 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued February 6, 2012                Decided June 19, 2012

                         No. 11-1082

                       DAN RAPOPORT,
                        PETITIONER

                              v.

          SECURITIES AND EXCHANGE COMMISSION,
                       RESPONDENT


              On Petition for Review of an Order
          of the Securities & Exchange Commission


     Michael Hanin argued the cause for petitioner. With him
on the briefs was Leigh McMullan-Bellas.

     Jeffrey A. Berger, Senior Counsel, Securities and Exchange
Commission, argued the cause for respondent. With him on the
brief were Michael A. Conley, Deputy General Counsel, Jacob
H. Stillman, Solicitor, and John W. Avery, Deputy Solicitor.

    Before: SENTELLE, Chief Judge, GRIFFITH, Circuit Judge,
and WILLIAMS, Senior Circuit Judge.

    Opinion for the Court filed by Chief Judge SENTELLE.

     SENTELLE, Chief Judge: Dan Rapoport, a Russian citizen,
petitions this Court to review the Default Order the Securities
                               2

and Exchange Commission (SEC or the Commission) entered
against him for failing to respond to administrative proceedings
initiated by the Commission on allegations that Rapoport
violated Section 15(a) of the Securities Exchange Act of 1934
(Exchange Act). Among other things, Section 15(a) prohibits
brokers and dealers from soliciting U.S. customers to engage in
any securities transaction unless the broker or dealer is
registered with the SEC or a U.S. self-regulatory organization.
Rapoport argues that the Commission arbitrarily applied
Exchange Act Rule 155(b), 17 C.F.R. § 201.155(b), which gives
the Commission discretion to set aside default orders “for good
cause shown.”

     We agree with Rapoport that the Commission’s application
of Rule 155(b) was inconsistent with its precedent and therefore
arbitrary. Accordingly, we grant the petition for review, vacate
the Commission’s order denying Rapoport’s motion to set aside
the default entered against him, and remand for further
proceedings.

                        I. Background

    Because the procedural background of this case lies at the
heart of Rapoport’s petition, we provide here a detailed
summary of the events culminating in our review of this matter.

    A. The Order Instituting Proceedings

     On December 8, 2008, the SEC Division of Enforcement
filed an Order Instituting Proceedings (OIP) against OOO-
CentreInvest Securities (CI-Moscow), a Moscow-based broker-
dealer specializing in the sale of second-tier Russian equities.
The Division alleged violations of SEC registration, reporting,
and record-keeping requirements from 2003 through 2007. The
OIP also named as respondents CI-Moscow’s United States
                                3

affiliate, CentreInvest, Inc. (CI-New York), along with several
of the companies’ United States and Russian employees,
including Dan Rapoport. The allegations contained in the OIP
form the entirety of the Commission’s case against Rapoport.
They are as follows:

     The OIP alleges that Rapoport, a Russian resident, joined
CI-Moscow in 1995, and in 1999, relocated to New York City
to work as a managing director of CI-New York. Rapoport
returned to CI-Moscow in 2003, where he oversaw both CI-
Moscow and CI-New York’s brokerage operations. At some
point, he was promoted to executive director of CI-Moscow.

     The OIP alleges that from 2003 until at least November
2007, “CI-New York was under the control of CI-Moscow.” It
further alleges that “CI-Moscow and Rapoport controlled” the
New York entity by, inter alia, supervising and directing the
staff of CI-New York and controlling its budget and finances.
It further states that employees of CI-New York referred to
Rapoport as the “boss” and to the Moscow entity as the “parent
broker-dealer” of CI-New York.

