Appellant Brief Black v SEC

8/7/2019 Appellant Brief Black v SEC

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UNITED STATES COURT OF APPEALS

DISTRICT OF COLUMBIA CIRCUIT

John Gardner Black )

)

v. ) Case No. 10-1186

)

Securities and Exchange Commission )

APPELLANT'S BRIEF

Petition for Review of Respondent Securities Exchange Commission Denial for Reinstatement

_______________________________

John G. Black, Pro Se

1446 Centre Line Road

Warriors Mark, Pa 16877

814-632-8631


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Table of Contents

Certificate as to Parties, Rulings and Related Cases: ................................. 3

A.Parties, Intervenors and Amici Curiae.

B.Ruling Under Review

C.Related Cases

Authorities ........................................................................................................ 5

Jurisdiction ....................................................................................................... 7

Issues Presented for review ............................................................................9

Statement of the Case ...................................................................................10

Statement of Facts .........................................................................................12A. Background..........................................................................................12B. The 1997 Complaint and Criminal Proceedings ..............................14C. Recent Developments ..........................................................................21

Standing ........................................................................................................24

Argument The SEC Should Vacate the Industry Bar Against Black......25

Conclusion ...................................................................................................... 27


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Certificate as to Parties, Rulings and Related Cases

Pursuant to D.C. Circuit Rule 28(a)(1), Petitioner certifies as follows:

A. Parties, Intervenors and Amici Curiae.

The parties appearing before this Court are Petitioner, John Gardner Black

and Respondent, the United States Securities Exchange Commission.

B. Ruling Under Review

The ruling under review is the April 13, 2010 adjudicatory order of the

Securities Exchange Commission denying Petitioner's request to lift an industry

bar imposed on Petitioner on May 4, 1998 and Respondent's June 10, 2010 denial

for reconsideration.

C. Related Cases

The published opinions are: (1) SEC v Black, 163 F.3d 188 (3rd Cir. 1998)*;

(2) Bald Eagle Area School District v. Keystone Financial, Inc. 189 F.3d 321 (3rd

Cir. 1999); and, (3) SEC v Black, 262 Fed. Appx. 360 (3rd Cir. 2008). Petitioner is

continuing to contest the SEC's civil action at the district court because not all of

the claims, rights and liabilities of all the parties have been adjudicated.


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* Petitioner not a party. This was a challenge by clients as to the asset freeze and

authorization for bankruptcy. The proceedings were not between Black and the

SEC on the merits of the case.

_________________________John G. Black


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Conrad P. Seghers v SEC

383 U.S. App. D.C 323, 2008 ................................................................9

Victor Teicher v. SEC

177 F.3d 1016 (D.C. Cir 1999) ......................................................23


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Jurisdiction

Respondent Securities Exchange Commission has subject matter jurisdiction

for the registration of Investment Advisers pursuant to 15 USC 80b-3. Petitioner

was registered with Respondent as an investment adviser.

On May 4, 1998 Respondent SEC instituted administrative proceedings

pursuant to Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 and

instituted an industry bar against Petitioner preventing him from associating with

any investment adviser or investment company. Respondent SEC also instituted a

collateral bar against Petitioner preventing him from associating with any broker,

dealer or municipal securities dealer.

On April 12, 2009 Petitioner requested Respondent SEC to set aside its May

4, 1998 proceeding because the valuation practices that Respondent SEC

complained of in its 1997 complaint are now sanctioned by Respondent SEC and

the Financial Accounting Standards Board.


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On April 13, 2010 Respondent issued Rel. No. 3015 lifting the collateral bar

but retained the industry bar prohibiting association with investment advisers and

investment companies. [Appendix, Page 194]

On April 20, 2010 Petitioner filed a Request for Reconsideration of the April

13, 2010 order which Respondent denied on June 18, 2010. [Appendix, Page 202]

Petitioner filed this appeal on July 13, 2010.

This Court has jurisdiction to review final orders of federal agencies and

Respondent specifically pursuant to 15 USC 80b-13 and 5 USC 702. The

orders entered by Respondent on June 18, 2010 constitute final orders.


