or support, we regard the two stray sentences as
inadequate development of a distinct argument. United States v. Martinez,
518 F.3d 763, 768 (10th Cir. 2008).

                                      9
We reject both arguments.

     1.    Raising the challenge would not have been futile.

     Mr. Malouf argues that exhausting this challenge would have been

futile because the SEC would undoubtedly have denied relief. We reject

this argument.

     The failure to pursue administrative remedies may be excused when

exhaustion would have been futile. Gilmore v. Weatherford, 694 F.3d 1160,

1169 (10th Cir. 2012). But the futility exception is available only when the

administrative process would have been “clearly useless.” Id. (quoting

McGraw v. Prudential Ins. Co. of Am., 137 F.3d 1253, 1264 (10th Cir.

1998)).

     Mr. Malouf has not shown that exhaustion of this challenge would

have been clearly useless. Indeed, when he filed his brief in the SEC (on

September 2, 2015), the SEC had not yet addressed the applicability of the

Appointments Clause to administrative law judges. 7

     Despite the absence of any prior SEC decisions on the issue, Mr.

Malouf insists that the SEC would have rejected this challenge. He points




7
      The day after Mr. Malouf filed this brief, the SEC ruled for the first
time that administrative law judges need not be appointed under the
Appointments Clause. In re Lucia, SEC Release No. 4190, 2015 WL
5172953 (Sept. 3, 2015).

                                     10
out that attorneys for the SEC had previously argued that its administrative

law judges were not inferior officers subject to the Appointments Clause.

But the prior arguments by SEC attorneys do not mean that exhaustion

would have been futile. See Gilmore v. Weatherford, 694 F.3d 1160, 1169

(10th Cir. 2012) (rejecting an argument that the agency’s position had been

“predetermined” based on the agency’s position in three earlier cases);

C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1439 (10th Cir. 1988)

(“[A]lthough petitioners contend that raising [the] argument below would

have been futile given the SEC’s past response, that alone is not a

sufficient ground for presuming futility.”).

      Mr. Malouf points out that after he began his administrative appeal,

the SEC frequently rejected challenges under the Appointments Clause. But

these decisions do not mean that the SEC necessarily would have rejected a

challenge by Mr. Malouf. See Gilmore, 694 F.3d at 1169 (“Requiring

exhaustion of [claims asserted against agency precedent or an agency’s

litigation position] allows agencies to take into account the specific facts

of each matter, and to change course if appropriate.” (internal citation

omitted)). Had Mr. Malouf exhausted available administrative remedies,

the SEC might have changed its position on the Appointments Clause

issue; and “if it did not, the [SEC] would at least be put on notice of the

accumulating risk of wholesale reversals being incurred by its


                                      11
persistence.” United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33,

37 (1952).

       Because Mr. Malouf has not shown that presentation of this challenge

to the SEC would have been clearly useless, we do not regard exhaustion

as futile.

       2.    No intervening change of law took place.

       We also reject Mr. Malouf’s reliance on an intervening change in the

law.

       For the sake of argument, we can assume that an intervening change

in the law might constitute a reasonable ground to excuse the failure to

exhaust. But the law did not change.

       Mr. Malouf bases his argument largely on Bandimere v. SEC, 844

F.3d 1168 (10th Cir. 2016), and Lucia v. SEC, 138 S. Ct. 2044 (2018). 8 In

these cases, our court and the Supreme Court held that SEC administrative

law judges are inferior officers subject to the Appointments Clause. See

Bandimere, 844 F.3d at 1170; Lucia, 138 S. Ct. at 2049. The Courts

decided these cases after the SEC had ruled in Mr. Malouf’s case,




8
     Mr. Malouf also points to Landry v. FDIC, 204 F.3d 1125 (D.C. Cir.
2000). But Landry dealt with the Federal Deposit Insurance Corporation’s
administrative law judges, not the SEC’s. Landry, 204 F.3d at 1130.
Moreover, the D.C. Circuit’s opinion does not control in our circuit.

                                       12
preventing him from relying on either opinion during his administrative

appeal. But neither Bandimere nor Lucia changed the law: In both cases,

the Courts merely applied the Supreme Court’s 1991 opinion in Freytag v.

Commissioner of Internal Revenue, 501 U.S. 868 (1991).

      In Freytag, the Supreme Court held that special trial judges for the

Tax Court were inferior officers subject to the Appointments Clause. 501

U.S. at 881. The Supreme Court’s decision hinged on the extensive powers

granted to special trial judges, which were significant enough to

characterize these judges as inferior officers. See id. at 881–82 (noting that

special trial judges “take testimony, conduct trials, rule on the

admissibility of evidence, and have the power to enforce compliance with

discovery orders”). SEC administrative law judges are “near-carbon

copies” of the Tax Court’s special trial judges. Lucia, 138 S. Ct. at 2052.

So in Bandimere and Lucia, our court and the Supreme Court regarded

Freytag as dispositive on the status of the SEC’s administrative law

judges. Bandimere, 844 F.3d at 1174 (“In our view, Freytag controls the

result of this case.”); Lucia, 138 S. Ct. at 2052 (concluding that Freytag’s

analysis “necessarily decides this case”).

      In the SEC proceedings, Mr. Malouf could have invoked Freytag,

just as the petitioners in Bandimere and Lucia had done. See Island Creek

Coal Co. v. Wilkerson, 910 F.3d 254, 257 (6th Cir. 2018) (stating that no


                                      13
precedent would have prevented a party from bringing an Appointments

Clause challenge before Lucia, which itself “noted that existing case law

‘sa[id] everything necessary to decide this case’” (quoting Lucia v. SEC,

138 S. Ct. 2044, 2053 (2018))). 9 Thus, Mr. Malouf cannot avoid the

exhaustion requirement based on an intervening change in the law. See

Saffle v. Parks, 494 U.S. 484, 488 (1993) (stating that a rule is not new if

the court “would have felt compelled by existing precedent” to conclude

that the rule being urged “was required by the Constitution”).