     The OIP alleges that CI-Moscow never registered as a
foreign broker-dealer with the SEC. While Rapoport was
working in New York, he was a registered representative, but
after his return to Moscow, he was not registered or licensed to
sell securities in the United States. Further, from “about 2003
until November 2007,” CI-Moscow and Rapoport “solicited
institutional investors in the United States to purchase and sell
thinly-traded stocks of Russian companies . . . without
registering as a broker-dealer as required by Section 15(a) of the
Exchange Act” or meeting the requirements for exemption from
registration for foreign broker-dealers under Exchange Act Rule
15a-6(a). The OIP alleges that Rapoport instructed CI-New
York’s employees to solicit U.S. institutional investors to
                                4

transact in the securities and to direct the investors to CI-
Moscow to complete the transaction, and in some cases,
Rapoport solicited the investors directly. It states that Rapoport
knew that any CI-Moscow representative soliciting U.S.
investors would have to be registered with the Commission or
a U.S. self-regulatory organization.

     The OIP concludes: “As a result of the conduct described
above, CI-Moscow and Rapoport willfully violated Section
15(a) of the Exchange Act . . . .” The OIP alleges more
generally that all of the respondents benefitted financially from
these transactions.

     Although the OIP leveled somewhat more specific
allegations regarding the conduct of other CI-New York
employees, the allegations described above represent the extent
of the Enforcement Division’s statements in the OIP about
Rapoport. It did not cite a single specific instance in which
Rapoport or the other respondents solicited a U.S. investor.

    B. Service Procedures

    In December 2008, the Enforcement Division served the
OIP on CI-New York and on attorneys for the other U.S.
respondents. On December 15, 2008, the Division moved to
serve the OIP on Rapoport and the other Russian respondents
through their U.S. counsel because Russian authorities refuse to
execute U.S. requests for service of process. The Division’s
motion relied on SEC Rule of Practice 141(a)(2)(iv), which
provides that “[n]otice of a proceeding to a person in a foreign
country may be made . . . by any . . . method reasonably
calculated to give notice, provided that the method of service
used is not prohibited by the law of the foreign country.”
                               5

     New York attorney Richard Kraut filed a memorandum in
opposition to the Division’s motion to serve Rapoport via Kraut.
The memorandum included a footnote stating that Kraut
“appear[s] solely for the purpose of opposing the Division’s
motion. By submitting this Memorandum, [Rapoport] do[es]
not admit to the Commission’s jurisdiction over [him].”

     The Administrative Law Judge (ALJ) granted the
Enforcement Division’s motion to serve foreign representatives
by serving their U.S. counsel. Thereafter, Rapoport moved for
vacatur or reconsideration. On February 5, 2009, the ALJ
denied the motion for vacatur or reconsideration and ordered
that the service of the OIP on Rapoport and another Russian
respondent be considered effective as of January 8, 2009, the
last date on which the “Foreign Respondents received the OIP
as confirmed by return receipt of certified mail.” On February
12, 2009, Kraut filed notice of his withdrawal of his
representation of Rapoport, effective February 5, 2009.
Rapoport never suggested that he did not receive actual notice
of the issuance of the OIP or the February 5, 2009 order. At oral
argument, Rapoport’s current counsel confirmed that Rapoport
does not contend that he was unaware of the SEC proceedings.

    C. The Default Order

     Rapoport did not respond to the OIP. On April 8, 2009, the
Division moved for the ALJ to enter a default judgment against
Rapoport. The motion was served on Kraut by Federal Express,
although there is no indication it was served on Rapoport
personally. Rapoport did not file an answer or opposition to the
motion. The ALJ notified Rapoport of pre-hearing conferences
by sending scheduling orders to his Moscow business address.
Rapoport did not participate in those conferences.
                                6

    On July 31, 2009, the ALJ entered the Default Order
imposing sanctions on Rapoport and the other respondents. A
copy of the Default Order was sent to Rapoport at his Moscow
business address. When Rapoport entered the United States on
October 23, 2009, a Customs officer personally served Rapoport
with a copy of the Order.

