For the past two years, the SEC has come under heavy fire, both inside and outside the Commission, for its increasing use of its own administrative proceedings, rather than federal courts, as the preferred forum for bringing its enforcement actions. On May 6, the Wall Street Journal published an article entitled “SEC Wins With In-House Judges,” reporting that, since 2010, the SEC has won 90% of its cases brought before its own administrative law judges but has won only 69% of its cases brought in federal court. Two days later, the SEC’s Division of Enforcement made public its “approach” to selecting a forum, which was intended to outline the facts and circumstances it considers in determining whether to bring a litigated enforcement action in federal district court or in its own administrative proceedings. The guidance, however, ultimately provides the Division with virtually complete discretion in choosing the playing field that will be most advantageous to its case and to its view of the “proper development of the law.”

Historically, the SEC has been relatively consistent in the litigated cases it brought in its administrative proceedings and in federal court. While there have always been exceptions, litigated cases involving registered entities such as broker-dealers and investment advisers were generally brought in administrative proceedings, while cases involving non-industry individuals and entities were brought in federal district court. The latter cases often involved insider trading, the FCPA, offering fraud, and public company financial reporting. However, with the passage of the Dodd-Frank Act in 2010, Congress gave the SEC increased remedies in administrative proceedings, the most important being civil money penalties against unregistered individuals and entities. Armed with its new authority, the SEC has ramped up its use of administrative proceedings to pursue litigated cases against individuals and entities that had not previously been at risk of being brought into the SEC’s home court.