                                    * * *

      Mr. Malouf failed to administratively exhaust his challenge under the

Appointments Clause. We thus conclude that Mr. Malouf forfeited this

challenge. 10




9
      In Wilkerson, the Sixth Circuit held that a party had forfeited its
Appointments Clause challenge by waiting until the reply brief to present
this challenge. 910 F.3d at 256.
10
      The SEC concedes that Mr. Malouf’s failure to exhaust this challenge
does not constitute a jurisdictional defect. Despite this concession, we
would ordinarily need to decide for ourselves whether the failure to
exhaust is jurisdictional. See Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010)
(“Courts have an independent obligation to determine whether subject-
matter jurisdiction exists, even when no party challenges it.”).

      Even if the exhaustion requirement were not jurisdictional, however,
it would constitute a claim-processing rule. See Henderson ex rel.



                                     14
II.   The SEC reasonably found that Mr. Malouf had violated Rule
      10b-5 11 and § 17(a) of the Securities Act of 1933.

      The SEC found that Mr. Malouf had failed to correct material

misstatements, violating

          Rule 10b-5(a) and (c) and

          the Securities Act of 1933 § 17(a)(1) and (3).




Henderson v. Shinseki, 562 U.S. 428, 435 (2011) (explaining that claim-
processing rules are non-jurisdictional rules “that seek to promote the
orderly progress of litigation by requiring that the parties take certain
procedural steps at certain specified times”). Unlike jurisdictional
requirements, claim-processing rules can be waived or forfeited. Muskrat
v. Deer Creek Pub. Sch., 715 F.3d 775, 783 (10th Cir. 2013).

      But the SEC has not waived or forfeited the failure to exhaust. When
Mr. Malouf first raised the Appointments Clause issue, the SEC promptly
responded that Mr. Malouf had failed to exhaust the issue in SEC
proceedings. We thus would need to enforce the statutory exhaustion
requirements regardless of whether they are jurisdictional. See Hamer v.
Neighborhood Hous. Servs. of Chicago, 138 S. Ct. 13, 17–18 (2017) (“If
properly invoked, mandatory claim-processing rules must be enforced, but
they may be waived or forfeited.”). Given the need to require exhaustion as
either a claim processing rule or jurisdictional requirement, we need not
decide which one applies. See Manrique v. United States, 137 S. Ct. 1266,
1271 (2017) (declining to decide whether the requirement to timely file a
notice of appeal is jurisdictional because the requirement is “at least a
mandatory claim-processing rule”).
11
     The SEC also found that Mr. Malouf had violated the Securities
Exchange Act of 1934 § 10(b). But this provision simply incorporates the
SEC’s “rules and regulations.” 15 U.S.C. § 78j(b). The rule invoked here is
Rule 10b-5.

                                    15
For purposes of this appeal, Mr. Malouf does not deny that he failed to

correct UASNM’s misstatements. But he argues that a failure to correct

UASNM’s misstatements does not constitute a separate violation of the

securities laws. We disagree.

     A.    Rule 10b-5(a) and (c) and § 17(a)(1) and (3) of the Securities
           Act of 1933 encompass the failure to correct UASNM’s false
           or misleading statements.

     The relevant provisions ban two broad categories of conduct. The

first category involves the making of a materially untrue or misleading

statement. The second category involves employment of a fraudulent or

deceptive scheme. Addressing the second category, the SEC found that Mr.

Malouf had failed to correct UASNM’s false or misleading statements,

triggering liability for employment of a fraudulent or deceptive scheme.

     Mr. Malouf contends that liability cannot be based on his failure to

correct UASNM’s misstatements because the failure to correct is

inseparable from the misstatements themselves. In his view, the SEC

“obliterate[d] the distinction” between the two categories of prohibited

conduct. Appellant’s Opening Br. at 23. We reject this argument based on

Lorenzo v. SEC, 139 S. Ct. 1094 (2019).

     In Lorenzo, the Supreme Court confronted the same two categories of

prohibited conduct. The first category is enshrined in Rule 10b-5(b), which




                                     16
prohibits the making of a statement that is materially false or misleading.

17 C.F.R. § 240.10b-5(b). The second category is enshrined in

           Rule 10b-5(a) and the Securities Act of 1933 § 17(a)(1), which
            prohibit the employment of a fraudulent “device, scheme, or
            artifice” and

           Rule 10b-5(c), which prohibits engagement in an “act, practice,
            or course of business” operating as a “fraud or deceit.”

15 U.S.C. § 77q(a)(1); 17 C.F.R. § 240.10b-5(a), (c).

      In Lorenzo, the SEC found that the petitioner had disseminated

another’s false statement with scienter. 12 Lorenzo, 139 S. Ct. at 1099. The

Supreme Court granted certiorari in Lorenzo to decide “whether someone

who is not a ‘maker’ of a misstatement under [Rule 10b-5(b)] . . . can

nevertheless be found to have violated [Rule 10b-5(a) and (c)] and related

provisions of the securities laws, when the only conduct involved concerns

a misstatement.” Id. at 1100.

      The Supreme Court answered “yes.” See id. at 1100–01. In urging the

opposite result, the petitioner argued that the prohibitions applicable to

“makers” of false statements would be superfluous if someone could incur

liability by disseminating another person’s false statement. Id. at 1101.

The Supreme Court rejected this argument based on the prohibitions’



12
      The Lorenzo Court assumed that the petitioner himself had not made a
false or misleading statement. Lorenzo, 139 S. Ct. at 1100.