      In the Order, the ALJ explained that when a party is in
default, allegations in an OIP are deemed to be true as to that
party. 17 C.F.R. § 201.155(a). The ALJ recited the facts
pertaining to Rapoport almost verbatim from the OIP and added
no new facts. He noted particularly that the OIP “alleged that
. . . Rapoport willfully violated Section 15(a) of the Exchange
Act” by soliciting securities transactions with U.S. investors
without being registered. The ALJ reasoned that because he
could take the facts alleged in the OIP as true, and because the
OIP alleged that Rapoport willfully violated Section 15(a), he
could find that Rapoport “functioned as an unregistered broker
and willfully violated Section 15(a)(1) of the Exchange Act.”

     Based solely on that rationale and the facts alleged in the
OIP, the ALJ imposed sanctions on Rapoport. He ordered
Rapoport to cease and desist from committing Section 15(a)
violations, barred Rapoport from association with any broker or
dealer, and ordered Rapoport to provide an accounting of
income so he could be ordered to disgorge his ill-gotten gains
with prejudgment interest.

    The ALJ also imposed a civil monetary penalty on Rapoport
under Exchange Act Section 21B(b), 15 U.S.C. § 78u-2(b).
Section 21B(b) sets out three tiers of maximum penalties for
“each [violative] act or omission.”      The maximum penalty
applies to each act or omission and does not cap the total
penalty. To qualify for second tier penalties, the act or omission
must have “involved fraud, deceit, manipulation, or deliberate
                               7

or reckless disregard of a regulatory requirement.” 15 U.S.C.
§ 78u-2(b)(2). The ALJ imposed second-tier penalties, which
are capped at $65,000 for each act or omission committed by an
individual after February 14, 2005, and $60,000 before that date.
See 17 C.F.R. §§ 201.1002, .1003 (setting penalty amounts).
The ALJ acknowledged that the OIP did not suggest how many
individual violations Rapoport committed and stated that it was
“necessary to determine how to appropriately parse up the
violations committed by CI-New York, Rapoport, and
[Rapoport’s colleague] Yenin [and] whether to treat the entire
course of conduct as a single act or as a series of acts.”

     Immediately thereafter, without actually doing any parsing
or making any determinations, the ALJ opined that the
defaulting Respondents had acted recklessly or with deliberate
disregard of the regulatory requirements, and, thus, it was
appropriate to impose the maximum second tier penalties on
them. He calculated those penalties by imposing one maximum
penalty for each year of the violative conduct—not by adding up
alleged individual acts or omissions (and, indeed, he could not
do so because the Enforcement Division never listed any in the
OIP). The ALJ ordered Rapoport to pay a total penalty of
$550,000. However, the ALJ realized upon Rapoport’s later
motion that he had miscalculated the sanctions and reduced
Rapoport’s penalty to $315,000.

    D. First Motion to Set Aside: ALJ Review

     On December 23, 2009, Rapoport’s new counsel entered his
notice of appearance and moved to set aside the default
judgment as to Rapoport pursuant to Exchange Act Rule 155(b),
which allows an ALJ or the Commission to set aside a default
“for good cause shown.” 17 C.F.R. § 201.155(b). Under Rule
155(b), a defaulting party’s motion must meet three
requirements: it must be filed “within a reasonable time”; it
                               8

must state his reasons for failing to defend the underlying
proceeding; and it must specify the nature of the defenses he
proposes to mount against the underlying proceeding. Id.

     On March 22, 2010, the ALJ denied Rapoport’s motion on
the grounds that Rapoport did not file his motion “within a
reasonable amount of time,” nor did Rapoport adequately
explain why he had failed to defend the OIP. The ALJ reviewed
each of Rapoport’s proposed defenses to the OIP, including his
denial of the allegations in the OIP. At this late point, the ALJ
cited record evidence to show that Rapoport had in fact solicited
U.S. investors without registering with the Commission. After
reviewing and countering all of Rapoport’s proposed defenses,
the ALJ concluded that they had “no likelihood of success under
the Commission case law,” so setting aside the Default Order
was not necessary to prevent injustice. As mentioned above, the
ALJ did recalculate the second-tier sanctions but otherwise
denied Rapoport’s motion to set aside the Order.

