SEC Adopts New Rules for Administrative Proceedings

Administrative Proceedings
August 2, 2016

What You Need to Know about the SEC’s New Rules for Administrative Proceedings

The Securities and Exchange Commission (SEC) recently adopted several amendments to its rules of practice governing administrative proceedings. According to the agency, the rule changes are “intended to update the rules and introduce additional flexibility into administrative proceedings.”

As we have previously discussed on this blog, the Dodd-Frank Act gave the SEC greater authority to bring enforcement actions via administrative proceedings. The SEC has used its newfound power to bring significant cases before its own hearing officers rather than federal judges or independent juries. Critics argue that the rules governing administrative proceedings give the SEC an unfair home court advantage.

The SEC’s amendments

The SEC initially proposed the amendments last September. While the public comments the agency received were largely positive, many also noted that further changes should be made to the rules of practice for SEC administrative proceedings. Nonetheless, they are a step in the right direction. Below are the key changes under the SEC’s final rules:

  • Initial decision of hearing officer and timing of hearing (Rule 360):  Under amended Rule 360, orders instituting proceedings would designate the time period for preparation of the initial decision as 30, 75 or 120 days from the completion of post-hearing or dispositive motion briefing or a finding of a default.  Amended Rule 360 would also extend the length of the pre-hearing period from the current four months to a maximum of 10 months for cases designated as 120-day proceedings, a maximum of six months for 75-day cases, and a maximum of four months for 30-day cases.
  • Depositions upon oral examination (Rule 233):  Amended Rule 233 would permit parties in 120-day proceedings the right to notice three depositions per side in single-respondent cases and five depositions per side in multi-respondent cases, and would permit each side to request an additional two depositions under an expedited procedure.
  • Answer to allegations (Rule 220):  Amended Rule 220 would require a respondent to disclose in its answer to an order instituting proceedings whether the respondent is asserting any “reliance” defense and whether the respondent relied on the advice of counsel, accountants, auditors, or other professionals in connection with any claim, violation alleged, or remedy sought.
  • Dispositive motions (Rule 250):  Amended Rule 250 would provide that three types of dispositive motions may be filed at different stages of an administrative proceeding and would set forth the standards and procedures governing each type of motion.
  • Evidence (Rule 320):  Amended Rule 320 would exclude evidence that is irrelevant, immaterial, unduly repetitious, or unreliable and would provide that hearsay may be admitted if it is relevant, material, and reliable.

The amendments will become effective 60 days after publication in the Federal Register and will apply to all proceedings initiated on or after that date.

Prior to joining Scarinci Hollenbeck, Dan Brecher was the head of the Securities and Investment Banking Department of a 250 lawyer Manhattan firm and ran his own boutique securities and investment banking law firm in Manhattan. Mr. Brecher’s experience ranges from general counsel of New York Stock Exchange and NASD/FINRA member brokerage firms to representing public and private companies in securities offerings and advising institutional and high net worth investors. He is currently Counsel at Scarinci Hollenbeck, Chair of the firm's Investment Banking practice and chief editor of Business Law News.

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