Chamber of Commerce Calls for SEC Enforcement Reforms

In a recently published report, the U.S. Chamber of Commerce called for several significant changes to the Securities and Exchange Commission’s or SEC enforcement policies and procedures.

“The recommendations in this report are designed to further strengthen the SEC enforcement program’s ability to detect and deter fraud while also ensuring honest market participants benefit from a clear and fair investigations process,” the report states.

The Chamber’s Center for Capital Markets Competitiveness (CCMC) surveyed more than 75 companies to identify areas of concern, specifically issues resulting from ambiguity or lack of clarity in the SEC enforcement process. The CCMC then consulted more than 30 former SEC officials, legal experts, and corporate counsels to develop specific recommendations.

As we have previously discussed on this blog, the SEC had recently come under fire for using administrative proceedings to secure a “home court” advantage. Other critics have questioned the agency shifting policy regarding admissions.

The CCMC report

In total, the CCMC report contains 28 recommendations for improving the SEC’s enforcement process. Below is a brief summary of the U.S. Chamber of Commerce’s stance on several key issues:

• Review the SEC’s Rules of Practice in light of the agency’s changed authority,
  increased use of administrative proceedings, and the substantial increase in the volume of investigation materials to ensure that the SEC’s administrative forum is a fundamentally fair and impartial venue, and provide adequate opportunities for pre-trial discovery and depositions.
• Establish a procedure for respondents to challenge the SEC’s forum choice, as well as a procedure for those seeking a jury trial to remove the proceeding to federal district court.
• Adopt, and uniformly apply, a “reverse proffer” policy and provide potential defendants/respondents with a full presentation of the nature of its proposed case and the supporting evidence before commencing the Wells submission or white paper process.
• Adopt a policy that any party that has made a Wells submission or requested advance notice should be provided reasonable advance notice, such as three business days, that the staff will file an enforcement action.
• Regularly review the SEC’s policy requiring admissions and add a clear statement of the policy to the Commission’s Informal and Other Procedures, which articulates meaningful standards that provide guidance on when admissions will be required and how they will be used in settlement negotiations.
• Eliminate duplicative and overlapping enforcement responses within the Commission and by multiple enforcement authorities against the same individuals or entities for effectively the same misconduct.
• Incorporate the use of alternative case resolution methods into the SEC’s “Broken Windows” policy to rapidly resolve minor, non-systemic infractions, and to encourage and reward effective internal compliance and systems of internal controls.
• New standards, or new interpretations of existing standards, should be addressed through Agency rulemaking or formal interpretive guidance, not through negotiated settled enforcement proceedings.

While the U.S. Chamber of Commerce is the country’s largest business lobby, it is unclear how much attention these recommendations will get from the SEC. We will continue to provide updates on the SEC enforcement policies as they become available.