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Issues presented for review

This Court must "uphold the SEC's legal conclusions unless they are

'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with

law,' 5 U.S.C. 706(2)(A). Canady v. SEC, 343 U.S. App. D.C. 348, 230 F.3d 362,

364 (D.C. Cir. 2000) (quoting Wonsover v. SEC, 340 U.S. App. D.C. 300, 205 F.3d

408, 412 (D.C. Cir. 2000)). Its factual findings are conclusive if supported by

substantial evidence. 15 U.S.C. 80b-13." [Conrad P. Seghers v Securities and

Exchange Commission, 383 U.S. App. D.C 323, 2008]

The Commission has the authority to censure or impose an industry bar or

maintain such censure or bar if the Commission finds and places on the record

after notice and opportunity for hearing that an individual is permanently enjoined

by order from engaging in any conduct or practice in connection with the purchase

or sale of any security. [15 USC 80b-3(e)(4)]

The SEC did not allege that any misconduct by Petitioner was in connection

with the purchase or sale of a security. Further, there was no transaction in any

security belonging to Petitioner's customers that was at a value other than fair

value. The question before this Court: May the Securities Exchange Commission


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maintain an industry bar against an individual preventing his employment when:

(1) the basis for the imposition of the bar does not now and possibly never did

violate the rules and regulations of the Commission; and, (2) the Commission did

not produce and did not place in the record any evidence that Petitioner engaged in

any conduct or practice in violation of the rules and regulations of the Commission

in connection with the purchase or sale of any security.

Statement of the Case

On September 26, 1997 Respondent SEC filed a complaint, ex parte, against

Petitioner complaining that Petitioner had reported the calculated value ("mark-to-

model") of an asset pool securing an asset backed security issued to his clients

pursuant to Internal Revenue Service regulations. Respondent alleged it had

jurisdiction because the asset backed security, the Collateralized Investment

Agreement ["CIA"], was an investment contract (as defined in SEC v Howey 328

U.S. 293 (1946)). Respondent did not allege that the advice given by Petitioner to

the owners of the CIA as to the CIA's value was fraudulent or in error. [Appendix

Page 1, Complaint]


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On May 4, 1998 the SEC conducted a proceeding under the Investment

Advisers Act, without the presence of Petitioner or his counsel, and issued an

industry bar against Petitioner pursuant to a stipulation. Additionally, Respondent

imposed a collateral bar preventing Petitioner's association with all others in the

securities profession. [Appendix, Page 43] Black stipulated that he would not

contest the facts in the complaint and he is not doing so here. Black's instant

petition is based upon the facts in complaint.1 The SEC has never established in

this proceeding or any other proceeding known to Petitioner that the fair value of

an income producing security is its liquidation value.

On December 31, 2008 Respondent reported to the US Congress that

determining the fair value of a security pursuant to a mathematical model was an

acceptable form of reporting fair value. On April 9, 2009 the Financial Accounting

Standards Board ["FASB"] issued FASB Staff Position 157-4, authorizing "mark-

to-model" accounting. [Appendix, Page 183]

Petitioner filed on April 12, 2009 requesting the industry bar be removed.

Respondent removed the collateral bar but kept in place the bar prohibiting

association with investment advisers on April 13, 2010.

1 Black did not stipulate to the SEC's claim that the fair value of the CIA was equalto the liquidation value of the assets. [See page 14 of this brief]


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Statement of Facts

A. Background

Petitioner had been a municipal financing specialist and originator of

methods for investing municipal bond proceeds since 1976, shortly after the

Internal Revenue Service ("IRS") published the initial "proposed" arbitrage

regulations. In this role, Petitioner had structured several billion dollars of tax

exempt bond issues for municipalities and had arranged for the investment of those

proceeds in yield restricted escrow accounts, designed to comply with the existing

government regulations. In this role, Petitioner had facilitated the U.S. government

in its sale of hundreds of millions of dollars of non-fair value U.S. government

fixed income obligations to municipalities and constructed thousands of

mathematical models to insure compliance with the arbitrage regulations as they

relate to yield verification, cash flow adequacy and fair value of investments.

In 1989 Petitioner founded Devon Capital Management ["Devon"] to

provide structuring and investment management services to municipalities for their

municipal bond issues. In 1992, the IRS issued "proposed" arbitrage regulations

that imposed additional restrictions on the method of calculating investment

returns, notably preventing the fees earned by the business from being an eligible

expense in calculating returns, imposing a real cost for his clients.


