Opinion
33493-21
03-22-2023
DOUGLAS E. HAMPTON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland, Judge.
This case was called for trial on March 9, 2023, at the Court's Remote Special Trial Session in which Cleveland, Ohio was listed as the place of trial.
Background
Respondent introduced an exhibit labeled 40-R during trial that the parties both agreed should be sealed. The Court directed respondent to electronically file Exhibit 40-R, at which time the Court would accept into the record and seal the document from the public record. On March 9, 2023, respondent electronically filed with the Court a First Supplement to Proposed Trial Exhibits (Index No. 32), which contained Exhibit 40-R. During trial, the Court also reserved ruling on Exhibit 38- R (a copy of an Investment Adviser Public Disclosure (IAPD) report on Mr. Hampton) and Exhibit 39-R (a copy of a BrokerCheck report on Mr. Hampton).
On March 3, 2023, petitioner filed with the Court a Motion to Shift the Burden of Proof to Respondent or, in the Alternative, to Exclude Evidence from Trial. This motion was heard during trial.
Discussion
IAPD reports are publicly available on a website maintained by the U.S. Securities and Exchange Commission (SEC). The website cites the purpose of the reports as follows: "In 1996 Congress amended the Investment Advisers Act of 1940 to require that the SEC establish a readily accessible electronic process to respond to public inquiries about investment advisers and their disciplinary information. The SEC created this website to satisfy Congress' mandate." The website also states in relevant part: "The information about investment adviser representatives that appears on this website is collected from individual investment adviser representatives, Investment Adviser firm(s), and/or securities regulator(s) as part of the securities industry's registration and licensing process." (This website clarifies that "Investment Advisers" are firms, while "investment adviser representatives" are individuals (such as Mr. Hampton) who work for the firms.) Similarly, the second page of Exhibit 38-R states in relevant part:
Investment Adviser Public Disclosure, https://adviserinfo.sec.gov (last visited Mar. 16, 2023).
Id.
The information contained in IAPD comes from the Investment Adviser Registration Depository (IARD) and FINRA's [i.e., the Financial Industry Regulatory Authority's] Central Registration Depository, or CRD . . . and is a combination of:
• information the states require representatives and firms to submit as part of the registration and licensing process, and
• information that state regulators report regarding disciplinary actions or allegations against representatives.
The SEC website cautions: "The information about investment advisers that appears on this website is filed by investment advisers on [SEC] Form ADV. Neither the SEC nor the state securities authorities have approved the information filed on Form ADV, and we cannot guarantee its accuracy."
BrokerCheck reports are publicly available on a website maintained by FINRA, a private self-regulatory organization for U.S. securities firms. FINRA's website provides the following relevant explanation: "The information about brokers and brokerage firms that you find in BrokerCheck comes from the Central Registration Depository (CRD®). . . . Information in CRD is obtained through forms that brokers, brokerage firms and regulators complete as part of the securities industry registration and licensing process." Similarly, the second page of Exhibit 39-R states in relevant part:
See https://brokercheck.finra.org (last visited Mar. 16, 2023).
Id.
The information contained in BrokerCheck comes from FINRA's Central Registration Depository, or CRD®, and is a combination of:
• information FINRA and/or the Securities and Exchange Commission (SEC) requires brokers and brokerage firms to submit as part of the registration and licensing process; and
• information that regulators report regarding disciplinary actions or allegations against firms or brokers.
Respondent moved for admission of the IAPD and BrokerCheck reports on Mr. Hampton under Federal Rule of Evidence (Fed. R. Evid.) 803(17), which provides an exception to the rule against hearsay for "[m]arket quotations, lists, directories, or other compilations that are generally relied on by the public or by persons in particular occupations." The advisory note to Fed.R.Evid. 803(17) states that "[t]he basis of trustworthiness [of such documents] is general reliance by the public or by a particular segment of it, and the motivation of the compiler to foster reliance by being accurate."
We find that the IAPD and BrokerCheck reports (or, more generally, the IAPD and BrokerCheck databases) are admissible under this hearsay exception. First, we take judicial notice that the IAPD and BrokerCheck databases are generally relied on by the public, given their free and easy accessibility on the websites of two major and prominent regulators (the SEC and FINRA, respectively). Second, the reports at issue are clearly "compilations" of information. At least one court has held that the phrase "other compilations" in Fed.R.Evid. 803(17) must be limited to "items that recite established factual information," under the statutory canon of ejusdem generis. In re C.R. Bard, Inc., MDL No. 2187, Pelvic Repair Sys. Prod. Liab. Litig., 810 F.3d 913, 924 (4th Cir. 2016) (explaining that "where a statute contains an exemplary list of objects to which it applies, a general term that follows specific ones will be limited in its meaning by the more specific terms that preceded it." (citation omitted)).
The IAPD and BrokerCheck reports are limited to factual information, such as Mr. Hampton's employment and registration history; his industry exam passage; his professional designations; and the allegations and dispositions in regulatory actions, criminal actions, and customer disputes involving Mr. Hampton. Moreover, we are satisfied that this factual information is adequately "established," absent credible objections from petitioner about its accuracy. As the above excerpts from the IAPD and BrokerCheck websites and reports make clear, the information in the reports is taken from submissions by (in this case) Mr. Hampton, the investment firms he worked for, and public regulators. Any information from Mr. Hampton himself is clearly admissible under Fed.R.Evid. 801(d)(2)(A), which provides that a party's own statement is not hearsay if such statement is offered against that party by the opposing party.
For the avoidance of doubt, we admit the statements of allegations not for the truth of the matters asserted but only for the fact that such allegations were made.
Any information in the reports from public regulators is admissible under Fed.R.Evid. 803(8), which provides an exception to the rule against hearsay as follows:
(8) Public Records. A record or statement of public office [is an exception to the rule against hearsay] if:
(A)it sets out:
(i) the office's activities;
(ii) a matter observed while under a legal duty to report, but not including, in a criminal case, a matter observed by law-enforcement personnel; or
(iii) in a civil case or against the government in a criminal case, factual findings from a legally authorized investigation; and
(B)the opponent does not show that the source of information or other circumstances indicate a lack of trustworthiness.
Finally, any information in the reports from the investment firms for which Mr. Hampton worked is prima facie established by virtue of the facts that (1) those firms submitted the information (via SEC Form ADV) under penalty of perjury, and (2) those firms could suffer significant harm to their business reputation by submitting false information (whether intentionally or negligently). Therefore, admitting the IAPD and BrokerCheck reports comports with the advisory note to Fed.R.Evid. 803(17), which points to "the motivation of the compiler to foster reliance by being accurate."
See https://www.sec.gov/about/forms/formadv-execution.pdf (last visited Mar. 16, 2023).
Upon due consideration, and for cause, it is
ORDERED that the Clerk of the Court shall seal from the Court's public record respondent's First Supplement to Proposed Trial Exhibits at Index No. 32. The Court shall retain this document in a sealed file that shall not be opened for inspection by any person or entity except by Order of the Court. It is further
ORDERED that petitioner's Motion to Shift the Burden of Proof to Respondent or, in the Alternative, to Exclude Evidence from Trial, filed with the Court on March 3, 2023, is denied for the reasons set forth in the transcript of the proceedings of this matter. It is further
ORDERED that Exhibits 38-R, 39-R, and 40-R are admitted into the record of this case. It is further
ORDERED that the record of this case is closed as of the date of this Order.