SEC administrative overhaul welcomed, but critics seek more
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
      Mellody Hobson, president of Ariel Investments, speaks during an interview in Hong Kong on Sept. 1, 2017
      Ariel launches effort to boost minority business owners
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • Mitchells & Butlers turns off tap on pension contributions until April
      Jerome Powell, chairman of the Federal Reserve, adjusts his glasses during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington on Sept 24, 2020.
      Powell says Fed will hold steady during economic recovery
      Institutional investors mobilize for equitable global COVID-19 response
      Few participants tapped savings to weather pandemic – Vanguard
    • DC plan sponsors differ on need for annuities – survey
      Biden’s retirement idea getting the cold shoulder
      Few participants tapped savings to weather pandemic – Vanguard
      pie chart with calculator
      Fidelity: Savers added big to retirement accounts in Q4
    • After strong 2020, ESG investments forecast to grow more – Moody's
      Emissions rise from the coal fired power plant in South Carolina
      U.K. managers seen pressuring firms on diversity, climate change
      Asset management industry remains vastly white, male – survey
      Institutional investors mobilize for equitable global COVID-19 response
    • Spirit winners
      Prudential honors young people who are helping out
      2 U.K. pension execs take on ESG investing in new podcast
      Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • MassPRIM sets $450 million for 3 alts funds
      New Mexico allocates $105 million to 3 alts funds
      Boston Retirement tees up $45 million for 2 private market fund of funds
      Border to Coast picks 5 managers for infrastructure, makes first co-investment
    • Brightwood Capital adds senior investment professional
      Kimberley Stafford and Alec Kersman
      PIMCO names product strategy group head
      Praesidium chooses director of client service, business development
      York Capital appoints new managing director
    • New Hampshire taps New Mexico fund chief as new executive director
      IBM to input $300 million into international pension plans
      Arconic transfers $240 million in pension liabilities
      S. Korea’s National Pension Service gains almost 10% in 2020
    • Brightwood Capital adds senior investment professional
      New Hampshire taps New Mexico fund chief as new executive director
      Kimberley Stafford and Alec Kersman
      PIMCO names product strategy group head
      Praesidium chooses director of client service, business development
    • Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
      Kohlberg closes latest private equity fund at $3.4 billion
    • Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • MassPRIM sets $450 million for 3 alts funds
      New Mexico allocates $105 million to 3 alts funds
      Boston Retirement tees up $45 million for 2 private market fund of funds
      Border to Coast picks 5 managers for infrastructure, makes first co-investment
    • MassPRIM sets $450 million for 3 alts funds
      New Mexico allocates $105 million to 3 alts funds
      Boston Retirement tees up $45 million for 2 private market fund of funds
      Border to Coast picks 5 managers for infrastructure, makes first co-investment
    • Emerging Market Equity Manager Services
      Securitized Credit Manager Search
      Private Placements Asset Manager Search
      Actuarial Consultant Search
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Shifting DC Times – Winter 2021
      Bond ETFs show maturity during Covid market mayhem
      Pension Consolidation: Optimizing Scale and Maximizing Efficiency
      China is embarking on a new stage of growth
    • Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
      Bill Peressini
      Commentary: Carbon’s elemental role in the future of impact investing
      Teresa Ghilarducci
      Commentary: Lower rates for longer mean a drastic rethink on funding
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Convertibles, 4th Quarter 2020
      Top Performing Managers of Domestic Growth Equity, 4th Quarter 2020
      Top Performing Managers of Domestic Limited-Duration Fixed Income, 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. COURTS
December 14, 2015 12:00 AM

SEC administrative overhaul welcomed, but critics seek more

Hazel Bradford
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Joseph Grundfest said the SEC is facing 'a crisis of confidence over the fairness' of the procedure.

    Critics of the Securities and Exchange Commission's handling of administrative proceedings are welcoming the agency's latest efforts to modernize the rules but vow to push for more sweeping changes.

    “The commission faces a crisis of confidence over the fairness of its internal administrative procedures,” Stanford University law professor and former SEC Commissioner Joseph Grundfest told a House panel Dec. 2 as it considered a legislative proposal that would implement even broader changes.

    In addition to a growing number of court challenges brought by firms on the receiving end charged through administrative proceedings, the latest round of criticism was triggered by the SEC's proposed changes of practice, which were available for public comment through Dec. 4.

    The SEC's proposed changes would expand the current mandatory timelines for proceedings — discovery depositions and expert witnesses, among other changes — and would simplify the process for seeking commission review of an initial decision. “These proposed rules are intended to introduce additional flexibility into administrative proceedings while still providing for the timely and efficient disposition of proceedings,” the SEC said in releasing the proposal.

    Law firms representing clients in SEC proceedings said they were encouraged by the commission's efforts to add more protections for anyone accused of wrongdoing. But Theodore Olson, a partner in Gibson, Dunn & Crutcher LLP's Washington office and the former U.S. solicitor general, said in a Dec. 4 comment letter that “these proposed revisions do not go nearly far enough.” In urging the SEC to make more dramatic changes, he added: “The perception that administrative proceedings are fundamentally unfair has damaged the credibility of the SEC's enforcement system.”

