By Jeffrey T. Petersen Esq. of Shustak Reynolds & Partners, P.C. posted on Thursday, February 12, 2015.

James J. Reynolds

Partner

In 2010, the Dodd-Frank Act expanded the SEC’s power to enforce the securities laws with the use of Administrative Proceedings. In the past, the SEC could seek civil penalties in administrative proceedings only against registered persons and entities or those associated therewith. Pursuant to the expansion under Dodd-Frank, the SEC now has the authority to pursue all individuals for such civil penalties in administrative proceedings.

The incentives for the SEC to use these types of proceedings are strong. The proceedings are quick: in general, the hearing will occur within four months of the start of a proceeding, and an initial decision will be rendered within 300 days by an administrative law judge, an SEC employee. The process is also highly streamlined compared to a federal district court trial: the Federal Rules of Evidence do not apply, leading to much less back-and-forth on admissible evidence, there is only a limited right to discovery and no right to a jury, so jury selection and the complications arising from potential juror misconduct are avoided.

It’s no surprise that in light of these institutional advantages for the SEC, representatives of the Commission are describing the use of administrative proceedings as the “new normal”, per a recent statement by its Chief of the Foreign Corrupt Practices Act, Kara Brockmeyer.

An individual facing SEC enforcement which goes to administrative proceeding has several important issues to address at the outset, and doing so quickly will be crucial given the speed with which administrative proceedings advance, and the limitations on discovery. Often times the individual will only receive the SEC’s file on the matter (which could be sizable), and be left with a short time frame to respond to a complex matter. How will the individual gather evidence without any subpoena power to compel production of documents or pre-hearing testimony from third parties? How will the individual prevent potentially prejudicial evidence from being heard if the Federal Rules of Evidence will not apply to render that evidence inadmissible? The use of experienced counsel is always highly advisable in SEC proceedings, and under this “new normal” of expedited administrative proceedings, that is especially the case.

Shustak Reynolds & Partners, P.C.’s securities and FINRA attorneys in San Diego, Irvine, San Francisco, and New York represent registered representatives, financial advisors, investment advisers, financial institutions and others in a variety of securities-related disputes, including SEC and FINRA enforcement and regulatory proceedings.  Contact us today for a confidential analysis of your situation.

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