In Bartko v. SEC, 845 F.3d 1217 (D.C. Cir. 2017), Gregory Bartko petitioned the United States Court of Appeals for the District of Columbia Circuit for review of an order from the Commission imposing a collateral bar that prohibited association with six classes of securities market participants. The Court granted in part and denied in part Bartko’s petition, finding that the Commission had impermissibly applied the collateral bar retroactively. 

According to the allegations, Bartko was convicted of, among other things, selling unregistered securities. An Administrative Law Judge (“ALJ”) further recommended that Bartko be barred from associating with not only broker-dealer classes, but also investment advisers, municipal securities dealer, and transfer agent classes. The Commission affirmed the ALJ’s Order, and further extended the collateral bar to include municipal advisors and nationally recognized rating’s organization (“NRSRO”) classes. 

Bartko argued on appeal that, because his conduct had occurred prior to the adoption of Dodd-Frank, the imposition of a bar represented the application of an impermissible retroactive penalty. 

The Commission has the authority to impose a collateral bar in section 203(f) of the Investment Advisers Act of 1940, and section 15(b) of the Securities Exchange Act of 1934. Generally, to impose this sanction the Commission must demonstrate; (1) the penalty was in the public interest, (2) the participant was convicted of a specified offense within the last ten years or had been enjoined by the Commission from working in the industry, and (3) the participant was associated with – or was attempting to be associated with – one of the classes either at the time of the alleged misconduct or at the time of registration. 

In Teicher v. SEC, 177 F.3d 1016, 1019-20 (D.C. Cir. 1999), the court found that the Commission could only bar associations where the defendant had a nexus. Dodd-Frank, however, altered the holding by empowering the Commission to grant collateral bars to all six classes, even absent a nexus. See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 11-203, 124 Stat. 1376 (2010). 

The Due Process Clause generally imposes a presumption against the retroactive application of legislation to events completed prior to enactment. This presumption is only overcome by clear Congressional intent to the contrary. Here, the Court found that Congress did not expressly authorize the retroactive application of the extended collateral bar created by Dodd-Frank. Moreover, the court found that the changes constituted “new legal consequences” that could not be characterized as procedural. As a result, the Commission lacked the ability to apply the bars retroactively and could not, therefore, bar Bartko from association with the investment adviser, municipal securities dealer and transfer agent classes. 

Accordingly, Bartko succeeded in his petition that challenged the investment advisor, municipal securities, and transfer agent bar classes. The remainder of Bartko’s petition was denied.

The primary material for this case can be found on the DU Corporate Governance Website.