Tag Archives: Ceresney

Why the SEC’s Proposed Changes to Its Rules of Practice Are Woefully Inadequate — Part IV

This is the fourth and final post discussing the SEC’s proposals for revising the Rules of Practice in its administrative court.  These proposals purport to modernize antiquated procedures in that forum.  Our first three posts addressed three unacceptable aspects of the SEC’s proposals: (1) requiring that respondents plead in their answers certain defense theories that are not “affirmative defenses” required to be pled in response to complaints filed by the SEC in the federal courts; (2) providing for a discovery process limited to a maximum of 5 depositions, requiring that those be shared among multiple respondents, allowing the Division of Enforcement an equal number of depositions (in addition many investigative depositions taken before the case was filed), and limiting the scope of witnesses that respondents could depose within the tiny allotment provided; and (3) the proposals continue to handcuff the respondents with respect to third party discovery and discovery from the SEC itself by maintaining highly restrictive rules limiting the issuance of subpoenas, while the SEC staff has essentially unlimited access to these sources of evidence.  You can review these comments here (Part I), here (Part II), and here (Part III), respectively.

The last part of the SEC proposed rule changes we will discuss involves the administrative trial itself.  Many commentators have noted the unfairness of the current SEC administrative proceedings with respect to the court’s acceptance of unreliable information into evidence.  The Federal Rules of Evidence do not apply in this forum, and administrative law judges, who effectively control the record, accept into evidence testimony and exhibits that would not be admitted into evidence in federal court.  As with almost all of the exercises of discretion by the SEC ALJs, this freedom to introduce into evidence material that would not be permitted in a court proceeding usually advantages the SEC staff.  The SEC ALJs treat the SEC staff with deference, lessening the usual standards under the theory that the staff is presumptuously acting in good faith.  That is one of the fundamental, hidden differences between SEC administrative proceedings and SEC court proceedings: the ALJs are accorded more discretion than judges with respect to evidentiary matters, and their use of that discretion tends to favor the litigant they presume is acting in the public interest – the Division of Enforcement and its lawyers.

The SEC’s proposed changes to Rules of Practice 235 and 320 would make what is already an unfair aspect of these proceedings even worse.  Rule 235 addresses when “a prior, sworn statement of a witness, not a party, otherwise admissible in the proceeding” may accepted into evidence.  It allows such evidence to be admitted when witnesses are dead, out of the country, incompetent to testify, cannot be subpoenaed, or “it would be desirable, in the interests of justice, to allow the prior sworn statement to be used.”  The SEC proposes that Rule 235 be expanded to cover “sworn deposition [testimony in the case], investigative testimony, or other sworn statement or a declaration pursuant to 28 U.S.C. 1746, of a witness, not a party, otherwise admissible in the proceeding.”  It further proposes that an “adverse party” may use any such prior statements of “a party or anyone who, when giving the sworn statement or declaration, was the party’s officer, director, or managing agent” may be used “for any purpose,” apparently without any showing of unavailability.  The latter change is presumably intended to benefit only the SEC staff, not respondents, because it seems unlikely that the adverse party to respondents in these proceedings – the Division of Enforcement – would have made any “sworn statements” relevant to the proceeding.

Rule 320 currently provides that the ALJ “may receive relevant evidence and shall exclude all evidence that is irrelevant, immaterial or unduly repetitious.”  The SEC’s proposed changes would require the exclusion of “unreliable” evidence, but would add specifically that “evidence that constitutes hearsay may be admitted if it is relevant, material, and bears satisfactory indicia of reliability so that its use is fair.”  Now, apparently, the Division can obtain mere declarations from some important witnesses like current or former officers, directors, or agents of the respondent — crafted by the SEC lawyers themselves — and submit them as evidence proposed under new Rule.  No court in the land would permit that.

As a result of the current lax standards governing admissibility of evidence, the ALJs already allow many forms of hearsay into the record.  That allows the SEC staff to make much of its case in administrative proceedings with evidence that would not be permitted in federal court. Among the most consistent and worst use of hearsay evidence in these cases is the general acceptance into evidence of transcripts of investigative testimony taken by the SEC staff. Because these examinations are conducted by the Enforcement Division’s lawyers, and are statements made under oath, the ALJs typically accept them into evidence without serious inquiry into their reliability.  However, they often are not reliable. There are several reasons for this:

  • First, these examinations take place in a context in which witnesses are often blindsided with inquiries about things that occurred years before with limited, if any, access to materials that could allow them to refresh their recollection of those dated events.  Sometimes, basic aspects of the subject matter the staff intends to inquire into are not known in advance.
  • Second, these questions and answers take place at a time when the primary goal of the witness is to try to convince the same staff not to take an adverse action against the witness.  This causes the witness to try as hard as possible to please the examiners.  That includes being reticent to tell them when the questions do not make sense, or are based on assumptions that are not valid, or reflect a lack of understanding (sometimes a very basic understanding) of the business matters or transactions involved.  Even defense counsel often resist criticizing questions or tactics for fear that the staff lawyers will become more antagonistic as a result.
  • Third, these examinations often are conducted in a manner that is more in the nature of an inquisition than an examination. It is not unusual for two, three, or four lawyers and sometimes accountants to act like a tag team, taking turns at the examination.  And often the staff is trying to create a record that implicates the witness or others and pressures the witness into providing its desired response, lest the witness otherwise be perceived as uncooperative or recalcitrant.
  • Fourth, the staff lawyers often formulate confusing and ambiguous questions, including regularly misusing technical terms.  That is sometimes because of lack of skill, sometimes lack of experience, and sometimes in an effort to cajole the witness into making statements that can later be portrayed as admissions when they are nothing of the kind.  No judge, magistrate, or even senior SEC official is there to prevent this, and objections by counsel are feckless, because the staff need do nothing to respond to those objections.  The end result is often a transcript that leaves open multiple interpretations of what the testimony actually says.
  • Fifth, the staff will often use limited materials during the examination that do not allow the witness to put documents or events in context, because the context is not made available. That often occurs with the misleading use of emails to portray one picture of events when other emails are not used that create a very different context.
  • Sixth, there is no real right to cross-examine the witness, nor an incentive for the defense counsel to do so.  Defense counsel is given the opportunity to ask questions, but typically lacks the materials that would allow useful questions to be formulated.  And without knowing where the investigation is headed, the defense counsel typically is loathe to get back into matters that may be ambiguous on the record, knowing there should be opportunities at later times to discuss the subject matters addressed with the staff, when a greater knowledge of entire record is possible and the direction the staff may be headed is more clear.

I believe that in contested cases in federal court, one significant reason for the SEC’s greater percentage of losses at trial is the unreliability of the investigative testimony the staff (and Commission) rely upon when a case is brought.  At trial, often the picture that is revealed by court testimony varies in significant ways from the record the staff created during the investigative testimony.  That in turn results in the staff having difficulty proving the Commission’s allegations.  When investigative transcripts are used to try to impeach witnesses by showing a supposed difference between the earlier statements and trial testimony, the infirmities of the investigative testimony undercut staff efforts to challenge the witness’s credibility, and in some cases serve only to impeach the credibility of the SEC and its lawyers.

The SEC’s new proposed Rules 235 and 320 are designed to codify the ALJ practice of treating investigative transcripts as a reliable form of “sworn statement,” as well as to codify the acceptability of hearsay evidence more generally, apparently without regard to a realistic examination of reliability.  Proposed new Rule 235 explicitly calls out investigative transcripts as proper forms of evidence, and allows their use against respondent parties “for any purpose.” And proposed Rule 320, specifically approves the use of hearsay evidence as long as it “bears satisfactory indicia of reliability.”  Having previously defined investigative transcripts as having “satisfactory indicia of reliability” in proposed Rule 235, the proposed new rules assure that ALJs will continue the unseemly and harmful process of using staff-controlled investigative transcripts as valid evidence.

That is the opposite of what should have been done.  There are strong reasons why hearsay evidence is permitted only under specific exceptions in the Federal Rules of Evidence.  A long history of evidentiary theory, thought, and practice, produced explicit understandings of when it is fair to allow out of court statements to be used to prove a case at trial.  Instead of endorsing a broad swath of hearsay evidence as acceptable, the SEC should have taken note of that history and careful thought.  It should have started with the assumption that the federal evidentiary rules are cogent and well-conceived, and departed from those rules only as necessary to achieve specific goals unique to its administrative proceedings that the federal rules impede.  If this standard were applied, I have little doubt that most of the Federal Rules of Evidence would be incorporated into the SEC administrative process.  There is no indication that any such analysis was done by the Commission, which in my view makes its evidentiary choices in the proposed rules arbitrary and capricious.

In fact, this same fundamental flaw in the way the Commission formulated its new proposed Rules of Practice infects the entire proposal.  There is an existing system of procedures, discovery, and evidence, that is in place in the federal courts which has been examined and refined over the years with enormous experience and attention.  In contrast, the SEC’s administrative process is broken and desperately needs repair.  But instead of using the federal court experience as a valuable benchmark for SEC administrative rules, the Commission decided to make only marginal changes — at best — to its broken system.  Why it chose this approach is not clear, because that analysis, if it occurred, is never discussed in the proposal.  My guess is that the bureaucrats took control of the process and desperately sought to avoid any major changes.  But for whatever reason, the SEC failed to use the many years of federal court practice and experience to generate a new, better set of rules for its administrative forum.

