Before the Dodd-Frank Act, the SEC’s authority to impose monetary penalties in administrative cease and desist proceedings was available against only certain “regulated persons,” including broker-dealer and investment adviser entities and their associated individuals. As to other, nonregulated entities and individuals, including public companies and their directors and officers, the SEC was required to institute a civil enforcement action seeking monetary penalties in federal district court. The Dodd-Frank Act removed this distinction between regulated and nonregulated persons by authorizing the imposition of monetary penalties against any person in the context of administrative cease and desist proceedings. This change may impose a significant risk on unregulated entities and persons.
Administrative cease and desist proceedings are conducted in accordance with the SEC’s Rules of Practice. In comparison with federal court enforcement actions, these proceedings provide several procedural advantages to the SEC (and corresponding disadvantages to potential respondents), including lack of formal discovery pursuant to the Federal Rules of Civil Procedure (including the right to depose witnesses and obtain other evidence), and the inapplicability of the Federal Rules of Evidence. Perhaps most significantly, administrative proceedings do not provide for the right to trial by jury but instead are heard before SEC Administrative Law Judges (on a mandated expedited schedule), with appellate review by the SEC itself, before any judicial review.
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