    E. Second Motion to Set Aside: Commission Review

     Next, Rapoport filed a motion with the SEC to set aside the
Default Order, which it denied on January 2, 2011. The
Commission provided a condensed version of the facts alleged
in the OIP that were included in the Default Order, and recited
the events culminating in the entry of the Default Order and the
law judge’s refusal to set aside the Order.

     The Commission examined Rapoport’s asserted reasons for
failing to defend the proceeding and found that those reasons did
not support setting aside the Default Order. The Commission
also found that Rapoport did not file his Motion to Set Aside in
a reasonable amount of time. The Commission looked to the
date of service of the OIP—January 8, 2009—as the first date
Rapoport could have been put on notice that default was a
                               9

possibility. The Commission recognized that Rapoport actually
went into default on March 2, 2009, when he failed to file his
answer to the Division’s default motion. The Commission then
looked to the date the ALJ entered the Default Order—July 31,
2009—to determine that Rapoport waited almost five months to
file the motion. The Commission also mentioned the date that
the customs officer served Rapoport personally with the Default
Order.

    The Commission recognized that the text of Rule 155(b)
requires a party moving to set aside a default order to state his
proposed defenses. It reasoned, however, that “[i]f Rapoport
had established that his reasons for the failure to defend the
proceeding supported setting aside the Default order, and that
Motion to Set Aside I was filed within a reasonable time, then
we would consider whether his proposed defenses had potential
merit.” But because Rapoport did not file his motion within a
reasonable time and had offered no good reason for failing to
defend the proceedings, the Commission decided that
“[e]valuating the merits of his defenses would in effect grant
him the hearing that he chose to forego by failing to defend the
proceeding.” Instead, the Commission opined, respondents
should be motivated to participate in proceedings knowing that
a default order can be entered on the basis of allegations in the
OIP.

    The Commission concluded that it was “not unjust” for the
ALJ to issue the Default Order or to impose the sanctions.
Rapoport now petitions this Court to review the Commission’s
application of Rule 155(b), as well as the Commission’s
imposition of sanctions on him.
                               10


                   II. Standard of Review

     Under the Administrative Procedure Act, we must uphold
the Commission’s legal conclusions unless they are “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A); see Rockies Fund,
Inc. v. SEC, 428 F.3d 1088, 1092-93 (D.C. Cir. 2005). We
defer to the Commission’s factual findings if they are supported
by substantial evidence. 15 U.S.C. § 78(a)(4).

                    III. SEC Rule 155(b)

    Securities and Exchange Commission Rule 155(b) states:

    A motion to set aside a default shall be made within a
    reasonable time, state the reasons for the failure to appear
    or defend, and specify the nature of the proposed defense in
    the proceeding. In order to prevent injustice and on such
    conditions as may be appropriate, the [ALJ], at any time
    prior to the filing of the initial decision, or the Commission,
    at any time, may for good cause shown set aside a default.

17 C.F.R. § 201.155(b).

     Rapoport first posits that because Rule 155(b) includes
wording similar to Federal Rule of Civil Procedure 55(c), which
provides that “[t]he court may set aside an entry of default for
good cause . . .,” the SEC must interpret the term “good cause”
in the same way that federal courts have interpreted the term.
Specifically, he argues that before declining to set aside a
default order, the Commission must consider three factors,
including (1) the willfulness of the default; (2) whether setting
aside the default order would prejudice the Commission; and (3)
whether the defaulting party has offered a meritorious defense.
                                11

See, e.g., Keegel v. Key West & Caribbean Trading Co., 627
F.2d 372, 373 (D.C. Cir. 1980). Rapoport contends that,
because the Commission did not consider those three factors, we
must set aside the entry of the Default Order against him.