The Commission should have started from what we know to be fair and due process in the federal courts and replicated that process to the extent possible and appropriate in the context of an administrative proceeding.  It should have used the many years of federal court practice and experience to generate a new, better set of rules for the administrative forum.  If it perceived specific flaws in the federal court discovery or evidentiary process that could cause undue delay or expense, it should explain those, and make only those changes that would improve the process for all of the parties, not just the SEC.

Instead, it is painfully apparent that little effort was made to make the SEC administrative court a fairer forum for those prosecuted.  Minor changes were made in the timing of cases and the availability of discovery – changes transparently insufficient to accomplish any fairness goal. And these were accompanied by granting to the SEC staff several “goodies” from the Division of Enforcement wish list – e.g., requiring additional pleading of defenses and expressly permitting the use of hearsay evidence and investigative transcripts – that, in the end, probably make the administrative forum even more biased in favor of the SEC prosecutors, and against the respondents, than it is now.

The SEC Needs To Be More Transparent and Forthcoming To Recover Any Credibility

One final note.  The degree of disingenuousness by the SEC during this whole process has been shameful.  All along, both the Division of Enforcement and the SEC Chair have been touting the high degree of fairness in the SEC administrative courts in ways that do not pass the “ha ha” test.  See, for example, Ceresney Presents Unconvincing Defense of Increased SEC Administrative Prosecutions.  SEC Chair Mary Jo White was a capable – indeed, admired – private practitioner, and she must fully understand the huge advantage the SEC staff has in SEC administrative proceedings.  But she nevertheless maintains the bureaucratic fiction that everything is just fine there.  And she does so with statements that are obviously, embarrassingly, wrong.

The latest statement along these lines was Ms. White’s cynical performance in a recent Wall Street Journal interview.  See Mary Jo White explains the new SEC rules.  Here is what she said about SEC administrative proceedings:

One of the things that I think was a good thing for us to do was put out public guidelines as to what factors are considered in choosing the forum [in which to bring a case].  The commission, by the way, has to approve the choice of venue in every single case.  It isn’t up to the enforcement division.

There have been questions raised.  For example, I think in one year, if you look at the win rates in administrative proceedings versus district court, you’ll see a higher win rate.  But again, it’s cyclical to some degree.  If you look at this past year, we have a nearly 100% win in district court, and a lesser success rate in administrative proceedings, which have unique due-process rights.  For example, you have to turn over what’s called Jencks and Brady material in administrative proceedings, which is essentially exculpatory information, to the respondent, the defendant.  You don’t have that requirement in district court.  Recently we’ve put out for comment [proposed rules] to modernize our administrative proceedings. Should there be more discovery?  Should there be more time provided before there’s a hearing? . . .

I think they’re very fair proceedings. But you always want to critically examine what you’re doing so that you’re conveying not only in reality the fairness of a particular forum, but the appearance of it, too.

What nonsense.  And Ms. White is a good enough lawyer and securities litigator to know it.  With this statement, she reduced herself to rote adoption of the bureaucratic party line.

First, the statement that the SEC “put out public guidelines as to what factors are considered in choosing the forum,” as if there is some binding and useful guidance on that issue, is wrong, and she knows it.  She must know it because virtually every person and law firm to comment on that release recognized that it provided no useful information about the forum selection process, and essentially said no more than that the Commission has total discretion to choose whatever forum it prefers.  See SEC Attempts To Stick a Thumb in the Dike with New Guidelines for Use of Administrative Court; SEC’s New Guidance on the Use of Administrative Proceedings: “It’s Up to Us.”.

Second, the argument that the administrative forum provides greater rights to the persons sued because the Division of Enforcement is required “to turn over what’s called Jencks and Brady material in administrative proceedings, which is essentially exculpatory information, to the respondent, the defendant, and “[y]ou don’t have that requirement in district court” is both misleading and false.  To begin, the SEC staff’s determination of what is Brady and Jencks material is notoriously narrow.  In the staff’s view, if a document does not itself say that the respondent is innocent, it is not exculpatory – which leaves out many documents that are building blocks in proving the respondent’s innocence (for example, materials that show that a key SEC witness is lying would not be delivered).  Likewise, unless a document is a verbatim recording of what a witness said previously, it is not delivered as Jencks material.  That leaves out important summaries of interviews that report on many important things that were said in unrecorded interviews.  In addition, in both Brady and Jencks disclosures, the staff withholds anything it considers to be work product or subject to the so-called deliberative process privilege, which excludes large amounts of important information.  And there is no effective review of these decisions.  The ALJs almost uniformly accept the staff’s determinations on these disclosures because they assume the SEC staff acts in good faith (which is itself a breach of their duty to serve as neutral judges).  As a result, they are nearly useless in helping a respondent get true Brady and Jencks production.

In contrast, in federal court, a defendant can issue a document request for all Brady and Jencks material, and much more, and force the staff to produce all useful materials for the defense of the case.  When (not if) the SEC lawyers fail to deliver all of the relevant material, they can bring the issue to an independent judge who will treat both parties equally and not defer to the SEC staff’s determinations (at least in most cases).  So how exactly are an accused’s Jencks and Brady rights better in the administrative forum better than a federal court?  They are not.  Ms. White certainly understands that, but chooses to say otherwise.

If the SEC is ever going to reform its administrative forum, and make it into a fair alternative to the federal courts, it must recognize the problems in the current system, speak honestly about them, and make a genuine effort to produce new rules that flatten the playing field.  At the behest of SEC bureaucrats, Ms. White and her fellow Commissioners have plainly decided to avoid that route and make proposals that do not move perceptibly in the direction of fairness, but instead defer to the preferences of the SEC staff.  As a result, the proposals are grossly inadequate, and the SEC’s credibility on the issue is in shreds.

The proposed changes to the SEC Rules of Practice should be rejected.  Because the Commission has shown it is effectively captive to its staff, the best way to proceed is to appoint a committee of well-regarded SEC litigators to put together proposals for new Rules of Practice.  The Commission often seeks the assistance of professionals to address key regulatory issues, and the fairness of its administrative forum is no less important than those.  Of course, the SEC staff would fight tooth and nail to avoid this, so don’t hold your breath.

Straight Arrow

December 3, 2015

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Chamber of Commerce Report Details Concerns with SEC Enforcement and Proposed Reforms

On July 15, 2016, the U.S. Chamber of Commerce released a lengthy and detailed report discussing a range of shortcomings in the SEC’s law enforcement investigative and adjudicative processes.  Little of what was said is new, in the sense that it raises issues or presents ideas not previously discussed by parties or commentators.  But it may be the most comprehensive discussion of SEC enforcement issues in recent years.  It discusses how and why the scope and nature of SEC law enforcement has changed over the years, and, importantly, dwells on why rules, procedures, policies, and practices developed or adopted in the past have become obsolete in light of the changed scope and nature of both the SEC’s enforcement actions and the vastly changed information-storage environment which now dominates all forms of litigation.

The report makes 28 wide-ranging recommendations for revised SEC practices, policies, and oversight of the enforcement process.  Many of these focus upon and address the increased scope and use of administrative courts to pursue SEC enforcement actions, but they also address issues of fairness, efficiency and cost of the Division of Enforcement’s investigative process, the development and presentation of enforcement recommendations to the Commission, the standards to be used by the Commission in making enforcement prosecutorial decisions, the management and oversight of the enforcement activities of the Division of Enforcement, and the coordination of SEC enforcement with that of other law enforcement agencies.  The full report can be read here: Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices.

There is a lot of material here in wide-ranging areas.  But by all appearances, the driving force behind the publication of the report is the festering issue of the untethered use of administrative proceedings to pursue SEC enforcement actions of all types, and the increasingly obsolete and unfair tilt of those proceedings in ways that plainly favor the Enforcement Division and impair the ability of respondents to defend themselves.

The tone of the report is measured, and its points are made with context and analysis. The in-depth discussion of fairness issues in SEC administrative proceedings, in light of the antiquated set of rules and procedures governing those proceedings, stands in contrast with the conclusory, and ill-supported, claims of the SEC’s Director of Enforcement that the SEC administrative process gives respondents an equal shot at prevailing over the Division.  It also spotlights the particular unfairness of a set of policies and procedures that grants the Division the right to pursue its actions before a jury if it wishes to do so, while respondents are powerless to do so, even though the Supreme Court has made it clear that in many such cases brought in federal court, there is a constitutional right to trial by jury.  The discussion also takes the Division of Enforcement to task for the analysis and explanation of its newly-adopted pseudo-policy for determining whether cases should be brought administratively or in court, noting that all of the factors weighed in that document are limited to the vantage point of the Enforcement Division; none of the considerations of fairness, efficiency, and public interest take into account impacts on the persons accused of law violations in these cases.

The report is also useful in reminding us that where we stand now is the artifact of the Gerry-built history of SEC law enforcement powers.  As a result, it is not surprising, but to be expected, that there is an ill fit between the peculiarities of the SEC’s administrative court proceedings and the design of a fair and efficient law enforcement process.

Hopefully, the report can serve as a catalyst for the SEC to get past the current no holds barred effort to beat back litigation efforts to balance the litigation playing field and turn to serious, genuine, adult consideration and resolution of the underlying fairness issues.  If not, perhaps the report can get lawmakers to do that if the SEC commissioners continue to turn a blind eye to the problem.

