On Thursday, October 22, Rep. Scott Garrett (R-N.J.) introduced the "Due Process Restoration Act" (H.R. 3798). The bill is a response to the growing debate over the SEC's increased use of in-house administrative proceedings as the forum for its enforcement actions as opposed to federal court. In a press release last week, Garrett asserted that his proposed legislation will "rein-in the [SEC's] controversial overuse of in-house administrative law judges (ALJs) and ensure that all Americans are given due process by allowing defendants the option of having their case heard before a federal court."

 

Under H.R. 3798, any person who is a party to an administrative proceeding brought by the SEC, and "against whom an order imposing a cease and desist order and a penalty may be issued at the conclusion of the proceeding," has 20 days to "require the Commission to terminate the proceeding." If the party to the proceeding does exercise this discretion, "the Commission may bring a civil action against that person for the same remedy that might be imposed."

 

The bill also heightens the standard of proof the SEC must satisfy to prevail in an AP. It provides that should the party to the administrative proceeding decide to continue in that forum, 

a legal or equitable remedy may be imposed on the person against whom the proceeding was brought only on a showing by the Commission of clear and convincing evidence that the person has violated the relevant provision of law.

This "clear and convincing evidence" standard is a higher burden of proof for the SEC than the "preponderance of the evidence" standard now used in APs under the Supreme Court's decision in Steadman v. SEC.

 

According to Rep. Garrett, the SEC has overused APs -- serving as "a veritable judge, jury, and executioner" in too many cases -- after receiving expanded powers under the 2010 Dodd-Frank Act. “Every American has the constitutional right to defend themselves before a fair and impartial court, and the Due Process Restoration Act will go a long way towards protecting the rights of the innocent while maintaining the ability of the SEC to punish wrongdoers,” he said.

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