Securities and Exchange Commission v. Mattessich

Background

After a five-day jury trial, the jury found Adam Mattessich liable for aiding and abetting Cantor Fitzgerald’s violations of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(19), which the opinion calls the “Compensation Record Rule.” An aiding-and-abetting violation required proof that Cantor violated the rule, that Mattessich knew of or recklessly disregarded the violation, and that he substantially assisted it.

The trial evidence showed that Mattessich supervised traders at Cantor and received off-book commission payments from other Cantor employees. He received twelve checks from Joseph Ludovico in 2013 totaling $58,200, and the opinion states that he received monthly payments for approximately ten years, from about 2003 through 2013. The payments were not reflected in Cantor’s account-executive code system, which tracked who was supposed to receive commissions. Mattessich knew Cantor was required to keep commission records and helped administer the coding system.

Permanent injunction

The SEC sought a permanent injunction and a $240,000 civil penalty. The court construed the injunction request as applying only to future violations of the Compensation Record Rule because the SEC’s filings were unclear about whether it also sought an injunction concerning Section 17(a).

The court concluded that a permanent injunction was warranted because Mattessich’s conduct was not isolated, continued over many years, and involved recurring payments. The court also relied on the jury’s finding that he acted knowingly or recklessly, his knowledge that the payments were not recorded, his failure to obtain permission for the arrangements, and his failure to fully disclose them. The court said his continued disagreement with the wrongfulness of the conduct also supported an injunction.

The court considered Mattessich’s later work at Hondius Capital Management and Domain Money. Although the record was mixed about the precise nature of those positions and his securities licenses had expired, the court found that he had continued working in the securities industry and had held or sought trading-related roles. The court concluded that this created a risk of future violations. It rejected Mattessich’s argument that the injunction would improperly punish him, finding that the injunction was intended to protect the investing public from future violations.

Civil penalty

The court determined that twelve violations occurred in 2013, corresponding to the twelve checks Mattessich received from Ludovico. It rejected Mattessich’s argument that the conduct should count as one violation because it arose from a single commission-splitting arrangement.

The court acknowledged that the SEC presented no evidence that Cantor customers suffered losses. It nevertheless concluded that the compensation-record rule protects the investing public and that civil penalties serve both punishment and deterrence. The court also considered Mattessich’s claimed financial and personal hardships but found no basis to reduce the penalty based on his financial condition.

The court did not impose either side’s proposed amount. It rejected the SEC’s request for $240,000, or $20,000 per violation, because the SEC had not adequately explained that figure. It also rejected Mattessich’s proposed maximum of $58,200. Instead, the court imposed $15,000 per violation, for a total civil penalty of $180,000.

Disposition

The court granted in part the SEC’s motion for post-trial remedies, permanently enjoined Mattessich from future violations of the Compensation Record Rule, and imposed a civil penalty of $180,000. The court directed the clerk to terminate the pending motion and enter judgment in accordance with the opinion.