Some aspects of the report may assist in turning what has been a vacuum of policy discussion into a productive effort to make things better.  First, is the report’s emphasis on the difference between the SEC’s role as the steward of our securities and capital markets and capital, which differs significantly from the prosecutorial role of the Division of Enforcement — and least since that prosecutorial arm moved in recent years from a focus on the public interest to one of wielding crippling punitive sanctions.  Second, is the report’s reminder of how the SEC’s enforcement process got to where it is today, and how the development of steroid-like bulking up of SEC enforcement powers outstripped the quaint procedural concepts that of the SEC’s administrative courts, as well as the managerial means of guiding and controlling the army of enforcement lawyers seeking to flex those new muscles.

The report reminds us that the SEC needs to keep in mind that its goal is broader and more complex than just to win enforcement actions.

The report rightly starts out with a discussion of what the SEC should be trying to accomplish as it considers its enforcement program generally, and the specific aspects of that program that are causing controversy.:

The Division of Enforcement, as the prosecutor, should consider the different aspects and implications of the two forums in making its recommendation to the Commission.  However, the Commissioners acting as a decisional body should not view their role in the same way as a prosecutor.  The Commission has a responsibility to consider the broader statutory questions of what is “necessary and appropriate in the public interest for the protection of investors.”  More broadly, it must also adhere to its multiple statutory mandates to protect investors, promote capital formation, and ensure fair and orderly markets.  Accordingly, the Commission should predicate its forum selection decisions solely upon a clear determination that its choices uphold and further its responsibility as a government agency to promote the public interest and the protection of investors, while respecting the important rights of those whose conduct the SEC chooses to scrutinize.

Report at 3 (footnotes omitted).

This gets to the heart of the Commission’s failure over the last year to show that it is willing to confront and discuss, in a serious, adult, way, how its enforcement policies may be undercutting, rather than achieving, important broader goals, including respect for its decisiion making process.

The report makes it clear that the history of the growth of SEC enforcement powers shows the current model is founded on happenstance, not design.

The report provides a history lesson about how the SEC got to where it is now.  That history shows repeated efforts to enhance and expand SEC enforcement powers and flexibility, but no effort whatsoever to build an managerial and procedural infrastructure necessary to assure that these new-founded powers are used in ways that achieve the SEC’s broader mission.  Here is some of that discussion:

Since the SEC’s creation, it has had the authority to bring administrative proceedings to address violations of the securities laws.  The scope of its authority to bring an administrative proceeding and the sanctions that can be ordered in an administrative proceeding have grown dramatically over time.

Early in the history of the SEC, the administrative proceeding was limited to proceedings to halt an offering of securities to the public, a so-called stop order, under section 8 of the Securities Act, and proceedings to reject an application for or revoke the registration of a broker-dealer or investment adviser.  Administrative proceedings were adjuncts of the Commission’s authority to register securities and register broker-dealers, investment advisers, and investment companies.  When the occasion arose to deny a registration or to revoke one, the administrative proceeding was the vehicle to provide the affected entity with a right to hearing prior to Commission action.

In 1964, Congress amended the Exchange Act and provided the Commission with the authority to institute administrative proceedings to censure, place limitations on the activities of, suspend for a period up to 12 months, or bar associated persons of broker-dealers.  The grounds for denying or revoking a broker-dealer registration or other disciplinary sanction were also expanded.  These new bases included willful violations of the Investment Company Act or the Investment Advisers Act, willful aiding or abetting violations, and importantly, a broker-dealer’s failure reasonably to supervise a person who commits a violation. In 1970, Congress amended similarly the Investment Advisers Act. Comparable authority is also contained in the Investment Company Act.  This authority has become a staple of the SEC Enforcement Program.

In 1990, Congress enacted the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the Remedies Act).  The Remedies Act dramatically expanded the nature of SEC administrative proceedings.  For the first time, the Commission could proceed administratively against persons and entities not directly registered with the Commission and, also for the first time, it could impose monetary penalties on registered entities and associated persons.  It authorized the Commission to enter a cease and desist order against any person who is violating, has violated, or is about to violate any provision of the securities laws or any rule or regulation thereunder.  In a cease and desist proceeding, the Commission can order a party to take steps to comply with its rules, to provide an accounting, and to disgorge profits gained or losses avoided.  This Act also created a proceeding to enable the SEC to issue a temporary cease and desist order.  While the Commission has used its cease and desist authority extensively, it has brought only one proceeding under its temporary cease and desist authority.

The Remedies Act also expanded the remedies that the SEC can order in an administrative proceeding against broker-dealers, investment advisers, investment companies, and persons associated with these registered entities.  The SEC can order disgorgement and civil penalties comparable to those available in an injunctive action.  The Sarbanes-Oxley Act (SOX) expanded the remedies available in a cease and desist proceeding by authorizing the SEC to bar an individual from serving as an officer or director of a public company if they violated the antifraud provisions of the Securities Act or Exchange Act. Section 602 of SOX added section 4C to the Exchange Act and provided explicit statutory authority for administrative proceedings against an attorney, an accountant, or other professional such as an engineer or geologist, engaging in improper professional conduct. This codified Commission rule 102(e).

Section 925 of the Dodd-Frank Act (Dodd-Frank) further expanded the Commission’s sanctioning power to include a “collateral” bar from association under all of the securities laws.  It also provided the authority to impose money penalties against persons or entities not registered with the Commission.  In effect, the Commission could, in an administrative proceeding, impose substantially the same penalties available in a civil injunctive action. The substantial expansion in administrative proceeding authority, both in the scope of who may be charged in an administrative proceeding (AP) and in the penalties available in an AP, has coincided with a dramatic increase in the total number of administrative proceedings brought by the SEC.  While the controversy over this shift in policy has been largely focused on the period following Dodd-Frank, and in particular the past two years, the increased reliance on administrative proceedings has been growing steadily for more than two decades.

Report at 11-12 (footnotes omitted).

At a later point, the report discusses some of the current procedural rules governing the administrative proceedings, and makes the telling point that these rules were adopted long before the Commission (or anyone else) had any conception that this process would be used to try to adjudicate complex enforcement cases that went well beyond the areas subject to SEC regulation:

Commission rule 360 provides that “Under the 300-day timeline, the hearing officer shall issue an order providing that there shall be approximately 4 months from the order instituting the proceeding to the hearing, approximately 2 months for the parties to obtain the transcript and submit briefs, and approximately 4 months after briefing for the hearing officer to issue an initial decision.”  At the time they were adopted, the Division was not bringing complex matters administratively, and there was little experience with the explosion of electronic documents that is commonplace today.  As such the time periods in Rule 360 never considered the possibility that litigants in some matters would be forced to review in four months literally millions of pages of documents turned over by the staff.  Of course in 1994, when the Commission last completed a material update of its Rules of Practice, it also did not consider the possibility of complex litigation in an AP.  This explains why the rules provide only the most limited forms of discovery and depositions for respondents.  The lack of adequate discovery opportunities and sufficient time to prepare for trials are serious disadvantages that raise fundamental issues as to the efficacy of bringing complex litigation under the existing Rules of Practice.

Report at 16-17 (footnotes omitted).

And later:

The most significant difference between an administrative proceeding and a civil action is in the area of pre-trial discovery.  Through its investigation and the use of investigative subpoenas, the Commission’s staff will have developed an extensive investigative record over a significant period of time, before instituting an enforcement action.  The Division of Enforcement effectively has had extensive discovery.  While the current Rules of Practice
create a possibility for issuance of subpoenas by an ALJ, the rigorous deadlines for completion of a proceeding often result in ALJ reluctance to delay a hearing by approving the issuance of subpoenas.  The disparity in discovery rules between Commission administrative proceedings and federal litigation is a sore point with SEC defense counsel.

The Commission’s Rules of Practice have not been significantly amended since 1993.  The comprehensive review at that time reflected the substantial changes in authority and sanctions contained in the Remedies Act.  Since the new authority was in its infancy, there was limited experience to provide a benchmark.  It was also not possible to anticipate the additional expansions affected by SOX and Dodd-Frank.  As such the project was an
effort to anticipate what would be needed to ensure that administrative proceedings would be conducted and adjudicated in a timely, fair, and impartial manner. It is fair to conclude that no member of the Task Force working on that project envisioned what the norm is more than 20 years later.  For this reason, the Commission should update and review its Rules of Practice.  This should not be a controversial recommendation, given that the current
general counsel of the SEC has publicly suggested that it is time for a review.

Report at 20-21 (footnotes omitted).

The report puts to rest the bona fides of the ill-conceived response from the Enforcement Director arguing that the rules and procedures governing administrative actions do not favor the Division as prosecutor, and the memorandum from the Division of Enforcement purporting to rationalize the Division’s forum-choice decisions.

When the Director of Enforcement acknowledged a new policy of using the administrative forum more frequently to pursue enforcement cases even in complex actions involving unregulated persons, there was an outcry that this was an effort to stack the deck unfairly in the Enforcement Division’s favor (is there a way to stack a deck fairly?).  See, for example, SEC Enforcement Director Announces Future Plans To Avoid Jury Trials, and Former SEC Enforcement Leaders Urge SEC To Reform Administrative Enforcement Process.   Instead of acknowledging a problem that needed to be discussed and resolved, Enforcement Director Andrew Ceresney gave a premeditated, yet ludicrous, response that respondents were not harmed at all by being forced into the administrative forum.  See Ceresney Presents Unconvincing Defense of Increased SEC Administrative Prosecutions.

When this plainly incorrect response failed to quell the sense of outrage, the Division of Enforcement published a memorandum purportedly explaining how it decided, and would decide, which forum to use in a prosecution, presumably in an effort to show that those decisions were not arbitrary.  See SEC Attempts To Stick a Thumb in the Dike with New Guidelines for Use of Administrative Court, and Upon Further Review, SEC Memo on Use of Administrative Courts Was Indeed a Fumble.