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In 1993, the IRS issued the "final" arbitrage regulations. Those regulations,

26 CFR 1.148-1 through 1.148-11 "apply generally for purpose of the arbitrage

restrictions on State and local bonds issued under Section 148." " Violation of

these provisions causes the bonds in the issue to become arbitrage bonds, the

interest of which is not excludable from the gross income of the owners under

103(a)." [26 CFR 1.148-0]

26 CFR 1.148-5 of the arbitrage regulations issued in 1993 details the

method of valuation and determination of yield a municipal issuer must follow to

be in compliance. 26 CFR 1.148-5(d)(6)(iii) of the 1993 regulations requires the

issuance of an asset backed security and creates a "Safe harbor for establishing fair

market value for guaranteed investment contracts...." To be in compliance, a

municipal bond issuer must: (1) provide bid specifications in writing to potential

providers; (2) which include all material terms; (3) include a non-collusion

statement to be signed by the providers; (4) the terms of the bids must be

commercially reasonable; (5) the solicitation by the issuer must take into account

its reasonable expected deposit and schedule of withdrawal from the contract; (6)

all potential providers have an equal opportunity to bid; and, (7) at least three bids

are solicited.


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B. The 1997 complaint and the criminal proceedings

In the beginning of 1994, pursuant to the newly issued arbitrage regulations,

Petitioner began responding to solicitations from potential municipalities and other

governmental clients by issuing an asset backed security, the CIA through

Financial Management Sciences ["FMS"]. At all times, the CIA was issued

pursuant to and in compliance with the IRS's arbitrage regulations with all offers,

purchases or sales of the CIAs conducted at fair value. As with all asset backed

securities such as collateralized mortgage obligations, car loan and credit card

receivables, REMICs and Small Business Administration securitizations, the CIA

represented an ownership in the cash flows resulting from a pool of securities held

at a separate bank custodian. [26 CFR 1.148-5(d)(6)(iii) establishing a safe

harbor for investment contracts]

During the week of August 25, 1997 the SEC conducted an audit of Black

and his companies, Devon and FMS. During the exit interview, Black gave to the

SEC's agent, Mr. Dowdell a copy of a computer model that verified the cash flow

valuation of the underlying securities having a value at least equal to the fair value

of the CIAs outstanding. [Appendix, Page 36, The Computer Model]2

2 The output from the computer model is from a copy returned to Black by theUnited States Postal Service. [Appendix, Page 35]That model, developed by Black,was on his computer when the district court issued its injunction and has been in


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The Third Circuit issued an opinion in SEC v Black163 F.3d 188 (3rd Cir.

1998) in which petitioner was not a party, said:

"In August 1997, during a routine investigation of Devon, the SEC

discovered that Devon was carrying assets on its books at materially

inflated values and had incurred massive trading losses totaling at least

$50 million of the $345 million entrusted to it by its investment clients.

The investigation also determined that Devon and Black were concealing

the losses from their clients, most of whom were school districts and

governmental entities, and were continuing to accept funds from new

investment clients without disclosing information regarding these losses.

The SEC believed that Devon was seeking new clients so as to use their

funds to fulfill obligations to existing clients under their investment

advisory agreements. On September 26, 1997, the SEC filed an action in

the United States District Court for the Western District of Pennsylvania

against Black, Devon and FMS seeking to enjoin their illegal conduct and

freeze their assets pending an investigation. The SEC alleged violations

of Section 17(a) of the Securities Act, 15 U.S.C. S 77q(a), Section 10(b)

of the Exchange Act, 15 U.S.C. S 78j(b), and Rule 10b-5, 17 C.F.R.S

the possession of the government since the audit of 1997. That model incorporatesevery valuation metric detailed in FASB Staff Position 157-3 and 157-4. Themodel discounts future cash flows at a risk adjusted rate, incorporating prepaymentfluctuations and changes in open market interest yields. As the attached exhibitdemonstrates, when valuing a single security, the FNR G93-32S, the valuedetermined is $11.8 million versus the SEC allegation of $12 to 14 million.[Appendix, Page 9, Complaint 34] However when that security is combined with$400 million of 30 day maturity securities and the combined portfolio is pricedagainst the forward curve, its value rises to $86.8 million. It is Black's contention,undisputed by the government, that had any owner of the CIA required their fundsprior to the termination of the stipulated dates in the bid specifications, that ownercould have sold its CIA to any other investor for the value reported in monthlystatements. While debating the accuracy of the model is probably beyond thescope of these proceedings, on August 31, 2010 the SEC submitted in the districtcourt a statement that the model's output produced results that were consistent withthe Commission's. [Appendix, Page 210, SEC Brief Aug. 31, 2010 footnote]