                                     17
language, purpose, and overlap. Id. at 1102–03. Applying Lorenzo, we

conclude that Mr. Malouf’s failure to correct UASNM’s misstatements

could trigger liability.

      The Court in Lorenzo applied three of the provisions that the SEC

has invoked against Mr. Malouf:

      1.    Rule 10b-5(a),

      2.    Rule 10b-5(c), and

      3.    the Securities Act of 1933 § 17(a)(1).

The Court expressly held that a person could incur liability under these

provisions when the conduct involves another person’s false or misleading

statement. Id. at 1102. In reaching this holding, the Supreme Court rejected

the same argument urged by Mr. Malouf (that the SEC’s interpretation

would render Rule 10b-5(b) superfluous). Id. at 1101–03.

      The Lorenzo Court did not address a fourth provision involved here:

the Securities Act of 1933 § 17(a)(3). But this provision is virtually

identical to Rule 10b-5(c), which Lorenzo did address. Rule 10b-5(c)

prohibits anyone using interstate commerce from “engag[ing] in any act,

practice, or course of business which operates or would operate as a fraud

or deceit.” 17 C.F.R. § 240.10b-5(c). Similarly, the Securities Act of 1933

§ 17(a)(3) states that offerors or sellers of securities cannot “engage in any




                                      18
transaction, practice, or course of business which operates or would

operate as a fraud or deceit upon the purchaser.” 15 U.S.C. § 77q(a)(3).

      In light of this similarity, Mr. Malouf urges us to interpret § 17(a)(3)

coextensively with Rule 10b-5(c). We do so; Lorenzo thus controls on

§ 17(a)(3) as well as the other provisions.

      B.    Substantial evidence exists for the findings that Mr. Malouf
            violated Rule 10b-5(a) and (c) and the Securities Act of 1933
            § 17(a)(1) and (3).

      The resulting question is whether substantial evidence supports the

SEC’s findings that Mr. Malouf violated Rule 10b-5(a) and (c) and

§ 17(a)(1) and (3) of the Securities Act of 1933. Mr. Malouf argues that

the findings lack substantial evidence because

           he did not engage in prohibited conduct and

           the evidence does not establish scienter.

      1.    The applicable provisions address prohibited conduct and
            scienter.

      The pertinent securities laws prohibit fraudulent conduct. For

example, Rule 10b-5(a) and the Securities Act of 1933 § 17(a)(1) prohibit

the employment of a device, scheme, or artifice to defraud. 17 C.F.R.

§ 240.10b-5(a); 15 U.S.C. § 77q(a)(1). “A ‘device’ . . . is simply that

which is devised, or formed by design; a ‘scheme’ is a project, plan, or

program of something to be done; and an ‘artifice’ is an artful stratagem or

trick.” Lorenzo v. SEC, 139 S. Ct. 1094, 1101 (2019) (quoting Aaron v.
                                      19
SEC, 446 U.S. 680, 696 n.13 (1980)). Rule 10b-5(c) bars a fraudulent or

deceitful act, practice, or course of business. 17 C.F.R. § 240.10b-5(c).

The Securities Act of 1933 § 17(a)(3) similarly prohibits fraudulent or

deceitful transactions, practices, or courses of business. 17 U.S.C.

§ 77q(a)(3).

      In addressing these provisions, Mr. Malouf challenges the sufficiency

of the evidence on scienter, which is “a mental state embracing intent to

deceive, manipulate, or defraud.” C.E. Carlson, Inc. v. SEC, 859 F.2d

1429, 1435 (10th Cir. 1988) (quoting Ernst & Ernst v. Hochfelder, 425

U.S. 185, 193 n.12 (1976)). This mental state can include extreme

recklessness. Id. Conduct is extremely reckless when the petitioner knows

or must have known that the conduct created a danger of misleading

investors. Id.

      Scienter is required to find a violation of Rule 10b-5(a), Rule 10b-

5(c), or the Securities Act of 1933 § 17(a)(1). But scienter is not required

for a violation of the Securities Act of 1933 § 17(a)(3). Aaron v. SEC, 446

U.S. 680, 691, 697 (1980).

      2.    The SEC acted reasonably in finding improper conduct.

      Given these definitions, we conclude that the SEC did not err in

finding a fraudulent device, scheme, or artifice to defraud.




                                     20
      The evidence allowed the SEC to reasonably find a conflict of

interest: while working at UASNM, Mr. Malouf maintained a financial

arrangement with Mr. Lamonde, the purchaser of the Raymond James

branch. Mr. Malouf knew not only that a conflict existed but also that

UASNM was telling its clients that he was independent. Despite this

knowledge, Mr. Malouf took no steps to correct UASNM’s statements or to

disclose his own conflict. Given this failure to correct misstatements or to

disclose his conflict, the SEC reasonably found the existence of

           an artful stratagem or plan devised to defraud investors under
            Rule 10b-5(a) and the Securities Act of 1933 § 17(a)(1) and

           a fraudulent or deceptive act, practice, or course of business
            under Rule 10b-5(c) and the Securities Act of 1933 § 17(a)(3).

      3.    The SEC acted reasonably in finding scienter.

      Mr. Malouf also challenges the finding of scienter on the claims

involving Rules 10b-5(a) and (c) and the Securities Act of 1933

§ 17(a)(1). 13 We reject this challenge.

      Mr. Malouf and Mr. Lamonde had a financial arrangement that

resulted in payments to Mr. Malouf from bond trades that he had routed

through the Raymond James branch. This arrangement gave an incentive to




13
       As noted above, § 17(a)(3) of the Securities Act of 1933 does not
require scienter. See p. 20, above.

                                       21
Mr. Malouf to route his clients’ bond trades through the Raymond James

branch, compromising the independence of UASNM and Mr. Malouf as

investment advisers. The SEC reasonably concluded that Mr. Malouf was

aware of the conflict and tried to exploit it, for UASNM’s outside

consultant testified that Mr. Malouf had lied and resisted disclosure of the

financial arrangement with Mr. Lamonde.