The report lays waste to each of these efforts to avoid the key substantive fairness issues raised by the increased use of the administrative forum in its current form.  It hopefully puts to rest any serious contention that respondents are significantly disadvantaged when the Commission chooses to file a complex case administratively at the same time it dissects the Division of Enforcement memorandum to show it is written without adequately considering impacts of this policy outside of the Division itself, and often relies on false premises:

In early May 2015, the Division of Enforcement posted on its page on the SEC website a document titled Division of Enforcement Approach to Forum Selection in Contested Actions.  As the title indicates, the document provides an explanation of the factors that the Division will consider when making a forum recommendation to the Commission. . . .

Four factors are identified and discussed:

• The availability of the desired claims, legal theories, and forms of relief in each forum (factor 1);
• Whether any charged party is a registered entity or an individual associated with a registered entity (factor 2);
• The cost-, resource-, and time-effectiveness of litigation for the Commission in each forum (factor 3); and
• Fair, consistent, and effective resolution of securities law issues and matters (factor 4).

Factor one acknowledges that certain causes of action are unique to each forum. . . .

Factor two restates the long-standing use of the AP process for actions against registered entities and associated persons. . . .

Factor three describes additional time and resource benefits that the staff derive from each type of forum, under certain circumstances.  These time and resource considerations
highlight the benefits exclusive to the Division.  No recognition or consideration is given to the impact of the forum decision on the parties charged.  In this respect, the policy is most troubling.  While the apparent efficiency of an administrative proceeding may be a benefit to the Division, it may be a serious and inequitable impediment to the person charged.  As a factual matter, the claimed rapidity of an administrative proceeding over a federal court action may also be incorrect.

The speed of the AP process is largely a byproduct of two factors.  One factor is the limited availability of pre-hearing discovery.  The second factor is the time limits imposed by Commission rule on the length of the process.

The lack of pre-hearing discovery adversely affects the respondent rather than the SEC staff. This is because the staff has been able to compile its evidentiary record, including sworn depositions, through its investigation process.  In effect, the staff is able to conduct its prehearing discovery before beginning the proceeding.  The respondents in an administrative proceeding have no comparable opportunity.  While they may be provided with the staff’s investigative record, this does not provide them with an opportunity to ask their own questions of witnesses  or seek documentation to support their position.  More important, they may have only a very short amount of time in which to review an investigative file, compiled over years of investigation and encompassing literally millions of pages of material.  The unequal impact of this limitation is discussed further below, under the discussion of factor three.

The second factor, specific time deadlines, may not result in the level of efficiency that the Division suggests. . . .  Factoring in the extended time period for completion of the Commission’s review suggests that the overall period for completion of an administrative proceeding is likely slower than the time required to complete a trial in district court.

Factor three also refers to the costs and benefits arising from the “additional time and types of pre-trial discovery available in federal court.”  While the current AP rules may provide benefits to the staff in terms of resources, they affirmatively disadvantage the respondents in these proceedings. . . .   At the time [these rules] were adopted, the Division was not
bringing complex matters administratively, and there was little experience with the explosion of electronic documents that is commonplace today. . . .  The lack of adequate discovery opportunities and sufficient time to prepare for trials are serious disadvantages that raise fundamental issues as to the efficacy of bringing complex litigation under the existing Rules of Practice. . . .

The fourth factor broadly raises these fundamental considerations of fairness and efficacy.  The only aspects of it that are discussed in the Division’s statements are the traditional statement concerning the superior expertise and experience of ALJs and the Commission, and the benefits that may come from having these experts be the first to examine and interpret the law, subject to appellate review.

Notably absent from this factor is the issue of the right to a jury trial.  One of the core constitutional protections is the right of persons to demand a jury trial.  The Supreme Court
has held that a defendant is entitled to a jury every time the government demands a civil penalty. . . .   Ironically, under the new forum choice process, instead of the defendant controlling the right to request a jury, through the choice of forum the government will have complete control over the right to a jury.  If the Division believes a jury would be advantageous, then it can file in district court.  If the Division prefers not to have a jury hear a case, then it can file an administrative proceeding.  Of all the consequences of the choice of forum controversy, it is likely that most objective persons would view this usurpation of a defendant’s right to request a jury as the most objectionable consequence.

Other fairness issues are also worthy of examination.  As previously explained, the lack of time and lack of discovery options also raise serious fairness issues.  In addition, one should be careful not to overstate the superior expertise that resides with the Commission’s adjudicators. Under the procedure governing the appointment of ALJs, direct substantive expertise in the applicable law is a minor consideration.  The dominating factor in the selection process is experience as an ALJ in the federal government.  During the past 30 years, the SEC has not hired a single ALJ who had directly relevant experience or expertise related to the federal securities laws.  While one may reasonably assume that each ALJ will, over time, acquire this expertise, currently only two of the six SEC ALJs have been at the Commission for more than two years.

This lack of substantive experience is particularly relevant when one considers the different standard for appellate review of SEC opinions compared to federal district court decisions….  This limited standard of review applies even in matters in which the Commission interprets the law differently from judicial interpretation. . . .

Report at 14-17 (footnotes omitted).

The report makes many recommendations for action by the Commission.  Many are fairly obvious for laying a foundation of fairness in this process.  Others may ask too much.  But each is a serious proposal meriting thought, analysis, and discussion, beyond the scope of this article.  The point to be made first is that the report leaves little doubt that it is time for the SEC commissioners to join in a “conversation” about how best to reform the SEC’s enforcement and administrative process, rather than mutely filing briefs in the administrative and federal courts that do their best to try to prevent anyone from causing meaningful reform.

Straight Arrow

July 16, 2015

 

Division of Enforcement Continues To Refuse To Comply with SEC Orders in Timbervest Case

Two days ago, we wrote about the Division of Enforcement’s refusal to comply with an SEC adjudicative order in In the Matter of Timbervest, LLC.  Instead of complying with a Commission Order to supply information about the circumstances of the hiring of ALJs Brenda Murray and Cameron Elliot, the Division provided information that it deemed sufficient to address the Appointments Clause issue raised by the respondents.  Then, amazingly, the partial response the Division deigned to supply, based on what it decided was relevant, was wrong, which was learned when ALJ Elliot corrected the errors on the record in a different proceeding.  See SEC Bumbles Efforts To Figure Out How Its Own Administrative Law Judges Were Appointed.

Well, paraphrasing a former President’s famous one-liner: “There they go again!”

Yesterday, the Division made another filing in the Timbervest administrative proceeding that refused to comply with a Commission Order.  Instead, the Division again told the Commission that it really shouldn’t have asked for the submission it ordered, and declined to respond.  If there were any further evidence needed of the inherent unfairness of the administrative adjudicatory process to respondents, and the inability of the Commission to address fundamental constitutional issues under its own roof, this is it.  The Division would not dare thumb its nose in the face of a district court judge in this manner, even if it were really upset that it was being ordered to make submissions it really preferred not to make.  But here, Mr. Ceresney has no reason for concern because the “chief judge” he is facing — Mary Jo White — is his former law partner, and the person who appointed him head of the Enforcement Division.  Conflict of interest?  Perhaps not, technically.  But how fair would you think this adjudicative forum is if you were in Timbervest’s shoes on the other side of the “v.” from Mr. Ceresney when the Division was allowed to make its own decisions about the extent it would comply with Commission orders?

Here is what happened.  In response to a motion from the respondents, on May 27, 2015, the Commission, sitting in its capacity as adjudicator of the Timbervest enforcement action:

ORDERED that the parties shall file simultaneous supplemental briefs, not to exceed ten double-spaced pages, by July 1, 2015. The briefs shall be limited to the following two issues: (1) whether, assuming solely for the sake of argument that the Commission’s ALJs are “inferior officers” within the meaning of Article II, Section 2, Clause 2 of the Constitution, their manner of appointment violates the Appointments Clause; and (2) the appropriate remedy if such a violation is found.

The Order “assum[ed] solely for the sake of argument” that the Commission’s ALJs are ‘inferior officers'” under Article II, Section 2, Clause 2, and mandated short submissions on two specific points: (1) under that assumption, have the appointments of SEC ALJs violated the Appointments Clause, and (2) “if such a violation is found,” what should be the appropriate remedy?

The parties’ responses were filed yesterday.  The respondents’ submission can be read here: Brief of Respondents In Response to the Commission’s May 27, 2015 Order.  The Division of Enforcement’s submission, personally signed by Enforcement Director Andrew Ceresney, can be read here: Division of Enforcement’s Response to the Commission’s May 27 Order

The respondents submitted what the SEC ordered.  They laid out their argument why the appointment of the ALJ who presided over most of their proceeding violated the Appointments Clause, assuming he was indeed an “inferior officer” under that clause.  They then argued that the violation makes the proceeding and findings of the ALJ invalid, requiring that the Initial Decision be vacated.  If a new proceeding is to be commenced (which they argue is not in the public interest), it must be, they say, before an ALJ properly appointed under the Appointments Clause.

The Division, on the other hand, chose (again) not to submit what the Commission ordered.  The Division’s brief acknowledges that, based on the known circumstances of the appointment of SEC ALJs, if one assumes “for the sake of argument” that the SEC’s ALJs are “inferior officers,” their appointments did not comply with the Appointments Clause:

In response to the Commission’s first question, “assuming solely for the sake of argument that Commission ALJs” who presided over Respondents’ administrative hearing are “‘inferior officers’ within the meaning of Article II, Section 2, Clause 2 of the Constitution,” the Division believes that their manner of appointment would be inconsistent with the terms of the Appointments Clause.

