## Facts

- MacRobbins & Co., Inc., a registered broker-dealer, conducted a sales campaign primarily selling Sports Arenas, Inc. stock to public customers.
- The SEC found MacRobbins operated a high-pressure telephone “boiler-room” that used material misrepresentations and omissions about the stock’s value, prospects, and market.
- Irwin Berko was a registered representative employed by MacRobbins during the Sports Arenas sales campaign.
- The SEC found Berko made false and misleading statements (and misleading half-truths) to customers about Sports Arenas’ prospects, the investment’s safety and desirability, and the existence or character of a market for the stock.
- The SEC revoked MacRobbins’ broker-dealer registration and found Berko to be a “cause” of that revocation based on violations of Securities Act § 17(a), Exchange Act §§ 10(b) and 15(c)(1), and SEC Rules 10b-5 and 15c1-2.
- After an earlier judicial remand requiring clearer findings and a clearer legal theory, the SEC issued revised findings and reaffirmed its “cause” determination against Berko.

## Issues

1. Whether substantial evidence supported the SEC’s finding that Berko’s conduct made him a “cause” of MacRobbins’ broker-dealer registration revocation.
2. Whether the SEC’s post-remand findings and legal rationale were sufficiently clear and adequately addressed the prior remand.
3. What standard governs when an individual salesman may be deemed a “cause” of a firm’s registration revocation, and whether that standard was properly applied.

## Decision

- The court denied Berko’s petition for review and sustained the SEC’s order.
- The court held the SEC’s post-remand opinion provided adequate clarity and articulated a sufficient legal basis for its conclusions.
- The court held substantial evidence supported findings that Berko participated in deceptive sales practices involving material misrepresentations and omissions.
- The court accepted the SEC’s interpretation that a salesman who materially contributes to the fraudulent conduct underlying a revocation may be found a “cause” of that revocation.

## Legal Principles

- Securities Act § 17(a), Exchange Act §§ 10(b) and 15(c)(1), and SEC Rules 10b-5 and 15c1-2 prohibit fraudulent selling practices, including material misrepresentations, omissions, and deceptive courses of business in the offer or sale of securities.
- Under Exchange Act §§ 15(b) and 15A(b)(4), an associated person may be found a “cause” of a broker-dealer registration revocation when the person’s misconduct is a meaningful contributor to the violations supporting revocation.
- On review, courts uphold SEC findings if supported by substantial evidence and generally defer to the SEC’s reasonable construction of the securities laws within its administrative competence.

## Conclusion

The Second Circuit upheld the SEC’s determination that Berko’s participation in a misleading, high-pressure sales campaign for Sports Arenas stock constituted antifraud violations and materially contributed to the misconduct warranting revocation of his firm’s registration, making him a “cause” of the revocation.


Berko v. Sec. & Exch. Comm’n, 316 F.2d 137 (2d Cir. 1963)