The U.S. Chamber On SEC Enforcement

by Dorsey & Whitney LLP
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The U.S. Chamber of Commerce published a report regarding the enforcement practices of the SEC titled “Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices, July 2015” (here). The Report contains twenty-nine recommendations for improving the program.

The recommendations are divided into ten categories: The use of administrative proceedings; Wells notices; admissions; what the Report calls duplicative regulatory enforcement; enforcement policy; improving Commission oversight of the enforcement process; the transparency of the enforcement process; streamlining the investigative process; document requests during an investigation; and improving the efficiency of the investigative process. Interestingly, there are no recommendations dealing with remedies and the trend of imposing what some may view as ever increasing monetary penalties, particularly on individuals.

Key recommendations in the Report include:

Administrative proceedings: The first four recommendations in the Report deal with the use of administrative proceedings and, specifically selecting an administrative forum rather than brining the action in Federal district court. The recommendations include: developing a policy which would guide forum selection; creating a mechanism through which parties could challenge the SEC’s forum selection decision; permitting those who wish to have a jury trial to file a notice opting out of an administrative proceeding; and updating the Rules of Practice to increase pre-hearing discovery and permit depositions.

Wells process: Recommendations in this group include a call for a “reverse proffer” under which those who are potential defendants/respondents would be fully informed regarding the evidence prior to making a submission.

Admissions: The recommendations suggest a review of the current policy and, if it is going to continue, the development of guidance on their use.

Duplication in regulatory enforcement: This area addresses the issue of parallel proceedings, recommending that the SEC take a leadership role among regulators and enforcement officials in trying to streamline the use of overlapping and duplicative actions.

Enforcement policy: Comments on enforcement policy focus on broken windows and its focus on eliminating the idea that there is a “small violation” exception to enforcement. To facilitate the policy while conserving resources the Report recommends “the creative use of informal remedies . . .” to deal with smaller violations.

Oversight and transparency: In these areas the Report recommends developing a quarterly management report prepared by the staff for the Commissioners based on metrics developed by the Division of Economic and Risk Analysis. The report would focus on key areas such as significant “National Priority” investigations, those presenting novel or complex question, a post-mortem of unfavorable litigation results and new and emerging areas that may warrant investigation. Transparency would be enhanced by alerting those subject to the regulations of the agency to new interpretations and/or trends, publishing an annual report on the Enforcement Program and providing for public comment.

Facilitation of the enforcement process: This could be aided through several recommendations which include early notice by the Division to those projected to be involved in an investigation to preserve documents and an early dialogue with defense counsel regarding the types and categories of documents that will be sought. Consideration could also be given to establishing access to certain materials for the staff rather than actually producing the documents.

Efficiency of the enforcement process: A final group of recommendations focuses on increasing the efficiency of the enforcement process. These include improving the management of investigations, developing evaluation metrics, requiring departing staff to prepare a transition memorandum, providing closing notices, increasing staff training and increasing the integration of trial attorneys into the investigative process.

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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