Lawmaker wants to give SEC defendants greater rights

A forthcoming bill seeks to alter in-house forums that 'trample' on people's rights and contribute to a citizenry fearful of its government, according to its author, Rep. Luke Messer

Feb 17, 2016 @ 2:05 pm

By Mark Schoeff Jr.

Resistance from investment advisers to the Securities and Exchange Commission's use of in-house judges to decide enforcement cases has helped spur a lawmaker's effort to strengthen defendants in the forums.

Rep. Luke Messer, R-Ind., a member of the House Financial Services Committee, plans to introduce legislation in coming weeks that would give people appearing in administrative proceedings the same rights to counsel, evidence discovery and avoiding self-incrimination that they would have in federal court.

Over the last year, several investment advisers have filed lawsuits against the SEC, charging that the administrative forums are unfair.

“It would be inspired by them; it would be inspired by farmers who have to deal with the [Environmental Protection Agency]; it would be inspired by manufacturers who have to deal with the Department of Labor, folks who have dealt with the IRS,” Mr. Messer said Tuesday at the National Press Club in Washington.

Mr. Messer said agency administrative forums “trample” on the rights of defendants and contribute to the perception of a menacing capital that threatens their businesses.

“The reality is you get out there in the middle of America, and people fear their government,” Mr. Messer said. “They worry about what happens when they show up at your door step.”

The latest financial adviser to challenge the SEC's administrative proceedings, Dawn Bennett, filed a brief in the Fourth Circuit Court of Appeals last week challenging the constitutionality of the in-house judges.

Last month, Ms. Bennett refused to appear at an SEC hearing regarding its claim that she inflated her assets under management and lied about investment returns on her radio show.

One of her attorneys said that hearing SEC enforcement cases in federal court is a better remedy than modifying the administrative system.

“Her procedural protections in federal court are much greater than in administrative proceedings,” said Daniel Nathan, a partner at Morvillo. “If you want the protections of the federal court, then require that proceedings be brought in federal court.”

The SEC has proposed a rule that would strengthen defenses for participants in administrative proceedings. It has said the forums often are the best venue for cases because they are efficient, offer protections to defendants and are presided over by judges with expertise in SEC rules.

Critics contend that administrative proceedings amount to an unfair home-court advantage for the SEC. The agency's inspector general recently released a report stating that the forums are not biased against defendants.

Lawmakers will remain skeptical of the administrative process. In addition to Mr. Messer's pending bill, another measure introduced by Rep. Scott Garrett, R-N.J., chairman of a House Financial Services subcommittee, would allow SEC defendants to have their cases removed to a federal court.

Mr. Messer said his bill, the Rights Act, would make changes at agencies across the government.

“You hear stories back in my district of folks who've been drug through processes that can take years, cost hundreds of thousands of dollars and basically bankrupt them,” he said.

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