Johnson v. SEC

Patricia Johnson (defendant) was the manager of the PaineWebber, Inc.’s branch in Beverly Hills, California. During her tenure, David Zetterstrom, an employee she supervised, allegedly stole over $100,000 from a client. While Johnston was not initially aware of Zetterstrom’s thefts, she had received complaints about his handling of some client accounts. Eventually Johnson placed Zetterstrom on probation. She later fired him. Johnson then began to further investigate Zetterstrom, learning for the first time that he had stolen client funds. PaineWebber notified the Securities and Exchange Commission (SEC) (plaintiff) of theft. Over five years later, the SEC brought charges against Johnson alleging that her mismanagement of Zetterstrom violated § 15(b) of the Securities Exchange Act of 1934. During the SEC administrative proceedings, Johnson admitted that Zetterstrom had stolen funds but disputed the SEC’s finding that her supervision of Zetterstrom was unreasonable. Additionally, she filed a motion to dismiss, challenging the SEC’s authority to pursue sanctions against her past the five-year statute of limitations in 28 U.S.C. § 2462. The SEC denied her motion. The SEC’s administrative-law judge (ALJ) held a hearing and ultimately determined that Johnson’s supervision of Zetterstrom was unreasonable and imposed a six-month supervisory suspension. Johnson petitioned the SEC for review of the ALJ’s decision. The SEC upheld the ALJ’s decision, arguing that the supervisory suspension was not a civil penalty but instead a remedial action not covered by the statute of limitations of § 2462. Johnson appealed.