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240.10b-5, promulgated thereunder against Black, Devon and FMS, and

violations of Sections 206(1), (2) and (4) of the Investment Advisers Act

of 1940, 15 U.S.C. SS 80b-6(1), 80b-6(2), 80b-6(4), and Rule 206(4)-2,

17 C.F.R. S 275.206(4)-2, promulgated thereunder against Black and

Devon."

The SEC complaint alleged that Black had calculated the value of the assets

owned by FMS, without stating whether the calculation was correct or not ( which

assets were securitized to produce the CIA). [Appendix, Page 9, Complaint 34]

The fact is that value of the CIA calculated by Black's model was greater than the

forced liquidation value of those assets, a characteristic of all asset backed

securitizations. The SEC's complaint does not present any alternative value for the

CIA and the complaint does not allege that Black caused any loss to the owners of

the CIAs. The SEC did not allege that the advice given by Petitioner to the owners

of the CIA, as to the CIA's value, was fraudulent or in error and the fact is it was

not.3

The district court, acting ex parte, granted the SEC complaint despite the

failure of the complaint to detail a single transaction, neither an offer, purchase nor

sale of the CIA at other than fair value. The court acted even though it admitted it

3 The Court is invited to take judicial notice that in every organized marketsupervised by the SEC the value for securities is determined by a reasonableexpectation of return, not by liquidation value.


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did not understand the complaint. [Appendix Page 19, Transcript, line 20] The

mathematical model Black had been using to value both the assets and the CIAs

has been in the possession of the SEC since 1997.4 [Appendix, Page 35]

On May 4, 1998 the SEC conducted proceedings under the Investment

Advisers Act, pursuant to Sections 203(e) and (f). It found that Devon was an

adviser with approximately $345 million under management and Black was its

president. The district court had issued a permanent injunction on December 12,

1997. The SEC had alleged in its complaint against Devon and Black that there

had been misrepresentations and omissions of what the SEC called material facts

in connection with the solicitation and management of Devon's advisory clients,

4 On September 8, 2010 the SEC filed in this Court a memorandum stating thatBlack had developed a fraudulent scheme and that he had pled guilty to criminalcharges of defrauding his clients. The SEC knows, should know or is willfullyblind in not knowing that Black is innocent of the grand jury indictment. In fact, itis the SEC which has refused to divulge the fair value of the CIA for the lastthirteen years. This Court may want to remand this case or appoint a SpecialMaster pursuant to Rule 48 to develop further facts such as the value of the CIA. If

this Court so decides, Black will seek to depose Richard Thornburgh, the trusteefor Black's companies, as to the value he determined for the CIA as required by thedistrict court's order appointing him as trustee. Further, Black will seek to deposeLeon Rodriguez, the Assistant US Attorney who prosecuted Black. Mr. Rodriguezwill state, as he did in January of 2000 that Black did not plead guilty tomisrepresenting the value of the CIA. [Appendix, Page 120, Transcript Line 14]


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not with the "offer, purchase or sale" of the CIA security5. The SEC ordered: (1)

the registration of Devon be revoked; and, (2) Black be barred for life from

association with any broker, dealer, municipal securities dealer, investment adviser

or investment company. No settlement was reached between Devon, FMS or

Black with the SEC regarding alleged violations pursuant to either the Securities

Act of 1933 or the Securities Exchange Act of 1934. To this date no litigation has

been conducted for the alleged violations of either the Securities Act of 1933 or the

Securities Exchange Act of 1934 nor has the fair value of the CIA been litigated,

though Petitioner contends that the government did stipulate to fair value on

January 20, 2000. [Appendix, Page 133, Letter from Black's Attorney Levan and

Appendix, Page 134, Letter from Black's Attorney Scheff]

On December 17, 1998 the Third Circuit issued its opinion in SEC v Black.