SEC Brief at 1.

But on the second issue — the appropriate remedy in the event such a violation is found — the Division gave no response.  Instead, it argued (again) that SEC ALJs are mere employees, and that therefore no remedy is needed.  In short, the Division refused to comply with the SEC’s Order:

In response to the Commission’s second question, the Division strongly urges the Commission to refrain from fashioning a fix for a non-existent constitutional violation. Rather, and for the additional reasons explained below, the Commission should find that ALJ Elliot was hired in a manner consistent with Article II, Section 2, Clause 2 of the Constitution because he is an employee, and not a constitutional officer, and that there is therefore no Appointments Clause defect to remedy.

SEC Brief at 2.  Later in the submission, the Division says:

Because there is no constitutional violation under the Appointments Clause, there is no basis for a “remedy.”  If, however, the Commission holds that SEC ALJs are inferior officers and that their hiring violated the Appointments Clause because they were not hired with the approval of the Commissioners, the Division requests that it be permitted to submit additional briefing about components of any appropriate remedy, such as ratifying SEC ALJs’ prior hiring.  To be clear, the Division does not seek any remedy, including as an alternative measure, at this juncture.  Because of the potential ramifications of such a remedy [fn] and because Congress has set out a scheme, implemented by OPM, for the hiring of these employees, the Division believes that any Commission efforts to superimpose on this scheme a remedy to rectify a problem that does not exist is inadvisable at this time.

[fn]: Such a remedy is not only unnecessary but also fails to resolve the ongoing litigation before the Commission and in district courts around the country given the other constitutional claims raised in this case and others that would not be addressed by such action.  Further, it seems likely to prompt new issues in litigation, whether in this case or others.

SEC Brief at 5-6.

Not to belabor the point, but if the Division believed the submission it was ordered to make was inadvisable at this time, for tactical litigation reasons involving other cases or for whatever other cause, it should have asked for relief from the Order and allows the Commission to decide whether the Order should be revised.  Simply refusing to comply and asking for the right to address the issue later if necessary is contemptuous of the adjudicator (here, the Commission), and of the proceeding itself, which does not permit parties to dictate when they will and will not comply with the administrative court’s orders.

Straight Arrow

July 2, 2015

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Former SEC Enforcement Leaders Urge SEC To Reform Administrative Enforcement Process

Two former high-level SEC enforcement officials took on the SEC today in the Wall Street Journal, addressing “how to rein in” the SEC’s move towards shifting enforcement actions from federal courts to the SEC’s own administrative courts.  See How To Rein in the SEC.  The two officials, one of the most highly regarded former Directors of the Division of Enforcement, William McLucas, and a recent SEC chief litigation counsel, Matthew Martens (both now partners at the WilmerHale law firm), note that “[a]dministrative proceedings involving litigation of independent agency enforcement actions have been part the regulatory landscape for decades,” and “it would be easy for the SEC to take comfort in both the court rulings to date and its own sincere belief that its proceedings are fair.”  But they argue that “legitimate questions loom regarding the agency’s authority to sit as prosecutor, judge and appellate tribunal on its own cases,” and “when those regulated by the SEC—a broad swath of the population—begin to view the exercise of governmental power as potentially unfair, there is a problem” because “Democratic self-governance requires that the governed be generally convinced of the system’s evenhandedness.”

They note that the “timing” of the decision “to move toward more in-house proceedings couldn’t have been worse” because it immediately followed several stinging federal court defeats, most notably the jury verdict in favor of Mark Cuban, who was prosecuted civilly by the SEC for alleged insider trading violations.  They gently observe that some could question the rationale of SEC officials for making an important policy change at this time to keep more cases away from the federal courts – and juries – when the authority to make such a move remained largely dormant until the SEC’s court losses started to proliferate.  They conclude: “One need not be a conspiracy theorist to wonder whether at least part of the SEC’s rationale was to avoid the federal courts. In government as in comedy, timing is everything.  And here the SEC’s timing raises serious questions about the agency’s move toward the in-house forum.”

The solution, they suggest, is for the SEC to “reclaim the high-ground in this debate and demonstrate the legitimacy of its in-house proceedings” by taking several steps:

  1. To develop “meaningful criteria for exercising its discretion to bring matters in-house,” meaning “objective criteria to guide the choice of forum” which would be determined only after considering “comments from interested parties, including the defense bar.”  This is an implicit swipe at the Division of Enforcement’s feckless attempt to describe a process for determining when to use its administrative courts, which commentators, including yours truly, universally saw as so vague and ridden with caveats that it served only as a transparent effort to justify the Commission’s continued unfettered discretion to decide where to commence its cases.  See Upon Further Review, SEC Memo on Use of Administrative Courts Was Indeed a Fumble.
  2. “[T]o modernize the rules of procedure governing its in-house proceedings,” which the SEC’s General Counsel recognized a year ago were antiquated.  They explain: “With cases now brought in-house that involve evidentiary records spanning millions of pages and testimony gathered over several years by the SEC’s enforcement staff, it is unfair to force a respondent to trial with, at most, 120 days to prepare.”  A respondent’s “limited ability to obtain documents needed for a defense, with no opportunity to depose witnesses like the SEC did during the often multiyear investigation leading to the charges, and with insufficient time to locate defense expert witnesses to respond to the SEC’s experts,” leave these proceedings “stacked in favor of the SEC.”  This only touches upon the many respects in which the Division of Enforcement has a huge advantage against respondents when prosecuting SEC cases on the administrative forum.  See Ceresney Presents Unconvincing Defense of Increased SEC Administrative Prosecutions.
  3. “SEC commissioners should avoid finding, on appeal, additional violations and imposing additional penalties beyond those assessed by the administrative law judges.”  Unlike the SEC itself, the ALJs who preside over the SEC’s in-house cases are independent government employees, have no role in authorizing the charges against defendants, and hear the evidence directly from the witnesses in the hearings. . . .  The commission, by contrast, is the same body that brought charges against the respondent,” and it “never hear[s] from witnesses themselves.”  That makes it “troubling” if the “commission, acting as an appellate body, [goes] further than the findings of the ALJ who conducted the hearing to find new violations and penalties.”

The authors conclude: “The Supreme Court has, for nearly 40 years, authorized federal agencies to use administrative proceedings to pursue enforcement cases.  But the agencies must use that power in judicious ways.  The SEC’s approach to administrative proceedings leaves something to be desired. It isn’t too late to fix that.”

These are not new points and new arguments.  Several commentators have raised these and other issues over the last year, and Andrew Ceresney, the Director of the Division of Enforcement, repeatedly responds by extolling the quality of the Emperor’s clothes . . . that is, insisting that the SEC is acting fairly, impartially, and in the public interest, and that its litigators have no material advantage over the defense in the SEC’s home court.  What is new here – or almost new (former Director of Enforcement George Canellos made similar comments recently — see SEC ex-enforcement chief calls for reforms to system of in-house judges) – is that respected former officials are telling Mr. Ceresney to open his eyes, get off his soap box, and work with the General Counsel and the Commission to fix what is a real problem.

One respect in which Messrs. McLucas and Martens give their former employer too much deference is their apparent acceptance of the view that it is settled law that the SEC can be lawfully empowered to bring enforcement actions in its administrative courts against persons the SEC does not oversee as a regulator.  There remain serious questions whether the powers granted by Congress to the SEC in the Dodd-Frank Act to commence such actions are constitutionally sustainable.

The “40 years” of Supreme Court authority for “federal agencies to use administrative proceedings to pursue enforcement cases” that the authors mention twice in their article is a judicial authority originally founded in the context of enforcement actions for the purpose of implementing and enforcing specific regulatory authority conferred on the agency.  Persons who engage in the regulated conduct effectively consent to resolve regulatory disputes in the agency’s forum of choice.  The Supreme Court has never approved the notion that Congress is empowered to transfer law enforcement prosecutions outside of those agency regulatory boundaries from Article III courts to administrative fora, which have no juries, and the decisions of which are reviewed by the agency itself.

Indeed, this issue is apparent from the Supreme Court’s most recent consideration of the exercise of judicial authority by non-Article III courts to decide common law disputes that arise in the course of bankruptcy proceedings.  In Wellness Int’l Network, Ltd., et al v. Sharif, 575 U.S. ___ (2015), the Court held that there is no violation of the separation of powers doctrine when a bankruptcy court, an Article I court, adjudicates claims normally required to be decided by Article III courts, as long as the parties mutual waive any objections to the use of the bankruptcy court for this purpose.  Even in that circumstance, Chief Justice Roberts vociferously objected to the decision, which he said allowed for the possibility of a piece-by-piece dismantling of exclusive Article III judicial powers.  And the recent Supreme Court case normally cited in support of allowing administrative courts jurisdiction over Article III cases and controversies itself also depended to a significant extent on the waiver of any objection to the proceeding.  See Commodity Futures Trading Comm’n v. Schor, 478 U. S. 833 (1986).

To be sure, the authors are correct that the SEC should – must – take compelling action to make its enforcement adjudication process fair, and to subject the exercise of discretion over the forum to be used for these cases to reasoned limits.  But even if this occurs, there remain serious due process, equal protection, jury, and separation of powers issues that may ultimately require this Dodd-Frank experiment with broadened administrative adjudication to be overturned.

