Fifth Circuit Upholds SEC Refusal to Modify Broker-Dealer's Settlement

The U.S. Court of Appeals for the Fifth Circuit unanimously denied a broker-dealer's petition for review, upholding the SEC's refusal to modify a 2024 settled order from its off-channel communications recordkeeping sweep under Exchange Act Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers").

The firm settled in August 2024, one of 26 broker-dealers and other regulated entities named in the same announcement, accepting remedial undertakings that triggered heightened FINRA supervision. After the SEC settled with a separate group of firms in January 2025 on lighter terms lacking those undertakings, the broker-dealer asked the Commission to modify its own settlement to match.

By a 2-1 vote, the SEC denied the request. It found the firm had not shown the compelling or extraordinary circumstances needed to reopen a final settlement. The Commission said the lighter terms it later gave other firms were not the kind of changed circumstances that justify relief, and likened the broker-dealer's argument to "settlor's remorse." The dissenting Commissioner said the SEC had not explained the disparate treatment of similarly situated firms.

Reviewing under the Administrative Procedure Act, the Fifth Circuit held the SEC had not acted arbitrarily or capriciously because it (i) applied the same modification standard to this firm as to others, (ii) adequately distinguished its own precedent in Millennium Partners, L.P., where the Division of Enforcement had not opposed relief, and (iii) was not required to impose uniform settlement terms on every firm caught in the same enforcement sweep.

The court also rejected the SEC's belated waiver argument, raised for the first time on appeal, because it had not been presented in the administrative record. The panel issued its ruling as a per curiam, unpublished opinion with no dissent.