Even convicted felons are entitled to due process.
Byron S. Rainner, a former registered representative for MetLife Financial Services, pleaded guilty in Georgia federal court to one count of wire fraud involving a scheme that targeted the Sheriff's Office of Fulton County, Georgia (clearly, not the best patsy a wannabe felon could have chosen). On November 20, 2006, Rainner was sentenced to a prison term of 30 months followed by three years of supervised probation, and was ordered to make restitution in the amount of just over $2 million.
I'm Stuck In Folsom Prison
On September 25, 2007, the Securities and Exchange Commission issued an Order Instituting Proceedings to bar Rainner as a statutorily disqualified individual because of his felony conviction. While incarcerated, Rainner requested on October 30, 2007, that the Administrative Law Judge (ALJ) order the Division of Enforcement (Enforcement) to copy and deliver its investigative file to him in prison. In response, Enforcement stated that it had provided Rainner with “the [eight] operative documents that we'll be relying on in this case:” the criminal indictment, plea, plea agreement and judgment; Rainner's Forms U4 and U5; and copies of MetLife's broker/dealer and investment advisor's organizational status reports.
He may have been sitting in a locked cell, but Rainner wanted to see the full investigative file — and he wanted it delivered to him. Enforcement argued that it had fully complied with the SEC's production rules by making some 20 boxes of investigative files available at its offices. Enforcement wrote to Rainner that he could have the files at his own expense, which was computed to be about $7,500 in copying charges.
The SEC's Rule of Practice 230 requires that Enforcement's investigative files be made “available for inspection and copying by any party.” No formal request is necessary, and the files can be inspected and copied at the offices where they are held or whatever other place is agreed upon. The respondent is expected to bear the cost of photocopying.
And Time Keeps Draggin' On
Suffice to say, the documents were not produced. Rainner had pleaded guilty to a felony. Case closed. On March 25, 2008, the ALJ granted Enforcement's motion for summary disposition and barred Rainner from association with any broker/dealer and any investment advisor.
Not surprisingly, Rainner appealed, asserting a denial of due process because of Enforcement's failure to furnish him with a copy of its investigative file. (Rainner agreed to pay the costs related to that request.) Indeed, Enforcement and the ALJ seemed to have developed selective amnesia of the SEC's caselaw when addressing Rainner's request. In the Matter of Jose P. Zollino (April 29, 2005), Enforcement agreed to provide to another convicted felon serving a 144-month sentence, eight banker's boxes of documents that constituted its investigative file. The boxes were delivered to the federal prison where respondent Zollino was incarcerated, but not prior to a scheduled pre-hearing conference where the SEC barred him as a statutorily disqualified felon. Following Zollino's appeal, the SEC found that the respondent had been denied a meaningful opportunity to participate at a pre-hearing conference and to review his files, and remanded the case.
But That Train Keeps A-Rollin'
In considering Rainner's appeal, the SEC cited Zollino and remanded the case because Rainner was not permitted to review Enforcement's entire investigative file. On remand, the ALJ was directed to ensure that Enforcement fully complies with Rule 230, and that Rainner (now on probation) receives a reasonable amount of time to review the investigative file before being required to file any pleadings in the case, such as a response to a motion for summary disposition by the Division. See In the Matter of Byron S. Rainner (December 2, 2008).