That opinion states that the appellants in the case, former clients of Petitioner, were

unable to formulate a theory to support their disposition of the underlying assets.

This was after the SEC submitted an affidavit substituting for expert testimony.

One can only imagine what a difference in the outcome of that case had the SEC

given to those clients the analysis that the fair value of their security, the CIA, was

accurately presented. [SEC v Black, pg 198]

5 Black never stipulated that the value of the CIA was equal to the forcedliquidation value of the underlying assets.


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In June of 1999, the US Attorney for the Western District of Pennsylvania

obtained a grand jury indictment of Black, alleging that he had misrepresented the

market value of the CIA. That was not an allegation contained in the SEC's

complaint in 1997; the proceedings in the criminal case were not related to any

allegation that led to the industry bar imposed in 1998.

On August 31, 1999 the Third Circuit issued an opinion in Bald Eagle v

Keystone Financial189 F.3d 321 (3rd Cir. 1999); Black was not a party to that

action. The opinion states that the SEC thought "the CIAs purchased by the School

Districts were worth significantly less than their purchase price because of the

shortfall in the collateral in the funds already under management." Not only did

Respondent not allege what the CIAs were worth, but the SEC complaint and the

Court's opinion in Bald Eagle are silent on earnings, a reasonable expectation of

returns or any valid valuation technique based on profits or cash flow. Application

of the standards in this opinion to all corporations would cause the capital markets

to cease because any trade of any security for a value in excess of the liquidation

value of the underlying assets of the corporation would constitute a fraud. Owners

of securities could not rely on a reasonable expectation of profits to value

securities, an absurd conclusion. Less than six months later, the government would


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stipulate that profits of approximately $23 million per year were distributed to the

CIA owners.

On January 20, 2000 the government of the United States and Black

executed a Joint Stipulation of Facts. The facts are:

1.) The CIA program had forty-eight participants. [Appendix, Page 82,

Joint Stipulation of Facts, 26]

2.) At no time was the forced liquidation of the assets in the program

greater than the market value of the CIAs outstanding. [Appendix, Page 82, Joint

Stipulation of Facts,28]

3.) It was a generalized increase in interest rates, initiated and implemented

by the Federal Reserve Board that caused the price of all fixed income instruments

to decline in value. [Appendix, Page 84, Joint Stipulation of Facts, 35 to 37]

4.) As of September 1997, the fair value of CIAs outstanding was $233

million and the assets securing the CIAs had a market value of $164 million with a

yield of 14%.6 In addition to the assets of FMS used in the asset backed program,

6 The discounted present value of $164 million invested at 14% is $234 million,over the period of the average investment horizon of the CIA participants. The fairvalue of the CIA outstanding on September 26, 1997 was $233 million.


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there existed $7 million of FMS cash. [Appendix, Page 87, Joint Stipulation of

Facts, 53]

Based upon the Joint Stipulation of Facts, the district court found Black

guilty of sending monthly statements to his clients which reflected the fair value of

the CIA as being equal to the value produced by his model. Black did not plead

guilty to misrepresenting the fair value of the CIA. [Appendix, Page 125,

Transcript Line 4]

Petitioner asks that this Court take judicial note of a brief filed in another

matter by the US Attorney for the Western District of Pennsylvania. On September

30, 2003 the U.S. Attorney admitted that the value of the CIA was never

determined. She said "[t]he CIAs themselves were not subject to independent

evaluation." [Appendix, Page 131]

C. Recent Developments

On September 30, 2008 the Office of the Chief Accountant of Respondent

SEC issued a clarification on fair value accounting. The release stated that

management's internal assumptions (e.g., expected cash flows) may be used to


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measure fair value. [ Appendix, Page 136, Office of Chief Accountant on

Clarification of Fair Value]

On December 31, 2008 the SEC filed a Report to Congress in which it

acknowledged that the Present Value of Future Cash Flows was an acceptable

method of establishing the fair value of a security.