     Mr. Malouf denies scienter, insisting that he did not know of

misstatements on the Forms ADV or the UASNM website. For these

misstatements, Mr. Malouf pins the blame on UASNM’s chief compliance

officer. For three reasons, we reject Mr. Malouf’s arguments and conclude

that substantial evidence supports the SEC’s finding of scienter.

     First, the SEC reasonably rejected Mr. Malouf’s effort to shift the

blame. The chief compliance officer admittedly knew that the Raymond

James branch had been sold, but he denied knowing about the arrangement

for installment payments.

     Second, the evidence allowed the SEC to reasonably find that Mr.

Malouf was familiar with the contents of UASNM’s Forms ADV and its

website. For example, Mr. Malouf admitted that he had periodically

reviewed the Forms ADV and the website. Yet for several years, Mr.

Malouf took no action to correct material misstatements on the forms or

the website.


                                     22
       Third, the evidence suggests that Mr. Malouf dragged his feet even

after being directed to disclose the conflict. This directive stemmed from

the outside consultant’s discovery that Mr. Malouf had been receiving

installment payments from the buyer of the Raymond James branch. Upon

this discovery, the consultant told Mr. Malouf and UASNM that the

arrangement had created a conflict of interest that needed to be disclosed.

But about nine months passed before UASNM disclosed the conflict. Mr.

Malouf’s contribution to that delay reasonably supports a finding of

scienter.

                                    * * *

       The SEC reasonably found that Mr. Malouf had acted with scienter to

(1) employ a device, scheme, or artifice to defraud and (2) engage in an

act, practice, or course of business that operated as a fraud or deceit. We

thus affirm the SEC’s conclusion that Mr. Malouf violated Rule 10b-5(a)

and (c) and the Securities Act of 1933 § 17(a)(1) and (3).

III.   The SEC reasonably found violations of the Investment Advisers
       Act of 1940 §§ 206 and 207 and Rule 206(4)-1(a)(5).

       The SEC also found that Mr. Malouf had

           violated § 206(1) and (2) of the Investment Advisers Act and

           aided and abetted UASNM’s violations of §§ 206(4) and 207 of
            the Investment Advisers Act and Rule 206(4)-1(a)(5).

We uphold these findings.


                                     23
     A.       The SEC reasonably found primary violations of § 206 of
              the Investment Advisers Act.

     Under § 206 of the Investment Advisers Act, investment advisers

cannot

             employ a device, scheme, or artifice to defraud a client or

             engage in a transaction, practice, or course of business that
              operates as a fraud or deceit upon a client.

15 U.S.C. § 80b-6(1)–(2). The SEC concluded that Mr. Malouf had violated

§ 206(1) and (2) of the Act in three ways:

     1.       by failing to correct the misstatements on UASNM’s Forms
              ADV and website,

     2.       by failing to disclose his conflict of interest to his clients, and

     3.       by failing to seek best execution for his clients’ bond trades.

         Mr. Malouf argues that the SEC erred in concluding that he violated

§ 206(1) and (2) because

             the failure to correct UASNM’s misstatements cannot support
              liability,

             the finding of scienter (when failing to disclose the conflict of
              interest) is not supported by substantial evidence, and

             he owed no duty of best execution and the finding of a
              violation is unsupported by the evidence.

We reject Mr. Malouf’s arguments.




                                        24
     1.    A violation could be based on Mr. Malouf’s failure to
           correct UASNM’s misstatements.

     Mr. Malouf argues that he cannot incur liability under § 206(1) and

(2) simply because he failed to correct UASNM’s misstatements. In Part II,

we addressed the same issue under

          the Securities Act of 1933 § 17(a)(1) and (3) and

          Rule 10b-5(a) and (c).

See Discussion-Part II(A), above. The language in these provisions is

virtually identical to the language in the Investment Advisers Act § 206(1)

and (2). 14 Given the virtually identical wording, Mr. Malouf urges us to




14
      The Investment Advisers Act § 206(1) states that an investment
adviser cannot “employ any device, scheme, or artifice to defraud any
client or prospective client.” 15 U.S.C. § 80b-6(1). Similarly, the
Securities Act of 1933 § 17(a)(1) states that an offeror or seller of
securities cannot “employ any device, scheme, or artifice to defraud.” 15
U.S.C. § 77q(a)(1). And Rule 10b-5(a) states that no one can use interstate
commerce “[t]o employ any device, scheme, or artifice to defraud.” 17
C.F.R. § 240.10b-5(a).

      The Investment Advisers Act § 206(2) prohibits investment advisers
from “engag[ing] in any transaction, practice, or course of business which
operates as a fraud or deceit upon any client or prospective client.” 15
U.S.C. § 80b-6(2). The Securities Act of 1933 § 17(a)(3) similarly states
that offerors or sellers of securities cannot “engage in any transaction,
practice, or course of business which operates or would operate as a fraud
or deceit upon the purchaser.” 15 U.S.C. § 77q(a)(3). And Rule 10b-5(c)
prohibits the use of interstate commerce “[t]o engage in any act, practice,
or course of business which operates or would operate as a fraud or
deceit.” 17 C.F.R. § 240.10b-5(c).

                                     25
interpret the Investment Advisers Act in the same way that we interpret

Rule 10b-5(a) and (c) and the Securities Act of 1933 § 17(a)(1) and (3).

We do so in light of the virtually identical language in these provisions.