     If an agency adopts a rule of practice similar to a long-
established and much-used federal rule, it would assist persons
subject to the agency’s jurisdiction, as well as the administrative
law judges and commissioners who must apply the rule, if that
agency would explain how its rule is to be understood and
highlight significant deviations from the federal standard. The
Commission, however, is not bound to interpret its own rule in
the same way federal courts interpret their rule, even if the two
rules are worded similarly. The SEC is “free to fashion [its]
own rules of procedure.” Vermont Yankee Nuclear Power Corp.
v. Natural Resources Def. Council, Inc., 435 U.S. 519, 543
(1978). It may tailor those rules “to the peculiarities of the
industry and the tasks of the agency involved.” FCC v.
Schreiber, 381 U.S. 279, 290 (1965). We defer to the
Commission’s interpretations of its own rules unless they are
“plainly erroneous or inconsistent” with its regulations. Auer v.
Robbins, 519 U.S. 452, 461 (1997); Cement Kiln Recycling
Coalition v. EPA, 493 F.3d 207, 220 (D.C. Cir. 2007). See also
Dixon v. Love, 431 U.S. 105, 115 (1977) (“[P]rocedural due
process in the administrative setting does not always require
application of the judicial model.”); McClelland v. Andrus, 606
F.2d 1278, 1285 (D.C. Cir. 1979) (“[A]gencies need not observe
all the rules and formalities applicable to courtroom
proceedings.”).

    That said, agencies must apply their rules consistently.
They may not depart from their precedent without explaining
why. If they do, “we have no choice but to remand for a
reasoned explanation.” Verizon Tel. Cos. v. FCC, 570 F.3d 294,
304-05 (D.C. Cir. 2009). The Supreme Court has explained that
                               12

“[i]f the administrative action is to be tested by the basis upon
which it purports to rest, that basis must be set forth with such
clarity as to be understandable. It will not do for a court to be
compelled to guess at the theory underlying the agency’s action;
nor can a court be expected to chisel that which must be precise
from what the agency has left vague and indecisive.” SEC v.
Chenery Corp., 332 U.S. 194, 196-97 (1947).

    In this case, the SEC has both departed from its own
precedent and left its Rule 155(b) interpretation “vague and
indecisive” in at least two ways—first, with regard to which
requirements the Commission must consider in rendering a
decision under Rule 155(b), and second, with regard to the rule’s
timing requirement.

    1. Rule 155(b) Requirements

     Rule 155(b) establishes three requirements for motions to
set aside defaults. They must (1) “be made within a reasonable
time”; (2) “state the reasons for the failure to appear or defend”
the original proceeding; and (3) “specify the nature of the
proposed defense” to the original proceeding. 17 C.F.R.
§ 201.155(b). If the Commission determines that the petitioner
has shown “good cause” for setting aside the default, then the
Commission may do so at its discretion at any time. Id.

      Here, the Commission determined that Rapoport filed his
first motion to set aside the default after an unreasonable amount
of time had passed—a determination we discuss below. It also
concluded that Rapoport’s reasons for failing to defend the OIP
lacked merit. Then the Commission reasoned that because
Rapoport failed to meet the timeliness requirement and had not
offered a satisfactory explanation for why he failed to defend the
OIP, the Commission would not consider Rapoport’s proposed
defenses to the OIP because “[e]valuating the merits of his
                                13

defenses would in effect grant him the hearing that he chose to
forego by failing to defend the proceeding.”

     Rapoport contends that the Commission should be required
to consider all three requirements of Rule 155(b). In its main
brief, the Commission argues that in previous cases “the
Commission has declined to consider proposed defenses when
defaulting parties cannot justify their failure to answer or do not
timely move to set aside the default.” Respondent’s Br. at 21.
To support this argument, the Commission cites In re Hellen, 55
S.E.C. 248 (2001); In re Ainbinder, 1997 SEC LEXIS 2062
(Oct. 1, 1997); In re Bullard, 1995 SEC LEXIS 3049 (Nov. 9,
1995); and In re Richards, 1994 SEC LEXIS 2663 (Aug. 29,
1994). The problem is, not one of these cases actually supports
that argument. In none of these cases did the Commission
choose to ignore a petitioner’s proposed defenses because the
petitioner failed to meet the first two requirements of Rule
155(b).

