The Securities and Exchange Commission will update its rules governing administrative proceedings, which have been the subject of recent court challenges.
SEC members voted Thursday to propose rules that Chairwoman Mary Jo White said would “modernize” the rules for such proceedings, by allowing for additional time and discovery depositions, among other changes. The proposed amendments also would simplify how to seek commission review of an initial decision.
Once the proposed rules are published in the Federal Register, there will be a 60-day public comment period. In the proposal, SEC officials said they are proposing to apply finalized rules to proceedings beginning after the effective date, but they asked for comments on whether some should be applied to pending actions.
While the proposed changes were seen as a positive step to address criticisms of the administrative law judge process, they do not address constitutional issues raised in legal challenges to the SEC’s use of administrative law judges instead of district court judges. “The proposed amendments do not, however, come close to addressing all the issues that administrative proceedings create,” said Alan Wolper, co-chairman of Ulmer & Berne’s financial services and securities litigation practice, in a statement. “There will still be no jury trial, the Federal Rules of Evidence will still not apply, and appeals from adverse initial decisions by (administrative law judges) will still be heard by the commission, i.e., the very individuals who authorized the issuance of the complaint in the first place.”
Attorney Terry Weiss with law firm Greenberg Traurig, who represents Gray Financial Group in its constitutional challenge to the SEC’s administrative law judge process in U.S. District Court in Atlanta, said the process “needs a major overhaul” with protections closer to those available in federal court. “Although the SEC may now recognize that its home court judiciary has serious failings, the proposed few changes are no more than drops of water on an inferno,” Mr. Weiss said in an e-mail.
Also on Thursday, Ms. White announced the launch of a new database to provide more transparency into agency rule-making. The public can track policies through concept, proposal, additional requests for comment and any necessary interim measures on the SEC’s website.