Present value of future cash flows refers to the present or discountedvalue of estimated future net cash flows, generally as expected to arisefrom an asset or to satisfy a liability in due course of business. Long-

term receivables and payables are examples of items that incorporatethe concept of discounted cash flows. This definition is similar to theconcept of fundamental value or value-in-use, which would also takeinto account the entitys internal information about the likelyperformance of the asset, such as its ability to extract above averagenet cash flows from an asset. [Appendix, Page 140, Report toCongress pg 39, Appendix page 180]

On April 9, 2009 the Financial Accounting Standards Board issued FASB

Staff Position 157-4 which authorizes the utilization of what has become known as

"mark-to-model" in determining the fair value of assets and liabilities. This staff

position brings the FASB interpretation into conformance with the regulations

promulgated by the Internal Revenue Service under the Arbitrage Regulations.

"Fair value is the price that would be received to sell and asset...in an orderly

transaction"...not forced liquidation. FSP 157-4 further endorses a present value

technique to determine fair value. The fair value of the CIA was always


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determined by a present value of the underlying assets' cash flows, as required by

IRS regulations. [Appendix Page 183]

On April 12, 2009 Black petitioned the SEC to vacate the industry bar

against him as a matter of equity because the practices the SEC alleged in its

complaint are now authorized by the SEC's own regulations. On April 13, 2010 the

SEC lifted that portion of the industry bar that prohibited Black from association

with a broker, dealer or municipal securities specialist. Because the SEC had never

litigated the claims against Black and his companies pursuant to 15 USC 77q(a)

and Section 10(b) of the Securities Exchange Act of 1934, 15 USC 78j(b) and

Rule 10b-5, 17 CFR 240.10b-5, that portion of the bar is deemed to be

"collateral". [See: Victor Teicher v. SEC, 177 F.3d 1016 (D.C. Cir. 1999) (vacating

collateral bar)] [ Appendix Page 192] The SEC maintained the bar prohibiting

Black from associating with an investment adviser because the settlement was

pursuant to the Investment Adviser's Act of 1940 and it is the policy of the SEC

not to review settlements. Respondent SEC denied Petitioner's motion for

reconsideration on June 18, 2010. [Appendix Page 202]


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On October 4, 2010 the SEC issued proposed regulations imposing reporting

restrictions and requirements on issuers of Asset Backed Securities like the CIA.7

Petition can find no prior regulation requiring a securitizer or issuer of asset backed

securities to report the forced liquidation value of the underlying securities.

[Appendix, Page 213]

Standing

Petitioner, prior to September 26, 1997, was permitted to associate with any

investment adviser or investment company. This was the profession Petitioner had

been in for almost twenty-five years. Respondent SEC imposed an industry bar on

Petitioner in 1998 and refused to set aside the bar in 2010 after Petitioner had

demonstrated that the bar was imposed for business practices which Respondent

SEC would hold to be permitted. The continued imposition of the illegal bar

prevents Petitioner from being employed in his profession.

7 It does not appear that these regulations, issued thirteen years after theintroduction of the SEC's complaint, require the issuers of asset back securities todetail the forced liquidation value of each of the underlying securities in the pool.


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Argument

The SEC should vacate the industry bar against Black

It has been over thirteen years since the SEC filed its complaint in district

court. The complaint alleged that Black calculated, using his mathematical model,

the value of the assets owned by FMS and used that calculated value in reporting

the value of the asset backed CIA security owned by his customers to them. The

SEC wanted Black to determine the liquidation value of each security (despite

there being no market for some of the securities); total those values and then report

that value to his customers as the value of the CIA. The SEC apparently insisted

that Black ignore: (1) the portfolio of assets had a yield of 14%; (2) that the fair

value of the CIA was determined pursuant to the IRS arbitrage regulations; (3) the

present value, at that time, of the future cash flows of the portfolio exceeded the

fair value of the CIAs outstanding; and, (4) company specific information such as

the scheduled timing of the redemptions from the CIA and the yield of the

portfolio. The SEC appears to have valued the CIA as a repurchase agreement,

despite the IRS arbitrage regulations which preclude such a valuation method.8

8 Repurchase agreements are two party contracts, not within the purview of theSEC.


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Despite such onerous conditions having never been imposed on any other

asset backed issuer and a total absence for that position, the district court granted

the SEC's complaint against Black, Devon and FMS, ex parte.

The SEC filed its complaint thirteen years ago. In the interim, the SEC has

either modified existing or instituted new requirements for reporting values for

asset backed securities. Those modifications and new regulations make the current

regulation require SEC regulated entities mirror the valuation techniques Black

was employing in 1997.

