SEC enforcement chief defends using administrative law judges, avoids fiduciary

Andrew Ceresney espoused the agency's increased use of in-house judges before a congressional panel, while steering clear of the debate over raising investment-advice standards

Mar 19, 2015 @ 1:20 pm

By Mark Schoeff Jr.

Securities and Exchange Commission enforcement chief Andrew Ceresney defended the agency's increasing use of in-house judges and steered clear of the debate over raising investment-advice standards during a Thursday appearance on Capitol Hill.

Several lawmakers criticized the SEC for relying on its own staff of administrative law judges, saying defendants' rights were curtailed compared to having their day in court. The SEC was undefeated in actions heard in administrative forums during the last fiscal year.

“While bringing more cases through administrative proceedings can lead to lower costs for the agency and increase efficiency, it is important to realize that those benefits come with a cost,” said Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets, said during a hearing of the panel. “The cost is less due process protections for defendants.”

Although there are no depositions in administrative procedures, Mr. Ceresney said they do allow for due process. For instance, the SEC is obligated to produce exculpatory evidence and turn over investigative files within seven days. There is also transparency about witness lists.

Cases must be decided within 300 days in administrative proceedings, but can drag on for years in district court. The SEC takes the administrative route when it wants to provide quick relief to aggrieved investors or when a case involves complicated securities law, according to Mr. Ceresney. The agency also has to pursue failure-to-supervise cases in the administrative arena.

The majority of SEC cases are still brought in district court, Mr. Ceresney noted. In the last fiscal year, the SEC tried 57% of its cases in federal courts and 43% before administrative law judges.

“Our overriding goal here is investor protection, which is our mission,” Mr. Ceresney said. “We use the forum that we think is appropriate for the goals of investor protection.”

He added later in the hearing, “I have not heard criticism from investors about the administrative law judges procedure.”

Rep. Sean Duffy, R-Wisc., asserted that the SEC plays on its home court because it wants to win more cases.

“When you actually hire the judges and you set the rules, you win all the cases,” Mr. Duffy said. “Do you see the correlation there?”

Mr. Ceresney countered that the SEC has won 11 of its last 13 cases decided by juries.

“We're not afraid to try cases in federal court,” he said.

Mr. Ceresney steered clear of another controversial issue: fiduciary duty for investment advice.

Rep. Ann Wagner, R-Mo., tried to make him comment on the Department of Labor's pending rule that would require brokers to act in the best interest of their clients when advising on retirement accounts.

She pressed him on what the SEC is doing now to target conflicts of interest and whether the DOL rule would make the SEC's job harder.

But Mr. Ceresney didn't bite.

“We in enforcement enforce the statutes and rules that are on the books now,” he said. “We do that vigorously. Whether there should be a different standard or not is not something that's within our purview.”


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