See SEC v. Steadman, 967 F.2d 636, 641 n.3 (D.C. Cir. 1992) (interpreting

the Investment Advisers Act § 206(1) in the same way that the Supreme

Court interpreted the Securities Act of 1933 § 17(a)(1) because the

statutory language is virtually identical). Given this interpretation, we

conclude that Mr. Malouf’s failure to correct UASNM’s misstatements

could create liability under the Investment Advisers Act § 206(1) and (2).

      2.    Substantial evidence exists for the finding of scienter based
            on Mr. Malouf’s failure to disclose his conflict of interest.

      Liability under the Investment Advisers Act § 206(1) requires proof

of scienter; liability under § 206(2) requires only simple negligence.

Robare Grp., Ltd. v. SEC, 922 F.3d 468, 472 (D.C. Cir. 2019). Scienter can

encompass extreme recklessness. See p. 20, above.

      The SEC found scienter in Mr. Malouf’s failure to disclose his

conflict. Mr. Malouf challenges this finding on grounds that he

           was “set-up” by UASNM’s chief compliance officer and

           believed that the chief compliance officer had been disclosing
            the conflict.

But the SEC reasonably credited the chief compliance officer’s testimony

that he had not known about Mr. Malouf’s conflict. See p. 22, above. We


                                      26
thus reject Mr. Malouf’s challenge to the SEC’s finding of scienter on the

claim under § 206(1) of the Investment Advisers Act.

      3.    Mr. Malouf owed a duty of best execution, and the SEC’s
            finding of a violation is supported by substantial evidence.

      The duty of best execution requires a broker-dealer to seek the best

terms reasonably available for customer orders. Newton v. Merrill, Lynch,

Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir. 1998) (en banc).

Mr. Malouf argues that

           the SEC erred by finding that he owed this duty and

           the evidence was insufficient to find a violation of this duty. 15

We reject both arguments, concluding that (1) Mr. Malouf owed a duty of

best execution to his clients and (2) substantial evidence supports the

finding of a violation.

      Under the duty of best execution, a fiduciary bears an obligation to

seek “the most favorable terms reasonably available under the

circumstances.” Geman v. SEC, 334 F.3d 1183, 1186 (10th Cir. 2003)



15
       Mr. Malouf also suggests that the SEC erroneously ignored the
administrative law judge’s conclusions of law. This suggestion assumes
that the administrative law judge’s conclusions of law bound the SEC when
it reviewed the judge’s decision. Mr. Malouf supplies no authority for this
assumption.




                                      27
(quoting Newton, 135 F.3d at 270). This obligation requires investment

advisers to seek the lowest price reasonably available for a client unless

the more expensive option results in better service. See Newton, 135 F.3d

at 270 n.2; Securities; Brokerage and Research Services, SEC Release No.

23170, 1986 WL 630442, at *11 (Apr. 23, 1986). 16 When an investment

adviser is affiliated with the brokerage firm executing the transaction, the

adviser must make a good-faith judgment that the commission charged “is

at least as favorable to the [client] as that charged by other qualified

brokers.” Applicability of Comm.’s Policy Statement on the Future

Structure of Securities Markets to Selection of Brokers and Payment of

Commissions by Institutional Managers, SEC Release No. 318, 1972 WL

121270, at *2 (May 17, 1972). In cases of self-dealing, the investment




16
      We defer to the SEC’s reasonable interpretations of ambiguous
statutory provisions in federal securities laws when the interpretations
carry the “force of law.” Thomas v. Metropolitan Life Ins. Co., 631 F.3d
1153, 1162 (10th Cir. 2011); see SEC v. Zandford, 535 U.S. 813, 819–20
(2002) (stating that the SEC’s reasonable interpretation of an ambiguous
provision of the Securities Exchange Act, issued in a formal adjudication,
is entitled to deference). We otherwise consider the SEC’s interpretations
only for their persuasive value. Thomas, 631 F.3d. at 1162–63.

      In citing the SEC releases, we use them only for their persuasive
value. We need not decide whether the SEC releases are subject to
deference.

                                      28
adviser bears a “particularly heavy” burden to justify a commission rate

exceeding the lowest available rate. Id.

     Mr. Malouf concedes that the duty of best execution requires

reasonable diligence to ensure the best price reasonably available. But Mr.

Malouf argues that the duty of best execution is owed by the investment

firm as a whole, not by him individually. For this argument, Mr. Malouf

relies on Regulatory Notice 15-46 of the Financial Industry Regulatory

Authority. This notice refers to a “firm’s best execution obligation.”

Guidance on Best Execution Obligations in Equity, Options and Fixed

Income Markets, FINRA Regulatory Notice 15-46, at 4 (Nov. 2015). Mr.

Malouf seizes on this language in denying that the obligation applies to

individual brokers like himself. We reject Mr. Malouf’s argument for two

reasons:

     1.    The duty of best execution comes from the Investment Advisers
           Act, not Regulatory Notice 15-46.

     2.    Mr. Malouf has misinterpreted Regulatory Notice 15-46.

     First, the duty of best execution originated in the Investment

Advisers Act rather than Notice 15-46. See Kurz v. Fidelity Mgmt. &

Research Co., 556 F.3d 639, 640 (7th Cir. 2009) (stating that the duty of

best execution is “widely understood as a subject of regulation” under the

federal securities laws, including the Investment Advisers Act). The Act

prohibits investment advisers from engaging in a fraudulent or deceptive

                                     29
transaction, practice, or course of business. Investment Advisers Act, 15

U.S.C. § 80b–6(2). This prohibition imposes a fiduciary duty of loyalty on

investment advisors, and the duty of loyalty subsumes the duty of best

execution. See SEC v. Capital Gains Research Bureau, 375 U.S. 180, 191–

92 (1963) (recognizing that the Investment Advisers Act obligates

investment advisers to provide “disinterested” advice); In re Hughes,

Exchange Act Release No. 4048, 1948 WL 29537, at *5 (Feb. 18, 1948)

(“A corollary of the fiduciary’s duty of loyalty to his principal is his duty

to obtain . . . the best price discoverable in the exercise of reasonable

diligence.”), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949).