There is no instance of enforcement activity against another asset backed

issuer for not following the terms detailed in the SEC's complaint against Black.

The SEC's refusal to set aside its 1998 order and continue imposing an industry bar

against Black for conducting business practices that were never illegal and are now

expressly sanctioned by the SEC is arbitrary and capricious.

On December 30, 2008 in a report to Congress, the SEC stated that utilizing

a method wherein the present value of the cash flows of a security is an acceptable

method of determining the fair value of a security. The present value of expected


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cash flows is the method Black was employing in 1997 when he "calculated the

value of the assets" of FMS for the asset backed program.

The SEC does deny: (1) their current regulations permit a registered

corporation to report a security's value on a mark to model basis; (2) Black's

model, in the SEC's possession since 1997, complies with all current regulations;

and, (3) there does not now nor has there ever existed a regulation requiring the

issuer of an asset backed security to divulge on a monthly basis the forced

liquidation of the underlying assets. The SEC's refusal to remove the industry bar

against Black in April of 2010 was arbitrary and capricious because the denial was

without consideration of and is in total disregard for the facts and current law.

Conclusion

The Securities Exchange Commission and the Financial Accounting

Standards Board has adopted regulations that permit investment advisers and

investment companies to report the value of securities based upon a mathematical

model. [Appendix, Page 140, The SEC Report to Congress and Appendix, Page

183, FASB Staff Position FSP FAS 157-4]


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The Commission has issued proposed regulations covering the issuers of

asset backed securities. Those regulations do not appear to require those issuers to

report the liquidation value of the underlying assets backing the asset backed

securities. [Appendix, Page 213]

The model Black was using in 1997, and in the possession of the

Commission since then, is in full compliance with the SEC and FASB existing

regulations and further is in full compliance with the IRS' Arbitrage Regulations,

as it has always been. The SEC has already stated in a court filed document that

Black's model produced valuations consistent with the Commission's. [Appendix,

Page ] After thirteen years, it is time for the SEC to stop fraudulently concealing

the value of the CIA from the public and the courts.

On September 26, 1997 Respondent SEC filed its complaint against Black,

claiming the CIA was a security. During the ex parte hearing, under direct question

from Judge Standish, Respondent SEC stated that the CIA was a security "...within

the meaning of the federal securities law." [Appendix Page 38, Transcript ex parte

hearing] What Respondent SEC failed to tell that court was the value of the CIA

was correctly determined, under existing law and regulations and that there never

was a "purchase or sale" of the CIA at other that fair value. Since that time,


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Respondent SEC has been concealing the CIA's value from the courts, from the

public but most importantly from the CIAs owners. Respondent SEC even allowed

Petitioner to be imprisoned knowing he did not commit a crime. And the

concealment continues to today. Possibly in these proceedings Respondent SEC

will admit that the CIA was correctly valued by Petitioner in 1997.

The Securities Exchange Commission should be directed to set aside the

industry bar it imposed upon Black. The SEC's denial of Black's request to set

aside the industry bar is arbitrary and capricious, based upon the record and facts.

In the alternative, this Court may want to review the proceedings de novo because

the SEC did not develop and place on the record a sufficient body of facts,

choosing not to make public the fair value of the CIA.

Respectfully Submitted,

_________________________


January ____, 2011


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CERTIFICATE OF COMPLIANCE

FRAP 28.1, 32(a)(7) and Circuit Rule 32(a)

Certificate of Compliance with Type-Volume Limitation, Typeface Requirements,and Type Style Requirements

1. This brief complies with the type-volume limitation of Fed. R. App. P.32(a)(7)(B) because this brief contains 5,470 words, excluding the parts of thebrief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5)

and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief hasbeen prepared in a proportionally spaced typeface using [Microsoft Office Word,ver. 7] in Times New Roman, font size 14.

__________________________________________________John G. Black, Pro Se

Dated:_______________________________________________


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CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of this filing of:

Appellant Brief

Was sent to:

Christopher PaikSecurities Exchange CommissionMail Stop 8030-A100 F. Street, N.E.Washington, DC 20549

Via first class mail, postage prepaid on January ________, 2011.

___________________________


Documents

Appellant Brief Black v SEC