     In Hellen and Richards, the SEC found that the petitioners
did not timely file their motions, and did not present valid
reasons for failing to defend the OIPs, but neither Hellen nor
Richards included any proposed defenses in their motions. 55
S.E.C. at 249-50; 1994 SEC LEXIS 2663, at *8. In those cases,
the Commission could not decline to consider what the parties
did not provide.

     In Ainbinder, the SEC found that Ainbinder did not file his
motion within a reasonable time and that his reason for failing
to respond to the OIP was insufficient. 1997 SEC LEXIS 2062,
at *2-3. The Commission did not state whether Ainbinder
proposed any defenses. See id.

     In Bullard, the Commission found that Bullard timely filed
his motion but did not present sufficient reasons for failing to
                                14

respond to the proceedings. Nor did he specify any defenses.
1995 SEC LEXIS 3049, at *3-4.

     In the hope of obtaining greater clarity on this issue, during
oral argument, we asked counsel to supplement their main briefs
with a discussion of the past application of Rule 155(b),
specifically regarding whether the Commission previously has
refused to consider a petitioner’s proposed defenses included in
his Rule 155(b) motion. The Commission submitted a
supplemental brief containing every Commission decision it
could find addressing a motion to set aside a default, which
included the four decisions discussed above and three additional
decisions.

     The first additional decision, In re Birman Managed Care,
2008 SEC LEXIS 2810 (Sept. 23, 2008), appears to be an ALJ
order, not a binding Commission decision; thus, we do not
consider it here. In the second, In re Rolandi Securities Corp.,
1972 SEC LEXIS 738 (Apr. 12, 1972), the Commission granted
a motion to set aside a default because the Division of
Enforcement consented to the motion. It is therefore irrelevant
to this case. In the final decision, the Commission granted the
petitioner’s motion to set aside a default. In re Kern, 2005 SEC
LEXIS 744, at *3-5 (Feb. 1, 2005). It found that the motion was
timely, and, without discussing any details of the proposed
defenses, the Commission decided to “accept the proposed
answer as an appropriate response” and set aside the default. Id.

     Retreating from its position that the Commission previously
had refused to consider proposed defenses in cases in which
petitioners failed to meet the first two Rule 155(b) requirements,
the Commission characterized the seven cases as standing for
the broader proposition that when petitioners fail to meet any
one of the three requirements, the Commission customarily has
declined to consider whether the petitioner has met the other
                                15

two. Once again, the SEC mischaracterizes its precedent. As
discussed above, in Hellen, Richards, and Bullard, the petitioner
did not state any defenses; in Ainbinder, we do not know if the
petitioner stated defenses; and in Kern, the Commission granted
the motion and accepted the proposed defenses without
explaining what those defenses were or what reasons for the
petitioner’s failure to respond to the OIP constituted a sufficient
explanation.

     We do not suggest that the Commission could not interpret
Rule 155(b) in the manner it now proposes. Rather, we hold that
the Commission has not provided a consistent interpretation of
the Rule nor justified the apparent inconsistency of its
application. Although the Commission is not bound to follow
its precedent, it may not depart from its precedent without
offering a reasoned explanation. See Verizon Tel. Cos., 570 F.3d
at 304-05. It has not provided such an explanation here.

