SEC Adds Depositions, Longer Deadlines to In-House Forum

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By Rob Tricchinelli

July 13 — The SEC unanimously voted to allow depositions and a longer amount of time between deadlines in its in-house court system, as the agency fights back litigation challenging both the constitutionality and fairness of the forum.

The Securities and Exchange Commission offered the changes in reaction to the lawsuits and other public comments, but the defense bar and other stakeholders have argued that they still don’t match the procedural protections afforded by federal courts. The Dodd-Frank Act expanded the agency's power to bring cases in-house.

The rule changes, which become effective in 60 days, were adopted largely as proposed in September (186 SLD 186, 9/25/15). The agency agreed to the rule changes July 13 in a summary vote without public discussion.

Fairness Concerns

The new rules address some of the fairness concerns that administrative respondents have raised in lawsuits challenging the in-house court, brought in response to SEC enforcement actions.

Respondents in more complex cases will have as long 10 months to prepare for a hearing. They also may take up to three depositions in cases against one individual or entity, and five in cases with more than one respondent, which are unavailable to respondents in less complex cases.

The U.S. Chamber of Commerce has said the lack of depositions and short time frame are unfair to respondents compared to federal court and in July 2015 suggested its own series of changes, including a more consistent set of standards for choosing a venue (136 SLD, 7/16/15).

“More due process reforms are needed in order for parties to have full discovery rights, including a right of removal to district courts and preservation of jury trials in complex cases,” Thomas Quaadman, chairman of the Chamber's Center for Capital Markets Competitiveness, said in a July 13 blog post.

Congressional, Constitutional

Another congressional critic of the venue was also largely unmoved by the SEC action.

“While I appreciate the SEC acknowledging the serious due process concerns that have been raised because of their unfair use of in-house judges, the changes adopted today effectively put a Band-Aid on a wound that requires stitches,” Rep. Scott Garrett (R-N.J.), said in a news release.

Garrett has been pushing a bill that would heighten the burden of proof for liability in the administrative forum and allow defendants to move cases into federal court (42 SLD, 3/3/16).

Constitutional Issues

The agency's changes don't address the constitutional issues brought up in other lawsuits.

Those cases, brought by such administrative defendants as “diva of distressed” Lynn Tilton and Patriarch Partners LLC, as well as former Standard & Poor's executive Barbara Duka, attack the hiring and retention of administrative law judges as unconstitutional (115 SLD, 6/15/16).

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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