Thus, the Act ultimately imposes a duty of best execution on investment

advisers (not just their firms). See In re DeSano, Advisers Act Release No.

2815, 2008 WL 5189512, at *4 (Dec. 11, 2008) (“Under Section 206 of the

[Investment] Advisers Act, an investment adviser has a fiduciary duty to

seek best execution for its clients’ security transactions.”).

      Second, Mr. Malouf has misinterpreted Notice 15-46. This notice

points out that the Financial Industry Regulatory Authority has codified

the duty of best execution in Rule 5310 of the Financial Industry

Regulatory Authority Manual. Rule 5310 provides:

           In any transaction for or with a customer or a customer of
      another broker-dealer, a member and persons associated with a
      member shall use reasonable diligence to ascertain the best
      market for the subject security and buy or sell in such market so

                                      30
     that the resultant price to the customer is as favorable as possible
     under prevailing market conditions.

Financial Industry Regulatory Authority Manual, Rule 5310(a)(1).

     Rule 5310 does not confine the duty of best execution to firms: it

applies to “a member and persons associated with a member.” The rule’s

definition of the term “member” includes “any individual, partnership,

corporation or other legal entity admitted to membership” in the Financial

Industry Regulatory Authority, and the term “person” includes “any natural

person.” Id., Rule 160(b)(10) & (12). Thus, Mr. Malouf’s argument is

based on a misreading of Rule 5310.

     But Mr. Malouf also argues that even if he owed the duty of best

execution, he would avoid liability because he delegated compliance to the

chief compliance officer. For this argument, Mr. Malouf identifies the

administrative law judge’s conclusions of law that the chief compliance

officer’s duties included

          review of UASNM’s trade tickets to ensure that the
           commissions were reasonable and that the investment advisers
           were complying with UASNM’s best-execution policy and

          review to ensure compliance with UASNM’s compliance
           manual.




                                      31
But Mr. Malouf does not identify any evidence that he delegated his own

compliance with the best-execution policy. 17

      He instead points to conclusions of law stating that the chief

compliance officer’s duties included policing of UASNM employees for

adherence to the firm’s manual. But these conclusions of law do not

undermine the obligation of investment advisers (like Mr. Malouf) to

comply with their own fiduciary duties to their clients. See Commission

Guidance Regarding Client Commission Practices Under Section 28(E) of

the Securities Exchange Act of 1934, Exchange Act Release, No. 54165,

2005 WL 4843294, at *2 & n.3 (July 18, 2006) (stating that investment

advisers bear duties to act in their clients’ best interests).

      Mr. Malouf also argues that

           there is no evidence that he could have executed trades for
            better prices and

           he was not obligated to seek competing bids from brokers
            before executing bond trades.

We reject both arguments.




17
      Even if Mr. Malouf had delegated his own compliance with the duty
of best execution, he would remain liable. See Geddes v. United Staffing
Alliance Emp. Med. Plan, 469 F.3d 919, 926 (10th Cir. 2006) (stating that
when a fiduciary delegates tasks to others, the fiduciary remains
“responsible for actions performed in his name”).

                                       32
     First, Mr. Malouf denies that he could have executed bond trades for

better prices than those offered by the Raymond James branch. But the

SEC could reasonably arrive at a contrary finding based on (1) the

testimony of an expert witness and (2) Mr. Malouf’s own testimony.

     An expert witness opined that Mr. Malouf’s trades had resulted in

commissions to the Raymond James branch substantially exceeding the

industry’s standard commissions. In reaching this opinion, the expert

witness assumed that standard commissions range from 0.10 to 0.75

percent of the total amount of the bond transaction. He based this range on

personal experience, industry research, and consultation with other experts

in the field. With this assumption, the expert witness studied the bond

trades that Mr. Malouf had routed through the Raymond James branch and

determined that his clients had paid commissions between $442,106 and

$693,804 above the standard rate.

     The expert witness presented two diagrams showing the differences

between the actual commissions paid on Mr. Malouf’s trades and standard

commissions 18:




18
     We have slightly edited the diagrams for clarity.

                                     33
The SEC credited

    the expert witness’s lower figure of total excess commissions
     paid by Mr. Malouf’s clients to the Raymond James branch
     ($442,106) and

    Mr. Malouf’s own testimony about the percentage of UASNM
     bond trades that he had conducted (60%).



                             34
Based on its findings, the SEC concluded that Mr. Malouf was responsible

for $265,263.60 in excess commissions paid by UASNM clients. In light of

the expert witness’s testimony, we conclude that the SEC reasonably found

that Mr. Malouf could have executed trades for better prices.

      Second, Mr. Malouf contends that the duty of best execution did not

obligate him to seek multiple bids. Even without this obligation, the SEC

concluded that Mr. Malouf’s failure to seek multiple bids supported a

finding of scienter. This conclusion was based on substantial evidence.

      The expert witness testified that multiple bids provide the ideal way

to satisfy the duty of best execution. Mr. Malouf agreed with this

testimony and conceded that he had routinely failed to seek competing bids

before routing trades through the Raymond James branch, with which he

had an undisclosed financial relationship. The SEC thus reasonably found

that Mr. Malouf had routed trades to the Raymond James branch in order to

benefit himself to the detriment of his clients.

