First Circuit Overturns SEC Ruling In Flannery v. SEC

The First Circuit's decision underscores the limits of court deference to Commission decisions, gives teeth to the "substantial evidence" standard of review, and provides a valuable roadmap for evaluating and defending allegations of material misstatements.

On December 8, the US Court of Appeals for the First Circuit vacated a US Securities and Exchange Commission (Commission) order imposing sanctions against two former employees of State Street Bank and Trust Company: James D. Hopkins (a former vice president) and John P. Flannery (a former chief investment officer). The Commission had found Hopkins liable under Section 17(a)(1) of the Securities Act of 1933, as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Flannery was found liable under Section 17(a)(3) of the Securities Act. The First Circuit disagreed with the Commission's interpretation of the facts, held that the Commission had abused its discretion, and vacated the findings of