    Not addressed

    What the proposed rules do not address, critics say, is a process that favors the SEC to the point that many respondents simply choose to settle. Critics complained in their comment letters that the proposed timeframe for discovery, up to eight months depending on the case, is still unrealistic for defendants, while a limit on the number of depositions or pages for petitions seeking review give an unfair head start to agency officials, who have already developed their case.

    “There is a stark asymmetry between the time and tools that the SEC has to prepare its case and that which is afforded respondents,” attorneys with Skadden, Arps, Slate, Meagher & Flom LLP in New York, said in their comment letter. The SEC's proposed changes “do little to correct the imbalance,” said the firm, which represents Patriarch Partners LLC and its CEO, Lynn Tilton, in an ongoing administrative proceeding.

    One particular sore point is that adverse initial decisions by administrative law judges must be appealed to the commission, which authorized the original complaint. “The Kafka-esque quality of an appeal to the body that authorized the prosecution cannot be denied,” Mr. Grundfest told the House panel.

    Critics are finding some sympathetic ears in Congress. The December hearing before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises touched often on legislation sponsored by subcommittee Chairman Scott Garrett, R-N.J., that would allow respondents in administrative proceedings to require the SEC to instead bring a civil action through the courts, and calls for “clear and convincing evidence” of violations before proceedings begin.

    “In recent years, the agency has transformed into a veritable judge, jury and executioner with its blatant overuse of their in-house courts,” Mr. Garrett said when introducing the bill in October.

    Consumer advocacy group Public Citizen, which generally supports individuals' legal protections in federal court, opposes Mr. Garrett's bill for sending the wrong message. “Congress should be looking for ways to strengthen the powers of law enforcement authorities rather than weakening them,” it told the subcommittee in a Dec. 2 letter.

    Tom Quaadman, senior vice president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, said his group, which has made reform of the SEC's administrative proceedings a top priority, is “cautiously optimistic” that the Garrett bill will come up for a vote early next year. “Congress is moving pretty quickly on this. The commission is going to have do something sooner rather than later,” he said in an interview.

    According to the Securities Enforcement Empirical Database, a joint project of New York University's Pollack Center for Law & Business and Chicago economic consulting firm Cornerstone Research that tracks SEC enforcement actions against public companies, “the data is saying there is increased use of the administrative proceedings venue,” said Cornerstone principal Sara Gilley, who focuses on securities and white collar litigation. The venue also leads to more settlements, Ms. Gilley noted. Of the 33 enforcement actions filed against public company defendants so far in 2015, 96% of the cases handled by in-house judges were filed and settled the same day, compared to 38% that the SEC pursued through a civil action in court.

    “The SEC is an enforcement agency. They should consider their role within the judicial system and prosecute cases in a way that is fair,” said Deborah Meshulam, a partner in the Washington office of law firm DLA Piper LLP. “It is not simply winning and losing when lawyers represent the government. There is also an obligation to the integrity of the system.”

    Rules haven't changed

    While case law continues to evolve, Mr. Quaadman noted the SEC's rules of practice for such proceedings have not changed since 1995, despite a dramatic increase in their use by the agency, which has racked up impressive success rates in recent years.

    That success, in turn, has triggered a growing number of court cases challenging the constitutionality of the way in-house judges are appointed. So far, four SEC enforcement cases have been halted by U.S. District Court judges in Atlanta and New York, who considered the constitutional challenges likely to succeed. In other cases challenging the SEC on due process or agency bias, other courts have upheld the SEC's position, or in some cases declined to rule until a defendant completes the administrative process first. “Each step along the way, there's more and more riding on those decisions,” said Mr. Quaadman.

    “That puts a lot of pressure on the SEC to take action.” n

    Related Articles
    SEC charges Atlantic Asset Management with fraud
    House passes tax extenders bill
    House and Senate pass 2016 spending bill without fiduciary rule rider
    SEC to refund $9 million to Diamondback after overturned insider-trading charges
    Supreme Court rejects challenge to SEC's internal judicial process
    Supreme Court declines to hear SEC administrative law judge challenge
    Patriarch Partners challenge to SEC administrative proceedings must wait
    Public company actions up in fiscal year 2016, report says
    Recommended for You
    Golub sues Dyal to block merger with lending rival Owl Rock
    Golub sues Dyal to block merger with lending rival Owl Rock
    Cerner to pay $4.1 million to former 401(k) participants
    Cerner to pay $4.1 million to former 401(k) participants
    Raytheon settles ERISA mortality table suit for $59.2 million
    Raytheon settles ERISA mortality table suit for $59.2 million
    How will gold react?
    Sponsored Content: How will gold react?
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Shifting DC Times - Winter 2021
    Bond ETFs show maturity during Covid market mayhem
    Pension Consolidation: Optimizing Scale and Maximizing Efficiency
    China is embarking on a new stage of growth
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center