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SEC Proposes Changes to Administrative Proceedings

Author: Dan Brecher|October 21, 2015

After coming under fire for using the forum to secure an unfair home court advantage

SEC Proposes Changes to Administrative Proceedings

After coming under fire for using the forum to secure an unfair home court advantage

administrative proceedings

After coming under fire for using the forum to secure an unfair home court advantage, the Securities and Exchange Commission (SEC) recently proposed amendments to its rules governing administrative proceedings. The proposal would extend certain deadlines, allow for depositions, and require electronic filing.

Why amend administrative proceedings?

As previously discussed on this blog, the Dodd-Frank Act gave the SEC greater authority to bring enforcement actions via administrative proceedings. The SEC readily capitalized on the expanded power to bring significant cases before its own hearing officers rather than federal judges or independent juries, prompting critics to argue that the agency is abusing its newfound authority.

The SEC is currently subject to several lawsuits that challenge its use of administrative proceedings. The plaintiffs allege that the proceedings violate the due process and equal protection guarantees under the U.S. Constitution by eliminating the right to a jury trial and imposing tight deadlines. They also contend that the proceedings violate the President’s removal powers under Article II of the Constitution because both SEC administrative hearing officers and commissioners can only be removed for good cause.

Proposed changes for administrative proceedings

The proposed changes do not respond to the constitutional challenges regarding the SEC’s administrative hearing officers or address the alleged inherent unfairness of the proceedings. However, they do demonstrate that the agency is willing to reform its enforcement proceedings, if only one small step at a time.

Under the SEC’s rule proposal, respondents in these proceedings would be allowed to file notices to take depositions. Under the current rules, parties may take depositions by oral examination only if a witness will be unable to attend or testify at a hearing.

Depositions, however, would still be limited, as compared to a federal court case. If a proceeding involves a single respondent, the proposed amendment would allow the respondent and the SEC to each file notices to depose three persons (i.e., a maximum of three depositions per side). If a proceeding involves multiple respondents, the proposed amendment would allow respondents to collectively file notices to depose five persons and the SEC to file notices to depose five persons (i.e., a maximum of five depositions per side).

The SEC proposal would also extend the abbreviated timeframe in which administrative cases must be decided. Under the current rules, even complex cases must be resolved within 300 days, with the hearing scheduled to begin just four months after the charges are initially fired. The rule proposal extends the hearing date by up to four moths and the deadline for the hearing officer to issue a decision by up to thirty days.

With regard to proposed e-filing requirements, the agency stated: “The Commission believes that electronic submissions will enhance the transparency of administrative proceedings by providing a quicker way for the Commission to make records available to the public.”

SEC Proposes Changes to Administrative Proceedings

Author: Dan Brecher
administrative proceedings

After coming under fire for using the forum to secure an unfair home court advantage, the Securities and Exchange Commission (SEC) recently proposed amendments to its rules governing administrative proceedings. The proposal would extend certain deadlines, allow for depositions, and require electronic filing.

Why amend administrative proceedings?

As previously discussed on this blog, the Dodd-Frank Act gave the SEC greater authority to bring enforcement actions via administrative proceedings. The SEC readily capitalized on the expanded power to bring significant cases before its own hearing officers rather than federal judges or independent juries, prompting critics to argue that the agency is abusing its newfound authority.

The SEC is currently subject to several lawsuits that challenge its use of administrative proceedings. The plaintiffs allege that the proceedings violate the due process and equal protection guarantees under the U.S. Constitution by eliminating the right to a jury trial and imposing tight deadlines. They also contend that the proceedings violate the President’s removal powers under Article II of the Constitution because both SEC administrative hearing officers and commissioners can only be removed for good cause.

Proposed changes for administrative proceedings

The proposed changes do not respond to the constitutional challenges regarding the SEC’s administrative hearing officers or address the alleged inherent unfairness of the proceedings. However, they do demonstrate that the agency is willing to reform its enforcement proceedings, if only one small step at a time.

Under the SEC’s rule proposal, respondents in these proceedings would be allowed to file notices to take depositions. Under the current rules, parties may take depositions by oral examination only if a witness will be unable to attend or testify at a hearing.

Depositions, however, would still be limited, as compared to a federal court case. If a proceeding involves a single respondent, the proposed amendment would allow the respondent and the SEC to each file notices to depose three persons (i.e., a maximum of three depositions per side). If a proceeding involves multiple respondents, the proposed amendment would allow respondents to collectively file notices to depose five persons and the SEC to file notices to depose five persons (i.e., a maximum of five depositions per side).

The SEC proposal would also extend the abbreviated timeframe in which administrative cases must be decided. Under the current rules, even complex cases must be resolved within 300 days, with the hearing scheduled to begin just four months after the charges are initially fired. The rule proposal extends the hearing date by up to four moths and the deadline for the hearing officer to issue a decision by up to thirty days.

With regard to proposed e-filing requirements, the agency stated: “The Commission believes that electronic submissions will enhance the transparency of administrative proceedings by providing a quicker way for the Commission to make records available to the public.”

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