The SEC this week adopted amendments updating its rules of practice governing its administrative proceedings.
“The amendments to the Commission’s rules of practice provide parties with additional opportunities to conduct depositions and add flexibility to the timelines of our administrative proceedings, while continuing to promote the fair and timely resolution of the proceedings,” SEC Chair Mary Jo White said in a statement.
Although securities law authorizes the SEC (and other federal agencies) to try some disputes internally—rather than further clog the already overburdened federal courts—the SEC began expanding its use of the proceedings to more complex cases—insider trading and accounting fraud, for example—that historically were resolved in court. That has led to criticism about the truncated nature of proceedings, discovery, and evidence rules that are too loose in some regards and overly restrictive in others, and the sense that an in-house forum works against defendants.
In response, the SEC in September 2015 proposed for comment amendments to its rules of practice to give the accused more ability to defend themselves. As Compliance Week previously reported,the proposals received lukewarm reception at best.
After careful consideration of the comments received, the SEC adopted final amendments that, among other things, would adjust the timing of administrative proceedings and give parties additional opportunities to take depositions of witnesses.
Below is a summary, highlighting the key amendments:
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 also would extend the length of the prehearing 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 also would address, among other things, procedures for the service of the order instituting proceedings in foreign jurisdictions, disclosures regarding expert witnesses and reports prepared by expert witnesses, and procedures governing appeals to the Commission.
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. The release specifies the applicability of the rule amendments to pending proceedings, applying the amended rules based on the phase of the proceeding.
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