SEC set to reform administrative law process
The agency next week will consider changes to the process by which it tries enforcement cases before in-house judges.
The Securities and Exchange Commission next week will consider changes to the process by which it tries enforcement cases before in-house judges.
At a July 13 open meeting, the SEC members are scheduled to vote on amendments to rules for administrative proceedings, according to a notice posted on the agency’s website. An SEC spokeswoman wouldn’t reveal any more detail about the reforms.
Last September, the agency proposed a rule that would give parties in a case more time to prepare for a hearing, allow for depositions, and clarify the use of hearsay and affirmative defenses.
The current three SEC commissioners are likely to consider those changes or something similar next week. Two would have to approve the reforms for them to go into effect.
“These proposed rules are intended to introduce additional flexibility into administrative proceedings, while still providing for the timely and efficient disposition of proceedings,” the rule proposal states.
Many defendants in SEC cases have said the use of administrative proceedings gives the agency a home-court advantage in prosecuting claims. The agency defends the process as fair and effective, but also has sought ways to respond to the criticism.
The reforms are meant to “add, in the commission’s view, additional fairness to the administrative process,” said Howard Groedel, a partner at Ulmer & Berne.
Some investment advisers have challenged the constitutionality of the SEC judges. There has been a divergence of opinions at the district court level, and the Supreme Court recently declined to hear a case on the issue.
While the issue is percolating in the courts, the SEC is set to offer reforms.
One would extend the time between the filing of the claim and the first hearing, from four months to eight months. Another would allow up to three depositions by each side in a case with one defendant and five depositions by each side in cases with more than one defendant.
“This is a step in the right direction,” said Mr. Groedel, who often tries cases in the SEC system. “Any time you get additional time to prepare in a complex case, it’s good for your client. More discovery is also welcome.”
Learn more about reprints and licensing for this article.