    2. Timing

     The Commission also has failed to provide any intelligible
standard to assess what constitutes a “reasonable” amount of
time for filing a motion to set aside a default under Rule 155(b).
In Ainbinder, the Commission started the clock on the date the
default order was entered and tolled it four years later when the
Commission received Ainbinder’s motion. 1997 SEC LEXIS
2062, at *1-3. Because Ainbinder went to the Commission’s
New York office six months after the default was ordered to
confirm the default, however, the Commission also suggested
that it might look to the date of the confirmation to start the
clock—but even so, Ainbinder did not act in a reasonable
amount of time. 1997 SEC LEXIS 2062, at *3.

     In Richards, the Commission found that the twenty-one
years that elapsed between the entry of the default order and the
                               16

filing of the petitioner’s motion to set aside the default did not
constitute a reasonable amount of time. 1994 SEC LEXIS 2663,
at *1, *4. In Hellen, the Commission also started the
“reasonable time” clock on the date the default order was
entered. It tolled the clock the day Hellen requested to set
aside the default, almost a year later, which the Commission
found to be an unreasonable amount of time. 55 S.E.C. at 248-
49. In Bullard and Kern, the Commission started the clock on
the day the default was entered, and found the petitioners’
motions, filed five days and fourteen days later, respectively, to
be timely. 1995 SEC LEXIS 3049, at *2-3; 2005 SEC LEXIS
744, at *4.

    Here, the Commission looked to several dates to start the
clock. The Commission explained that to determine whether
Rapoport acted within a reasonable amount of time, “we look at
more than just the date that he was personally served with the
Default Order.” This statement thus suggests that the
Commission did, in some fashion, look to the date Rapoport was
personally served, which was not a consideration in any
previous SEC decision.

     The Commission went on to suggest that the OIP itself put
Rapoport on notice of the possibility of default. The
Commission also noted that the Enforcement Division filed its
Default Motion on April 9, 2009, and that the judge waited until
July 31, 2009, more than three months later, to issue the Default
Order, which was mailed to Rapoport that same day in Moscow.
The Commission reasoned that not only did Rapoport wait five
months to file his motion after the Default Order was entered, he
had “been on notice of the possibility of default for more than
eleven months . . . and had been in default for more than nine
months (since he failed to file his answer by March 2).” The
Commission added that under the circumstances just described,
it found that Rapoport did not move to set aside the Default
                               17

Order within a reasonable time “when he filed Motion to Set
Aside I two months after he was personally served with the
Default Order.”

     We are not able to discern that the Commission has set forth
a principled way in which to determine on what date the
“reasonable time” clock starts running. The Commission
generally looks to the entry of a default order, but it might also
look to the date a petitioner shows up in its branch office to
confirm a default, as in Ainbinder, or it might look to the date
the OIP was served, the date the Enforcement Division filed its
motion for default, or the date that a petitioner was personally
served with the default order—all of which the Commission
cited here—to inform its decision.

     The Commission also has not stated with any clarity how it
determined the reasonableness of the time by which a petitioner
must file a motion to set aside a default. From Hellen, we know
that a one-year time lapse between the entry of the default order
and the petitioner’s motion was an unreasonable amount of time
on the facts of that case. In Kern, it found that fourteen days
was reasonable. But the Commission decision before us cites
the eleven months that elapsed since the filing of the OIP, the
nine months Rapoport actually was in default, the five months
from the entry of the Default Order, and the two months that
elapsed after Rapoport was personally served as possible
unreasonable amounts of time. Although agencies have
flexibility in interpreting their own rules, their interpretations
must not be “vague and indecisive.” See Chenery Corp., 332
U.S. at 197. As we have stated before, “We cannot defer to
what we cannot perceive.” Int’l Longshoreman’s Ass’n v. Nat’l
Mediation Bd., 870 F.2d 733, 736 (D.C. Cir. 1989). The
Commission has left “vague and indecisive” the date that starts
the “reasonable time” clock, as well as the amount of time
considered reasonable.
                               18

                         IV. Sanctions

     As an alternative argument, Rapoport has requested that we
vacate the sanctions imposed on him by the Commission. In
considering its further disposition of Rapoport’s motion after our
remand, we suggest that the Commission should give careful
review to the law judge’s analysis in the Default Order, which
the Commission apparently relied upon in its earlier disposition.
That analysis was inaccurate as well as inadequate to support the
maximum second-tier civil penalties, even given our
extraordinarily deferential review of SEC sanctions. See Butz
v. Glover Livestock Comm’n Co., 411 U.S. 182, 185-86 (1973)
(SEC sanctions are not to be disturbed unless they are
“unwarranted in law or . . . without justification in fact.”).

