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By Stephen Joyce
Nov. 7 — The Securities and Exchange Commission plans to increase its use of administrative proceedings to resolve enforcement cases in 2015, despite criticisms that using the proceedings instead of Article III courts may deprive defendants of constitutional and procedural advantages, agency senior officials said.
The Dodd-Frank Wall Street Reform and Consumer Protection Act provided the SEC with the ability to extract similar remedies in administrative proceedings as it can obtain in federal court, including the imposition of monetary penalties.
At a Practising Law Institute securities conference Nov. 7 in New York, SEC Enforcement Division Director Andrew Ceresney said the SEC plans to increase the use of administrative proceedings to resolve enforcement cases despite perceptions from the defense bar that the internal proceedings are more favorable to the agencies.
During a Nov. 13 panel in Washington, another SEC official publicly defended the agency's increased focus on administrative proceedings.
“Some commentators have questioned the fairness of our use of the administrative proceedings,” Charles Cain, deputy chief of the Securities and Exchange Commission's Foreign Corrupt Practices Act Unit, said at an event at Baker & McKenzie LLP. “In our view, there's nothing unjust or unfair about administrative proceedings.”
He said the administrative proceeding gives a defendant “unique due process rights,” similar to those in a criminal case, including “obligations to provide material and exculpatory evidence.”
“Our administrative law judges are neutral,” Cain said, adding that “the Supreme Court has upheld the constitutionality of administrative proceedings.”
“On balance, while we've brought more administrative proceedings lately than in our historical practice, we'll continue to appropriately use both settings,” he said.
In a Nov. 5 speech at the three-day conference, U.S. District Court Judge Jed S. Rakoff said SEC administrative proceedings to resolve enforcement issues may possess an “informality” and “arguable unfairness,” saying in part the proceedings are decided by a judge appointed and paid by the SEC. Administrative proceedings have a more limited discovery regime than federal court actions, no provisions for depositions or interrogatories, no jury and no application of the federal rules of evidence, the judge said.
Rakoff, of the U.S. District Court for the Southern District of New York, said his overarching concern is that administrative proceedings may hinder the balanced development of the securities laws.
In his Nov. 7 appearance at the PLI conference, Ceresney rebutted many of Rakoff's assertions. The administrative proceedings process is fair to defendants, Ceresney said, and the process many times is a more efficient way to resolve an enforcement case. And cases are heard by judges who are seasoned, sophisticated fact-finders in securities law, he said.
“It's not the case there is no more activity in district court; there is. Having said that, it is certainly the case we're going to use AP proceedings more often. Why is that? Because Congress gave us the authority under Dodd-Frank to obtain the same remedies in administrative proceedings as we can obtain in district courts,” Ceresney said.
With assistance from Rob Tricchinelli in Washington
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