Shoot First and Ask Questions Later: Financial Regulators’ Use of Their Emergency Enforcement Powers

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Originally published in the November/December 2012 issue of the Financial Fraud Law Report.

In the era of “real-time enforcement,” financial regulators repeatedly preach the importance of bringing an alleged malfeasor before a judge as soon as possible. Early action enables regulators to stop the alleged wrongful activity, freeze assets, and prevent the destruction of evidence. Yet the regulators’ use of their emergency powers brings its own set of challenges for the regulators. In order to respond quickly and nimbly in the changing climate of financial regulation, practitioners should understand the enforcement tools available to regulators and the defensive opportunities they present.

Each of the principal federal and private regulators of investment related activity faces a different calculation in choosing whether and how to pursue emergency relief. The Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) may seek temporary restraining orders and preliminary injunctions in federal court. The SEC and the Financial Industry Regulatory Authority (“FINRA”) may seek temporary cease-and-desist orders in their own administrative forums. Different rules govern the procedures for each type of action and for each regulator. As a result, the financial regulators have used their emergency powers to varying degrees and with varying degrees of success.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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