Before: Wald, Ginsburg and Henderson, Circuit Judges.
FOR THE DISTRICT OF COLUMBIA CIRCUIT
On Petition for Review of an Order of the Securities and Exchange Commission
Opinion for the Court filed by Circuit Judge Wald.
Two years ago, in 3M Company v. Browner, 17 F.3d 1453 (D.C. Cir. 1994), we held that the five-year statute of limitations of 28 U.S.C. Section(s) 2462 applies not only to judicial proceedings but also to administrative proceedings. In this case, we decide that a Securities and Exchange Commission ("SEC") proceeding resulting in a censure and a six-month disciplinary suspension of a securities industry supervisor was a proceeding "for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise," within the meaning of Section(s) 2462. Accordingly we grant petitioner Patricia A. Johnson's petition for review and vacate the SEC's order imposing sanctions on her.
Patricia A. Johnson was the branch manager of PaineWebber, Inc.'s Beverly Hills, California office from November 1984 to April 1991. Among the employees she supervised was David Zetterstrom, an account representative who allegedly stole more than $114,000 from his customers between 1987 and 1988 by writing unauthorized checks against their accounts. Though Johnson was unaware of these thefts, she had received other complaints about Zetterstrom's handling of customer accounts which eventually led her to place him on probation, and then fire him, on June 10, 1988. Three days after he was fired, Zetterstrom committed suicide. After terminating Zetterstrom's employment, Johnson further investigated his activities and learned for the first time that he had stolen clients' funds. PaineWebber began an internal audit, and notified the SEC, which began its own investigation in June 1988. More than five years later, on October 26, 1993, the SEC brought formal charges against Johnson, alleging that she had "failed reasonably to supervise [Zetterstrom] ... within the meaning of Section 15(b)(4)(E) of the Exchange Act." Order Instituting Public Administrative Proceedings, reprinted in App. 14. *fn1 The SEC alleged that Johnson had allowed Zetterstrom to issue checks drawn from his customers' accounts without first obtaining from them the required letters of authorization, and that Johnson-even after preliminary evidence of Zetterstrom's wrongdoing had come to light-had allowed him continued access to customers' funds, thereby facilitating his thievery.
In the administrative proceedings, Johnson conceded that Zetterstrom had stolen money from his customers, but disputed the SEC's allegation that her supervision of him was unreasonable. In addition, Johnson claimed that the SEC's action was barred by the general five-year statute of limitations of 28 U.S.C. Section(s) 2462: Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued....
The SEC denied Johnson's motion to dismiss under Section(s) 2462, holding in February 1994 that "[s]ection 2462 does not apply to Commission administrative proceedings." Order Denying Motion to Dismiss at 7, reprinted in App. 72. The SEC's position, however, was severely undercut less than two weeks later when this court decided 3M, rejecting the view that Section(s) 2462 applies only to judicial proceedings and holding that Section(s) 2462 applies to administrative proceedings as well. 17 F.3d at 1457.
Notwithstanding the 3M decision, an SEC Administrative Law Judge ("ALJ") held hearings and issued a decision in Johnson's case, finding that she had failed reasonably to supervise Zetterstrom, and imposing a six-month "supervisory suspension" on her. Johnson petitioned the SEC for review of the ALJ's decision, again seeking dismissal based on the statute of limitations.
Evaluating Johnson's second petition in light of 3M, the SEC articulated another theory for rejecting her claim, holding this time that Section(s) 2462 should not apply because the "proceeding before us does not seek to impose a civil penalty, but rather to determine the appropriate remedial action. The intent of Johnson's suspension is to protect the public from future harm at her hands." Opinion of the Commission at 11, reprinted in App. 83 (emphasis added). Finally, the SEC affirmed the ALJ's finding that Johnson had failed reasonably to supervise Zetterstrom, and issued an order saying:
On the basis of the Commission's opinion issued this day, it is ORDERED that Patricia A. Johnson be, and hereby is, censured and suspended from acting in a supervisory ...