Straight Arrow

June 3, 2015

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Upon Further Review, SEC Memo on Use of Administrative Courts Was Indeed a Fumble

Penalty Flag“Upon further review,” as they say in the NFL, was the SEC’s recent “Division of Enforcement Approach to Forum Selection in Contested Actions,” entitled to a better call than we gave it in our Friday post: SEC Attempts To Stick a Thumb in the Dike with New Guidelines for Use of Administrative Court?  The definitive answer is: “No.”  The SEC clearly fumbled the ball with this publication, and made itself look pretty silly doing it.  I’m going to add a penalty flag.

SEC Chair Mary Jo White (Courtesy Salon) Her approval is inexplicable and depressing

SEC Chair Mary Jo White (Courtesy Salon)
Her approval is inexplicable and depressing

Our Friday post did not discuss any of the SEC’s vague descriptions, all-encompassing caveats, prevarications, and self-congratulatory pats on the back (to itself) in this document, so we will address some of them here.  This SEC memo is the equivalent of one of those “what were they thinking?” moments we now see on the internet all of the time, like a selfie someone might take (and actually post for all to see) of the author grinning before some solemn background, like the Vietnam War Memorial.  It’s an embarrassment for what it says and what it fails to say about the serious issue of assuring due process and fair treatment in SEC enforcement actions, particularly as to non-regulated persons.

“When recommending a contested enforcement action to the Commission, the Division recommends the forum that will best Utilize the Commission’s limited resources to carry out its mission.”

A false and misleading statement in at least two respects.  The Director of the Division of Enforcement already admitted that the Division chooses its administrative forum to pressure targets into settlement (“I will tell you that there have been a number of cases in recent months where we have threatened administrative proceedings, it was something we told the other side we were going to do and they settled”), and that he believed federal court juries were not properly adhering to the required burden of proof (“Frankly, I think juries, while they’re instructed that we have a preponderance standard, I think apply a higher standard to us than preponderance”).  See SEC Could Bring More Insider Trading Cases In-House.  That has nothing to do with “best utilizing resources”; it has to do with maximizing the chance to win or force a settlement on SEC terms.  One of the key reasons for choosing the administrative forum is because it has a better chance of winning there, not to make careful use of enforcement resources.  And, as the Wall Street Journal recently documented, that is precisely the result.  The Division also makes no real effort to “best utilize” its resources in any other enforcement context.  It badly allocates its ample staff resources on investigative matters that have little overall public policy consequence.  That includes the  so-called “broken windows” approach to enforcement, which focuses staff attention on what the SEC itself describes as minor violations.  But it also includes expensive litigated cases involving trivial violations of law, even if all the allegations could be proved.  (See There They Go Again: SEC Wasting Taxpayer Dollars on Trivial Perquisite Enforcement Litigation in SEC v. Miller.)

“There is no rigid formula dictating the choice of forum.  The Division considers a number of factors when evaluating the choice of forum and its recommendation depends on the specific facts and circumstances of the case.  Not all factors will apply in every case and, in any particular case, some factors may deserve more weight than others, or more weight than they might in another case.  Indeed, in some circumstances, a single factor may be sufficiently important to lead to a decision to recommend a particular forum.  While the list of potentially relevant considerations set out below is not (and could not be) exhaustive, the Division may in its discretion consider any or all of the factors in assessing whether to recommend that a contested case be brought in the administrative forum or in federal district court.”

A long-winded way of saying: “We are going to list a whole lot of factors below, but there is no way to know which ones we will decide are important, or whether we will decide other unmentioned factors are more important.  That is, the Division will choose a forum on whatever basis it thinks makes sense, and we are not going to give you any way of predicting or understanding that decision”

“The Division may in its discretion consider . . .  [t]he cost ‐ , resource ‐ , and time ‐ effectiveness of litigation in each forum. . . .  In general, hearings are held more quickly in contested administrative actions than in contested federal court actions. . . .   When a matter involves older conduct, this may allow for the presentation of testimony from witnesses who have a fresher recollection of relevant events.”

In other words, since administrative proceedings move more quickly, that can justify our choice of that forum in pretty much any case.  And in an “older case” — which means, by the way, cases that Division of Enforcement lawyers have sat on for years on end — because our dilatory investigation makes it virtually impossible for any witness to remember accurately what really happened, we will lean towards the administrative forum because, in our discretion, we now think it is important to move at a breakneck pace, and not allow the defense the time to develop a complete understanding of the record or what witnesses may say at trial.

“The additional time and types of pre‐trial discovery available in federal court may entail both costs and benefits, which should be weighed under the facts and circumstances of a case.  Although pre‐trial discovery procedures exist in both administrative proceedings and district court actions, the mechanisms of discovery are different.  For example, in administrative proceedings, the Division must produce to respondents all non‐privileged documents from its case file and the Division has Brady and Jencks obligations, requirements that do not exist in civil district court litigation.  On the other hand, depositions are available in district court but generally not in administrative proceedings.”

This is no more than a transparent effort to create the misleading impression that a sow’s ear could be something other than a sow’s ear.  No aspect of the discovery limits in administrative proceedings are beneficial to a respondent.  The restrictions on discovery may be the single-most unfair aspect of these proceedings, but the SEC portrays them here as cutting both ways.  Hogwash! (In keeping with the sow metaphor.)  The lack of depositions, the inability to pursue reasonable discovery against the SEC, the more restrictive approach to third-party discovery (including that every subpoena must get prior approval from the ALJ, inevitably over opposition from the Division), and the incredibly short time-frame for doing any independent development of evidence, all mire the administrative respondent in a sloppy mud pen.  The SEC, however, had many years to develop its own case (and now uses its own delay as a reason to avoid court!), and no obligation to do so in a way that actually makes a fair record (in investigative testimony, leading and misleading questions, hiding key evidence from witnesses, vague questions that can be later misconstrued, and avoiding any discussion of exculpatory evidence, are the norm).  So the much-touted production of “all non-privileged documents from its case file” is a laugher as a benefit to the respondent.  The same production would be required in court (and typically is made by the SEC at the outset without waiting for a request), and intelligent discovery requests will be able to garner all Brady and Jencks material as well.  Not to mention the fact that the Division’s concept of what is “non-privileged” means they often refuse to produce many materials based on privilege claims (attorney-client, work-product, and the all-encompassing “deliberative process privilege”) that would not (and do not) withstand challenge in court.  But administrative judges are much more reluctant to force discovery on the Division, or the SEC more broadly, than federal court judges.

“Administrative Law Judges, who adjudicate securities law cases, and the Commission develop extensive knowledge and experience concerning the federal securities laws and complex or technical securities industry practices or products. . . .  If a contested matter is likely to raise unsettled and complex legal issues under the federal securities laws, or interpretation of the Commission’s rules, consideration should be given to whether, in light of the Commission’s expertise concerning those matters, obtaining a Commission decision on such issues, subject to appellate review in the federal courts, may facilitate development of the law.”

The hubris!  This could be the most offensive factor of all.  It suggests that administrative law judges and SEC Commissioners are better-suited to decide “unsettled and complex legal issues” to “facilitate development of the law” than federal court judges.  Let me see if I have this right.  An appointee not required to meet anything close to the standards that apply to federal judges is better to decide complex issues and the development of the law?  And Commissioners, who have virtually no adjudicative experience at all when they are appointed, all of a sudden become better at considering “complex and unsettled legal issues” when they are confirmed?  I think not.  Nor does district judge Jed Rakoff, who gave the exact opposite view on this issue (moving cases from the federal courts to the SEC’s captive administrative court “hinders the balanced development of the securities laws”).  See Judge Rakoff Slams SEC for Increased Use of Administrative Proceedings.

The SEC was not content here to talk about technical applications of SEC rules in the securities industry — as to which they could at least have a theoretical basis for making such an argument based on supposed agency expertise.  They argue here that ALJs and Commissioners may be viewed as better able to decide complex legal issues wholly apart from technical SEC regulatory compliance issues — for example, whether a non-regulated corporate official engaged in fraud in some respect or another.  There is no way to support the argument that ALJs or SEC Commissioners are better situated to decide complex and unsettled issues involving fraud allegations than federal judges.  The obvious example is insider trading cases, as to which the law is so nuanced, and so bound up in considerations of fraud and fiduciary obligation, that federal court judges are much more likely to get it right.  (The exact view expressed by Judge Rakoff: see Judge Rakoff PLI Speech.)  That doesn’t even take into consideration the fact the federal judges (and juries) are not conflicted on these cases like the SEC Commissioners are.  Only after having first approved the filing of a prosecution, and likely having rejected a proffered settlement as insufficient, do the Commissioners decide these cases, including whether to adopt views of the facts or the law that may be inconsistent with their own decision to prosecute.

As an attempt to make public policy, this document is an embarrassment.  Its objective is not to determine when an administrative forum is a fairer and more appropriate forum in which to litigate enforcement actions against non-regulated persons.  It is to provide a justification for any decision the SEC may make about where to litigate its cases, and to be able to argue that those decisions deserve deference because they reflect a reasoned agency determination under an adopted set of guidelines

The fact that Chair Mary Jo White signed off on such an atrocity is depressing, and, frankly, inexplicable.