                                     * * *

      We conclude that the SEC reasonably found that Mr. Malouf had

violated the Investment Advisers Act § 206(1) and (2) by failing to

           correct UASNM’s misstatements,

           disclose a conflict of interest, and

           seek best execution.

                                      35
     B.    The SEC also reasonably found that Mr. Malouf had aided
           and abetted UASNM’s violations of §§ 206 and 207 of the
           Investment Advisers Act and Rule 206(4)-1(a)(5).

     Section 206 of the Investment Advisers Act bans practices that are

fraudulent, deceptive, or manipulative. 15 U.S.C. § 80b-6(4). For example,

it is fraudulent, deceptive, or manipulative to publish an advertisement

containing an untrue statement of material fact. 17 C.F.R. § 275.206(4)-

1(a)(5). And under § 207 of the Act, an investment adviser cannot omit

material facts in an SEC report (like a Form ADV). 15 U.S.C. § 80b-7.

     Applying these prohibitions, the SEC found that Mr. Malouf had

aided and abetted UASNM’s violations of the Investment Advisers Act and

Rule 206(4)–1(a)(5). According to the SEC, UASNM violated these

provisions by

          stating in the Forms ADV and on the company’s website that
           the employees had no conflicts of interest and

          failing to disclose Mr. Malouf’s conflict of interest.

The SEC also found that Mr. Malouf had aided and abetted these violations

by recklessly failing to tell UASNM that he had a conflict of interest.

     Mr. Malouf does not contest UASNM’s commission of a primary

violation. He instead argues that the SEC lacks substantial evidence for its

finding that he had aided and abetted UASNM’s violations. According to

Mr. Malouf, evidence was lacking on

          scienter and

                                     36
           substantial assistance of UASNM’s violations.

Mr. Malouf also argues that by declining to charge him with aiding and

abetting a violation of Rule 10b-5(b), the SEC undermined its finding that

he had aided and abetted a violation of the Investment Advisers Act. We

reject Mr. Malouf’s arguments.

      First, Mr. Malouf contests the SEC’s finding of scienter. As Mr.

Malouf suggests, scienter is an essential element of aiding and abetting a

violation of the securities law. See Howard v. SEC, 376 F.3d 1136, 1143

(D.C. Cir. 2004) (stating that liability for aiding and abetting requires

scienter). But we have already concluded that the SEC had reasonably

found scienter based on Mr. Malouf’s failure to correct UASNM’s

misstatements about the absence of a conflict of interest. See pp. 21–23,

above. 19




19
      Mr. Malouf argues that scienter cannot be based on his failure to
detect another’s misconduct. To support this argument, he cites Howard v.
SEC, 376 F.3d 1136 (D.C. Cir. 2004). There the D.C. Circuit held that the
defendant had not acted with scienter when the only evidence of his intent
was that he should have known about another’s wrongdoing. 376 F.3d at
1143.

      Howard is not analogous. The SEC reasonably found that Mr. Malouf
had recognized a conflict of interest, known that he needed to disclose it,
and known that he had not disclosed to UASNM that his conflict was
ongoing. Given this knowledge, Mr. Malouf knew or must have known that



                                      37
      Second, Mr. Malouf contests the finding on substantial assistance,

stating that his failure to correct UASNM’s misstatements did not facilitate

its fraudulent scheme. But in finding substantial assistance, the SEC did

not rely on a failure to correct UASNM’s misstatements; the SEC instead

relied on Mr. Malouf’s failure to disclose his conflict of interest arising

from Mr. Lamonde’s ongoing payments. UASNM’s failure to disclose this

conflict of interest stemmed largely from Mr. Malouf’s failure to tell other

UASNM officers about the ongoing payments from Mr. Lamonde. Without

this information, the other UASNM officers had no way of knowing that

Mr. Malouf was personally benefiting from bond trades routed through the

Raymond James branch.

      Finally, Mr. Malouf points to the SEC’s decision not to charge him

with aiding and abetting UASNM’s making of a material misstatement in

violation of Rule 10b-5(b). According to Mr. Malouf, the absence of such a

charge must mean that the SEC did not believe that he had aided and

abetted UASNM’s violations. But Mr. Malouf does not provide any




UASNM could not fully disclose the conflict. At a minimum, the SEC had
substantial evidence for its finding that Mr. Malouf had acted with extreme
recklessness by facilitating UASNM’s failure to disclose the conflict. See
Geman v. SEC, 334 F.3d 1183, 1195 (10th Cir. 2003) (holding that an
individual had acted with extreme recklessness when he was aware of
undisclosed information and “surely knew” that it had not been adequately
reported).

                                      38
authority for this leap. “[A]n agency decision not to enforce often involves

a complicated balancing of a number of factors which are peculiarly within

its expertise. So the agency must not only assess whether a violation has

occurred, but whether agency resources are best spent on this violation or

another . . . .” Heckler v. Chaney, 470 U.S. 821, 831 (1985). The SEC’s

decision not to bring an aiding or abetting charge under Rule 10b-5(b) does

not affect the existence of substantial evidence, so we decline to disturb

the SEC’s findings on this basis.

IV.   The SEC did not err in deciding on the sanctions to impose.

      Based on Mr. Malouf’s violation of the securities laws and related

rules, the administrative law judge imposed three sanctions:

      1.   a 7-1/2 year bar from the securities industry,

      2.   an order to cease and desist violations of the federal securities
           laws, and

      3.   a civil penalty of $75,000.

