Kabani & Company, Inc. v. Ussec

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 13, 2018
• Docket: 17-70786
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS AUG 13 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

KABANI & COMPANY, INC.; MICHAEL No. 17-70786 DEUTCHMAN, CPA; KARIM KHAN MUHAMMAD, CPA; HAMID KABANI, SEC No. 3-16518 CPA,

Petitioners, MEMORANDUM*

v.

U.S. SECURITIES & EXCHANGE COMMISSION,

Respondent.

On Petition for Review of an Order of the Securities & Exchange Commission

Submitted August 9, 2018** Pasadena, California

Before: CALLAHAN and NGUYEN, Circuit Judges, and EZRA,*** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable David A. Ezra, United States District Judge for the District of Hawaii, sitting by designation. Kabani & Company, Michael Deutchman, Karim Khan Muhammad, and

Hamid Kabani petition for review of the SEC’s order sustaining sanctions imposed

by the Public Company Accounting Oversight Board (“PCAOB”). We have

jurisdiction under 15 U.S.C. § 78y(a)(1). Reviewing the SEC’s scienter

determination and other factual findings for substantial evidence and its legal

conclusions de novo, see Gebhart v. SEC, 595 F.3d 1034, 1040, 1043 (9th Cir.

2010), we deny the petition for review.

1. Substantial evidence supports the SEC’s finding that petitioners violated

PCAOB Accounting Standard No. 3 (“AS3”) with the requisite scienter. The

indications of an attempted cover-up—the backdated sign-off dates, the altered

metadata, and petitioners’ failure during the inspection to disclose the changes

made after the documentation completion deadlines—all strongly support an

inference of knowledge and intent.

2. The PCAOB proceedings comported with procedural due process. The

PCAOB timely commenced disciplinary proceedings, and substantial evidence

supports the hearing officer’s finding that petitioners lacked good cause to

designate a substitute expert after the deadline had passed. Petitioners’

concealment of auditing violations and multiple requests for time extensions

caused most of the delays in the proceedings, and petitioners fail to show prejudice

from the other delays. Petitioners also fail to show prejudice from the publication

2 of the SEC’s settlement with Rehan Saeed, which concerns audits of issuers not at

issue here and does not raise an inference of wrongdoing by petitioners. A

showing of prejudice is essential to their due process claims. See 5 U.S.C. § 706;

NLRB v. Heath TEC Div./S.F., 566 F.2d 1367, 1371 (9th Cir. 1978); cf. United

States v. Talbot, 51 F.3d 183, 185 (9th Cir. 1995) (explaining that to establish due

process claim based on delay in filing criminal charges, defendant “must prove

actual, non-speculative prejudice from the delay”).

Petitioners’ other procedural complaints are meritless. The PCAOB did not

“suppress” evidence in the audit files that petitioners themselves provided.

Petitioners were not entitled to a jury because the Seventh Amendment does not

apply to administrative proceedings. See Tull v. United States, 481 U.S. 412, 418

n.4 (1987). And the SEC considered all relevant circumstances, including the

appropriateness of less severe remedies, when upholding the PCAOB’s sanctions.

The hearing officer did not improperly place the burden on petitioners to

prove that they did not violate AS3. The burden of establishing a fact-based

defense to liability falls on the party asserting it, see Olin Corp. v. FTC, 986 F.2d

1295, 1307 (9th Cir. 1993), and defendants failed to meet their burden of proving

that Saeed was reviewing non-final versions of the audit work papers. Petitioners

cite neither record evidence nor legal authority for their argument that the hearing

officer was inexperienced, unfamiliar with their case, and improperly deferential to

3 the agency. This argument is therefore deemed waived. See United States v. Graf,

610 F.3d 1148, 1166 (9th Cir. 2010). Likewise, petitioners forfeited their

Appointments Clause claim by failing to raise it in their briefs or before the

agency. Cf. Lucia v. SEC, 138 S. Ct. 2044, 2055 (2018) (“‘[O]ne who makes a

timely challenge to the constitutional validity of the appointment of an officer who

adjudicates his case’ is entitled to relief.”).

PETITION FOR REVIEW DENIED.