Straight Arrow

May 11, 2015

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Some SEC Administrative Law Judges Are Thoughtful and Even Judicious

We have now on several occasions bemoaned the fate of Laurie Bebo, former CEO of Assisted Living Concepts, Inc., to be forced to litigate her professional future before SEC Administrative Law Judge Cameron Elliot, whom we believe to be, shall we say, not the brightest star in the firmament.  See SEC ALJ Cameron Elliot Shows Why In re Bebo Should Be in Federal Court; Bebo Case Continues To Show Why SEC Administrative Proceeding Home Advantage Is Unfair; and SEC ALJ in Bebo Case Refuses To Consider Constitutional Challenge and Denies More Time To Prepare Defense.  And we have argued that the SEC’s home administrative law court is not a fair forum for the resolution of career-threatening enforcement actions against non-regulated defendants, notwithstanding that the Dodd Frank Act permits such cases to go forward.  See Challenges to the Constitutionality of SEC Administrative Proceedings in Peixoto and Stilwell May Have Merit; Ceresney Presents Unconvincing Defense of Increased SEC Administrative Prosecutions; and Opposition Growing to SEC’s New “Star Chamber” Administrative Prosecutions.  That might make a reader think we believe that all SEC ALJs lack the ability or temperament to preside over and decide important cases.  So, to set that record straight, allow us to say that, like almost almost any other place, the SEC administrative law courts are administered by appointees with a range of abilities and demeanors.  It is not the lack of judicial ability that makes the SEC’s administrative courts a poor forum for such cases, it is that the forum is bereft of procedural protections that enhance the chance that a respondent will get a fair shake even when the presiding ALJ is one of poor judicial timber.

In federal court, there are also good judges, bad judges, and a range in between.  But the scales of justice have calibrating factors other than the judge.  In a federal court, equal access to potential evidence through liberal discovery; equal opportunity to develop familiarity with the record over a reasonable period of time; evidentiary rules designed to assure that unreliable evidence, and excessively prejudicial evidence, is excluded; and, of course, the fact that a jury sits to consider the evidence, and use their combined common sense to find facts, all combine to make it possible for a defendant to overcome poor judging.  There is a vacuum of such protections in the administrative law court.  That makes the quality, or questionable quality, of the judge/trier of fact, much more important.  When the judge fails to understand, or care, that he or she is essentially the only factor between a fair proceeding and one tilted in favor of the prosecutor, justice suffers.

So, in celebration of the new baseball season, I’d like to throw a change-up today and discuss an SEC administrative law judge who, although appointed only recently, is showing great potential to be worthy of his position.  I’ve not seen SEC ALJ Jason Patil in the courtroom, but I’ve been very impressed with his approach in some recent cases.  He’s shown he can act with independence, thoroughness, attention to detail, and a strong dose of common sense.  So this blog post is to give credit where credit is due.

All the more credit is due because Jason Patil is the proverbial “new kid on the block.”  He was appointed to the SEC’s ALJ bench on September 22, 2014, after receiving a Stanford degree in political science in 1995, a law degree from from the University of Chicago Law School in 1998, and an L.L.M, from Georgetown University Law Center in 2009.  He served at the Department of Justice for 14 years.

Fewer than 3 months after ALJ Patil started at the SEC, the Second Circuit rocked the boat of the DOJ and the SEC with its insider trading decision in United States v. Newman.  ALJ Patil had to consider the impact of that decision in a case before him: In the Matter of Bolan and Ruggieri.  The SEC’s enforcement lawyers made every effort to obtain an early, post-Newman ruling from ALJ Patil in that case that would limit the scope of the Newman opinion through the adoption of a standard that would not apply Newman‘s holding to insider trading cases based on the misappropriation theory, rather than the so-called “classical” insider trading theory on which the Newman and Chiasson prosecution was founded.  ALJ Patil resisted the SEC’s full-court press to make him an early adopter of an approach that essentially ignored key language in the Second Circuit opinion.  He rejected that effort, ruling that, as the Newman court said, the standard for liability was the same under either the classical or misappropriation insider trading theory.  See SEC ALJ in Bolan and Ruggieri Proceeding Rules Misappropriation Theory Mandates Proof of Benefit to Tipper.

That showed intelligence, independence, and, to be frank, guts, for a newly-appointed ALJ.  But it was a later decision that showed me that ALJ Patil seems to have the stuff of a good judge.  In the Matter of Delaney and Yancey, File No. 3-15873, was not a high profile insider trading case, but it was apparent from the Initial Decision he wrote that he was able and willing to evaluate cases fairly and decisively.  His decision in that case is available here: ALJ Initial Decision in the Matter of Delaney and Yancey.  In that case, he wrote a careful opinion, weighing the evidence, distinguishing between the roles and conduct of the respondents, weighing expert testimony, considering (and often rejecting) varying SEC legal theories, and applying a strong dose of common sense.

The case was a technical one, involving charges against two individuals, the President and CEO of a broker-dealer that was a major clearing firm for stock trades (Mr. Yancey), and that firm’s Chief Compliance Officer (Mr. Delaney).  The SEC alleged many violations by the firm of SEC regulations governing the settlement of trades.  Mr. Delaney was charged with aiding and abetting, and causing, numerous violations of SEC regulations by virtue of his conduct as the Chief Compliance Officer.  Mr. Yancey was charged with failing adequately to supervise Mr. Delaney and another firm employee, allowing the violations to occur.  ALJ Patil exhaustively reviewed the evidence to reach reasoned decisions, with cogent explanations supporting his views.  In doing so, he was not shy about chiding the SEC for fanciful theories and woefully unsupported proposed inferences.

The opinion is long, detailed, and more in the weeds than many of us like to get.  The aiding and abetting charge against Mr. Delaney required proof that he assisted the violations through either knowing or extremely reckless conduct (i.e., scienter).  The SEC enforcement staff is quick to accuse people of knowing or reckless misconduct, and is often willing to draw that inference with little in the way of supporting evidence.  ALJ Patil’s review of the evidence presented in support of the scienter element was precise and thorough.  He dissected the evidence piece-by-piece, in impressive detail.  Here is some of what he said:

The Division has failed to show that Delaney acted with the requisite scienter, and
therefore its aiding and abetting claim against Delaney fails.  As an initial matter, I note that the Division is unable to articulate or substantiate a plausible theory as to why Delaney would want to aid and abet [his firm’s violations].  While the Division correctly argues that motive is not a mandatory element of an aiding and abetting claim, numerous courts have noted its absence when finding that scienter has not been proven. . . .    The Division also failed to establish that Delaney had anything to gain from the alleged misconduct.  The Division’s original theory was a wildly exaggerated belief that [the] . . . violations resulted in millions of dollars of additional profits. . . .  The Division was forced to abandon that theory, and in the end agreed that the “only specifically quantified benefit” to [the firm] . . . was a meager $59,000.  I do not find that sum would have given Delaney any motive to aid and abet the . . . violation. . . .  Although the Division also argues that there would have been “substantial costs to [the firm] . . . that . . . could expose the firm to significant losses,” the Division produced no evidence to quantify the costs or losses, and the testimony to which the Division points is general and speculative. . . .  As the Division did not provide any evidence quantifying the purported costs or losses, I am unable to determine whether there were any.

One of the SEC’s major points was the contention that Mr. Delaney’s knowing misconduct was apparent because he was shown to be a liar by misstatements in the Wells Submission submitted to the SEC on his behalf by his lawyers.  ALJ Patil forcefully torpedoed this theory:

I disagree with the Division’s conclusion that “Delaney has not been honest or
truthful” and “[i]nstead . . . has been evasive and inconsistent.”. . .  The Division’s
primary evidence for this alleged dishonesty are statements made in Delaney’s Wells
submission.  The Division argues, “either the statements Delaney approved about his knowledge and actions were lies to the Commission in his Wells submission or his repudiation of those statements are lies to the Court now.”. . .  Based on my careful review of that document, I conclude that it is primarily comprised of argument by counsel and grounded in incomplete information. . . .  It is based not just on Delaney’s understanding at that time, but on his counsel’s characterization of other evidence selectively provided to Delaney by the Division. . . . .  In contrast to that argumentative submission, Delaney testified five times under oath, including at the hearing. . . .  I find that Delaney’s testimony was overwhelmingly consistent, and the handful of inconsistencies alleged by the Division in such testimony either do not exist or are easily explained by the circumstances. . . .  In this case, where Delaney testified multiple times under oath at the Division’s request, as did other witnesses, I have decided to base my decision on that testimony and other documents in the record, which I find more probative than past characterizations made by Delaney’s counsel. . . .  I do not accept the Division’s insistence that everything in the [Wells Submission], particularly the statements in the legal argument section, should be taken, in essence, as testimony of Delaney.

Perhaps most telling was ALJ Patil’s careful review of supposed inconsistencies in testimony by Mr. Delaney.  His evaluation of that testimony reflected thoughtful consideration of the facts and circumstances both when the events at issue occurred, and when the testimony was given.  The decision took the SEC lawyers to task for arguing that testimony was inconsistent when the supposed inconsistencies were more plausibly explained by poor questioning by the SEC staff during their numerous examinations of him:

To the extent that Delaney’s testimony could be at all be characterized as “evasive” or
“inconsistent” . . . , it may be because he lacks a completely clear recollection of what
took place years ago regarding his alleged conduct.  Delaney credibly and convincingly
explained that his initial testimony was given with virtually no preparation or opportunity to
review documents, thus preventing him from having a full and fair recollection of the events he was asked about. . . .  While his conduct with respect to [the Rule at issue] is especially
important in the present action, at the time of such conduct, Delaney was in the business of
putting out “fires,” . . . and [the Rule], though undeniably important, was most assuredly not the top priority for the compliance department. . . .  [T]he Division argues that “Delaney quibbled about whether he had seen the release [for the Rule] in the same exact format as that in the exhibit used at the hearing and during his testimony.” . . .  Several exhibits copy or link to the text of the releases . . . with the appearance and formatting of each differing dramatically from the way the text of such releases is ultimately arranged in the printed version of the Federal Register, the document Delaney was shown at the hearing. . . .  When someone is testifying about a document that may not look anything like the version he had read, it is not “quibbling” to explain that one has never seen something that looks like the exhibit.  I in fact thought that the Federal Register version of the releases looked considerably different from the other copies and would have been hesitant to say I had read the exhibit without first looking it over. . . .  Despite his exasperation at the Division’s repeated insinuations that he was lying, I found Delaney a credible and convincing witness. My perception, that his hours of testimony were sincere and truthful, is consistent with the attestation of all the hearing witnesses regarding Delaney’s honesty and integrity.