The SEC extended the bar from 7-1/2 years to life, ordered Mr. Malouf to

disgorge $562,001.26 plus prejudgment interest, and adopted the




                                     39
administrative law judge’s other sanctions. Mr. Malouf asks us to vacate

the SEC’s lifetime ban and disgorgement order. 20

      We do not disturb sanctions imposed by the SEC unless they are

“beyond the law, devoid of factual support, or are ‘so lacking in

reasonableness as to constitute an abuse of discretion.’” C.E. Carlson, Inc.

v. SEC, 859 F.2d 1429, 1438 (10th Cir. 1988) (quoting Am. Power & Light

Co. v. SEC, 329 U.S. 90, 115 (1946)). In our view, the SEC did not abuse

its discretion in imposing the lifetime bar or in ordering Mr. Malouf to

disgorge $562,001.26 plus prejudgment interest.

      A.    The SEC did not abuse its discretion in ordering a lifetime
            bar from the securities industry.

      Under the Investment Advisers Act, the SEC may bar advisers from

associating with the securities industry if

           they “willfully violated” or “willfully aided [and] abetted . . .
            the violation” of federal securities law and

           the bar is in the public interest.




20
      In his reply brief, Mr. Malouf also contends that his sanctions were
disproportionate to the sanctions imposed in other cases. But Mr. Malouf
did not present this contention in his opening appeal brief. Raising the
issue in his reply brief was too late. See, e.g., WildEarth Guardians v.
EPA, 770 F.3d 919, 933 (10th Cir. 2014) (stating that it “was too late” to
present a new issue in the petitioners’ reply brief).

                                       40
15 U.S.C. § 80b-3(e)(5)–(6) & (f). The SEC concluded that both conditions

had been met.

     Mr. Malouf argues that

          he did not act willfully,

          the SEC penalized him for defending himself, and

          the public interest did not support a lifetime bar in light of his
           disclosures preceding the SEC investigation and his payment of
           restitution and civil penalties.

We reject these arguments.

     First, according to Mr. Malouf, the SEC’s finding of willfulness must

have been based on his failure to require disclosure from others. For this

argument, Mr. Malouf insists that he delegated the duty of disclosure. We

disagree. Mr. Malouf blames the chief compliance officer, but this officer

could not have been expected to disclose a conflict of interest that he had

not known about. See pp. 22, 26, above. The SEC thus did not abuse its

discretion in determining that Mr. Malouf had acted willfully.

     Second, Mr. Malouf contends that the SEC penalized him for

defending himself. We disagree. The SEC reasonably considered Mr.

Malouf’s failure to recognize his own wrongdoing. See Steadman v. SEC,

603 F.2d 1126, 1140 (5th Cir. 1979) (noting that a defendant’s admission

of wrongful conduct (or lack of an admission thereof) is a factor “that

[has] been deemed relevant to the issuance of an injunction” from the

                                       41
securities industry), aff’d, 450 U.S. 91 (1981); ZPR Inv. Mgmt. Inc. v. SEC,

861 F.3d 1239, 1255 (11th Cir. 2017) (upholding a bar on continued work

in an industry when the SEC found that the petitioner had not genuinely

acknowledged his wrongdoing). Consideration of one’s acceptance of

responsibility constitutes “a routine and unexceptionable feature . . . of

criminal, let alone civil, punishment.” SEC v. Lipson, 278 F.3d 656, 664

(7th Cir. 2002). And the agency record is replete with examples of Mr.

Malouf’s refusal to accept responsibility for his actions. The SEC thus did

not abuse its discretion in considering Mr. Malouf’s failure to accept

responsibility.

      Finally, Mr. Malouf stresses his (1) disclosures preceding the SEC’s

investigation and (2) prior payment of huge sums in restitution and civil

penalties. But his earlier disclosures and payments do not render a lifetime

bar unreasonable. Mr. Malouf waited roughly three years before making the

disclosures. And for about nine months of that period, Mr. Malouf ignored

an outside consultant’s directions to make the disclosures. The SEC

considered Mr. Malouf’s delay together with his payments toward

restitution and civil penalties, concluding that a lifetime bar from the

securities industry was justified. The SEC’s reasoning is rational and

supported by the evidence.




                                      42
     B.    The SEC did not abuse its discretion in ordering
           disgorgement of $562,001.26 plus prejudgment interest.

     Mr. Malouf also asks us to vacate the SEC’s order that he disgorge

$562,001.26 plus prejudgment interest, arguing that he did not commit

fraud or violate the law. For this argument, he again casts blame on the

chief compliance officer for failing to disclose the financial arrangement

that created a conflict of interest. But we have elsewhere rejected Mr.

Malouf’s effort to pin the blame on the chief compliance officer. See pp.

22, 26, 41, above.

     Mr. Malouf also suggests that the SEC abused its discretion by

ordering him to disgorge the funds that he had received from Mr. Lamonde.

The administrative law judge had regarded those funds as legal profits that

Mr. Malouf did not need to disgorge. The SEC disagreed, concluding that

the payments had resulted from Mr. Malouf’s violations of the securities

laws. Mr. Malouf suggests that the SEC should have followed the

administrative law judge’s characterization of the payments.

     The SEC did not abuse its discretion. Mr. Malouf knew that he was

profiting when he and others at UASNM routed bond transactions through

the Raymond James branch. See Appellant’s App’x, vol. 4, at 941–42

(testimony of Mr. Malouf) (admitting that he traded through the Raymond

James branch in part to get paid). Yet Mr. Malouf waited years to tell

others at UASNM about his ongoing payments from Mr. Lamonde. Given

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this delay in disclosing the conflict, the SEC reasonably concluded that all

of the payments to Mr. Malouf were traceable to his misconduct and

needed to be disgorged. See SEC. v. Maxxon, Inc., 465 F.3d 1174, 1179

(10th Cir. 2006) (recognizing that the amount to be disgorged need only be

a “‘reasonable approximation’ of illegal profits”). We thus reject Mr.

Malouf’s challenge to the disgorgement order.

     Affirmed.




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