In re Whitney & Co.

Whitney & Co., Inc. (defendant) was a broker- dealer. Francis H. Mitchell (defendant) was Whitney’s president and exercised complete control over Whitney. As of October 31, 1958, and November 18, 1958, (and the intervening period), Whitney had a substantial net capital deficiency as calculated pursuant to § 15(c)(3) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 15c3-1; in fact, Whitney had a significant net-capital deficit during this period. Nevertheless, Whitney continued to engage in securities transactions. In addition, Whitney did not file a timely report of financial condition for 1958 as required by § 17(a) of the act and SEC Rule 17a-5, and Whitney’s general ledger was inaccurate as of October 31 and November 18, in violation of the recordkeeping requirements of § 17(a) and SEC Rule 17a-3. However, by November 26, Whitney’s books were accurate as of November 18. By December 11, Whitney cured its capital deficiency by raising more money. In addition, Whitney ceased doing business as a broker-dealer in November. The SEC initiated administrative proceedings to determine whether to revoke Whitney’s registration as a broker-dealer for willfully violating §§ 15(c)(3) and 17(a) of the act and SEC Rules 15c3-1, 17a-3, and 17a-5. The SEC further sought a determination whether, under § 15A(b)(4) of the act, Mitchell was a cause of any such revocation. In response, Whitney belatedly filed its 1958 financial-condition report. Whitney claimed it did not file the report on time to avoid duplication with another audit and the resulting duplicated expense, but it did not request an undue-hardship extension despite having informed the SEC about the other audit in January 1959. Whitney conceded that it willfully violated the act and the SEC rules but argued that the public interest did not favor revoking its broker-dealer registration because it exited the securities business in November and was affirmatively seeking to withdraw its registration.