Finally, the Division asserts that Delaney contradicted himself because, on the one hand,
in August 2012 he did not recall being concerned about the contents of [a FINRA letter] and, on the other hand, in July 2013 he testified that a disclosure in that letter would be a big deal for [his firm]. . . .  However, because Delaney was asked somewhat different questions on the two different occasions (as opposed to being asked the same question on both occasions), his answers were consistent.  In August 2012, Delaney was asked whether he was concerned about the letter, not the conduct at issue. . . .  When asked about the purported contradiction at the hearing, Delaney reasonably explained that he was not concerned about the letter disclosing the conduct, which was accurate as he understood it, but at the same time was concerned about the underlying rule violations. . . .  It is telling that the Division, who has had Delaney testify so often, seizes on such minor supposed contradictions.  I find all of the purported inconsistencies identified by the Division are
either immaterial or have been adequately explained by Delaney.  I found, on the whole,
Delaney’s testimony to be credible, with the exception, noted previously, that he may not recall comparatively minor events and discussions that took place up to six years before the hearing.

Having found no evidence of knowledge, ALJ Patil went on to reject the SEC staff’s suggestions that Mr. Delaney’s conduct was nevertheless “reckless.”  He carefully distinguished between evidence of negligence and “extreme recklessness.”  He then dissected individual emails presented by the staff as “red flags” to show, one-by-one, that they were no such thing.

ALJ Patil nevertheless found Mr. Delaney liable for “causing” some of the firm’s violations, based on his conclusion that Mr. Delaney acted negligently.  He found violations “because the evidence supports that Delaney contributed to [the firm’s] violations and should have known he was doing so.”  He did so on the basis of testimony “that according to SEC guidance, in situations ‘where
misconduct may have occurred’– as opposed to ‘conduct that raises red flags’ – compliance
officers should follow up to facilitate a proper response.”  He provided a lengthy and lucid explanation of why he reached the conclusion that Mr. Delaney faced such a situation and failed to act prudently.

The case against Mr. Yancey failed entirely.  ALJ Patil found that Mr. Yancey, as CEO, was Mr. Delaney’s supervisor, but the evidence did not show intentional conduct by Mr. Delaney, and a supervisory violation can occur only when “[t]he supervised person must have ‘willfully aided, abetted, counseled, commanded, induced, or procured’ the securities law violation.”  But even if Mr. Delaney had willfully aided an abetted the firm’s rules violations, “the Division has failed to show that Yancey did not reasonably supervise Delaney . . . because “[a] firm’s president is not automatically at fault when other individuals in the firm engage in misconduct of which he has no reason to be aware.”  He concluded: “Yancey had no reason to believe that any ‘red flags’ or ‘irregularities’ were occurring at [the firm] that were not already the subject of prompt remediation.  Given the absence of such evidence, I find that the Division did not prove that Yancey failed reasonably to supervise Delaney, even were such a claim viable here.”

As for the supervisory charge regarding the second firm employee, who was a registered representative who did act willfully, Yancey “persuasively dispute[d]” that the employee was not subject to the CEO’s “direct supervision.”  “[A]s an initial matter, a president of a firm ‘is responsible for the firm’s compliance with all applicable requirements unless and until he or she reasonably delegates a particular function to another person in the firm, and neither knows nor has reason to know that such person is not properly performing his or her duties.’ . . .   I find that Yancey is not liable for [the employee’s] intentional misconduct because the record supports that Yancey reasonably delegated supervisory responsibility over [him] . . . and then followed up reasonably.”  ALJ Patil rejected several theories of the SEC staff why Mr. Yancey should nevertheless be considered a supervisor.  He ultimately found no liability for Mr. Yancey.

On the issue of sanctions, ALJ Patil did not rubber stamp SEC staff requests.  He gave a reasoned explanation for issuing a cease and desist order against Mr. Delaney, found he could not issue a bar order against him because he did not act willfully, and imposed what seem to be reasonable civil penalties, totaling $20,000, for the conduct involved.  His order on the SEC’s disgorgement request was, perhaps unintentionally, amusingly tongue-in-cheek: “I have opted not to order disgorgement in this case, because the amount at issue is negligible. The Division contends, in effect, that Delaney must pay back the portion of his $40,000 in bonuses during the relevant time period that arose from the Rule 204T/204 violations.  The quantified benefit of the violations, $59,000, is approximately 0.008 percent of [the firm’s] revenue during that period. . . .  Even if all of Delaney’s bonuses were based on [the firm’s] performance (which, they are not, since the parties seem to be in general agreement that such performance was only one of three factors in bonuses), based on the preceding figures, the percentage of Delaney’s bonuses tied directly to the quantifiable benefit . . . is three dollars and twenty cents.  Even accounting for prejudgment interest, a disgorgement order is unwarranted.”

Kudos to ALJ Patil for what appears to be a fine job of adjudicating a tiresome case.  In a careful ruling, he handed the SEC a substantial defeat and a partial victory.  If he keeps this up in his tenure as an SEC ALJ, we should see some high-quality, thoughtful, and independent decisions penned by him.

Straight Arrow

April 14, 2015

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Bebo Case Continues To Show Why SEC Administrative Proceeding Home Advantage Is Unfair

SEC Administrative Law Judge Cameron Elliot just issued another procedural ruling in In the Matter of Laurie Bebo and John Buono, File No. 3-16293, that shows how SEC prosecutors are accorded great advantages in their home administrative courts.  The order is available here: Order Denying Motion To Compel and Granting in Part Motion n Limine.  We previously discussed the unfairness of Ms. Bebo’s administrative proceeding here: SEC ALJ Cameron Elliot Shows Why In re Bebo Should Be in Federal Court, and here: In re Bebo Shows Why SEC Administrative Proceedings Have Fairness Issues.

Bebo moved to compel the notes of interviews conducted by SEC lawyers of potential witnesses in the case.  ALJ Elliot denied that motion, and ordered that SEC lawyers could not be called to testify about those interviews as well.  He ruled that “Each set of notes is plainly an ‘internal memorandum, note or writing prepared by a Commission employee.’  17 C.F.R. § 201.230(b)(1)(ii).  Such documents are, with certain exceptions inapplicable here, not subject to production.  Id.  To the extent Bebo seeks material exculpatory evidence contained within the notes, such evidence need not be disclosed by production of the notes themselves….  Although Bebo correctly observes that the Federal Rules of Civil Procedure provide a mechanism for discovery of attorney work product, those Rules are inapplicable here.”  Bullseye!

On the issue of calling SEC lawyers as witnesses he said: “demanding the deposition or examination of opposing trial counsel is almost always pure gamesmanship.  I am deeply disappointed that Bebo has chosen this course instead of simply following my guidance.  I intend to give both sides a fair hearing, and I expect all parties and all counsel to behave like professionals; if not, it will be a very long hearing indeed.”  He may be “deeply disappointed,” but it is he, not the lawyers, who is acting unprofessionally by making such a comment.  They are doing the best job they can to defend their client in an uphill battle in an unfair forum.  He has no business calling that “unprofessional.”  In fact, SEC lawyers on a prosecution team have been ordered to testify in discovery depositions in federal court enforcement proceedings if they may have relevant testimony that could have a bearing on the case.  By attacking defense counsel for trying to get a similar order here, ALJ Elliot is showing questionable fitness for the job of adjudicating a case in which Ms. Bebo’s future freedom to serve as an executive or director in a public company is at issue.  Filing a motion in court is not “unprofessional,” Mr. Elliot.  It is called “making a record” so that ultimately real judges in real courts have before them the necessary facts to rule on the legality of your proceeding.

So ALJ Elliot provided a short, neat lesson to SEC Enforcement Director Andrew Ceresney on why the SEC is so much more successful in administrative enforcement proceedings than in those litigated in federal court.  See Ceresney Presents Unconvincing Defense of Increased SEC Administrative Prosecutions.  Not only is Bebo’s attempt to even the playing field by learning about what potential witnesses said to the SEC barred by the SEC Rules of Practice, but Ms. Bebo has no way to gather that information for her defense because there is no possibility for discovery depositions of these third parties.  And the judge gets belligerent with defense counsel just for doing their jobs.  The end result: the SEC knows what these potential witnesses have to say, how strong their testimony might be, and how favorable or unfavorable they are towards Ms. Bebo, and Ms. Bebo’s counsel is forced to litigate in the dark.  And the judge serves notice that aggressively pursuing Ms. Bebo’s case will be met with rancor.  You call that fair, Mr. Ceresney?

Hopefully, Ms. Bebo’s strong record of how she is being disadvantaged in the administrative forum will bear fruit when she finally gets the chance to have a court of appeals review the constitutionality of transferring important law enforcement actions against non-regulated persons into the SEC’s administrative courts.

Straight Arrow

April 6, 2015

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