     The law judge’s reasoning was inaccurate because he
applied a faulty formula to calculate the penalties. Under 15
U.S.C. § 78u-2(a), the Commission may assess civil monetary
penalties against any person the Commission finds has “willfully
violated” various securities regulations. If the violation
“involved fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement,” the Commission may
impose “second tier” penalties. The Commission periodically
adjusts the maximum penalty amounts. From 2001 to February
15, 2005, the maximum penalty per violative act or omission
was $60,000. 17 C.F.R. § 201.1002. From February 15, 2005,
to the conclusion of the relevant events alleged in the OIP in
2007, the maximum amount was increased to $65,000 for each
violation. 17 C.F.R. § 201.1003.

     In the Default Order, the ALJ explained that the Division’s
OIP “gives no indication as to the number of violations it
believes CI-New York, Rapoport, and [Rapoport’s colleague]
Yenin committed in the course of the improper solicitation of
U.S. investors, occurring over the course of five years.”
                                 19

Therefore, the ALJ reasoned, “it is necessary to determine how
to appropriately parse up the violations committed by CI-New
York, Rapoport, and Yenin; whether to treat the entire course of
conduct as a single act or as a series of acts, as to which multiple
penalties would be appropriate.”

     Having said that, the ALJ did not undertake any such
parsing. Immediately after stating that parsing needed to be
done, he wrote: “In this case, the actions of the defaulting
Respondents demonstrate deliberate or reckless disregard of
regulatory requirements. Accordingly, it is appropriate that each
of the defaulting Respondents shall pay a second-tier penalty.”
He imposed the maximum penalty on each respondent five
times—once for each year the alleged solicitations occurred.

     In his order denying Rapoport’s Motion to Set Aside the
Default Order, the ALJ confirmed that the original Default
Order provides “that the civil penalty was to be calculated to
reflect the assessment of maximum second-tier penalties of
$60,000 each year for conduct that occurred in 2003 and 2004
and $65,000 each year for 2005, 2006, and 2007,” resulting in
a sanction of $315,000.

     These calculations do not follow the formula set by the
statute. To impose second-tier penalties, the Commission must
determine how many violations occurred and how many
violations are attributable to each person, as the statute instructs.

     Further, to impose second-tier penalties at all (much less the
maximum penalty), the Commission must find that Rapoport
“willfully” violated Exchange Act Section 15(a) and that he did
so with “deliberate or reckless disregard” of the registration
requirements. See 15 U.S.C. § 78u-2(a). The only statements
in the OIP that support the second-tier penalties are several
conclusory allegations that Rapoport “willfully violated Section
                              20

15(a) of the Exchange Act” and that he “knew” that CI-Moscow
employees soliciting U.S. investors had to be registered.
Although the ALJ could deem as true allegations in the OIP
once Rapoport defaulted, see 17 C.F.R. § 201.155(a), these
conclusory allegations that Rapoport willfully committed these
violations are not enough to justify imposing maximum second-
tier penalties without further explanation. As we have held
before, the SEC must provide some meaningful explanation for
imposing sanctions. Once again, as in Rockies Fund, the
Commission’s analysis, via the ALJ, “was not just superficial;
it was nonexistent.” See 428 F.3d at 1099.

                        V. Conclusion

     For the foregoing reasons, we grant Rapoport’s petition for
review, vacate the Commission’s order, and remand to the
Commission for further proceedings.
